Professional Documents
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Attributes of a corporation
(1) It is an artificial being;
(2) It is created by operation of law;
(3) It has the right of succession; and
(4) It has only the powers, attributes, and properties expressly
authorized by law or incident to its existence.
Corporation as an artificial A corporation is a legal or juridical person with a personality
personality separate and apart from its individual members or stockholders
who, as natural persons, are merged in the corporate body.
(2) No par value share is one without any stated or par value
appearing on the face of the certificate of stock. In other words, it
is a stock which does not state how much money it represents.
(a) While a no par value share has no par value, it has always an
issued value, i.e., the consideration fixed by the corporation for
its issuance. (see Sec. 62, last par.)
(b) A corporation may issue no par value shares only, or together
with par value shares.
(c) No par value stockholders have the same rights as holders of
par value stock.
Provided, That shares without par value may not be issued for a
consideration less than the value of Five pesos (P5.00) per
share:Provided, further, That the entire consideration received by
the corporation for its no-par value shares shall be treated as
capital and shall not be available for distribution as dividends.
Voting and non-voting (3) Voting share is share with right to vote.
(a) It is generally customary to give the right to vote to the
common stock and to withhold it from the preferred.
(b) Under the Code, whenever a vote is necessary to approve a
particular corporate act, such vote refers only to stocks with
voting rights except in certain cases when even non-voting shares
may also vote. (Sec. 6, par. 5, last par.)
(c) The rule is not one stockholder, one vote but one share,
one vote because representation in a corporation is
commensurate to extent of ownership.
Non-voting Shares
Where the articles of incorporation provide for non-voting shares
in the case allowed by this Code, the holders of such shares shall
nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of
all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another
corporation or other corporations;
7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8. Dissolution of the corporation.
Common and Preferred (5) Common share of stock is stock which entitles the holder
thereof to pro rata division of the profits, if there are any, without
any preference or advantage in that respect over other
stockholder or class of stockholders. (2 Fletcher 43.)
(a) It is so-called because it is the stock which private corporations
ordinarily issue; hence, the name.
(b) Common stocks are the residual owners of the
corporation,i.e., they get only the assets left over in case of
liquidation after all other securities holders are paid.
(c) A corporation may issue more than one class of common stock,
being designated class A, class B, etc.
The Code does not set a minimum authorized capital stock except
as otherwise provided by special law as long as the paid-up
capital, as required by Section 13, is not less than P5,000.00.
Special laws may require a higher paid-up capital, as in the case of
commercial banks, insurance companies, and investment houses.
ILLUSTRATION:
Suppose it be desired that Corporation X be incorporated with a
capital stock of P100,000.00 divided into 1,000 shares with a par
value of P100.00 per share.
In such case, there must be subscribed 250 shares of the par value
of P25,000.00 which shares represent twenty-five percent (25%)
of the authorized capital stock and of the subscription, there
must be paid to the corporation at least twenty-five percent
(25%) thereof or P6,250.00 in actual cash and/or property the
fair valuation of which equals P6,250.00. (see Sec. 14, last par.)
(3) Where the capital stock is divided into par value shares and no
par value shares, the requirement as to par value shares is as
indicated above and for the no par value shares, the 25% is based
on the number of said no par value shares.
Authorized capital stock Authorized capital stock is synonymous with capital stock where
the shares of the corporation have par value. (see Secs. 14[8], 15
[seventh].) If the shares of stock have no par value, the
corporation has no authorized capital stock, but it has capital
stock, the amount of which is not specified in the articles of
incorporation as it cannot be determined until all the shares have
been issued. (Ibid.) In this case, the two terms are not
synonymous.
Subscribed capital stock Subscribed capital stock is the amount of the capital stock
subscribed whether fully paid or not. It connotes an original
subscription contract for the acquisition by a subscriber of
unissued shares in a corporation (see Secs. 60, 61.) and would,
therefore, preclude the acquisition of shares by reason of
subsequent transfer from a stockholder or resale of treasury
shares. (Sec. 9.)
