Beruflich Dokumente
Kultur Dokumente
(10) Acts and actions referred to in - The two requisites must always concur
Articles 21, 26, 27, 28, 29, 30, 32, 34, 1. That they have a capital stock divided
and 35. into shares; and,
2. That they are authorized to distribute
The parents of the female seduced, dividends or allotments as surplus
abducted, raped, or abused, referred to profits to its stockholders on the basis
in No. 3 of this article, may also of the shares held by each of them.
recover moral damages.
Section 4
The spouse, descendants, ascendants,
and brothers and sisters may bring the - Created by a special law, they have
action mentioned in No. 9 of this their own character
article, in the order named. - They are not immune from suit unless
provided by the law of their creation
Advantages (SEE LADIA BOOK) - Primarily governed by the law creating
them
- No. 2 may also be a disadvantage
- Their subsidiaries are entirely different
- No. 5 may also be a disadvantage
or independent from that of the other
A corporation is a person, therefore
Close corporation
protected by the due process clause
and equal protection clause of the - There is no exemption it is absolute
Constitution
Public corporation
CLASSIFICATION OF CORPORATIONS
- Political or governmental purposes
Section 3 Stock and non-stock - Those formed or organized for the
government or a portion of the State or
- Importance of knowing, determining
any of its political subdivision and
what provisions of the code or the law
which have for their purpose the
may be applicable
general good and welfare
Section 3. Classes of Private Corporation
corporations. - Corporations formed or
organized under this Code may be - Immediate benefit, aim or advantage of
stock or non-stock corporations.
private individuals
Corporations which have capital stock
- Those formed for some private
divided into shares and are authorized
to distribute to the holders of such purpose, benefit, aim or end
shares dividends or allotments of the - Distinction: public for governmental
surplus profits on the basis of the purpose
shares held are stock corporations. All
other corporations are non-stock Corporation Sole
corporations. (3a)
- Exemption to the rule because it is
Non-stock- title 10 composed only of one person
- An incorporator may also be a juridical
Stock- section 51 person
- statement of principal office is required - NO, because they must be of legal age
- city and municipality not only province
must be specified May a corporation organized by
- principal office NOT operations office incorporators consisting solely of
- necessary because it will establish the foreigners
residence of corporations
- venue of actions for or against the - Yes, there is no nationality
corporations requirement only residence, as long as
- venue of meetings majority are residents of the Phil
- section 51 meetings may only be
within the boundaries of the city where Define incorporators <sec.5>
the principal office
- Those person mentioned in the articles
- non-stock may be held anywhere in
as originally forming the corporation
the Philippines, if provided in its by-
and who are signatories of the articles
laws
of incorporation.
- where summons may be served
- Must be signatories to be
- registration of chattel mortgage must
incorporators
be registered in the register of deeds
where the principal office is located
Section 5. Corporators and
Clavecilla Radio System vs. Antillon incorporators, stockholders and
members. - Corporators are those who
- action not upon a written contract compose a corporation, whether as
- city where the defendant resides stockholders or as members.
Incorporators are those stockholders
term of existence or members mentioned in the articles
5
- General rule: Not less than 5 not more - YES, section 23 majority of them must
than 15 be residents of the Philippines, no
- Exceptions: nationality requirement
1. Educational corporations registered as
Anti-dummy act <sec.2-A>
non stock corporation whose number
of trustees, though not less than five - If the business undertaking or activity
and not more than [15] should be is only partially nationalized, aliens
divisible by five [5], meaning they must can be elected as such directors,
have either five, ten, or fifteen trustees [unless the law provides otherwise] but
and no other; their number shall only be in
2. In close corporations where all the
proportion to their equity or
stockholders are considered as
participation in the capital stock of the
members of the board of directors
corporation.
thereby effectively allowing twenty
members in the board. Disqualifications <sec.27>
3. The by-laws of a corporation may
provide for additional qualifications - The disqualifications provided for is
and disqualifications of its members of absolute and may not be done away
the board of directors or trustees. with. Corporate by-laws may, however,
However it may not do away with the provide for additional qualifications
minimum disqualifications lay down and disqualifications.
by the Code.
