Beruflich Dokumente
Kultur Dokumente
CORPORATION LAW
BP Blg. 68 the present CORPORATION CODE of the Philippines.
Attributes of a Corporation
1.
It is an artificial being
separated
personality
from
its
General rule is that obligations incurred by a corporation, acting Doctrine of Piercing the Veil of Corporate Entity
through its authorized agents, are its sole liabilities.
Where the fiction of corporate entity is being used as a cloak or cover
for fraud or illegality, or to defeat public convenience, justify wrong,
The separate personality of a corporation is a shield against personal
protect fraud, or defend crime, or for ends of subversive of the policy
liability of its officers.
and purpose behind its creation, this fiction will be disregarded and
the individuals composing it or two corporations will be considered
A corporation cannot be held liable for the personal indebtedness of a
identical.
stockholder even if he should be its president.
Corporate officers cannot be held personally liable for the consequences of their acts, for as long as they are for and on behalf
of the corporation, within the scope of their authority and in good faith.
The property of the corporation is not the property of the stockholders
or members and may not be sold by the stockholders or members
without express authorization of its board of directors or trustees.
Fraud test control must have been used by the defendant at the time
the acts complained of took place, to commit fraud or wrong.
3.
2.
3.
Page 1 of 10
Management
Effect of
Mismanagement
A partner as such
can sue a co-partner
for mismanagement.
Right of Succession
No right of
succession.
Extent of Liability to
Third Persons
Partners may be
personally and
subsidiarily
(sometimes
solidarily) liable for
partnership debts.
Transferability of
Interest
Delectus personarum
Term of Existence
May be established
for any period of
time.
Firm Name
Limited partnership
bears Ltd.
Dissolution
At any time
Civil Code
4.
Centralized management;
5.
Standardized
organization,
management
dissolution;
5.
Greater
governmental
supervision;
5.
6.
7.
8.
9.
4.
EXCEPTIONS:
Corporation as a Partner
1.
2.
3.
6.
Corporation aggregate
Corporation sole
Ecclesiastical Corporation
Lay Corporation
Eleemosynary corporation
Civil corporation
Domestic
Foreign
De jure
De Facto
1.
Joint venture where the nature of that venture is in line with the
business authorized by their charters.
a.
b.
2.
Where the partnership agreement provides that the two partners will 7.
manage the partnership so that the management of the corporate
interest is not surrendered.
3.
ADVANTAGES of a BUSINESS
CORPORATION
1.
2.
3.
DISADVANTAGES of a BUSINESS
CORPORATION
1.
Relatively
complicated
formation and management;
Continuity of existence;
Credit is strengthened;
of
and
2.
Separate juridical personality
Can act only through agents
Composed of an aggregate of individuals
Distributes its profits to those who contribute to the capital of the
business
3.
Organized only when there is a law authorizing its organization
Taxable
and
degree
control
6.
creation,
9.
a.
b.
c.
Close
Open
Parent or Holding
Subsidiary
Affiliated
True corporation
Quasi-corporation Defective corporations
corporation by prescription and by estoppel
such
Governmental control
1.
Page 2 of 10
as
2.
B.
C.
Private not subject to visitation, control or change by the State conduct its business, such contribution being made either directly through
except in the exercise of police power.
stock subscription or indirectly through the declaration of dividends.
Public corporation may be created without consent of the locality to
be affected, which consent of the incorporators is necessary to the a. Authorized Capital Stock amount of capital stock as specified in the
creation of a private corporation.
articles of incorporation.
Taxation, liability for torts or negligence of officers and agents and to b.
various other questions.
a)
Unissued Capital Stock portion of the capital stock that is not issued
or subscribed.
Legal Capital amount equal to the aggregate par value and/or issued
value of the outstanding capital stock.
Stock Dividends amount that the corporation transfers from its surplus
profit account to the capital account.
2.
3.
CAPITAL
Actual
corporate
concrete thing.
property;
CAPITAL STOCK
An amount; abstract.
