Beruflich Dokumente
Kultur Dokumente
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
This is one of the platforms of the current President to open up some Law (Art. Vlll, Section 5 of
industries to foreign ownership. Ang nangyari diba, last year, the Constitution; Rule 138,
nakailang revisions ang NEDA or nakailang proposals sila, if I know,
pinermahan na, last month lang. This is new, 11th pa lang— foreign 2 E.O. No. 65 promulgating the eleventh regular Foreign Investment
[21] Contracts for the supply of materials, [1] Whether Construction corporations which
goods and commodities to government- will cater exclusively to private construction
owned or controlled corporation, contracts are not subject to limitation on
company, agency or municipal foreign ownership and that the same can
corporation (Sec. 1 of RA No. 5183) be majority-owned by foreign nationals,
provided that it is not engaged in any of the
[22] Operation of deep sea commercial industries indicated in the Foreign
fishing vessels (Sec. 27 of RA No. 8550, as Investments Negative List ("FINL") and the
amended by RA No. 10654) minimum capitalization requirement is
satisfied; and
[23] Ownership of condominium units (Sec. 5 [2] Whether Ownership, management, and
of RA No. 4726) operations of WPCI need not be vested in
citizens of the Philippines.
pala na 40% equity. Pwede naman pala 40% Condominium Act) and
foreign. Presidential Decree No. 957
(Regulating the Sale of
But in reality, that’s so controversial. Kase, OK Subdivision Lots and
lang na bigyan ka ng license ng SEC— you are Condominiums,
incorporated. Magkakaroon ka nang private Providing Penalties for Violations
franchise as a corporation. Thereof).
HOLDING: No.
ISSUE: Whether Vivant Corporation is subject to
Foreign nationals can own Philippine real any foreign ownership restriction.
estate through the purchase of condominium
units or townhouses constituted under the SEC’S OPINION: Vivant must observe the 40%
Condominium principle with Condominium foreign equity threshold provided in the
Certificates of Title[Republic Act (R.A.) No.
4726, otherwise known as the Condominium [1] Constitution,
Act]. [2] the Foreign Investments Act of 1991
[3] the Foreign Investment Negative List (FINL),
The law provides that no condominium UNIT [4] the Public Land Act and
can be sold without at the same time selling the [5] the Condominium Act.
corresponding amount of rights, SHARES or other
interests in the condominium management Accordingly, Vivant must comply with the 40%
body, the Condominium Corporation; foreign equity threshold in order to be qualified to
acquire private lands or disposable lands of public
and no one can buy SHARES in a Condominium domain in the Philippines.
Corporation without at the same time buying a
condominium UNIT. Assuming that Vivant would retain in its purpose
clause the ownership of real properties but would
It expressly allows foreigners to acquire exclude therefrom ownership of land, other rules
condominium UNITS and SHARES in would apply.
condominium corporations up to not more than
40% of the total and outstanding capital stock Under Section 8 of the FIA and List B of the FINL,
of a Filipino-owned or controlled corporation.
[a] a domestic market enterprise
Under this set up, the ownership of the land is [b] with paid-in equity' capital of less than the
legally separated from the unit itself. The land is equivalent of US$200,000.00
owned by a Condominium Corporation and the
unit owner is simply a member in this is partially reserved to Philippine nationals and that
Condominium Corporation. As long as 60% of foreign equity' participation is limited only up to
the members of this Condominium Corporation form percent (40%).
are Filipino, the remaining members can be
foreigners. In Vivant's case, its 2010 General Information Sheet
shows that it has exceeded the required minimum
Considering that the rights and liabilities of the paid-in equity capital equivalent of Two Hundred
parties under the Contract to Sell is covered by Thousand US Dollars (US$200,000.00) in Philippine
the Condominium Act wherein petitioner as unit Peso under the FIA. Thus, the aforementioned
which the condominium project is situated, Tapos ikaw may registration ka in Singapore. Tapos
no interest in the condominium may be ang client mo lang in the Philippines is the branch
transferred to aliens or to corporations more of the company na client mo sa Singpore.
than 40% of the capital stock of which is
owned by aliens; or, You know that recruitment is highly regulated. So,
how would you go around? You need to set-up a
when the common areas are held by a recruitment firm in the Philippines just to cater to
condominium corporation, the transfer to that, tapos pag mag-se-set-up ka naman, fully
aliens of units in the project may be made owned ka—Singaporean company ka, hahanap ka
only up to the point where the concomitant pa ng i-du-dummy para maging 75% Filipino?
transfer of stockholdings in the condominium
corporation would not cause the alien And you know the definition of “recruitment”: any
interest in such corporation to exceed 40% of type of solicitation any type of offering can be
its entire capital stock. considered recruitment, tapos nagkataon pa na
wala kang license—that’s illegal recruitment. So
sasabihin ng client, “so pupunta na lang ako sa
Comment: This is why when you try to look at yung corporate firms sa Pilipinas?” How would you
mga structures ng mga condominium, iba yung mitigate first? Anong ga’win niyo?
may-ari ng lupa, iba yung may-ari ng unit. Tapos
minsan naman nakalista lang siya per equity …5[P]ag ganon. Ah set up kami doon [sa Pilipinas]
because they are trying to [observe] the proscription ng branch! Wala na, ang e-earn mo doon, wala
of foreign ownership of land. na!
