Corporation Law

Definition
- A corporation is an artificial being created by
operation of law having the right of succession and the
powers, attributes and properties expressly authorized
by law or incident to its existence.
*breakdown:
1. created by law
2. Having the right of succession
3. Possesses powers, attributes and properties
authorized by law or its articles of incorporation
or that which is inherent and incidental to its
existence
Consequences of being a separate personality:
-Property
.it is entitled to properties of its own
.properties it owns are not that of the stockholders,
directors and officers
.the interest of the SDOs over the corporations
properties are merely inchoate
-Obligations
.the obligations of the corporation are not that of the
SDOs and vice versa

-Rights
.rights exercised by the corporation cannot be invoked
by the SDOs and vice versa e.g. the right of the SDOs
against unreasonable searches and seizures cannot be
invoked by the corporation since the right is personal
with respect to the individuals
-Constitutional Rights
.corporations are still entitled to certain constitutional
rights: the right against unreasonable searches and
seizures (since it is considered as a person by fiction of
law), Due process. Some rights that cannot be invoked
by the corporation e.g. the right against selfincrimination
-Torts
.the corporation is liable for torts: when the act
committed by the officer or agent is by the express
direction or authority of the stockholders or members
acting as a body (Directors).
-Nationality
.The general rule a corporation is a national of the
country where its was incorporated (Place of
Incorporation Test)
_in the instance of war (public enemy)- the
nationality of a corporation is determined by the
nationality of the controlling stockholders (Control Test)

Sources: Reviewer on Commercial Law by Aquino - Sundiang

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_investment purposes- (foreign investment act of

1991)
Q: when is a corporation deemed
National?

a Philippine

A: 1)when the corporation has been organized

under foreign law 2)60% of the outstanding capital
stock entitled to voted is owned/held by filipino
citizens 3)when the corporation is organized abroad
the same must be registered as doing business in
the Philippines under the corporation code and
100% of the outstanding capital stock entitle to vote
belongs to filipino citizens.
NOTE: where a corporation and its non-filipino
stockholders owns stocks in a SEC registered
enterprise, at least 60% of the outstanding capital
stock entitled to vote, each of both corporations must
be held or owned by filipino citizens; including 60% of
the Board of each of the corporations must consist of
filipino citizens.
The Grand Father Rule -percentages shares held by
the 2nd corporation in the 1st corporation is multiplied to
the latters own filipino equity, the product thereof will
represents the true filipino ownership.This rule is
applied when the owning corporation, the filipino equity

thereof is less than 60% of the outstanding capital

stock entitled to vote.
Consequences of being an artificial being
-Action: the corporation can only act through its
directors, officers and employees.
-Criminal Liability: the corporation is incapable of
malice therefore it cannot be held liable for felonies
under the Revised Penal Code. Corporations cannot
commit crimes under special law because such are
personal in nature. The penalty of imprisonment cannot
be imposed as a consequence of the corporation being
and individual created by fiction of law, however the
same maybe dissolve in the case of violation under the
Corporation Code.
If the crime is committed by a corporation or other
juridical entities, the directors, officers and employees
or other officers thereof responsible for the commission
of the offense shall be charged and penalized for the
crime. A corporation may not be arrested and
imprisoned.
-Moral Damages: A corporation Cannot be awarded
moral damages because such does not have feelings
and a mental state, mental suffering may only be
experienced by one having a nervous system, nor can

Sources: Reviewer on Commercial Law by Aquino - Sundiang

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the corporation claim moral damages for a besmirched

reputation (NPC vs Philipp Brothers Oceanic Inc.).
However, the corporation may recover moral damages
under art. 2219(7) if it was a victim of defamation.