No share may be deprived of voting rights except those classified and 2. Share in the surplus earnings/assets/profits or unrestricted earnings
Sec 43;
issued as preferred or redeemable shares, unless otherwise
provided in this Code.
3. Share in the remaining properties after dissolution, if any Sec 122.
There shall always be a class or series of shares which have complete
Certificate of Stock written acknowledgment by the corporation of the
voting rights.
interest, right and participation of a person in the management, profits and
Shares of capital stock issued without par value shall be deemed fully assets of a corporation.
paid and non-assessable and the holder of such shares shall not be
liable to the corporation or to its creditors in respect thereto: Provided, Formal written evidence of the holders ownership of one or more shares
that shares without par value may not be issued for a consideration and is a convenient instrument for the transfer of title.
less than the value of five pesos per share.
SHARE OF STOCK
CERTIFICATE OF STOCK
When Classification of Shares may be made:
Incorporeal or intangible property; Tangible property;
Represents the right/interest of a Written
evidence
of
that
1. First determined by the incorporators as stated in the articles of
person in a corporation;
right/interest;
incorporation filed with the SEC.
-
2.
May
be
issued
even
if
subscription is not fully paid,
except in no par shares;
Situs is deemed to be the State
where the corporation has its
domicile.
After the corporation comes into existence, they may be altered by the
board of directors and stockholders by amending the articles of
incorporation.
Page 3 of 10
Par Value one with specific money value fixed in the articles of
incorporation and appearing in the certificate of stock.
- May be issued without payment, as long as there is a valid
subscription and date of payment is indicated at the subscription.
- Face Value
- Assessable
- Represents the amount of money or property contributed by the
shareholder to the capital stock of the corporation.
b.
-
2.
No Par Value one without any stated value appearing on the face
of the certificate of stock. It is a stock which does not state how
much money it represents.
No face value
Deemed fully paid
Non-assessable
It always has an issued value the consideration fixed by the
corporation for its issuance.
Issued value may be fixed by the articles of incorporation or by the
board of directors or by stockholders representing majority of OCS
and shall not be less than P5/share.
Conversion of the no par value to par value is allowed by SEC
provided there would be no change in the stockholders percentage
interest in the total assets of the corporation.
c)
d)
Participating preferred share gives the holder not only the right to
receive the stipulated dividends at the preferred rate but also to
participate with the holders of common shares in the remaining profits
pro rata after the common shares have been paid.
Voting or Non-Voting
a)
b)
c)
d)
e)
f)
g)
h)
3.
Common or Preferred:
a.
6.
7.
Founders share
8.
Redeemable share
9.
Treasury share
Common Share one which entitles the holder thereof to a pro rata 1.
division of the profits, if there are any, and in its assets upon
dissolution, without any preference or advantage in that respect
over other stockholders or class of stockholders but equally with all
2.
other stockholders except preferred stockholders.
It is the basic class of stock which private corporations generally
issue or because its holders stand upon an equal footing, without
3.
extraordinary rights or privileges.
Have complete voting rights.
Residual owners of the corporation.
Has preference in the matter of management.
4. May not be issued for a consideration less than 5 pesos per share;
Preferred Share one with a stated par value which entitles the
holder thereof to certain preferences over the holders of common
5. Shall be treated as capital, and therefore, shall not be available for
stock.
distribution as dividends.
- Designed to induce persons to subscribe for shares of a
corporation.
ADVANTAGES OF PAR VALUE
DISADVANTAGES OF PAR VALUE
- Unless otherwise provided, preferred stocks are presumed to be
SHARES
SHARES
voting although they are rarely given voting privileges.