Outstanding capital stock Outstanding capital stock is the portion of the capital stock which
is issued and held by persons other than the corporation itself.
The Code defines the term as the total shares of stock issued to
subscribers or stockholders, whether fully or partially paid (as long
as there is a binding subscription agreement), except treasury
shares. (Sec. 137.) It is thus broader than subscribed capital
stock.
The terms subscribed capital stock and issued or
outstanding capital stock are used synonymously since
subscribed capital stock, as distinguished from the certificate of
stock, can be issued even if not fully paid. But while every
subscribed share (assuming there is a binding subscription
agreement) is outstanding, an issued share may not have the
status of outstanding share. This is true in the case of treasury
shares. (Sec. 9.)
Paid-up capital stock Paid-up capital stock is that portion of the subscribed or
outstanding capital stock that is paid.
Unissued capital stock Unissued capital stock is that portion of the capital stock that is
not issued or subscribed. It does not vote and draws no dividends.
Legal capital Legal capital is the amount equal to the aggregate par value
and/or issued value of the outstanding capital stock.
Par value When par value shares are issued above par, the premium or
excess is not to be considered as part of the legal capital. (see Sec.
43.) In the case of no par value shares, the entire consideration
received forms part of legal capital and shall not be available for
distribution as dividends. (see Sec. 6, par. 3.)
ILLUSTRATION:
Suppose the articles of incorporation of X Corporation provides
that the authorized capital stock of said corporation is
P1,000,000.00 divided into 10,000 shares of the par value of
P100.00 per share. At its incorporation, only P250,000.00 of the
authorized capital stock was subscribed.
Under Section 13, at least 25% of the subscription is required to
be paid; thus, only P62,500.00 was paid to the treasurer of the
corporation.
Therefore, the authorized capital stock of corporation X is
P1,000,000.00, the subscribed, outstanding, or issued capital
stock is P250,000.00, the paid-up capital stock is P62,500.00 and
the unissued capital stock is P750,000.00. The legal capital is
P250,000.00.
ILLUSTRATION:
In the previous illustration, the payment of the subscription of
2,500 shares in the amount of P250,000.00 whether in cash or
property or any consideration allowed by law (see Sec. 62.)
constitutes the original capital of corporation X.
If the corporation makes a profit of P50,000.00, the capital would
become P300,000.00. On the other hand, the capital would be
reduced to P200,000.00 if there is a loss of P50,000.00. Suppose
the corporation borrows P150,000.00 from a bank. The capital of
the corporation would then be P450,000.00 or P350,000.00
accordingly as there are profits or losses.
In any case, the capital stock of P1,000,000.00 and the legal
capital of P250,000.00 remain constant unless, of course, the arti-
cles of incorporation is amended, either increasing or decreasing
the capital stock, or the number or amount of outstanding shares
is increased by the issuance of more shares out of the unissued
authorized shares or decreased by the acquisition of previously
issued shares. (see Secs. 9, 41.)
A decrease of the capital stock may also result in the reduction of
legal capital. (see Sec. 38.)
Capital stock and share of stock As distinguished from capital stock, the term stock or share of
distinguished stock is commonly used in a distributive sense to refer to the
stock in the hands of the stockholders. Therefore, it belongs to
them. On the other hand, the former is used in a collective sense
to signify the whole body of shares of stock in the corporation. (11
Fletcher 18 [1971].)
Certificate of stock defined Certificate of stock is a written acknowledgment by the
corporation of the interest, right, and participation of a person in
the management, profits, and assets of a corporation.
It is a formal written evidence of the holders ownership of one or
more shares and is a convenient instrument for the transfer of
title. (see Sec. 63.)
Notes:
(1) These five or more persons must be natural persons.
Consequently, a corporation cannot be an incorporator of
another corporation.
(2) As an exception to this rule, Section 4 of Republic Act No. 720
provides that duly established cooperatives may organize rural
banks and/or subscribe to shares of stock of any rural bank.