Examples where the doctrine of piercing the veil of

corporate fiction was applied:
1. evading obligations to employees or pretext to
dismiss employees
2. Evade lawful obligations or money judgment
3. The corporation is a mere alter ego, adjunct, or
business conduit by dominating officers and
stockholders
4. Used to defeat public convenience
5. Used to justify a wrong
6. Used to protect fraud
7. Used to defend crime
8. Used to confuse legal and judicial issues
9. Used to perpetuate deception or to circumvent
the law

Q: what do you understand by the doctrine of piercing

the veil of of corporate entity?
A: the veil of corporate entity means that the
corporation has a separate and distinct personality
from that of the persons composing, however when the
veil of corporate fiction I used as a shield to perpetuate
fraud, to defeat public convenience, and justify a wrong
or defend a crime, the same shall be disregarded and
the individuals composing the corporation will be
treated identically. (also the corporate veil cannot be
used for a blatant violation on the prohibition against
forum shopping).
Note: Although there are instances when a
corporation maybe held liable for the obligations of
stockholders or officer under the doctrine of piercing
the veil of corporate fiction, the same doctrine cannot
be used to support an action for the enforcement of
obligations of Directors, officers and incorporators
(francisco vs CA). The doctrine is normally invoked to
make directors, officers and shareholders liable for the
obligations of the corporation.

Q: what are the circumstances that maybe considered

to justify the application of the doctrine to make parent
corporation liable for the obligations of its subsidiary?
A: A combination of or all of the following (PNB vs
Ritratto Group Inc.)

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1. parent corporation owns all or most of the capital

stock of the subsidiary
2. Parent and subsidiary have common directors or
officers
3. The parent finances the subsidiary

4. The parent subscribes to all of the capital stock of

the subsidiary or causes for its incorporation
5. The subsidiary has grossly inadequate capital
6. The subsidiary has substantially no other business
other than the parent or has no other assets
except those conveyed to or by the parent
corporation
7. In the papers of the parent the subsidiary is
described as a department or division or that its
business responsibilities are referred by the
parent as its own
8. Parent uses the property of the subsidiary as its
own
9. The directors and executives of the subsidiary
take orders from the parent (dependent, and act
not of their own interest)
10. Formal legal requirement of the subsidiary not
observed
Q: is ownership of a substantial portion of the
corporation enough to justify the application of the
doctrine?
A: No, Mere single ownership by a single stockholder or
by another corporation of all or nearly all of the capital
stock of the corporation does no justify the application
of the doctrine. the other circumstances must be
present (Francisco v Mejia)

Elements that must be present to justify application of

doctrine:
1. Control- means complete and total domination,
not mere stock control, such that the corporate
entity has no separate mind or existence of its
own.
2. Such control must have been utilized to commit
fraud or wrongdoing, to perpetuate violative or
unjust act in contravention to a legal right
3. The control must have proximately caused the
injury or loss complained
CREATED BY OPERATION OF LAW
Concession Theory:
*concession- grant of privilege
The theory that the existence of the corporation as an
artificial creature is dependent on the imprimatur of the
senate acting through the SEC. The life of a corporation
is a concession made by the state.
FRANCHISES OF CORPORATION

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1. Primary, corporate or general franchises- the

primary franchise of a corporation, that is right to
exist as such is vested in the incorporators and

not the corporation itself. It cannot be transferred

without approval of congress
2. Special/secondary franchises- the rights conferred
upon existing corporations such as the right to
use streets of the municipality, lay pipes of
tracks, erect poles or string wires or to engage in
delivery service.

The capacity to have continuity of existence despite the

changes in the persons who compose it, thus
personality continues even with the change of
stockholders, members, board members or officers.
POWERS, ATTRIBUTES, AND PROPERTIES
A) theory of special Capacities/Limited capacity
doctrine - the corporation shall only possess and
exercise powers those that are expressly
authorized by the law, its articles of incorporation
or that which are inherent, incidental to its
existences (derivative).