Subscribers are liable to
- Cannot be converted into common and cannot be changed without
Easily sold as the public is more
corporate creditors for their
the consent of the stockholders.
attracted to buy this kind of
unpaid subscription;
shares;
Kinds of Preferred Shares:
Stated face value of the share is
Greater protection to creditors;
not an accurate criterion of its
a) Preferred share as to assets gives the holder thereof preference
true value.
in the distribution of the assets of the corporation in case of
liquidation;
Unlikelihood of sale of
subsequently issued shares at a
b) Preferred share as to dividends share the holder of which is
lower price;
entitled to receive dividends o said share to the extent agreed upon
Unlikelihood of distribution of
before any dividends at all are paid to the holders of common stock.
dividends that are only ostensible
profits.
Limitations regarding issuance of preferred shares:
b.
a)
b)
Page 4 of 10
Steps in Incorporation:
a.
b.
c.
d.
Shares issued to the organizers and promoters of a corporation in Section 11. Corporate Term
consideration of some supposed right or property.
A corporation shall exist for a period not exceeding fifty years from the
date of incorporation unless sooner dissolved or unless said period is
Section 8. Redeemable shares
extended. That corporate term as originally stated in the articles of
incorporation may be extended for periods not exceeding fifty years in
Shares of stock issued and fully paid for but subsequently reacquired
by the issuing corporation, by purchase, redemption, donation, or Section 12. Minimum capital stock required of stock corporations
through some other lawful means. Such shares may again be
disposed of for a reasonable price fixed by the board of directors.
Stock corporations incorporated under this Code shall not be required
to have any minimum authorized capital stock except as otherwise
Section 10. Number and Qualifications of Incorporators
provided for by special law, and subject to the provisions of the
following section.
- Any number of natural persons not less than five but not more than
fifteen, all of legal age and a majority of whom are residents of the Section 13. Amount of capital stock to be subscribed and paid for purposes
Philippines, may form a private corporation for any lawful purpose or of incorporation
purposes. Each of the incorporators of a stock corporation must own or
be a subscriber to at least one share of the capital stock of the At least 25% of the authorized capital stock as stated in the articles of
corporation.
incorporation must be subscribed at the time of incorporation, and at
least 25% of the total subscription must be paid upon subscription, the
balance to be payable on the date/s fixed in the contract of
PRIMARY
(CORPORATE) SECONDARY
(SPECIAL)
subscription, without any need of call, or in the absence of fixed date/s,
FRANCHISE
FRANCHISE
upon call for payment by the board of directors: Provided, however,
Right or privilege granted to Franchise to exercise powers
that in no case shall the paid-up capital be less than 5,000 pesos.
individuals by the State to be and and privileges granted to such
act as a corporation after its corporation to the business for
Corporation with ACS of only 5,000 may be organized: it has to be fully
incorporation.
which it was created, including
subscribed then fully/entirely paid up.
those conferred for purposes of
public benefit such as the power
Section 14. Contents of Articles of Incorporation
of eminent domain and other
powers and privileges enjoyed by
1) Name of the corporation (Section 18)
public utilities.
Should not be identical or deceptively or confusingly similar to that of
any existing corporation or to any other name already protected by law
Granted to the incorporators; Conferred upon the corporation
or is patently deceptive, confusing, or contrary to existing laws.
enables them to act for certain after its incorporation and not
designated purposes as a single upon the individuals who
2) Specific purpose/s for which the corporation is being incorporated
individual and exempts them, compose the corporation.
Must be lawful
unless otherwise provided, from
Must be stated with sufficient clarity
individual liability for corporate
Primary purpose must be stated
debts.
Purposes must be capable of being lawfully combined
Inalienable; it is part of the
corporation and cannot be sold
or assigned. It may be conveyed
provided there is express
legislative authority to do so.
4)
5)
Promotion
6)
A number of business operations peculiar to the commercial world by
which a company is generally brought to existence.
7)
Make known to the general public that they are forming a corporation;
invite prospective incorporators.
8)
9)
a.
b.
c.
2)
3)
Incorporation
Page 5 of 10
10) Such other matters as are not inconsistent with law and which the
incorporators may deem necessary and convenient.