(3) The incorporators must have the capacity to enter into a valid
contract, the act of forming a corporation as between the parties
being contractual.
(4) A majority of the incorporators must be residents of the
Philippines; the rest may be persons who are neither residents
nor citizens of the Philippines.
(5) Citizens of the Philippines. By specific constitutional and
legal provisions, citizenship is a necessary qualification for
incorporators in corporations in which a certain of the
capital stock is required to be owned by Filipino citizens.
(6) Owners of or subscribers to at least one share. The Code
now expressly requires that each of the incorporators of a
stock corporation must own or be a subscriber to at least one (1)
share of the capital stock of the corporation.
(7) The requirement of the law regarding the minimum number of
incorporators is mandatory and a corporation cannot be legally
formed by less than the prescribed number except in the case of a
corporation sole.
Term of corporate existence. The corporation shall exist for the term specified in the articles of
incorporation not exceeding fifty years, unless sooner legally
dissolved (Secs. 19, 22, 117-122, 144, 145.) or unless its
registration is revoked upon any of the grounds provided by law.
(see Sec. 6, Pres. Decree No. 902-A; see Sec. 22.)
The corporate life may be reduced (see Sec. 120.) or extended by
amendment of the articles of incorporation.
Articles of incorporation. The articles of incorporation is the document prepared by the
persons establishing a corporation and filed with the Securities
and Exchange Commission containing the matters required by the
Code.
Contents:
(1) The name of the corporation;
(2) The specific purpose or purposes for which the corporation is
being incorporated.;
(3) The place where the principal office of the corporation is to be
located, which must be within the Philippines;
(4) The term for which the corporation is to exist;
(5) The names, nationalities and residences of the incorporators;
(6) The number of directors or trustees, which shall not be less
than five (5) nor more than fifteen (15);
(7) The names, nationalities and residences of the persons who
shall act as directors or trustees until the first regular directors or
trustees are duly elected and qualified in accordance with this
Code;
(8) If it be a stock corporation, the amount of its authorized
capital stock in lawful money of the Philippines, the number of
shares into which it is divided, and in case the shares are par value
shares, the par value of each, the names, nationalities and
residences of the original subscribers, and the amount subscribed
and paid by each on his subscription, and if some or all of the
shares are without par value, such fact must be stated;
(9) If it be a non-stock corporation, the amount of its capital, the
names, nationalities and residences of the contributors and the
amount contributed by each; and
(10) Such other matters as are not inconsistent with law and
which the incorporators may deem necessary and convenient.
(11) The Securities and Exchange Commission shall not accept the
articles of incorporation of any stock corporation unless
accompanied by a sworn statement of the Treasurer elected by
the subscribers showing that at least twenty-five percent (25%) of
the authorized capital stock of the corporation has been
subscribed, and at least twenty-five percent (25%) of the total
subscription has been fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at least twenty-five
percent (25%) of the said subscription, such paid-up capital being
not less than Five thousand pesos (P5,000.00).
Filipino ownership requirement By specific constitutional and legal provisions, Filipino ownership
regarding corporate capital of a certain percentage of the capital stock or capital is required in
certain cases, such as:
ILLUSTRATION:
Power to invest funds in other By virtue of the provisions of Section 42, a corporation may be
corporations organized with multiple lawful purposes so long as the primary
or for other purposes. purpose is indicated in the articles of incorporation. However, the
investment of its funds (includes any of its corporate property) is
limited to the primary purpose. In order that it may invest its
funds in any other corporation or business or for any purpose
other than the primary purpose, compliance with the
requirements of Section 42 is necessary (see De la Rosa vs. Mao-
Sugar Central Co., Inc., 27 SCRA 247.) and, of course, subject to
the prohibition against certain corporations from having more
than one purpose.
But a corporation may invest its funds in another business which
is incident or auxiliary to its primary purpose as stated in its
articles of incorporation without the approval of the stockholders
or members as required under Section 42. In such case, a
dissenting stockholder shall have no appraisal right.