These special or secondary franchises maybe conveyed

or mortgaged under a general power granted to a
corporation to dispose of its property, except such
special or secondary franchises as charged with public
use.
The same is subject to levy/execution together and
including all property necessary for the enjoyment
thereof.
HOW ARE CORPORATIONS CREATED:
1. General law- private corporations are created
generally under the corporation code.
2. Special Law- public corporations are created by
special laws. Private corporations cannot be
created by special laws, except: GOCCs (which
actually private corporations)
RIGHT OF SUCCESSION

Organizer
s

functions

Governin
g laws

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Private

Public

state

Private
persons/
state

Govt of
a
portion
of
the
state
Special
Law/LGC

Profit
making
Law
on
Private
Corporation

2. An attempt in good faith to incorporate

3. Use of corporate powers

Legal
status
Existence
of stocks
Laws
of
incorpora
tion

Classification

Note: the issuance of certificate of incorporation by the

SEC is a requirement for continued good faith

De Jure

De Facto

Stock

NonStock

If there is substantial compliance the result is a de jure

corporation; only colorable compliance results in a de
facto corporation.

Domesti
c

Foreign

B) If the act of the corporation is not within those

those express, implied or incidental powers, the
act is ultra vires (*separate activities at odds w/
its charter/invalid and in excess of power or
authority)
De jure- corporation organized in accordance with the
law
De facto- a corporation where there exists a flaw in its
incorporation.
The requisites for existence are:
1. existence of
incorporated

valid

law

of

which

it

maybe

Stock Corporation- corporation with capital stock

divided into shares and is authorized to distribute to
holders thereof dividends or allotment of surplus profits
on the basis of shares held.
Non-stock Corporation- a corporation which does not
issue stocks and does not distribute dividends to their
members
Corporation by estoppel- a group of persons which
holds itself as a corporation and enters into contracts
with third persons on the strength on such appearance
is not allowed to deny its existence in an action under
said contracts.
Corporation by Prescription- a corporation that was not
formally organized as such but has been duly
recognized by immemorial usage as a corporation with

Sources: Reviewer on Commercial Law by Aquino - Sundiang

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rights and duties maintainable at law e.g. Roman

Catholic Church
Other Corporations:
1. Close Corporation
2. Special Corporation
3. Educational Corporation
4. Religious Corporation
a) Corporation sole
b) Religious societies
*Corporations going public- when the corporation
decides to lists its share in the stock exchange. Include
corporations that will make initial public offering of its
shares.

certificate
Of
incorporatio
n
Minimum of
5 maximum
of 15

Manner of
Creation

Mere
agreemen
t

# of
Organizer
s

2 or more

Powers

As maybe
agreed by
the
partners

Limited
personality

Organizer
Authority

Mutual
Agency

No agency

Transfer of
interest

Must
be
with
consent of
partners
No
right
of
successio
n

Maybe
without
consent

**Corporations going private- when the corporation

would restrict the shareholders to a certain group. In a
sense includes closely held corporations.

Successio
n

***Real Estate Investment Trust- a stock corporation

which operations involve the owning of income
generating real estate assets.

De Facto vs De Jure Corporations

De Jure

Corporation vs Partnership
Partnershi
p

Corporation

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W/ right of
succession

De Facto

Created
in
strict
conformity w/
statutory
requirements

Right to exist
cannot
be
successfully
attacked even
in
a
direct
proceeding by
the state

Actually exists
for
practical
purposes as a
corporation but
w/o legal right
to
corporate
existence
as
against
the
state
Right to exist
can
be
successfully
attacked in a
direct
proceeding by
the state (Quo
Warranto)

Components Of A corporation
Incorporators- those who originally form/compose the
corporation whose names appear on the articles of
incorporation acknowledged by a notary public
1.must be natural persons
2.At least 5 but not more than 15
3.Of legal aage
4.Majority are residents of the philippines
5.Each must subscribe or own atleast on share

Corporators- all the stockholders and members of the

corporations
Stockholders and members- those who hold or own
shares in a stock corporation; the latter compose the
non-stock corporation
Directors and trustees- Directors is the governing body
in a stock corporation while trustees is the governing
body in a non-stock corporation
Promoter- help ventures attract investors, forms a
corporation and launches its business with the view of
promotion of profits.
Corporators vs Incorporators
_Incorporators
1. signatory to articles
2. Do not cease to be as such
3. Number is limited from 5 to 15
4. Must have contractual capacity
_Corporators
1.Stockholder of a stock corporation and member of
a non-stock corporation
2.Cease to be such if no longer stockholders or
members
3.No restriction as to number