-
2)
3)
4)
5)
6)
Failure to file required reports in appropriate forms as determined by Direct attack the State, in a proceeding for that purpose, attacks the
existence of an association claiming to be a corporation.
the commission within the prescribed period.
Page 6 of 10
Term of office of directors or trustees one year and until their successors
are elected and qualified.
Hold-over the office has a fixed term which has expired, and the
incumbent is holding the succeeding term. A hold-over board has the
power to declare the position of the President vacant and elect another.
2.
a.
b.
Page 7 of 10
Within 30 days after the election, the secretary or any other officer of the corporation, shall submit to the SEC, the names, nationalities, and
residences of the directors, trustees, and officers elected.
-
1. Resignation/removal
No person convicted by final judgment of an offense punishable by 2. When his position is otherwise lawfully vacated
imprisonment for a period exceeding six years, or a violation of this
Code, committed within five years prior to the date of his election or Filling of vacancies in any of the following cases:
appointment, shall qualify as a director, trustee or officer of any
corporation.
A. By stockholders/members:
Page 8 of 10
In no case shall the total yearly compensation of directors, as such, Sec. 33. Contracts between corporations with interlocking directors.
exceed 10% of the net income before income tax of the corporation
- Except in cases of fraud, and provided the contract is fair and reasonable
during the preceding year.
under the circumstances, a contract between two or more corporations
having interlocking directors shall not be invalidated on that ground alone:
Section 31. Liability of directors, trustees, or officers.
Provided, That if the interest of the interlocking director in one corporation
is substantial and his interest in the other corporation or corporations is
Cases when directors/trustees/officers are liable for damages:
merely nominal, he shall be subject to the provisions of the preceding
1. Wilfully and knowingly votes or assents to patently unlawful acts of section insofar as the latter corporation or corporations are concerned.
the corporation;
2. Guilty of gross negligence or bad faith in directing affairs of the Stockholdings exceeding twenty (20%) percent of the outstanding capital
stock shall be considered substantial for purposes of interlocking directors.
corporation;
Acquires any personal or pecuniary interest in conflict with his duty as Contracts between corporations with interlocking directors.
such director or trustee.
- Contract is valid between two or more corporations which have
interlocking directors (sec. 44). However, if the interest of the
4. Consents to the issuance of watered stocks or who, having knowledge
interlocking director in one corporation is substantial, the rules of sec.
thereof, does not forthwith file with the corporate secretary his written
32 on self-dealing directors shall apply insofar as the latter corporation
objection thereto;
is concerned.
5. When he is made, by a specific provision of law, to personally answer
- This section pertains to transaction between corporations with
for his corporate action;
interlocking directors resulting in the prejudice to one of the
corporations. This does not apply where the corporation allegedly
6. When he agrees to hold himself personally and solidarily liable with
prejudiced a third party, not one of the corporations with interlocking
the corporation.
directors. (DBP v. CA 2001)
Three-fold duty of directors: OBEDIENCE, LOYALTY, DILIGENCE
Evils of interlocking directorates.
Sec. 32. Dealings of directors, trustees or officers with the corporation. - A
contract of the corporation with one or more of its directors or trustees or 1. Validity of by-laws prohibiting interlocking directorates.By-laws
which prohibit a director of a corporation form serving at the same time
officers is voidable, at the option of such corporation, unless all the
as director of a competing corporation, have been upheld as valid and
following conditions are present:
reasonable. (Gokongwei v. SEC 1979)
1. That the presence of such director or trustee in the board meeting in
Reason: The interlock permits the coordination of policies between
which the contract was approved was not necessary to constitute a
nominally independent firms to an extent that competition between
quorum for such meeting;
them may be completely eliminated. Indeed, if a director, for example,
is to be faithful to both corporations, some accommodation may result.
2. That the vote of such director or trustee was nor necessary for the
Reason: Being its agents and entrusted with the management of its affairs,
the directors/trustees and other officers of a corporation occupy a fiduciary
relation toward it, and cannot be allowed to contract with the corporation,
directly or indirectly, or to sell or purchase property to or from it, where they
act both for the corporation and for themselves.