Pero pag common area naman it’s co-owned. Kase Tignan niyo yung extent ng criminal jurisdiction, kase
nga, diba, pag unit-holder ka ng isang condo, you most of the jurisdiction hindi extraterritorial. So, that’s
are also a member of a corporation tapos owning one thing. Dito sa Pilipinas, now, when I commit that
crime, ano ba ang magagawa nila sa akin? That’s
that common areas. You still have to comply with the
one
40% restriction.
Second, is, do I mitigate it in such a way na di’
These are [mostly samples] of corporate structuring malalaman ng regulatory board that I engaged in
just to avoid the proscription. [recruitment]? Well, how do you do that?
5
Students answering in chorus [indistinctive]
[i] Chlorates of potassium and sodium; [4] Sauna and steam bathhouses, massage
[ii] Nitrates of ammonium, potassium,
sodium barium, copper (11), lead clinics and other like activities regulated
(11), calcium and cuprite; by law because of risks posed to public
[iii] Nitric acid; health and morals, except wellness
[iv] Nitrocellulose;
[v] Perchlorates of ammonium, centers (RA No. 7042 as amended by
potassium and sodium; RA No. 8 179)
[vi] Dinitrocellulose;
[vii] Glycerol;
[viii] Amorphous phosphorus; [5] All forms of gambling (RA No. 7042 as
[ix] Hydrogen peroxide; amended by RA No. 8179) except
[x] Strontium nitrate powder; those covered by investment
[xi] Toluene; and
[xii] Telescopic sights, sniper scope and agreements with PAGCOR (PD No.
other similar devices. 1869, as amended by RA No. 9487)
[f] Telescopic sights, sniper scope and other similar
devices. [6] Domestic market enterprises with paid-
in equity capital of less than the
However, the manufacture or repair of these equivalent of US$200,000 (RA No. 7042,
items may be authorized by the Chief of the
PNP to non-Philippine nationals; Provided that as amended by RA No. 8179)
a substantial percentage of output, as
determined by the said agency, is exported. [7] Domestic market enterprises which
Provided funher that the extent or foreign
equity ownership allowed shall be specified in involve advanced technology or
the said authority/clearance (RA No. 7042 as employ at least fifty (50) direct
amended by RA No. 8179). employees with paid-in equity capital
of less than the equivalent (RA NO.
[2] Manufacture, repair, storage and/or 7042, as amended by RA No. 8179)
distribution of products requiring
Department of National Defense (DND)
[h] Weapons repair and maintenance but let’s say lower siya , you need to have a
equipment; maximum 40% foreign equity. Pwede ka namang
foreign owned but you need to have more than
[i] Military communications equipment;
US$200,000. Ngayon, mag-kano yan in peso? Diba
[j] Night vision equipment; ang laki!
[k] Stimulated coherent radiation
devices, components and So para maging fully foreign-owned ako, I need to
accessories; have a capital of not less than US$200,000. Eto,
this is really one thing that turns foreign investors
[l] Armament training devices; and
off. Pag-tingin nila, sobrang mahal pala ng
[m] Others as may be determined by kailangan na funding capital, ayaw ko nalang
the Secretary of the DND.
mag-negosyo diyan sa Pilipinas. Sobrang laki related to the manufacture of such finished
niyan eh, kase domestic. products". [FOR EXPORT]
[2]
So what is the exemption of that? You are not
engaged in domestic market, meaning, if your [3] AAI does not own any real property in the
client is outside, so BPO companies. Pag-private Philippines.
companies engaged in export, di mo kailangan In connection with them,
mag-comply sa US$200,000.
SEC’S OPINION:
So you can be 100% foreign-owned kase wala ka THE ACTIVITIES BEING PERFORMED BY AAI DO NOT
naman doon sa list A diba, wala ka naman sa FALL WITHIN THE 8TH FINL [old FINL]
ibang list, your only remaining here seats with
domestic enterprise of US$200,000 capital. The general rule is that non-Philippine nationals
can own up to one hundred percent (100%) of the
So kung hindi ka naman domestic enterprise in the equity in export as well as domestic market
enterprises.
first place, you don’t have to comply with the
US$200,000 capital. So pwede ka na. And why is However, the 8th FINL [Old FINL] restricts foreign
that the policy? Because remember on types of ownership to a maximum of forty percent (40%) of
payments, we have discussed yesterday, we the equity in small and medium-sized domestic
need to have more exports because it stabilizes market enterprises in cases where the paid-in
the peso (in sales and returns outside). That’s why capital is less than the equivalent of Two Hundred
we encouraged firms to invest here, to export Thousand US dollars (US$200,000).
because that would stabilize our economy. That is
Nonetheless, a paid- in capital of at least the
one thing na maka-affect. But the question here, equivalent of One Hundred Thousand US dollars
is, “[i]s this counter-productive?” Maraming na- (US$I00,000) is sufficient so long as the enterprise
tuturn off diyan na mga foreigner, kase malaki rin either
yan.
[1] involves advanced technology as
There is a lower bracket, it involves : determined by the Department of Science
and Technology, or
[7] Domestic market enterprises which involve
[2] employs at least fifty (50) direct employees,
and the foreign equity restriction shall not
[a] advanced technology or apply
[b] employ at least fifty (50) direct Here,
it is subject to the restrictions given above. Q: So you have sales here [domestically], how many
percent?
Here, it appears the activities being
performed by AAI do not fall within the 8th A: Less than 60% of its output.
FINL.