Sources: Reviewer on Commercial Law by Aquino - Sundiang

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4.Maybe such through a guardian

4. upto 40%
Foreign Stockholders
Q: can all the stockholders in a corporation be
foreigners?
A: yes, except
corporations

in

fully

or

partly

-realty companies and other corporations that own

private lands
-Operation and management of public utilities
-Adjustment companies

nationalized

Examples of fully or partly nationalized corporations:

5. upto 60%
-financing companies
-investment houses

1. where no foreign stockholder is allowed:

Corporators vs incorporators
-mass media except recording
-retail trade business with paid up capital of less than
US$ 2.5M
-private security agency
-Small scale mining
-cockpits
2. upto 20% Foreign equity
-private radio communications network
3. upto 25%

Corporators
Stockholder/mem
ber
of
stock
corporation/ nonstock corpo
Cease to be such
if they are no
longer
stockholders
No restriction as
to number

-private recruitment (whether local/overseas

-Construction of defense related structures

Sources: Reviewer on Commercial Law by Aquino - Sundiang

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Incorporators
Signatory
articles
incorporation

to
of

Do not cease to
be such
Number
limited
from 5 to 15

Maybe be
through
guardian

such
his

7. Stock corporation: amount of authorized capital

stock

With contractual
capacity

8. Par value of each share (stock corporations)

FORMATION OF A CORPORATION

9. Number of shares and amounts of subscriptions of

subscribers which is not less than 25% of
authorized capital stock

The life of a corporation commences from the issuance

of the certificate of registration from the SEC upon the
filing of the articles of incorporation and other
documents.

10. Amount paid by subscriber on their subscription

which shall be not less than 25% of the
subscribed capital and not less than 5,000

Articles Of Incorporation
Contents:

11. Nationalized industry: statement no stock will

be allowed if it will reduce stock ownership of
filipinos below the legal requirement

1. name of the corporation

2. Purposes; primary and secondary

Documents filed with for the issuance of the Certificate

Of Registration

3. Place of principal office

4. Term
5. Names,
citizenship,
incorporators

residences

of

the

6. Names, citizenship, residences of the directors

Sources: Reviewer on Commercial Law by Aquino - Sundiang

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1. Articles Of Incorporation
2. Treasurers certification: 25% of the authorized
capital stock is subscribed and 25% have been
fully paid in cash or property
3. Bank certificate covering the paid up capital
4. Letter Authority: authorizing the SEC; examine
bank deposit, books and records to determine
existence of paid-up capital

5. Undertaking to change the corporate name in

case the same was registered previously by
another person
6. Certificate of Authority from proper government
agency wherever appropriate.
What corporate name cannot be used?
-those deceptively, deceivingly similar to that of any
existing corporation
-name already protected by law
-name contrary to public morals or policy
Significance of the principal place of business
-Principal place of business determines the venue of
court cases involving corporations
Maximum Term of Corporations
-the maximum term of corporation is 50 years
-may be extended for a period not exceeding 50 yrs
-Renewal: shall no be earlier than 5 years prior to the
expiration of the 50 year term.
TERMS:

Amount that is fixed in the articles of incorporation,

that is to be subscribed and paid for by the
stockholders of the corporation.
Subscribed Capital:
Portion of the authorized capital stock covered by
subscription agreements, whether or not fully paid
Paid-up Capital:
Portion of the capital stock which has been subscribed
and actually paid
Outstanding Capital Stock:
Total shares of stock issued to subscribers whether or
not fully paid.
Capital:
Properties and assets of the corporation that are used
for business and operation.
Amendment of the Articles Of Incorporation
Procedure:
-Majority vote of the directors/trustees
-Written assent of stockholders representing 2/3 of the
outstanding capital or 2/3 of members in a non-stock
corporation

Authorized Capital Stock:

When Effective:

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-upon approval of the SEC

-non action of SEC: 6mos after the date of filing.
Provided: delay is not attributed to the corporation
Congress:
-Congress may pass statutes amending the Articles of
incorporation provided that no vested right is impaired
(Sec 145, CCP)
Suspention/Cancellation of Certificate of Registration:
(FM-RI-BFO)
-FRAUD in procuring registration
-serious MISREPRESENTATION as to objectives of the
corporation
-Refusal to comply with the lawful order of the SEC
-continuous INOPERATION for atleast 5 years
-failure to file BY-LAWS
-failure to file FILE REPORTS
-OTHER similar grounds
BY-LAWS- relatively permanent and continuing rules of
the corporation, intended for the individuals composing
it and those that take part in the management of
corporate affairs.

