Corporation

Definition: Corporation is: 1. An artificial being -having a personality (juridical) distinct and different from its owners, hence it can be sued or sue under its name. Acquire properties or civil and criminal liabilities. -its personality commences from the time SEC issues the certificate of incorporation 2. Created by the operation of law -Corporations are created not by mere agreement; as to partnership, instead it is specially granted by the State through the Corporation Code of the Philippines 3. Having the right of succession -ownership can be passed through the owners heirs or successors. -Corporations are not dissolved by admission of new shareholders/members or even death of the same due to the right of succession. 4. Power expressly authorized by law -Corporations must only operate within the power and right expressly given by law. It cant be organized for purposes in contrast with what is written it its article of incorporation which was approved by the Law in the persona of SEC nor it may conduct illegal dealings. Stages in Corporation 1. Promotion 2. Incorporation 3. Commencement of Business NOTES: General Rule: There cant be a corporation for the purpose of exercise of profession except provided by the Code General Rule: Corporation cant form another Corporation

Exception: Cooperatives (can form rural banks) General Rule: Corporation must submit articles of Incorporation Exception: Cooperatives can submit to CDA instead of SEC; they are not required to produce Articles of Incorporation General Rule: Corporations are manage by Board of Director, decisions are made through meetings either a shareholders or boards. In case of Board Meeting, quorum is needed in order to validate such. Exception: In case of Close Corporation, quorum is not needed. General Rule: Corporation is considered dissolved if it didnt commence to business 2 years after the issuance of the certificate of incorporation. It is also considered to be dissolved if the Corporation ceases its activities for 5 years. Exception: If the reason of such is out of the corporations control, (war, calamity etc) General Rule: Corporations are brought by the operation of law Exception: Corporation by Prescription (religious corporation; Roman Catholic) Authorized Share Capital: Can be of any amount but should not be less than P5,000. Articles of Incorporation 1. Created by the Incorporators 2. Submitted to SEC together with the affidavit of the Treasurer that 25% of the authorized capital are subscribed and 25% of the subscribed capital are paid 3. Content: 1. Name of the Corporation -the name should not be decisive, confusing or be the same as to other corporations protected by the law. -In case the name is rejected by SEC, Incorporators are given time to amend the article of incorporation; after approval, issues amended certificate of incorporation. -Should the corporation didnt change its defective name, they

may continue to operate as a de facto corporation (corporation of facts not by law) 2. Place, Address of the Business -the books of corporation are located -regular meetings are held 3. Purpose of the Corporation -can be general but not indefinite 4. Name of the Incorporators, their nationalities, Age 5. Authorized Share Capital, Number of Shares, Par Value 6. Period of Existence -not more than 50 years -can be shorter than 50 years in case of dissolution, liquidation -can be extended for another 50 years on certain conditions: a. filing of extension should not be earlier than 5 years prior to the date of expiration of the original article b. upon extension, articles of incorporation should be submitted to SEC unless the corporation already fulfilled letter a, a mere notice is valid. 7. Treasurers Affidavit Amendment of Articles of Incorporation 1. Voted by the majority of the board of directors and trustees and 2/3 of the outstanding shares 2. Filling: a. Original and Amended b. Express provisions c. Underscored Changes -After filing, if SEC doesnt act within 6 months, such amendment is valid and considered accepted. Amendment of the Place:

1. If not within the same city or municipality; another filling is required 2. If within the same city or municipality, mere notice is accepted 3. Amendment of the Articles of Incorporation of Foreign Corporations doesnt require SEC approval, a mere notice after 60 days of the amendment is accepted. Note: in case of Corporations enacted through Special Law: Articles of Incorporation should be accompanied by the approval of a government agency (ex: Education; CHED, DEPED) Certificate of Incorporation 1. Issued by SEC 2. Provides the Juridical Personality of the Corporation 3. Issued together by the copy of Articles of Incorporation

Who? Precedent of the Commencement Corporation: 1. Promoters -bank -invited the incorporators

of

2. Incorporators General Rule: not less than 5 not more than 15 Exception: Educational Institution: same but should be in multiples of 5 and Corporate Sole -Names are written in the articles of incorporation -must not be less than 5 but not more than 15 -majority must be Filipino Citizen -act as the Board of Directors up until the first Shareholders Meeting where election happens.