[Transcriber’s note: I think, this should be 40% or
[3] IF SMALL OR MEDIUM-SIZED ENTERPRISE—
SUBJECT TO RESTRICTION; HERE, AAI’S less, otherwise, 60% less may be 41% to 59% which
CAPITALIZATION MORE THAN US $200K—NOT is in excess of 40%. Note that the export must be
COVERED BY RESTRICTION 60% or more of its output, hence domestic sales
may only be 40% or less.]
However, there is a need to determine if AAI
is considered a small or medium-sized Q: So ok sila?
enterprise (SME) as defined by RA 7042 to
determine whether or not the statutory A: Yes.
restrictions on said kinds of enterprises apply
to it.
[7] CLASSIFICATION OF CORPORATIONS
Nonetheless, even assuming that AAI is
classified as a SME under the law, it appears
AS TO EXISTENCE OF SHARES OF STOCK
that it is still not subject to any foreign
[1] STOCK CORPORATIONS
ownership restriction since its authorized
capital stock is Eighty Million Pesos which is [2] NON-STOCK CORPORATIONS
more than the equivalent of Two Hundred
Thousand US dollars (US$200,000.00).
Section 3. Classes of corporations. –
The foregoing opinion rendered is based Corporations formed or organized under
solely on the facts disclosed in the query this Code may be stock or non-stock
and relevant solely to the particular issues corporations. Corporations which have
raised therein and shall not be used in the capital stock divided into shares and are
nature of a standing rule binding upon the authorized to distribute to the holders of
Commission. such shares dividends or allotments of the
surplus profits on the basis of the shares
Q: What is the business of the company here? held are stock corporations. All other
corporations are non-stock corporations.
A: For export.
Section 4. Corporations created by special
Q: Is it subject to restriction? laws or charters.—Corporations created by
special laws or charters shall be governed
A: No. [Export enterprise is not subject to restriction]. primarily by the provisions of the special
law or charter creating them or applicable
to them, supplemented by the provisions of
“Export enterprise”—is defined as one "wherein a
this Code, insofar as they are applicable.
manufacturer, processor or service (including (n)
tourism) enterprise exports
[1] sixty percent (60%) or more of its output, or Example: The New Central Bank Act creating the
[2] wherein a trader purchases products BSP. That’s an example of a charter which creates
domestically and exports sixty percent (60%) or the BSP.
more of such purchases" [RA 7042].
STOCK V. NON-STOCK CORPORATION
It may offer its product here [domestically] but 60%
of its output must be exported abroad. It is not STOCK CORPORATION NON-STOCK
covered by the FINL. CORPORATION
AS TO DEFINITION 1
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
10
[Sec. 5, id.]
AS TO COMPOSITION 11
[id.]
12
[Section 24, id.]
13
[Section 89, id..]
14
[Sec. 24, Sec. 5, id.]
6
[id.] 15
[Sec Opinion 20 Sept. 1994]
7
[Sec. 3, B.P. id.] 16[Sec. 24, id.]
8
[Section 88, id.] 17 will just discuss that
9
[See: Section 87, id.] 18 Nothing else follows 1
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
HOLDING/
IN RELATION TO THE STATE PARENT COMPANY
[3] PUBLIC CORPORATIONS
AS TO RELATIONSHIP OF MANAGEMENT & CONTROL It can have a business, e.g., it may have
[11] HOLDING COMPANY/ PARENT COMPANY manufacturing; therefore, it may have its own
operation and at the same time hold the shares
“HOLDING COMPANY” of the daughter company. This is what you call
“operating holding company”.
A holding company has been aptly defined as
"a corporation organized to hold the stock of [13] AFFILIATE COMPANY
another or other corporations.
SUBSIDIARY V. AFFILIATE
Its essential feature is that it holds stock. The
term "holding company" is equivalent to a SUBSIDIARY AFFILIATE
parent corporation, having such an interest in
another corporation, or power of control, that it
may elect its directors and influence its is controlled by Pag-affiliate, less
management. another corporation, than 50% but
so more than 50%. more than 20%. 19
PRE-INCORPORATION CONTRACT
[8] PRE-INCORPORATION STAGE
So, what happens kapag meron kang ka-kontrata of
an intended corporation. So subscription and
“CORPORATORS”;“INCORPORATORS”; payment of a corporation that has yet to be
“’STOCKHOLDERS”; “MEMBERS” incorporated. What will happen? May capacity,
may consent ba yung sa corporation? Hinda pa
naman siya na i-incorporate.
Section 5. Corporators and incorporators,
stockholders and members. — Corporators Bakit hindi pa siya na i-incorporate? Sige daw, ikaw
are those who compose a corporation, daw, mag-incorporate ka saka’ ka [hum]ingi ng
whether as stockholders or as members. pera? magpull-out ka muna ng pera. [hu]mingi ka
Incorporators are those stockholders or muna ng pero bago ka mag-incorporate, kase fund
members mentioned in the articles of mo yun—capital!
incorporation as originally forming and
composing the corporation and who are So what happens with that contract: the pre-
signatories thereof. incorporation contract? What’s the legality of that
contract?
Corporators in a stock corporation are Mag subscribe ka, oh! amot-amot, magbuhat ta’g
called stockholders or shareholders. corporation, so buhat ta ug kontrata. So, kinsa ang
Corporators in a non-stock corporation are party?
called members. (4a)
Mag subscribe ko’g ingon aning share sa
corporation ,wala pa man ni siya’y juridical
[1] “Member”—is also called a stockholder or personality, so kinsa ang party?
shareholder.