-consistent with the corporation

pertinent rules and regulations

code

and

other

-must reasonable and not arbitrary

-must not disturb vested rights/property rights of
stockholders/members, impair contracts or create
obligations unknown to law
*no absolute restriction on the right to transfer
interest
*must not undermine the security of tenure of an
employee
(salafranca vs PhilamLife)
Adoption & Amendment:
A) Original By-Laws
-maybe filed along with the filing of the Articles of
Incorporation; or
-filed 1 month after the notice of issuance of the
certificate of incorporation, Provided:

Requisites:
-must be consistent with the Articles Of Incorporation

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1.the same is approved by the majority of the

stockholders/members constituting a majority of
the outstanding capital stock
2.Copy is filed with the SEC, (signed by the
approving stockholders/members, certified by a
majority
of
the
majority
of
the

directors/members,
corporate secretary)

countersigned

by

the

NOTE: the non-filing of the by-laws within one month is

a ground to forfeit the franchise but will not result to an
automatic dissolution
B) Amendment
-maybe made by the stockholders together with the
board or the board only.
1. Stockholders + Board Members: majority of the
board
and
majority
of
the
stockholders( representing te outstanding capital
stock)
2. Board ONLY: as delegated by 2/3 of the
stockholders representing majority of the
outstanding capital stock or 2/3 majority of
members

B) as to third persons: it is not binding against 3 rd

persons, XPN: when there is actual knowledge. (3rd
persons are not even bound to investigate the content
of the by-laws because they are provisions for
government of the corporation, NOTICE TO THEM WILL
NOT BE PRESUMED)
POWERS OF THE CORPORATION
Kinds:
1. Express- those that have been provided
for/authorized by law and its articles of
incorporation or charter.
2. Implied- those that can be inferred from the
exercise of express powers
3. Incidental- incidental to the existence of the
corporation
Express Powers Under the Corporation:
(SS-AAA-I/A-DED-EO)

Binding effect of the Provisions of the By-Laws

A) as to the corporation and its components: binding
upon the corporation but also on its stockholders,
members and those officers having direction,
management and control of its affairs.

Sources: Reviewer on Commercial Law by Aquino - Sundiang

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1.
2.
3.
4.
5.

to sue and be sued

Succession
Adopt and use corporate seal
Amend Articles of Incorporation
Adopt, amend, repeal by-laws

6. Stock corporation- issue stocks to subscribers and

to sell treasury shares; non-stock corporationadmit members
7. Deal with real and personal property pursuant to
its lawful business
8. Enter into merger and consolidation
9. Make reasonable donations for publice welfare,
charitable and cultural purposes (prohibition:
partisan political party)
10. Establish pension, retirement and other plans for
the benefit directors, officers, trustees and
employees
11. Other essential powers necessary to carry out its
purposes

10. Amend the Articles Of Incorporation

Ultra Vires Acts: are acts committed outside or beyond
the powers granted/authorized by the law, the articles
of incorporation or charter.
Ultra Vires Acts vs Illegal Acts:
-Ultravires acts
are merely voidable which may still be enforced by:
performance, ratification or estoppel
-Illegal Acts:
are void and cannot be validated
Effects of an Ultra Vires Act

Specific Powers:
(EII-DCP-IDMA)
1.
2.
3.
4.
5.
6.
7.
8.
9.

power to extend or shorten corporate term

Increase/decrease corporate stock
Incur/create bonded indebtedness
Deny pre-emptive right
Sell, dispose, Lease, encumber all or substantially
all of the corporate assets
Purchase or acquire own shares
Invest in another corporation, business other than
the primary purpose
Declare dividends
Enter into Management Contract

