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(d) To refuse to recognize and register the
CORPORATION LAW
Atty. Japhet Derije
JMC Law 2018-2019 (2nd Semester)
Stockholders
Those persons holding stocks of a
corporation
Members – those with contributions in a
non-stock corporation
Rights of Stockholders
Rights of Corporaton with Respect to
Shares
(a) Subject to any contrary stipulation in the
subscription agreement, to call for the
payment of the unpaid subscription,
together with interest accrued, if any, on the
date specified in the contract of subscription
or on the date stated in the call made by the
board; (Sec 67, Corporation Code)
(b) To impose interest on the unpaid
subscriptions from the date of subscription,
if so required by, and at the rate of interest
fixed in, the by-laws; (Sec 66, Corporation
Code)
(c) To refuse to issue to the subscriber the
certificates of stock
covering shares where the subscription has
not been fully
paid; (Sec 64, Corporation Code)
sale or assignment of any share where the
subscription has not been fully paid; and
(Sec 63, Corporation Code)
(e) To refuse to recognize a sale or
assignment of shares of stock which have
not been duly registered in the stock and
transfer book. (Sec 63, Corporation Code)
Doctrine of Equality of Shares
All shares or stocks of a corporation are
presumed equal with the same privileges
and liabilities, provided that the Articles of
Incorporation is silent on such differences.
RIGHTS OF STOCKHOLDERS
The Corporation Code, as it views the
stockholders of a stock corporation
as a group of investors, provides for two
complementing philosophical
approaches to the treatment of stockholders
under relevant corporate contractual
relationship:
(a)The default rule is that all stockholders
have equal rights and obligations,
expressed in the last paragraph of Section 6
that provides: “each share shall be equal in
all respects to every other share.”
(b) When preferences or restrictions are
made to apply to a
class of shares, then such preferences on
restrictions shall exists and be valid only
when the particular form and procedure
mandated by the Code, which under the
same section provides that it be “provided in
the articles ofincorporation and stated in the
certificate of stock.
RIGHTS OF MEMBERS
On the other hand, the eleemosynary nature
of non-stock corporations
define the characteristic of membership
therein as being essentially personal in
nature and therefore not generally
transferable.
Section 89 of the Corporation Code
specifically provides that the right of
members of any class or classes to vote
“may be limited, broadened or denied to
the extent specified in the articles of
incorporation or the by-laws” of a non-stock
corporation.
The SEC has opined that the rule in Section
6 allowing non-voting shares
to vote on specified fundamental matters
does not apply to non-voting members
of a non-stock corporation; that insofar as
members of a non-stock corporation,
the applicable provision is not Section 6 but
Section 89 of the Code, which
specifically provides that members may be
denied entirely their voting rights in
the articles of incorporation or by-laws of the
corporation.4
Section 89 also provides that the right of
members to vote by proxy may
be denied under the articles of incorporation
or by-laws of a non-stock corporation.
SEC. 6 viz Sec 89
Sec 6 does not apply to a member of a non-
stock corporation
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PARTICIPATION IN MANAGEMENT
Concept of Proxy –
Under Section 58 of the Corporation Code,
stockholders and members
may vote in person or by proxy in all
meetings of stockholders or members.
The proxy must first be examined by the
secretary or the person in charge before it
may be allowed to join the meeting.
Requisites for a Valid Proxy
In order to be valid and enforceable, a proxy
must comply with the following requisites:
(a) The proxy shall in writing;
(b) Signed by the stockholder or member;
and
(c) Filed before the scheduled meeting with
the corporate secretary.
Issue between the corporation and the
proxy – it is an intra corporate issue – the
jurisdiction is with the RTC
If the issue does not relate to the issue of
election of BOD or if it is an inter corporate
issue – the jurisdiction is with the SEC.
VOTING TRUSTS
The trustee will already exercise the right to
vote
Sec 59.
The voting trust device involving the
complete surrender by the
shareholder of his voting rights to a trustee
or trustees, appears to have been
effective in the rehabilitation of insolvent
corporations, as well as in irrevocably
committing groups of shareholders to the
continuation of fixed business
policies.77
Under a voting trust arrangement, a
stockholder of a stock corporation
parts with the voting power only but retains
the beneficial ownership of the stock.
A voting trustee is only a share owner
vested with colorable and fictitious title for
the sole purpose of voting upon stocks that
he does not own. Consequently, the
transferring stockholder, although he has
ceased to be a stockholder of record,
retains the right of inspection of corporate
books which he can exercise
concurrently with the voting trustee.
By its very nature, a voting trust agreement
results in the separation of the
voting rights of a stockholder from his other
rights such as the right to receive
dividends, the right to inspect the books of
the corporation, the right to sell certain
interests in the assets of the corporation
and other rights to which a stockholder
may be entitled until the liquidation of the
corporation.
REQUISITES
Under Section 59 of the Corporation Code,
one or more stockholders of a
stock corporation may create a voting trust
for the purpose of conferring upon a trustee
or trustees the right to vote and other rights
pertaining to the shares for a
period not exceeding five (5) years at any
one time. In the case of a voting trust
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specifically required as a condition in a loan
agreement, said voting trust may be
for a period exceeding five (5) years but
shall automatically expire upon full
payment of the loan.