Section 27. Disqualification of
Qualifications of the governing board directors, trustees or officers. - No
person convicted by final judgment of
- Requires mere residency <sec. 23> an offense punishable by
imprisonment for a period exceeding
Section 23. The board of six (6) years, or a violation of this Code
directors or trustees. - Unless otherwise committed within five (5) years prior to
provided in this Code, the corporate the date of his election or
powers of all corporations formed appointment, shall qualify as a
under this Code shall be exercised, all director, trustee or officer of any
business conducted and all property of corporation. (n)
such corporations controlled and held
by the board of directors or trustees to
7
D Shares of stock
E Purpose of classification
- Each shall be equal in all respects to a. They can be issued only with sated par
every other share value; and,
b. The preferences must be stated in the
Preferred shares articles of incorporation and in the
certificate of stock, otherwise, each
- Specific preference
share shall be, in all respect, equal to
- Dividends or during liquidation
every other share.
No par
Participating
- Can sell it with the network of the
- Must be stated because the
corporation
presumption is that it is participating
Distinction between the subscribed
Cumulative
and outstanding stocks?
- Irrespective of whether or not they
- Section 137
where earned
- Once reissued they shall become When the law speaks of outstanding
outstanding stocks again and rights it does not include treasury
purchasers shall be entitled to all the shares
rights and privileges as the other
holders have Treasury shares may be reissued
- CORPORATION SOLE- upon filing of Are the rights and obligations between
the verified articles of incorporation, officers and directors of a de jure and
once filed it is vested with a judicial de facto the same?
capacity
- YES. Governed by the same law, rules
General rule section 19 and regulations
- General partners- liable even beyond - As a general rule a person who has
his promise even his personal contracted it a corporation lacking
properties are prone to attachment personality
- Applied where the rules governing - In this case petitioner is not trying to
agency escape liability, but rather the one
claiming from the contract
- A person purporting in behalf of a non
existing corporation Would this apply to foreign
corporation?
- Section 21, you arrive at the same
decision - YES, it may apply
- Corporation exist separately and You cannot pierce the veil of corporate
independently from the stockholders fiction when there are no facts
attendant in the case
statutory or other positive legal duty or - As to not deprive the holders of their
dishonest and unjust act in successional rights
contravention of plaintiff’s legal rights;
and, - Mere ownership of all or substantially
all is not a justification of piercing the
3. The aforesaid control and breach of veil of corporate fiction
duty must proximately cause the
injury or unjust loss complained of. Fraud must be proven by clear and
convincing evidence cannot presume
- The absence of one of the elements or speculate, there must be facts and
prevents “piercing the corporate veil.” circumstances
In applying the “instrumentality” or
“alter ego” doctrine, the courts are Fraud must be clear and convincing
concerned with reality and not form, evidence more than preponderance
with how the corporation operated and
Remo Jr. vs. IAC
the individual defendant’s relationship
to that operation. - The resolution was not entered to
defraud anyone
There must facts and circumstances
before warrant piercing the veil of Del Rosario vs. National Labor
corporate fiction Commission
The control necessary does not mean - The wrongdoing must be clearly
stock ownership established
to the addressee in the post office with as the certificate of filing may declare:
postage prepaid, or served personally. Provided, That the Securities and
Exchange Commission shall not accept
A certificate in duplicate must for filing any certificate of increase of
be signed by a majority of the directors capital stock unless accompanied by
of the corporation and countersigned the sworn statement of the treasurer of
by the chairman and the secretary of the corporation lawfully holding office
the stockholders' meeting, setting at the time of the filing of the
forth: certificate, showing that at least
twenty-five (25%) percent of such
(1) That the requirements of this increased capital stock has been
section have been complied with; subscribed and that at least twenty-
five (25%) percent of the amount
(2) The amount of the increase or subscribed has been paid either in
diminution of the capital stock; actual cash to the corporation or that
there has been transferred to the
corporation property the valuation of
(3) If an increase of the capital stock,
which is equal to twenty-five (25%)
the amount of capital stock or number
percent of the subscription: Provided,
of shares of no-par stock thereof
further, That no decrease of the capital
actually subscribed, the names,
stock shall be approved by the
nationalities and residences of the
Commission if its effect shall prejudice
persons subscribing, the amount of
the rights of corporate creditors.
capital stock or number of no-par
stock subscribed by each, and the
amount paid by each on his Non-stock corporations may
subscription in cash or property, or incur or create bonded indebtedness,
the amount of capital stock or number or increase the same, with the
of shares of no-par stock allotted to approval by a majority vote of the
each stock-holder if such increase is board of trustees and of at least two-
for the purpose of making effective thirds (2/3) of the members in a
stock dividend therefor authorized; meeting duly called for the purpose.