Does it have a capacity to give consent, given the
[2] “Incorporators”—are those stockholders or fact na hindi pa naman siya in a nature of a
members mentioned in the articles of corporation, though wala pa naman siyang essence
incorporation as originally forming and of a person?
composing the corporation and who are
signatories thereof. So this is what we call mga “pre-incorpration
contracts. “
“CORPORATOR” V. “INCORPORATOR”:
So di’ pwedeng nakalagay sa AOI [Articles of Comment: Usually , pag dagkong company,
Incorporation] niyo yung pangalan mo. Hindi there is what you call “promoter.” Sila tong’
pwede’ng forever kang corporator, kase pwede promoter na ti’g-promote: “Uy! Mag
mo namang ibenta. corporation mi, mag corporation mi!” Tawag
ana promotes.
20
[Section 3.10.of the Securities Regulation Code] 1
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
A “subscription contract” is not necessarily a pre- transferred to the name of the plaintiff
incorporation contract. company until the latter has fully and
completely paid TABORA’s indebtedness.
The contract itself referred to the plaintiff as corporation composed of himself, his wife, and
[“under process of incorporation”]. It was not a few others. From the articles of incorporation,
even a de facto corporation at the time. Not it appears that out of the P48,700, amount of
being in legal existence then, it did not possess capital stock subscribed, P45,000 was
juridical capacity to enter into the contract. subscribed by Tabora himself and P500 by his
wife,; and out of the P43,300, amount paid on
Corporations are creatures of the law, and can subscriptions, P42,100 is made to appear as
only come into existence in the manner paid by Tabora and P200 by his wife.
prescribed by law. As has already been stated,
general laws authorizing the formation of Both Tabora and his wife were directors and the
corporations are general offers to any persons latter was treasurer as well. In fact, to this day,
who may bring themselves within their the lands remain inscribed in Tabora’s name.
provisions; and if conditions precedent are The defendant always regarded Tabora as the
prescribed in the statute, or certain acts are owner of the lands. He dealt with Tabora
required to be done, they are terms of the offer, directly. Jose Ventura, president of the plaintiff
and must be complied with substantially before corporation, intervened only to sign the
legal corporate existence can be acquired. contract, in behalf of the plaintiff.
That a corporation should have a full and Even the PNB, mortgagee of the four parcels of
complete organization and existence as an land, always treated Tabora as the owner of the
entity before it can enter into any kind of a same. Two civil suits were brought against
contract or transact any business, would seem Tabora.
to be self evident. . . .
The PNB threatened to foreclose its mortgages.
A corporation, until organized, has no being, Tabora approached the defendant Sandiko
franchises or faculties. Nor do those engaged in and succeeded in making him, among other
bringing it into being have any power to bind it things, assume the payment of Tabora’s
by contract, unless so authorized by the charter. indebtedness to the Philippine National Bank.
Until organized as authorized by the charter
there is not a corporation, nor does it possess The promissory note, was made payable to the
franchises or faculties for it or others to exercise, CAGAYAN FISHING so that it may not be
until it acquires a complete existence." attached by Tabora’s creditors, two of whom
had obtained writs of attachment against the
HERE, THE CORORATION IS NOT LIABLE; four parcels of land.
PROMOTERS ARE:
FACTS:
RIZAL LIGHT’S contention that MORONG
ELECTRIC did not yet have a legal personality
RIZAL LIGHTS’ CONTENTION::
on MAY 6, 1962 when a municipal franchise was
granted to it is correct.
RIZAL LIGHT assailed the personality of
MORONG ELECTRIC on the proposition that
MORONG ELECTRIC—NOT A DE FACTO
since a franchise is a contract, at least two
CORPORATION PRIOR TO C.O.I. ISSUANCE BY
competent parties are necessary [for its]
SEC
execution, and parties are not competent
except when they are in being.
The juridical personality and legal existence of
MORONG ELECTRIC began only on OCTOBER
Hence, it is contended that until a corporation
17, 1962 when its certificate of incorporation
While a franchise cannot take effect until the require, and to issue certificates of
grantee corporation is organized, the franchise public convenience and necessity
may, nevertheless, be applied for before the when such is required or provided
company is fully organized. by any law or franchise."
corporate form against the outsider, the outsider EASTERN LUMBER was an unregistered
is held liable to the enterprise; partnership; that they wished to have it
dissolved because of bitter dissension among
[3] The enterprise enters into a contract with an the members, mismanagement and fraud by
outsider, and the outsider brings an action the managers and heavy financial losses.
against the component individuals, they are
absolved from liability and the outsider is limited ISSUE:
to his remedy against the enterprise only; or
Under our statue it is to be noted25 We say that “[i]t is the issuance of certificate that
that it is the issuance of a grants you personality as a corporation.” So, wala
certificate of incorporation by the palang pinagkaiba? Pareho lang pala si de jure at
Director of the Bureau of si de facto. Kase kung de facto kailangan mo rin ng
Commerce and Industry which certification—certificate of incorporation.
calls a corporation into being.
So once ma-issue-han ka ng certificate of
incoroporation, di’pala tapos. Di pa pala
The immunity if collateral attack is
property described therein non-existent, and main office where it conducts business, has
that the property covered by another TCT had shareholders, corporate officers, a board of
a prior existing mortgage. directors, assets, and personnel. It is, in fact,
here represented by the Office of the
Government Corporate Counsel, the principal
Investigating Committee rendered a decision
law office of government-owned corporations,
finding that SAWADJAANS failed to perform his
one of which is respondent bank.
duties and assigned tasks as
appraiser/inspector, which resulted to the At the very least, by its failure to submit its by-
prejudice and substantial damage to the laws on time, the AIIBP may be considered
Bank, respondent should be held liable a de facto corporation whose right to exercise
therefore. corporate powers may not be inquired into
collaterally in any private suit to which such
The Board of Directors of the Islamic Bank corporations may be a party.