Sec. 42341
Power to declare dividends. The board of directors of a stock corporation has the power to
declare dividends out of the unrestricted retained earnings
which shall be payable in cash, in property, or in stock to all
stockholders on the basis of outstanding stock held by them.
(1) Stock dividends. In case of stock dividend, it shall not be
issued without the approval of stockholders representing at least
2/3 of the capital stock then outstanding at a regular meeting of
the corporation or at a special meeting duly called for the
purpose.
Concept of dividends.
A dividend is that part or portion of the profits of a corporation
set aside, declared and ordered by the directors to be paid ratably
to the stockholders on demand or at a fixed time.
It is a payment to the stockholders of a corporation as a return
upon their investment. It is a characteristic of a dividend that all
stockholders of the same class share in it in proportion to the
respective amounts of stock which they hold. (13 Am. Jur. 637-
639.)
Classes of dividends. Dividends that may be declared by a corporation may be classified
as follows:
(1) Cash dividend or dividend payable in cash.
(a) Dividends on par value shares are made at a stated percentage
(e.g., 10%) of the par value although they may also be paid as a
fixed amount per share.
(b) As to no par value shares, dividends are payable in terms of so
many pesos or centavos (e.g., P10.00, P0.05) per share since there
is no basis on which a percentage can be stated.
(c) Dividends are usually paid in money;
(2) Property dividend or dividend distributed to the stock-holders
in the form of property, real or personal, such as warehouse
receipts, or shares of stock of another corporation.
(a) A dividend payable in property is actually a cash dividend. The
stockholder can take the property, sell it and realize the cash.
(b) A corporation may, therefore, pay declared cash dividend in
the form of a property provided the distribution of the same is
practicable, specifically where the surplus is in that form
(property) and is no longer intended to be used in the operation
of the business;
(c) The property must form part of the surplus or retained
earnings of the corporation, otherwise it cannot be declared as
property dividends;
(3) Stock dividend or dividend payable on unissued or increased or
additional shares of the corporation instead of in cash or in
property.
(a) By this alternative to declaring dividends, the corporation can
retain earnings. The declaration involves the issuance of new
shares to be distributed pro rata to the stockholders;
(b) A stock dividend may be declared to the extent of the
maximum number of shares authorized in the articles of
incorporation.
(4) Optional dividend or dividend which gives the stockholder an
option to receive cash or stock dividend;
(5) Composite dividend or dividend which is partly in cash and
partly in stocks. Here, there is no option involved;
(6) Scrip dividend or a writing or certificate issued to a stockholder
entitling him to the payment of money or the like at some future
time inasmuch as the corporation at the time such dividends are
declared has profits not in cash, or has no sufficient cash, or has
the cash but wishes to reserve it for some corporate purposes. It
is in the form of a promissory note or promise to pay and may be
issued to bear interest;
(7) Bond dividend or dividend distributed in bonds of the
corporation to the stockholders;
(8) Preferred dividend or dividend payable to one class of
stockholders in priority to be paid to another class.
(9) Cumulative dividend or dividend payable at a certain rate at
statedtimes and if the stipulated dividend is not paid in any
dividend period, the dividend in arrears must also be paid the
following period.
(10) Liquidating dividends which are actually distributions of the
assets of the corporation upon dissolution or winding up of the
same.
Dividends may also be participating or non-participating. (see Sec.
6.)
(2) Profits are not dividends until so declared or set aside by the
corporation. In the meantime, all profits are a part of the assets of
the corporation and do not belong to the stockholders
individually. (Ibid., 640.)
Dividends payable out of Under the law, dividends other than liquidating dividends (which
unrestricted are not really dividends as they are from capital) may be declared
retained earnings. and paid out of the unrestricted retained earnings of the
corporation. (Ibid.) A corporation cannot make a valid contract to
pay dividends other than from retained earnings or profits and an
agreement to pay such dividends out of capital is unlawful and
void.