Fait accompli, are beyond the powers any public offering of any of its stock
or authority of the corporation to of any class. Notwithstanding the
change, alter or modify. These would foregoing, a corporation shall not be
deemed a close corporation when at
include the following:
least two-thirds (2/3) of its voting
stock or voting rights is owned or
- Names of the incorporators and
controlled by another corporation
which is not a close corporation within
- The incorporating directors or
the meaning of this Code.
trustees,
Any corporation may be
- The name of the treasurer originally or
incorporated as a close corporation,
first elected by the subscribers or except mining or oil companies, stock
members to act as such until his exchanges, banks, insurance
successor has been duly elected and companies, public utilities,
qualified, educational institutions and
corporations declared to be vested with
- The number of shares and amount public interest in accordance with the
originally subscribed and paid out of provisions of this Code.
the original authorized capital stock of
the corporation, The provisions of this Title shall
primarily govern close corporations:
- The date and place of execution of the Provided, That the provisions of other
Titles of this Code shall apply
articles of incorporation,
suppletorily except insofar as this Title
otherwise provides.
- The signatories and acknowledgment
thereof.
Transfer clause, executor clause,
- All other provisions or matters stated acknowledgment, treasury affidavit-NO
or contained in the articles are subject
Philippine First Insurance case
to amendment.
- Mere change in the name of a
Founder’s or signatories hindi pwede
corporation or by merely complying
palitan
with the law is general amendment
Names, nationalities- you cannot
- It does not change its personality. It is
Capital- right granted by law to all the same person in a different name.
corporation the charter is the same
- You can, but close corporation cannot - FALSE. It can be if there are
justifiable reasons for earlier extension
- Section 96, otherwise it will not be a as may be determined by the SEC
close corporation
Can you extend the corporate term if it
Section 96. Definition and has already expired?
applicability of Title. - A close
corporation, within the meaning of this - Once the term expires without an
Code, is one whose articles of amendment having happen it ceases to
incorporation provide that: (1) All the exist as a body politic. It is dissolved
corporation's issued stock of all automatically on the day it expires.
classes, exclusive of treasury shares,
shall be held of record by not more Alhambra cigar and PNB case
than a specified number of persons,
not exceeding twenty (20); (2) all the Instances when the SEC allowed
issued stock of all classes shall be extension whose term has already
subject to one or more specified expired
restrictions on transfer permitted by
this Title; and (3) The corporation shall - All of them involved are institutions of
not list in any stock exchange or make
learning, it was the case in order to
20
avoid confusion that would arise later - Why did the court rule that actions of
on. Fernandez bound the corporation
when he is not even a board of
BOARD OF DIRECTORS/TRUSTEES director?
Section 23 “if a man is found acting for a
corporation with the external indicia of
Section 23. The board of authority, any person not having
directors or trustees. - Unless otherwise
notice of want of authority, may
provided in this Code, the corporate
powers of all corporations formed usually rely upon those appearances;
under this Code shall be exercised, all and if it be found that the directors
business conducted and all property of had permitted the agent to exercise
such corporations controlled and held that authority and thereby held him
by the board of directors or trustees to out as a person competent to bind the
be elected from among the holders of
corporation, or had acquiesced in a
stocks, or where there is no stock,
from among the members of the contract and retained the benefit
corporation, who shall hold office for supposed to have been conferred by it,
one (1) year until their successors are the corporation will be bound,
elected and qualified. (28a) notwithstanding the actual authority
may never have been granted.”
Every director must own at
least one (1) share of the capital stock - Contracts must be made by the
of the corporation of which he is a director and not the stockholders
director, which share shall stand in
his name on the books of the - Actions of the stockholders in such
corporation. Any director who ceases matters is only advisory and not in any
to be the owner of at least one (1)
way binding in the corporation
share of the capital stock of the
corporation of which he is a director
Barreto vs. La previsora Filipina
shall thereby cease to be a director.