A voting trust agreement shall be ineffective
and unenforceable unless:
(a) It is in writing and notarized, and shall
specify the terms and
conditions thereof; and
(b) A certified copy of such agreement shall
be filed with the
corporation and with the SEC.
PROXY viz VOTING TRUST
Proxy – relationship with a SH is Principal –
Agent Relationship
Voting Trust - relationship is that of a
Trustee and Beneficiary
- SH still has beneficial ownership
- Only Voting rights are surrendered
Proxy – cannot exceed the delegated
authority
Trustee – only limit is that the act must be
for the benefit of the trustee, exercises
absolute voting rights for a period of not
more than 5 years. (the five years must be
renewed)
P- in writing is sufficient
VT – must be notarized
P- filed with the corporation
VT – registered in the corporation and with
the SEC
P- the ownership cannot be transferred
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VT – the legal ownership is transferred to
the trustee in a VT Agreement
P – cannot be voted
VT – can be elected as BOD because he
has legal title
P – revocable at will
VT – irrevocable unless there is fraud or
misconduct by the voting trustee
VT- can also institute a proxy
A pre-subscription contract will become due
and demandable only when the corporation
is incorporated.
Subscription Agreement, definition
Any contact is the agreement for unissued
shares or unissued stock in an existing or a
still to be formed corporation
Characteristics
1. Promised contribution of a person to
the capital of the corporation
2. There can be SC only with the
unissued shares of the authorized
capital stock
3. The increase of authorized capital
stock through a formal amendment
of the AOI and registration with the
SEC
Why the term, unissued is important.
If the shares were already issued it may be
the share or disposition of the corporation of
its treasury shares or the sale or disposition
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of the stockholder to a third person of his or
her shares. 2. Labor
Pre-incorporation subscription 3. Outstanding Shares exchanged for
GR: The person entering into the stocks
subscription agreement may not revoke
within six (6) months. 4. Previously incurred indebtedness of
the corporation.This should be
EXPNs: approved by the majority of the BOD
There is consent or within that said period and ratified by 2/3 of the
or after the said lapse, the corporation did stockholders because it will
not materialize. decrease their capital stock in the
corporation.
EXPN to the EXPN
But if the articles of incorporation have
already been submitted to the SEC, the SA
Stocks may not be issued less than the par
cannot be revoked unless the SEC
or the stated value.
disapproves the application.
Par value – it is the value indicated in the
SHARES OF STOCK
AOI and the By-laws. And only par value
The tangible certificate of stock will not be
shares has par value.
issued to you unless you pay in full your
subscription.
The non-par value shares have an issued or
stated value. Essentially, it does not have a
Sec. 12, Corporation Code
value, but the parties may assign it.
(Doctrine of Equality of Shares)
However, it must not be lower tha P5. The
value of the share will depend upon the
Sec. 62 – Consideration for Shares
financial status or needs of the corporation.
1. Property
Watered Stock
The property should not be encumbered. It
Watered stock is stock issued not in
should have clean title.
exchange for its equivalent either in cash,
property, share, stock dividends, or
The valuation is determined by the
services, (see Sec. 62.) It includes stock:
incorporators or BODs subject to the
approval of the SEC. This is important
(1) issued without consideration (bonus
because of the concept of watered stocks.
share); or
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(2) issued as fully paid when the corporation
has received a lesser sum of money than its
par or issued value (discount share); or
(3) issued for a consideration other than
actual cash, such as property or services,
the fair valuation of which is less than its
par or issued value; or
(4) issued as stock dividend when there are
no sufficient retained earnings or surplus
(see Sec. 43.) to justify it.
The consideration is measured at the time
of the sale and issuance of the stocks. Even
if the value of the property increases in the
future, it will not cure the defect. (Sec. 31,
The BODs will become personally liable
when it is done in bad faith.)
Sec. 65
Situs of the Shares of Stocks (for purposes
of execution, attachment
GR: The domicile of the corporation. The
principal place of business or the place
stated in the articles of incorporation.
GR: Shares should have voting rights.
EXPN: Treasury Shares
DIVIDENDS
GR: Preferred Stocks are non-participating,
cumulative.
Participating and Non-Participating
Cumulative and Non-Cumulative
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The conversion is placed in the agreement
No Par Value shares are deemed fully paid. of the parties like preferred stocks are
They are not subject to delinquency sales. converted into common shares.
AOI must state that the corporation issues Non-voting shares
no par value shares. Generally not entitled to vote.
AOI may state the issue price or stated Once the SH fails to pay the subscription
5value of the no par value shares.
Denied the right to vote or be represented in
BQ meetings
WON the BOD were authorized to
determine the issue price of a no par value The delinquent SH is still entitled to
shares? YES. Sec. 62, Corporation Code. dividends. All other rights are suspends.
Sinking fund Notices in delinquency sales is a
There is no necessity for unrestricted jurisdictional requirement
retained earnings. You can redeem it even if
there is no unrestricted retained earnings. Highest Bidder = Amount of the balance
and other expenses with the least number
Redemption cannot be undertaken if it will of shares.
resolve to the insolvency of the corporation.
Treasury Shares
Bought in a delinquency sale
These are issued
Escrow shares
It will be placed in a escrow account and is
prohibited to be withdrawn. The concept of
escrow is that such money in a certain
account may not be withdrawn and the
condition for withdrawal depends on the
terms and conditions set forth by the
parties.
Convertible Shares
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