The power of a corporation to acquire its own shares is likewise
subject to the condition that there be unrestricted retained
earnings in its books to cover the shares to be purchased. (Sec.
41.)
The Code deleted the phrase arising from its business. It may be
argued that the term unrestricted retained earnings, as used in
the Code, refers to all the excess of assets of the corporation over
its liabilities including legal or stated capital. Hence, it is not
limited to accumulated net profits of the corporation arising
from its business but may comprehend also other gains such as
those derived from the sale of fixed assets. But it does not include
the unrealized increase in value of fixed assets. (infra.)
Unrestricted retained earnings (1) The retained earnings of a corporation is the difference
explained. between the total present value of its assets after deducting
losses and liabilities and the amount of its capital stock. (see 11
Fletcher 1041.) Capital stock, in this instance, should be
understood to refer to outstanding stock (see Sec. 137.) and not
the stated or nominal (authorized) capital stock.
ILLUSTRATIONS:
ILLUSTRATION:
(3) When an ultra vires contract has been performed on one side
and the other has received benefits by reason of such per-
formance, recovery is permitted in most courts on behalf of the
former (7 Fletcher, 620.) on the ground that it would be unjustto
allow retention of benefits by a party coupled with his refusal to
perform. Other courts hold the contract unenforceable but re-
quire the party who has received the benefits of performance to
return what he has received or failing to do that, to pay its rea-
sonable value. (Ibid., 613.)
In any case, when a contract is not on its face necessarily beyond
the scope of the power of the corporation by which it was made,
it will, in the absence of proof to the contrary, be presumed to be
valid. (Coleman vs. Rotel de France Co., 29 Phil. 323 [1915].) In
other words, an act is presumed to be within corporate powers
unless clearly shown to be otherwise.
Board of Directors/Corporate (1) Governing body of the corporation. All corporations, being
Officers impersonal, existing only in contemplation of law, can only act
and contract through the aid and by means of individuals. Such
individuals may be these holding corporate offices or agents
properly appointed by such officers.
It is well-established in corporation law that the corporation can
act only through its board of directors or trustees. Section 23
provides that unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall
be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or
trustees. The board of directors or trustees, therefore, is the
governing body of the corporation chosen by the stockholders or
members.
Term of office of directors or It is now expressly provided that the board of directors or trustees
trustees. to be elected shall hold office for one (1) year and until their
successors are elected and qualified. (Sec. 23, par. 1.) Upon
failure of a quorum at any meeting of the stockholders or
members called for an election, the directorate naturally holds
over and continues to function until another directorate is chosen
and qualified. (see Sec. 24, last sentence.)
Number of directors or trustees. (1) Under the Code, the number must be not be less than five (5)
nor more than fifteen (15) (Sec. 14[6].) except as otherwise
provided by the Code or special law.
(2) In ordinary non-stock corporations, the board of trustees,
unless otherwise provided in the articles of incorporation or the
by-laws, may be more than fifteen (15) in number, with the
term of office of 1/3 of their number expiring every year. (see Sec.
92, par. 1.)
(3) In a close corporation, the articles of incorporation may
provide that the business of the corporation shall be managed by
its stockholders rather than by a board of directors in which case
no meeting of stockholders need be held to elect directors. (see
Sec. 97, par. 2.)
(4) Trustees of non-stock educational corporations shall not be
less than five (5) nor more than fifteen (15), provided that the
number shall be in multiples of five (5), with the term of office
of 1/5 of their number expiring every year. (see Sec. 108, pars. 1,
2.)
(5) In a corporation sole, there is no board of directors or trustees
as it consists of one member or corporator only. (see Sec. 110.)
(6) The board of trustees of religious societies shall also be not
less than five (5) nor more than fifteen (15). (see Sec. 116[6].)
The limitation as to the number of directors or trustees seeks to
give ample representation to stockholders or members of a
corporation to its board while at the same avoiding that it will be
too unwieldy.