[AIIBP] adopted Resolution finding
SAWADJAANS guilty of Dishonesty in the Moreover, a corporation which has failed to
Performance of Official Duties and/or Conduct file its by-laws within the prescribed period
Prejudicial to the Best Interest of the Service does not ipso facto lose its powers as such.
and imposing the penalty of Dismissal from the
Service. Comment:
Section 21. Corporation by estoppel. – All The court below rendered judgment in favor
persons who assume to act as a of the ASIA BANKING for the sum demanded
corporation knowing it to be without in the complaint
authority to do so shall be liable as general
partners for all debts, liabilities and
damages incurred or arising as a result From this judgment the STANDARD
thereof: PRODUCTS appealed because at the trial of
the case, ASIA BANKING failed to prove
affirmatively the corporate existence of the
Provided, however, That when any such parties and the STANDARD PRODUCTS insists
ostensible corporation is sued on any that under these circumstances, the court
transaction entered by it as a corporation erred in finding that the parties were
or on any tort committed by it as such, it corporations with juridical personality.
shall not be allowed to use as a defense its
lack of corporate personality.
ISSUE: Is STANDARD PRODUCTS estopped
from denying ASIA BANKING’s and its own
On who assumes an obligation to an corporate existence?
ostensible corporation as such, cannot
resist performance thereof on the ground
that there was in fact no corporation. (n) HOLDING: Yes
[BP. Blg. 68]
The general rule is that in the absence of
fraud a person who has contracted or
otherwise dealt with an association in such a
way as to recognize and in effect admit its
legal existence as a corporate body is
thereby estopped to deny its corporate 2
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
executed by the parties not only in their final letter, where he reiterated and
personal capacities but also in strongly demanded the former to
representation of their respective immediately vacate the hangar space his
corporations or entities. "company is occupying/utilizing."
Broadly termed, this is your capital in the broad which is tax deductible. So meron kang shield. You
sense huh. Kase ang meaning ng capital in your can further bring your income down.
broad sense: everything that finances your assets.
LIQUIDATING COURT
NO THIN CAPITALIZATION IN THE PHILIPPINES
JOO ET AL. [SINGAPOREANS] filed their
Now, sa atin wala. You have no thin capitalization. claim before the liquidating court.
In other words, you can actually, upto ₱25,000 lang Citing Investment Incentives Act, they
yung capital mo, subject to the limitations under claimed to be preferred creditors and
your Corporation Code, pwedeng all the rest could prayed for the return of their equity
be by debt financing. investment in the amount of
US$2,531,632.18 with interest until the
closure of the PaBC.
PREFERENCE FOR DEBT FINANCING The LIQUIDATION COURT issued an order
that [t]he claimants who are foreign
What happens kapag meron kang loan, why is that investors should already be paid. The
most people would want to have more debt doubt should be resolved in favor of
financing, well for one , they cannot expend na claimants since it is of judicial notice that
magbigay ng pera. government adopted the policy to entice
foreign investors to help boost the
For another thing, ano pa? economy. Claimants who are foreign
investors should be treated with liberality
Debt financing, anong cost nito? You have interest. such that they should be categorized
Which[is] magkakaroon ka ng capital expense among preferred creditors.
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
When the trial court, in its Order of 11 Thus, unlike a deposit of money or a loan
September 1992, declared the that earns interest, the investment of the
Singaporeans to have the status of Singaporeans cannot be assured of a
preferred creditors, it did so only for the dividend or an interest on the amount
purpose of giving them priority in the order invested. For, interests or dividends are
of payment upon the liquidation of the granted only after profits or gains are
PaBC. Relying only on the Investment generated.
Incentive Act, the trial court did not
decide whether the Singaporeans RESULTANTLY, GUIDILENES IN EASTERN
investment was a loan or equity. Since the SHIPPING CASE IN RELATION TO INTEREST IS
Singaporeans were declared preferred NOT APPLICABLE.
creditors for a limited purpose, it does not
We therefore agree with the Court of
follow that the court likewise implied that
Appeals in holding that the amount of
the original remittance of the
US$2,531,632.18 remitted by the
Singaporeans was in the nature of a loan
Singaporeans to PaBC was not a loan or
or forbearance of money, goods, or credit.
forbearance of money in favor of PaBC.
CA: the equity investment of Hence the guidelines in Eastern Shipping
US$2,531,632.18 was not a loan or Lines does not come into play.
forbearance of money; hence, Central
Neither can we apply Central Bank
Bank Circular No. 416, prescribing 12%
Circular No. 416, which imposes the rate of
interest per annum on loans or
12% per annum on loans and forbearance
forbearance of money, goods, or credit is
of money. Nor can guidelines be invoked
inapplicable. It applied Article 2209 of the
because, as correctly pointed out by the
Civil Code, which provides for the legal
Liquidator, the closure of the PaBC did not
interest of 6% per annum in the absence of
constitute a breach of obligation. Article
a stipulation to the contrary. Thus, the CA
2209 of the Civil Code, which was relied
modified the Order of 12 May 1998 and
upon by the Court of Appeals, does not
reduced the rate of interest on the
find application either. That Article, which
investment of US$2,531,632.18 from 12% to
provides for 6% interest per annum,
6% to run from 15 October 1981 when the
governs when there is a delay in the
outward remittance and equity investment
payment of a sum of money. Such is not
was actually made up to the closure of
the case here.