3. Subscribers -people who agreed to acquire a portion of the originally unissued shares. 4. Underwriters -People who bought delinquent shares Subsequent to the Commencement of the Corporation: 1. Board of Directors Qualifications: a. Not convicted by a final judgement of offense punishable by imprisonment of more than 6 years b. No violation of the Corporate Code within 5 years prior to his election Term: 1 year c. The power of the board cant be delegated d. Compensation: General Rule: No Compensation just Per diems (allowance) Exception: As written in the ByLaws but not more than 10% of the net income of preceding year exclusive of per diems. 1. Elected by the majority of the shareholders (2/3 of the outstanding shares) 2. Must not be less than 5 nor more than 15 3. Majority should be residents of the Philippines 4. Must own at least 1 share 5. Manages the whereabouts of the corporation. 6. Have the power to declare dividends. A. Removal of a member of the Board -can be with or without cause except for a member voted by

the majority (should be with a cause) -majority of the outstanding shares (2/3) Process: 1. There should be a notice to hold a meeting for the purpose of removing a member of the board Presented by either the president, majority of the stockholders 2. The notice should be mailed to the secretary 3. If the secretary failed to announce or provide a notice to commence meeting, the majority of the shareholders meeting can directly mail the notice to other shareholders In case of Vacancy of a Position in the Board a. Temporary: Members of the board can appoint someone to fill in the vacant position b. Permanent: Stockholders Meeting (2/3 of the outstanding shares) c. Vacant Position can be filled just for the remaining years. In case of the Boards Disloyalty: 1. They are liable jointly to the creditors 2. Condoned if majority of the stockholders (2/3) voted for his retention. 3. If a member of the board acquired a business opportunity that is for the corporation, he is entitled to give all the accumulated profits to the corporation e. Shareholders 1. People who invest/ bought shares of stock in the corporation 2. Majority must be Filipino Citizen

Exceptions: a. Retail/Trade Corporations -wholly owned by Filipinos b. Pawn Shops -70% owned by Filipinos 3. Have the power to: a. Elect the Board of Directors and Trustees b. Vote for major corporate decisions like investing, acquiring assets, selling assets, dissolution, liquidation c. Amendment of the Articles of Incorporation d. Amendment of the By-laws e. Vote for the removal of the member of the vote f. Have a share on the profit of the corporation (ordinary share) 4. Officers: 1. President -Voted by the Majority of the Board of Directors in a quorum -Must own at least 1 share -Elected Director -acts can bind the corporation -can hold other positions except secretary and treasurer 2. Vice President -acts as a substitute in the absence of the president -can hold other positions in different department; finance, marketing, etc -doesnt need to be a director but if he is appointed to be as a substitute for the president, he must be a director. 3. Secretary -holds the records of the minutes of the meeting, decision of the board, etc

4. Treasurer -receives and takes good care of the resources (money) of the corporation 5. General Manager -Deemed as the one who really controls the corporation -agent of the corporation, thus, binds the corporation 6. Comptroller/ Controller/Internal Auditor -investigates the expenditures and manages the general accounts. 5. Executive Committee -body created within the board -must not be less than 3 people -can decide on the matters of the corporation without the quorum. Where? 1. The address where the books of corporation are placed and regular meetings are held. How? 1. Meetings Regular Meetings: 1. Annual Stockholders Meeting -proxies are accepted -election of board of directors -major corporate issues 2. Board of Directors: -must constitute a quorum in order to be binding and valid -Quorum: majority of the board of directors unless articles of incorporation stated greater majority -proxies are not accepted Special Meetings: 1. Can be held anywhere

2. Called by the President (for BOD only) Corporate Doctrines 1. Doctrine of Equality -all shares issued within the same class receive equal right (right to vote, right to receive its proportionate share in profit). 2. Fiction of Corporate Entity -Corporations have different personality from that of its shareholders/members. Thus, shareholders/members are only liable up to the extent of their invested capital. 3. Doctrine of Piercing the Veil of Corporate Entity -Third person may use this doctrine in occurrence of any of the following: 1. Directors committed fraudulent act. 2. Majority of the shares are controlled by only one person. 3. The corporation is used to defraud its creditors. 4. Majority of the shares are owned by aliens. 5. The corporation is owned by a parent. 3. Doctrine of Limited Capacity -Corporations are limited upon the express and implied power granted by law Classes of Corporations: 1. Stock Corporation -authorized capital is divided into stocks, shares -In order to acquire juridical personality, 25% of its authorized stock should be subscribed and 25% of the subscribed capital should be paid in cash or in property. -can be stock/non-stock

Types of Stock or Share a. Par -Authorized Capital Stock has a fixed amount written in the articles of incorporation b. Non-Par -No fixed price per share expressly stated in the Articles of Incorporation. -It has issued price or stated price which cant be lower than P5 c. Preference Share -have preference on the dividends declared by the corporation over other types of shares. -Have preference on assets of the corporation on the moment of liquidation. d. Common Share -Have a portion on the profit of the corporation. e. Founders Share -right to vote and be voted as a director -minimum of 5 years subject to the approval of the board 2. Non-Stock Corporation 1. Dont have par value but have issued value 2. Instead of Shareholders, owners are called Members 3. 25% of the Total Authorized Capital should be paid