Qualifications of directors or (1) Stock corporations. The qualifications of directors of stock
trustees. corporations are as follows:
(a) Every director must own at least one share of the capital stock;
(b) The share of stock held by the director must be registered in
his name on the books of the corporation;
(c) Every director must continuously own at least a share of stock
during his term, otherwise, he shall automatically cease to be a
director; and
(d) A majority of the directors must be residents of the
Philippines. (Sec. 23.)
(2) Non-stock corporations. Trustees of non-stock corporations
must be members thereof and like in stock corporations, a
majority of them must be residents of the Philippines. In case of
domestic banks, the General Banking Act requires that at least
two-thirds of the members of the board of directors must be
citizens of the Philippines. (R.A. No. 337, Sec. 13.)
b. Election and removal The following limitations or conditions are imposed in the election
of directors or trustees:
(1) At any meeting of stockholders or members called for the
election of directors or trustees, there must be present in person
or by representative authorized to act by written proxy, the
owners of the majority of the outstanding capital stock, or if there
be no capital stock, a majority of the members entitled to vote;
(2) The election must be by ballot if requested by any voting
stockholder or member. Hence, voting by viva voces or roll call
(raising of hands) is valid except when there is a request that the
election be by ballot;
(3) A stockholder cannot be deprived in the articles of
incorporation or in the by-laws of his statutory right to use any of
the methods of voting in the election of directors;
(4) No delinquent stock shall be voted;
(5) If a quorum is present, the candidates receiving the highest
number of votes shall be declared elected. The law requires only
plurality, not majority of the votes cast at the election;
(6) In case of failure to hold an election for any reason, the
meeting may be adjourned from day to day or from time to time
but it cannot be adjourned sine die or indefinitely; and
(7) The requisite notice must be given. (see Sec. 50, par. 1.)
Methods of voting. Every stockholder entitled to vote shall have the right to vote in
person or by proxy the numbers of shares of stock standing, at the
time fixed in the by-laws, in his own name on the stock books of
the corporation or where the by-laws are silent, at the time of the
election, and said stockholder may vote his shares in any of the
ways mentioned below.
ILLUSTRATION:
ILLUSTRATIONS:
(1) If A owns 100 shares of stock and there are five directors to be
elected, he is entitled to 500 votes all of which he may cast in
favor of any one candidate.
ILLUSTRATIONS:
(1) With 100 shares of stock, A is entitled to 500 votes if there are
five directors to be elected. A may distribute his votes to can-
didates W, X and Y, giving W, 100 votes, X 150 and Y, 250. A may
cast his votes in any combination desired by him provided that
the total number of votes cast by him does not exceed 500 which
is the number of shares owned by him multiplied by the total
number of directors to be elected.
D = [A x B] / [C + 1] + 1
E=DxC
where:
Thus:
D = [20,000 x 3] / [11 + 1] + 1 or
D = 5001 shares
E = 5001 x 11 or
E = 55,011 votes which may be distributed equally (18,337 each)
to three candidates for directors
Voting in a non-stock Members of non-stock corporations may cast as many votes as
corporation. there are trustees to be elected but may not cast more than one
vote for one candidate. This is the manner of voting in non-stock
corporations unless otherwise provided in the articles of
incorporation or in the by-laws. (see Sec. 89.)
ILLUSTRATION:
Quorum.
ILLUSTRATION:
The offense need not involve moral turpitude. The rule applies
regardless of the nature or classification of the offense as long as
it is punishable by imprisonment for a period exceeding six (6)
years. If the disqualification is based on a violation of the Code
(see Sec. 144.), the duration of the imprisonment is immaterial
but the commission (not conviction) of the violation must have
taken place within five (5) years prior to the date of the election
or appointment.
Removal of directors or Stockholders cannot tell directors how they are to manage the
trustees. corporation but they do maintain indirect control since they can
remove directors any time if they wish.