PaBC. Also, following Eastern Shipping
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
Issue: Are stock dividends included in “capital stock subscribed To simplify. What finances your assets? Depende. It could be
and paid for” your liabilities or capital.
Ruling: Yes
Assets = Liabilities + Capital
In NTC vs CA, the court held:
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
Fund in Retained
Capital
trust earnings Stock
Stock
of
Pag mag de-declare ka ng dividends, let’s say mag di- creditors
distribute ka ng dividends, you can only declare dividends Conversion Cash
from your retained earnings. In other words, if you are TRUST FUND
investor, you are only entitled to dividends kapag may kita DOCTRINE Property
ang company. You cannot declare dividends out of the capital
Fund in Retained
Capital What constitutes capital stock? Capital stock is composed of
trust earnings
Stock your paid-up capital.
of
creditors
Paid Up Capital
Subscription Contract
PROFIT: Year 0 – Year 1
100
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
What’s the nature of a subscription contract? Eto, binili ko this But the Board held that the paid-up capital of MSCI on was
share, akin nay an pero pwede naman na di ko pa bayaran in actually P64,688,528.00 and not P5 million and, thus, the
full, partial lang. Now, it is a principle that Subscription established losses amounting to P3,400,738.00 constitute an
contract is indivisible. You cannot divide the subscription. Kasi impairment of only 5.25% of the true paid-up capital of P64
million plus, which losses are not enough to meet the
anong nangyayari kapag dinidivide? This is not written in Law
required 25% impairment requirement. This conclusion is
books. anchored on the belief of the Board that the value of the
assets of ASCI, party to the Memorandum of Agreement,
Situation: transferred to MSCI on March 28, 1990 should be taken into
consideration in computing the paid-up capital of MSCI to
I will subscribed P500,000. Tapos binayaran ko ng P250,000. reflect its true financial structure.
Tapos I cannot pay anymore.
Issue: What is the correct paid up capital of MSCI?
Subscription (Collectible) The shares in stock corporations may be divided into classes
of series of shares, or both. No share may be deprived of
voting rights except those classified and issued as “preferred”
Paid Up Capital or “redeemable” shares, unless otherwise provided in this
Code: Provided, that there shall always be a class or series of
shares with complete voting rights.
Is it possible that Paid-up is equivalent to subscription? Yes, 5) Increase or decrease of capital stock
kung fully paid.
6) Merger or consolidation of the corporation with another
corporation or other corporation
Is it possible that the consideration received is the greater
than the subscribed capital? Pwede ba na ang binayad ni 7) Investment of corporate funds in another corporation or
stock holder sa corporation, the amount is greater than the business in accordance with this Code; and
capital stock?
8) Dissolution of the corporation
You have your share premium. Except as provided in the immediately preceding paragraph,
the vote required under the Code to approve a particular
The share premium is an equity account found on a corporate act shall be deemed to refer only to stocks with
company's balance sheet. The amount in the account voting rights.
represents the additional amount shareholders paid for their
The shares or series may or may not have a par value except
It is possible that the consideration is greater than the Preferred shares of stock issued by a corporation may be
given preference in the distribution of dividends and in the
subscribed? Yes. Yung tinatawag na share premium. Kasi
distribution of corporate assets in case of liquidation, or such
pwede naman na P100 ang par value, per ang binaigay sayo other preferences: Provided, that preferred shares of stock
na consideration is P250. Kasi isipin mo naman, kung bibili ka may be issued only with a stated par value. The board of
ng shares, ibebenta ba yan ng corporation ng par value lang? directors, where authorized in the articles of incorporation,
Ofcourse not! Wala silang kita. may fix the terms and conditions of preferred shares of stock
or any series thereof: Provided further, that such terms and
conditions shall be effective upon filing of a certificate thereof
Now can we sell below par value? Let’s say the par value is
with the Securities and Exchange (hereinafter referred as
P100, pwede ba na ibenta ng P80? Lower than the par value.
“Commission”)
The share, lower than the par value, is generally not allowed.
Remember that this is in trust for the creditors. You will be Shares of capital stock issued without par value shall be
selling watered Stock. Sinasabing watered stock kasi gatubig deemed fully paid and non-assessable and the holder of such
raba. shares shall not be liable to the corporation or its creditors in
respect thereto: Provided, that no-par value shares must be
issued for a consideration of atleast five pesos (P5.00) per
Watered stock is stock that is issued at a price far higher
share. Provided further, that the entire consideration received
than the value of the issuer's assets. (Investopedia) by the corporation for its no-par value shares shall be treated
as capital and shall not be available for distribution as
Remember that you cannot sell lower than the par value. dividends.
There are exception ofcourse, which will be discussed in the
classification of shares. A corporation may further classify its shares for the purpose
of ensuring compliance with constitutional or legal
requirement.
Classification of Shares
It must be indicated in both AOI (Articles of Incorporation) corporations authorized to obtain or access funds from the
and certificate of stock. Otherwise, that distinction is not public, whether publicly listed or not, shall not be permitted
valid. to issue no-par value shares of stocks.