Page 9 of 10
which may arise from financial insolvency, or form legal restrictions, or 9. Quorum and voting. The general rule for quorum requirements is the
from any other factor which prevents it from acting upon the
same as that for board of directors. A majority of the committee
opportunity for its own advantage
constitute a quorum. To bind the corporation, it is essential that the
executive committee acts by a majority vote of all its members.
Ratification by stockholders of disloyal act.
10. Membership of a foreigner. While foreigners are disqualified from
The guilty director will only be exempt from liability to the corporation to
being elected/appointed as corporate officers in wholly or partially
account for the profits he realized if his disloyal act is ratified by the vote of
nationalized business activities, they are allowed representation in the
the stockholders owning or representing at least 2/3 of the OCS. (This does
board of directors or governing body of said entities in proportion to
not apply in sec.31)
their shareholdings.Reason for exception: The board of directors
performs specific duties as a body. Unlike corporate officers, each
Sec. 35. Executive committee.
member if the board of directors/governing body has no individual
power of authority to perform management functions.
- The by-laws of a corporation may create an executive committee,
composed of not less than three members of the board, to be appointed by
the board. Said committee may act, by majority vote of all its members, on
such specific matters within the competence of the board, as may be
delegated to it in the by-laws or on a majority vote of the board, except with
respect to:
1.
2.
3.
4.
5.
Executive committee.
1. Need for an executive committee. The Board delegates to an
executive committee composed of some members of the board
corporate powers to assure prompt and speedy action and solution to
important matters without the need for a board meeting, especially
where such meetings cannot readily be held. ExeCom directly manages
the operations of the corporation between meetings of the board,
thereby reducing the workload of the latter.
2. Express provision in the by-law. ExeCom must be provided for in the
by-laws and composed of not less than three (3) members of the board.
The same may be vested by a board resolution. The board cannot
create or appoint an ExeCom in the absence of authority in the by-laws.
In such case, the principle of de facto officers may be applied insofar
as third persons are concerned. However, insofar as the corporation is
concerned, the unauthorized act of appointment of an exec may be
subject to sec. 144, which provides for penalties in case of any violation
of this Code.
3. Committee contemplated. The ExeCom should be distinguished from
any other committees which are within the competence of the board to
create at any time and whose actions require confirmation by the board
itself.
4. Matters excepted from delegation by board. Matters enumerated
with respect to which only the board duly called and assembled as such
can act upon. Thus, the ExeCom can function as the board itself in all
matter delegated to it other than the excepted matters. However, the
board cannot validly delegate to the ExeCom blanket or general
authority to act for the board if the delegation constitutes in effect an
abdication of the corporate powers and duties vested in it by law. The
board cannot delegate entire supervision and control of the corporation
to an ExeCom for this will be violative of sec. 23.
5. Enlargement by board of restrictions. The restrictions on the power
of the ExeCom as provided in this section may be enlarged by the board
to cover other matters.
Note: Under no.4 The ExeCom may amend or repeal any resolution
of the board unless by its express terms it is not so amendable or
repealable.
6. Authority to function as the board itself. As a matter of business
practice, the use of an ExeCom in many companies may reduce the
directors to little more than a supervising and ratifying committee.
7. Membership. Non-members of the board may be appointed as
members of the ExeCom provided that there are at least three members
of the board who are members of the committee.An Executive
Committee is a governing body which functions as the board itself.
Thus, membership therein shall be governed by the same law / rules
applicable to the board of directors as provided in Sec. 35.
8. Ultimate control by the board, Where the committee is made up of,
or includes persons who are not directors, such committee shall be
subject to norm restrictions and requirements relating to undue
abdication of authority by the board. Thus, while the ExeCom may
manage the day to day operation of the business of the corporation, the
business affairs thereof shall be controlled and all corporate powers
shall be exercised under the ultimate discretion of the board as
provided in sec. 23.
Page 10 of 10