(1) Generally; limitation. The law does not specify cases for
removal of a director or trustee nor even require that removal
should be for sufficient cause or reason. A director or trustee may
be removed by the prescribed vote of the stockholders or
members without cause subject to the limitation that a director or
trustee cannot be removed without cause if the effect of such
removal is to deprive minority stockholders or members who
united in cumulative voting to elect such director, of right of
representation to which they may be entitled under Section 24.
ILLUSTRATION:
If four (4) of nine (9) directors died, the remaining five (5) direc-
tors still constitute a quorum, and a majority of the five (5) or
three (3) may fill the four (4) vacancies.2 But if five (5) of the
directors died, the vacancies will have to be filled by the
stockholders in a regular or special meeting duly called for the
purpose.
Powers and fiduciary duties The directors of a corporation are its agents. They also occupy a
fiduciary relation to the corporation. By numerous authorities
they have been called trustees (McEwen vs. Kelly, 79 S.E. 777.),
with certain powers and subject to certain duties in the
management of its property, and each stockholder a cestui que
trust according to his interest and shares. (Jackson vs. Ludeling, 21
Wall. [U.S.] 616.)
Evidently, the contract is not fair and reasonable, and is, there-
fore, voidable on that ground. But if the contract is fair and
reasonable under the circumstances and Zs interest in X
Corporation is merely nominal and in Y Corporation substantial,
the conditions in Section 32 must be present insofar as X
Corporation is concerned, on the theory that the contract of X
Corporation is with Z.
However, if Zs interest in both corporations is nominal or is
substantial, the provisions of Section 32 do not apply but the con-
tract shall be valid only if there is no fraud and the contract is fair
and reasonable under the circumstances.
The corporate opportunity Under this doctrine, a director who, by virtue of his office,
doctrine. acquires for himself a business opportunity which should belong
to the corporation, thereby obtaining profits to the prejudice of
such corporation, is guilty of disloyalty and should, therefore,
account to the latter for all such profits by refunding the same,
notwithstanding that he risked his funds in the venture.
Under Section 34, the guilty director will only be exempted from
liability to the corporation if his disloyal act is ratified by the vote
of the stockholders owning or representing at least 2/3 of the
outstanding capital stock. Note that there is no similar provision in
Section 31.
Section 34 is silent on whether the disloyal director shall be
allowed to vote his shares in the ratification of his act.
Kinds of meetings (1) Meetings of stockholders or members. It may be:
(a) Regular or those held annually on a date fixed in the by-laws,
or if not so fixed, on any date in April of every year as determined
by the board of directors or trustees; or
(b) Special or those held at any time deemed necessary or as
provided in the by-laws. (Secs. 49, 50.)
(2) Meetings of directors or trustees. It may be:
(a) Regular or those held by the board monthly, unless the by-
laws provide otherwise; or
(b) Special or those held by the board at any time upon the call of
the president or as provided in the by-laws. (Secs. 49-53.)
The president shall preside at all meetings of directors or trustees
and of the stockholders or members, unless otherwise provided in
the by-laws (Sec. 54.) and subject to the provisions of Section 50.
(last par.) Thus, the by-laws may provide that the chairman
instead of the President, shall preside at board meetings.
Necessity of meetings. The corporate powers are vested in the board of directors or
trustees and/or the stockholders or members as a body and not
as individuals.
(1) Meetings of stockholders or members. It is a fundamental
rule of corporation law that unless the statute otherwise provides,
stockholders [or members] can act only in meetings properly
convened and assembled. The written assent of a majority of the
shareholders [or members] without a meeting to a matter
requiring action by them is not sufficient. (Fisher, op. cit., Sec.
128.) The reason for the rule lies in the protection to the
stockholders (or members) accorded by the giving of notice and
the opportunity to attend, discuss, and vote at a meeting.
ILLUSTRATION:
ILLUSTRATION:
A Inc. and B Inc. are existing corporations. A Inc. transfers all its
assets to B Inc. B Inc. absorbs and acquires all the property, rights
and liabilities of A Inc. which is dissolved. B Inc. continues its cor-
porate existence.
