Definition of by-laws These are regulations, ordinances, rules or laws adopted by an association or corporation or the like for its

internal governance. By laws define the rights and obligations of various officers, persons or groups within the corporate structure and provide rules for routine matters such as calling meetings. When to adopt by-laws (Section 46) Every corporation formed under this code must within 1 month after receipt of official notice of the issuance of its certificate of incorporation by the SEC adopt a code of bylaws for its government not inconsistent with this code. May be adopted and filed prior to incorporation, in such case, shall be approved and signed by all incorporators submitted to SEC together with article of incorporation. Amendment and repeal of by-laws and adoption of new by-laws 1. Amendment may be made by stockholders together with the Board by majority vote of directors and owners of at least a majority of the outstanding capital stock/members; or 2. By the board only after due delegation by the stockholders owning 2/3 of the outstanding capital stock/members. Provided, that such power delegated to the board shall be considered as revoked whenever stockholders owning at least majority of the outstanding capital stock or members, shall vote at a regular or special meeting. (Sec. 48) Articles of Incorporation and By-laws distinguished: A clear distinction exist between the two. 1. The former constitutes the charter or fundamental law of the corporation, while the latter merely rules and regulations adopted by the corporation; 2. The former is executed before incorporation by the incorporators, while the latter, usually after incorporation by the stockholders or members; and 3. The filing of the former is a condition precedent to corporate existence, while the filing of the latter is a condition subsequent. Q: What is a proxy? A: Proxy is a written authorization, empowering another person (proxy) to represent a shareholder and vote in his stead in the stockholders meeting. Q: Is the power to appoint a proxy a personal right? A: Yes. The right to vote is inseparable from the right of ownership of stock. Therefore, to be valid, a proxy must have been given by the person who is the legal owner of the stock and is entitled to vote. Q: What is Special Fact Doctrine? A: It is a doctrine holding that a corporate officer with superior knowledge gained by virtue of being an insider owes a limited fiduciary duty to a shareholder in transactions involving transfer of stock. Subscription Contract an contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this title, notwithstanding the fact that the parties refer to it as a purchase or some other contract. Kinds of Subscription 1. Pre-incorporation subscription 2. Post incorporation subscription 3. Conditional subscription 4. Absolute subscription 5. Subscription with a special term Stock Option A stock option is a privilege granted to a party to subscribe to a certain portion of the unissued capital stock of a corporation within a certain period and under the terms and conditions of the grant exercisable by the grantee at any time within the period granted.

Consideration for Stock: Stocks shall not be issued for a consideration less than the par or issued price thereof. Consideration for the issuance of stock may be any or a combination of any two or more of the following: 1. Actual cash paid to the corporation; 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued; 3. Labor performed for or services actually rendered to the corporation; 4. Previously incurred indebtedness of the corporation; 5. Amounts transferred from unrestricted retained earnings to stated capital; and 6. Outstanding shares exchanged for stocks in the event of reclassification or conversion. Liability for watered stocks Any director or officer of a corporation consenting to the issuance of stocks o for a consideration less than its par or issued value or o for a consideration in any form other than cash, valued in excess of its fair value, o or who, having knowledge thereof, does not forthwith express his objection in writing and file the same with the corporate secretary, shall be solidarily liable with the stockholder concerned to the corporation and its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. Definition Certificate of stock: It is the document issued to stockholders evidence of their ownership of such number of shares in the corporation that issued the certificate. What is a constituent corporation? A consolidated corporation? (Section 76) Two or more corporations may merge into a single corporation which shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the consolidated corporation. What are the requirements for the formation of the close corporations? (Sec. 96) A close corporation is one whose articles of incorporation provide that: o All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); o All the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and o The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. A corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. The provisions of this Code shall apply except insofar as this Title otherwise provides. What entities may not be organized as closed corporations? (Sec. 96) Any corporation may be incorporated as a close corporation, except: o Mining, Oil companies, Stock exchanges, Banks, Insurance companies, Public utilities, Educational institutions , Corporations declared to be vested with public interest in accordance with the provisions of this Code. Reasons for requiring registration of stock transfer: 1. To enable the corporation to know at all times who its actual stockholders are because mutual rights and obligations exist between the corporation and its stockholders. 2. To afford to the corporation an opportunity to object or refuse its consent to the transfer in case it has any claim

against the stock sought to be transferred, or for any valid reason; and 3. To avoid fictitious or fraudulent transfers. Limitations on the power (Dissolution by legislative enactment) 1. When the common good so requires 2. No right or remedy in favor of or accrued against any corporation, its stockholders, member, directors, trustees, or officers nor any liability incurred by any such corporation, its stockholders, members, directors, trustees, or officers, shall be removed or impaired either by the subsequent amendment or repeal of the code or any part or portion thereof; 3. While the congress may provide for the dissolution of a corporation, it cannot impair the obligation of existing contracts between the corporation and third persons, or take away the vested rights of its creditors. Effect of insolvency or bankruptcy on corporate existence: Insolvency is the inability or failure to pay debts as they become due. When used in the bankruptcy sense, it means that condition of an individual or organization where the total liabilities exceed the total assets available for their settlement. The loss of all its properties does not affect its existence. The appointment of a receiver for a corporation does not ipso facto produce its dissolution nor bar the exercise f corporate rights. The inability to exercise its corporate powers by reason of insolvency might constitute such non-user as to warrant a decree of dissolution. Trustee a counsel who prosecuted and defended the interest of a corporation and who in fact appeared in behalf of the corporation before and after its dissolution by amendment of its articles of incorporation. Q: What is the trust fund doctrine? A: The subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits, and which the corporation may not dissipate. The creditors may sue the stockholders directly for the latters unpaid subscription. Q: What is a voting trust agreement (VTA)? A: It is an agreement whereby one or more stockholders transfer their shares of stocks to a trustee, who thereby acquires for a period of time the voting rights (and/or any other specific rights) over such shares; and in return, trust certificates are given to the stockholder/s, which are transferable like stock certificates, subject, to the trust agreement.