1. executed contract- courts shall not set aside or

interfere with such contracts
2. Executory contracts- shall not be given any effect,
even at the suit of either party
3. Partly executed and executory- principle of unjust
enrichment shall apply.
Distinguished with acts that do not comply with
formalities
-An act that does not comply with the formalities
prescribed is not an ultra vires act (e.g. non compliance
with the by-laws prescribing a procedure in entering
into contracts)

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Distinguished from unauthorized acts

-the act maybe within the powers of the corporation but
not the officer (ULTRA VIRES ACT OF THE OFFICER).
Who may exercise the powers of the corporation?
-General Rule: the board alone without the need of
concurrence of the stockholders/members may exercise
corporate powers, the decision of the stockholders do
not overrule that of the board.

4. Amendment/repeal of a board resolution which by

its terms cannot be amended/repealed
5. The distribution of cash dividend
The executive committee: composed of at least three
(3) members coming from the board. The executive
committee is created under the by-laws
*NOTE: the board by itself cannot create an executive
committee under section 35 of the corporation code,
the board however, may create an executive
committee to HELP in the management of the affairs of
the corporation.

Powers not exercise by the board alone:

1. there is a management contract
2. The powers of the board is delegated to a
majority vote of an executive committee
*Group of directors appointed to act on behalf of, and
within the powers granted to them by, the board of
directors.
What are the powers that cannot be exercised by the
Executive Committee?
1. approval of an action needing the concurrence of
the stockholders
2. filling in vacancies in the board
3. Adoption, amendment, repeal of by-laws

-in other cases, the other corporate officers may bind

the corporation like the president. The authority of such
individuals to bind the corporation is generally derived
from:
I. Law
II.by-laws
III.authorization from the board either expressly or
impliedly by habit, custom,acquiescence in the course
of business
-for a corporate officer/agent to bind 3 rd persons and
the corporation: AUTHORITY to do so must have been
conferred to him
-an officer may also bind the corporation if he has
apparent authority. It is derived not merely from
practice, its existence maybe ascertained through:

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1. general manner in which the corporation holds

out its agent/officer having the power to act.
2. The acquiescence in his acts of a particular
nature, with actual or constructive knowledge
thereof, within or beyond the scope of his
ordinary powers.
Instances when the concurrence of the stockholders is
necessary for the exercise of the powers of the
corporation:EII/DC/IDMA
A) approval of the majority of the board and the
concurrence of the board representing 2/3 of the
outstanding capital (or 2/3 of the members, whenever
applicable is necessary: (EII-DC-IDMA)
NOTE: the same powers as the specific powers however
the denial of pre-emptive right is not included and,
declare dividends: stock.
*notes: management contract - am agreement under
which operation control of an enterprise is vested by
contract with a separate enterprise that performs the
necessary managerial functions in return of a fee.
*to enter into a management contract:
1. stockholder/s representing the same interest of
both managing and the managed corporation
sown or control more than 1/3 of total

outstanding capital entitled to vote in the

managing corporation; or
2. Majority of the members of the board of directors
of the managing corporation also constitute a
majority of the members of the board of the
managed corporation
B) Approval of the stockholders representing majority of
the outstanding capital is necessary together with the
board approval in the following circumstances:
1. to enter into a management contract if any of the
two insances mentioned above are absent
2. Adopt, amend, repeal the by-laws
C) without board resolution, the stockholders may by:
1. 2/3 outstanding capital- delegate to the board the
power to amend by-laws
2.majority of outstanding capital- revoke the power
of the board to amend the by-laws which was
previously delegated.
Instances when the corporation may acquire its own
shares:
-the corporation has unrestricted retained earnings in
its books to cover the shares to be purchased.