A Inc. and B Inc. are the constituent corporations. A Inc. is the
merged or absorbed corporation while B Inc. is the merging,
absorbing, or surviving corporation that continues the combined
business. The stockholders of A Inc. become stockholders of B Inc.
ILLUSTRATION:
(2) Acts included. The Code does not define the phrase doing
or transacting business. The Omnibus Investments Code of 1987.
(Exec. Order No. 226, Art. 44.), and the Foreign Investments Act
(R.A. No. 7062, Sec. 2[d].), however, give a definition which may
be adopted for purposes of the Corporation Code. Under the two
laws, doing business by a foreign corporation shall include:
(a) Soliciting orders, purchases, and service contracts;
(b) Opening offices, whether called liaison offices or branches;
(c) Appointing representatives or distributors who are domiciled
in the Philippines or who, in any calendar year, stay in the
Philippines for a period or periods totalling 180 days or more;
(d) Participating in the management, supervision or control of any
domestic business firm, entity or corporation in the Philippines;
and
(e) Any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of,
commercial gain or for the purpose and object of the business
organization. (Sec. 65 thereof.)
(3) Acts not included. Under the Foreign Investments Act, the
phrase doing business does not, however, include:
(a) mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business; and/or
(b) the exercise of rights as such investor; nor
(c) having a nominee director or officer to represent its interests
in such corporation; nor
(d) appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its
own account. (Sec. 2[d] thereof.)
Application for and issuance A foreign corporation applying for a license to transact business in
of license. the Philippines must comply with the following requirements and
conditions precedent to the issuance of the license by the
Securities and Exchange Commission:
(1) Submission of required documents. It shall submit to the
Securities and Exchange Commission a certified copy of its articles
of incorporation, with a translation to an official language of the
Philippines, if necessary, and the application for a license which
shall be under oath and shall specifically set forth the
matters enumerated by law, unless already stated in its articles of
incorporation (Sec. 125, par. 1.); and
(2) Accompanying documents to application. The application
shall be accompanied by the following:
(a) A duly executed certificate under oath by the authorized
official or officials of the jurisdiction of its incorporation attesting
to the fact that the laws of the country or state of the applicant
allow Filipino citizens and corporations to do business therein and
the applicant is an existing corporation of good standing, with a
translation of the certificate in English under oath of the
translator if it is in a foreign language (Ibid., par. 2.);
(b) A sworn statement of the president or any authorized officer
of the corporation, showing to the satisfaction of the Securities
and Exchange Commission and other government agency in
proper cases that the applicant is solvent and in sound financial
condition and setting forth its assets and liabilities for the
previous year (Ibid., par. 3.);
(c) A certificate of authority from the appropriate government
authority, whenever required by law (Ibid., last par.; Sec. 123.);
and
(d) A written power of attorney designating a resident agent on
whom summons and other legal processes against the
corporation may be served and a written agreement or stipulation
consenting that such service may be made upon the Securities
and Exchange Commission if at any time it shall cease to transact
business in the Philippines, or shall be without any resident agent
(Secs. 127, 128.);
(3) Compliance with special laws. Foreign banking, financial and
insurance corporations shall, in addition to the above
requirements, comply with the provisions of existing laws
applicable to them (Sec. 125, last par.); and
(4) Issuance of license to transact business. If the applicant
shows to the satisfaction of the Securities and Exchange
Commission that it has complied with the above requirements of
the Code and those imposed by other special laws, rules and
regulations, the Commission shall issue a license authorizing it to
transact business in the Philippines for the purpose or purposes
specified therein. (Sec. 126, par. 1.)
Resident agent. The resident agent is an individual who must be of good moral
character and of sound financial standing, residing in the
Philippines, or a domestic corporation lawfully transacting
business in the Philippines (Sec. 127.), designated in a written
power of attorney, by a foreign corporation authorized to transact
business in the Philippines, on whom any summons and other
legal processes may be served in all actions or other legal
proceeding against such corporation.