“x x x
Pwede pa lang walang par value. But please take note except:
“The shares in stock corporations may be divided into classes
of series of shares, or both.” 1. Banks
2. Trust
3. Insurance
4. Pre-need associations
Pwede ba na isang shares marami kang classification? Pwede. 5. And other corporations authorized to obtain or
access funds from the public
“No share may be deprived of voting rights except those
classified and issued as “preferred” or “redeemable” shares” These should always have par value.
“x x x
Can you have a par value less than P5? Pwede ka bang
“Except as provided in the immediately preceding paragraph,
magkaroon ng par value na piso? Can you issue shares at P1
the vote required under the Code to approve a particular
each? It is only allowed if you issue par-value share. If it is a
corporate act shall be deemed to refer only to stocks with
voting rights. “ no-par value share, it must be atleast P5.
issue a share lower than the par value, hindi kasi that face order to reduce the company’s foreign exchange remittances
value is the basis of the trust fund doctrine. in case cash dividends are declared.
Example: Par value: P100 = 1 share EXCHANGE OF COMMON SHARES WITH PREFERRED
SHARES- not taxable. There is no gain to speak of.
A) higher then par value- ALLOWED
P120 = the 20 is the share premium In exchange, there would be a shifting of the balance of
stock features, like priority in dividend declarations or
B) Lower than par value - not allowed absence of voting rights. But neither the reclassification nor
P80 = not allowed because of the trust fund doctrine exchange per se, yields realize income for tax purposes.
dividend of One Per Centum insolvency or inability of the corporation to meet its debts as
(1%), cumulative and they mature.
participating.
xxx Issue: Can RPB be compelled to redeem the preferred shares
2. That such preferred shares may issued to the private respondent.
be redeemed, by the system of
drawing lots, at any time after RULING: No. While the stock certificate does allow
two (2) years from the date of redemption, the option to do so was clearly vested in the
issue at the option of the petitioner bank. The redemption therefore is clearly the type
Corporation. x x x." known as "optional". Thus, except as otherwise provided in
the stock certificate, the redemption rests entirely with the
The Corporation filed a complaint against RPB anchored on its corporation and the stockholder is without right to either
alleged rights to collect dividends under the preferred shares compel or refuse the redemption of its stock.
in question and to have RPB redeem the same under the
terms and conditions of the stock certificates. The redemption of said shares cannot be allowed. As pointed
out by the petitioner, the Central Bank made a finding that
ISSUE: Does the corporation have the right to colledt the said petitioner has been suffering from chronic reserve
dividends under the preferred shares? deficiency, and that such finding resulted in a directive,
issued on January 31, 1973 by then Gov. G. S. Licaros of the
Can RPB be compelled to redeem the shares? Central Bank, to the President and Acting Chairman of the
Board of the petitioner bank prohibiting the latter from
RULING: redeeming any preferred share, on the ground that said
redemption would reduce the assets of the Bank to the
SC first discussed the nature of preferred shares and prejudice of its depositors and creditors.
redeemable shares.
Issue: Is the corporation entitled to collect dividends?
“A preferred share of stock, is one which entitles the
holder thereof to certain preferences over the holders of Ruling: No. Sec. 16 of the Corporation Law and Sec. 43 of the
common stock. The preferences are designed to induce present Corporation Code prohibit the issuance of any stock
persons to subscribe for shares of a corporation. Preferred dividend without the approval of stockholders, representing
shares take a multiplicity of forms. not less than two-thirds (2/3) of the outstanding capital stock
at a regular or special meeting duly called for the purpose.
The most common forms may be classified into two: These provisions underscore the fact that payment of
(1) preferred shares as to assets; and dividends to a stockholder is not a matter of right but a
(2) Preferred shares as to dividends. matter of consensus. Furthermore, "interest bearing stocks",
on which the corporation agrees absolutely to pay interest
The former is a share which gives the holder thereof before dividends are paid to common stockholders, is legal
preference in the distribution of the assets of the corporation only when construed as requiring payment of interest as
in case of liquidation; the latter is a share the holder of which dividends from net earnings or surplus only.
is entitled to receive dividends on said share to the extent
agreed upon before any dividends at all are paid to the Clearly, the respondent judge, in compelling the petitioner to
and to lose whatever agreed rate of return in any year where non-participating. Kung non-participating ka, hindi na. If
there are no available unrestricted retained earnings. participating ka, you still have the right to participate in the
excess. In other words, cumulative refers to the period.
Let’s say you have 3 years. Sa year 1, di ka nag declare ng Participating refers to the participation of preferred shares in
dividends. Sa year 2, nag declare ka. Ano ang consequence the distribution of the dividends. So kung merong cumulative
sa cumulative and Non-cumulative? and participating, liliit yung share ni common shares.
Year 1 Year 2 Year 3 The question now is which is really beneficial? The preferred
no declaration declaration of dividends share holder or the common share holder? Talaga bang may
preference si preferred share? It really depends. If the
A) Cumulative: corporation is performing really well, it’s better to have
(revert to year 1)
common shares. Kasi wala kang limit. Pero if not performing
well, preferred shares nalang.
B) Non-Cumulative
The rationale for having preferred share holder, because it
gives you the middle point of being a creditor and a
shareholder at the same time. It gives you the assurance that
Sa Cumulative, mag re-revert ka sa year 1. Kasi Cumulative in the event na may kita, meron ka talagang matanggap na
siya. Meaning it accumulates. It entitles the holder thereof to certain percentage. You also have the right of a shareholder
payment not only of current dividends but also of back because you have both rights as a creditor and a shareholder.
dividends.