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-for legitimate corporate purposes including but not

limited to the following:
1. eliminate fictional shares arising out of stock
dividends
2. Collect/compromise and indebtedness to the
corporation arising out of unpaid subscription and
to purchase delinquent shares sold during the
sale
3. To
pay
dissenting/withdrawing
stockholders
entitled to the payment of their shares.
DIVIDENDS

-the declaration of dividends is discretionary

-payable only when there are profits by the corporation
-even if there are profits the BOD has the discretion
whether or not to issue dividends
XPN: surplus profits are prohibited to be retained by
stock corporations in excess of 100% of their paid-up
capital
XPN to the f*ckin XPN: even if retained surplus profits is
in excess of 100% of the paid-up capital of the
corporation, the board may still refuse to declare
dividends, if:

A) Who may declare dividends?

*The BOD alone- cash and property dividends
*BOD with the approval of stockholders representing
not less than 2/3 of the outstanding capital- STOCK
dividends

a) justified by corporate expansion approved by he

board
b) Corporation is prohibited by a load agreement
with a financial institution/by a creditor to issue
dividends without its consent
c) Retention
is
necessary
under
special
circumstances e.g. need for special reserve for
probable contingencies

B) what are the conditions that must be present to

declare dividends?
1. unrestricted earnings
2. Resolution of the board or if stock dividends the
concurrence of 2/3 of the outstanding capital.
C) can the board be compelled to declare dividends?

Dividends cannot be declared out of the capital,

ExceptionWasting assets corporation- corporations engaged in
the
exploitation
of
wasting
assets
(wasting
assets=property/security that has limited life and loses
value over its life

Sources: Reviewer on Commercial Law by Aquino - Sundiang

Corpo - A Students SY 2016-2017 SUPPORT SYSTEM

1. Dividends from investments in wasting assets

2. Liquidating dividends
What can be included in the unrestricted retained
earnings?
-accumulated profits/gains realized out of the normal
and continuous operations after the deduction of
distributions to stockholders and transfers to capital
stock/other accounts
-surplus profits are a condition precedent to the
declaration dividends
Items not available for dividend declaration:
a) unrealized foreign exchange gains
b) Share/equity in net income of the associate/joint
venture
c) Fair value adjustment
d) Recognized deffered tax asset
e) Paid-in-surplus
f) Revaluation surplus
g) Reduction surplus
-Gains from the sale of real properties of the
corporation can be considered as part of retained
earnings provided that there is surplus profits, the
corporation cannot issue gains from the sale of its real
properties as dividends if the value of the remaining

assets after distribution is less than the amount of

legal/stated capital and liabilities.
-treasury shares maybe issued as property dividend.
They cannot be issued as stock or cash dividends
because they are not part of earned or surplus profits.
*TREASURY SHARES maybe declared as property
dividends to be issued out of the retained earnings
previously used to supporttheir acquisition PROVIDED:
the amount of the said retained earnings has not been
subsequently impaired by losses.
-Other rules concerning dividends:
*dividends are based on the total number of shares and
not on the amount paid for the shares.
*stockholders at the time of the declaration of the
dividends are entitled to dividends
*those declared after transfer the owner shall be the
transferee
*those declared before transfer the owner is the
transferor
*stockholders right to be paid dividends accrues from
the moment of declaration, from then on he may
already demand payment
*stock dividends can be declared at a premium (at a
value higher than par)
*even unpaid subscribers are entitled to payment of
dividends

Sources: Reviewer on Commercial Law by Aquino - Sundiang

Corpo - A Students SY 2016-2017 SUPPORT SYSTEM

SALE OF ALL OR SUBSTANTIALLY ALL PROPERTIES

REQUISITES:
1. Approval of majority of the directors or trustees
2. Assent of 2/3 stockholders/members in a meeting
3. Must comply with the formalities of the bulk sales
law
When is the sales deemed to be all or substantially all?
-when such sale renders the corporation incapable of
continuing operations or the purpose for which it was
incorporated

Effect on creditors:
-the transferee/buyer of all or substantially all the
assets(or even shares) will not be liable for the debts of
the transferor
XPNS:
a) is there is an express assumption of liabilities
b) There is a consolidation or merger
c) The purchase was in fraud of creditors
d) The purchaser becomes the continuation of the
seller

Sources: Reviewer on Commercial Law by Aquino - Sundiang

Corpo - A Students SY 2016-2017 SUPPORT SYSTEM