C. No Par value Shares
If cumulative preferred dividend is not paid in full in any year,
whether or not earned, the deficiency must be made up Delpher Trades Corp vs IAC
before any dividend may be paid on common stock. 157 SCRA 349
(Villanueva)
Pacheco siblings owned a parcel of land that was leased to
Hydro Pipes Philippines, Inc. Pursuant to their lease
Pag Non-Cumulative, sa year 2 ka lang entitled.
agreement, should the lessor decides to sell the property
leased, they shall first offer the same to the lessee. But a
B.2 Participating and Non-participating Preferred deed of exchange was executed between lessors, Pacheco
Shares siblings and defendant Delpher Trades Corporation whereby
the former conveyed to the latter the leased property. In
Participating preferred shares entitle the holders to participate exchange for their properties, the Pachecos acquired 2,500
original unissued no par value shares of stocks of the Delpher
with the holders of common shares in the retained earnings
Trades Corporation.
after the amount stipulated dividend has been paid to the
Declared Dividend: P1M ISSUE: Whether the "Deed of Exchange" of the properties
Your preferred share: 10% =100,000 executed by the Pachecos and Delpher Trades Corporation
Remaining shares = Common shares was a contract of sale which, in effect, prejudiced the private
respondent's right of first refusal over the leased property
included in the "deed of exchange."
assets of the corporation, no matter what value they may insolvency or inability of the corporation to meet its debts as
have, to the extent of 100/1,000 or 1/10. Thus, by removing they mature.” (Republic Planter Banks vs Agana)
the par value of shares, the attention of persons interested in
the financial condition of a corporation is focused upon the
What is redemption?
value of assets and the amount of its debts.
Since the Pacheco siblings obtained 55% of shares, they Redemption is repurchase, a reacquisition of stock by a
effectively have the control over Delpher Traders. Thus, there corporation which issued the stock in exchange for property,
was no transfer of ownership. whether or not the acquired stock is cancelled, retired or held
in the treasury. Essentially, the corporation gets back some of
its stock, distributes cash or property to the shareholder in
payment for the stock, and continues in business as before.
Which is more reflective of ownership? A par-value or no par The redemption of stock dividends previously issued is used
value? No par value. Kasi only in proportion. This character of as a veil for the constructive distribution of cash dividends.
proportionate interest is not hidden beneath a false (Republic Planter Banks vs Agana)
appearance of a given sum in money, as in the case of par
value shares. Nag issue ako ng shares tapos at a fixed period, kinuha ko pa
rin. Now, Can you re-issue redeemed shares? Ni-redeem ko
D. Founder’s Share ang shares, binili ko na sa stockholders, pwede ko bang i-
issue uli?
Section 7. Founders’ Share. - Founders’ Share may be given
certain rights and privileges not enjoyed by the owners of For the protection of the stockholders, all corporations which
other stocks.
have issued redeemable shares with mandatory redemption
Where the exclusive right to vote and be voted for in election features are required to set up and maintain a sinking fund
of directors is granted, it must be for a limited period not to which shall be deposited with a trustee bank and not be
exceed five (5) years from the date of incorporation or invested in risky or speculative ventures.
approval of increase of additional authorized capital stock.
Provided, that such exclusive right shall not be allowed if its Even if there is no requirement that there has to be
exercise will violate Commonwealth Act No. 108 or the Anti-
unrestricted earnings to buy redeemable shares, there has to
Dummy Law, Republic Act No. 7042 or the foreign Investment
be a sinking fund. Kaya hindi required ang unrestricted
Act and other pertinent laws.
earnings kasi there is a corresponding obligation to set up a
sinking fund.
Kung mag i-incorporate kayo, it gives you the limited right A sinking fund refers to a fund set up by the corporation
than other shares but it should not exceed 5 years. where cash is gradually set aside in order to accumulate the
amount necessary to meet the redemption price of
Section 8. Redeemable shares. - Redeemable shares are SEC rules also provide that redeemable shares reacquired
shares which may may be purchased by the corporation from shall be considered retired and no longer issuable. In other
the holders of such shares upon the expiration of a fixed words, you cannot re-issue redeemable shares.
period, regardless of the existence of unrestricted retained
earnings in the books of the corporation, and upon such other
terms and conditions stated in the articles of incorporation
and the certificate of stock representing said shares, subject
to rules and regulations issued by the Commission. F. Treasury Shares
The present Code allows redemption of shares even if there Redeemable shares cannot be reissued while treasury shares
are no unrestricted retained earnings on the books of the may be reissued or sold again. Any common shares may be
corporation. This is a new provision which in effect qualifies treasury shares. Also treasury shares can be issued lower
the general rule that the corporation cannot purchase its own than the par-value. This is the exception to the rule that you
shares except out of current retained earnings. However, cannot issue shares lower than the par value. It may be
while redeemable shares may be redeemed regardless of the disposed of for a reasonable price fixed by the board of
existence of unrestricted retained earnings, this is subject to directors.
the condition that the corporation has, after such redemption,
assets in its books to cover debts and liabilities inclusive of Since it can be issued lower than the par-value, will it violate
capital stock. Redemption, therefore, may not be made where the turst fund doctrine?
the corporation is insolvent or if such redemption will cause 3
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BUSINESS ORGANIZATION II [CORPORATION LAW]
3-Manresa [2018–2019] │A transcription based on the lectures of Atty. Raymund Christian S. Ong Abrantes, CPA│
“Lost in translation?”
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