Trustees of non-stock corporations
- Everything emanates from the board of
must be members thereof. A majority
of the directors or trustees of all directors
corporations organized under this
Code must be residents of the - Stockholders action is merely advisory
Philippines. except their approval or vote is
necessary to prove a valid corporate
- Controlled by the board of directors act
exceptions when created by religious May this term exceed one year?
and charitable institutions.
- Yes, they may serve in a hold over
- By-laws may provide additional capacity until their successors have
qualifications and disqualifications been duly elected and qualified
- NO, it is not necessary, as long as you - Must be duly elected and qualified
are listed in the books as owner of one
share How are the directors elected?
- No vote requirement, the one who gets of a president, who shall be a director,
the most number of votes gets elected, a treasurer who may or may not be a
section24. director, a secretary who shall be a
resident and citizen of the Philippines,
What is cumulative voting? and such other officers as may be
provided for in the by-laws. Any two (2)
- Process of multiplying the number of or more positions may be held
concurrently by the same person,
shares to the number of director to be
except that no one shall act as
elected president and secretary or as president
and treasurer at the same time.
- Matter of right granted to stockholders
in a stock corporation The directors or trustees and
officers to be elected shall perform the
1 to 5 has 200k/s and members of the same
duties enjoined on them by law and
family- majority 800k they have 4M votes the by-laws of the corporation. Unless
they are guaranteed 4 seats the articles of incorporation or the by-
laws provide for a greater majority, a
6 to 10 are not related- 1 seat 1M votes majority of the number of directors or
trustees as fixed in the articles of
Cumulative to allow the minority to incorporation shall constitute a
have a rightful representation in the quorum for the transaction of
board corporate business, and every decision
of at least a majority of the directors or
Is it allowed in a non-stock trustees present at a meeting at which
corporation? there is a quorum shall be valid as a
corporate act, except for the election of
- Not generally available officers which shall require the vote of
a majority of all the members of the
- Section 89 unless the articles or by- board.
laws allow cumulative voting
Directors or trustees cannot
attend or vote by proxy at board
Section 89. Right to vote. - The
meetings. (33a)
right of the members of any class or
classes to vote may be limited,
broadened or denied to the extent Is the president required to be a
specified in the articles of stockholder. YES
incorporation or the by-laws. Unless so
limited, broadened or denied, each The chairman may be another person
member, regardless of class, shall be
entitled to one vote. The president may also be another
person
Unless otherwise provided in
the articles of incorporation or the by- Prohibited is president to be secretary
laws, a member may vote by proxy in or treasurer at the same time
accordance with the provisions of this
Code. (n) Board of director must sit and act as a
body to arrive at a corporate act
Voting by mail or other similar
means by members of non-stock What would constitute a quorum if 5
corporations may be authorized by the then 3 must be present
by-laws of non-stock corporations with
the approval of, and under such May the vote of 2 members past a 5
conditions which may be prescribed man governing board pass a valid
by, the Securities and Exchange corporate act?
Commission.
- YES. Voting requirement is majority of
directors present at which there where
a quorum
Other corporate officers other than the
governing board section 25 1 1 and 2 present=valid
voting requirement
Section 25. Corporate officers,
quorum. - Immediately after their 2 1 and 2 voted yes
election, the directors of a corporation
must formally organize by the election 3 3 voted no
23
- Kalaw signed alone and said contracts Meetings called by the president or the
were submitted to the board of secretary ordered by the president
directors after its consummation and
not before It depends if the removal is without
cause they cannot do so because
Buenaseda vs. Bowen removal without cause shall not
deprive the minority stockholders or
- Express ratification is made through a
members of the right of representative
formal board action
If with cause they can even if it will
- Implied ratification is through: silence
prejudice the rights of the minority,
or acquiescence, acceptance benefits
provided of course additional
and lastly recognition or adoption
requirements by-laws and articles of
An unauthorized act may nevertheless incorporation
be binding either by express or implied
Who will fill up the vacancy created
by estoppels
due to the ouster of a member of the
By virtue of silence the board had board of directors <section 29>
impliedly accepted the act
Section 29. Vacancies in the
By recognition or adoption office of director or trustee. - Any
vacancy occurring in the board of
By virtue of payment of obligations directors or trustees other than by
arising therefore- Lopez realty removal by the stockholders or
members or by expiration of term, may
May directors or trustees be be filled by the vote of at least a
disqualified to act as such? majority of the remaining directors or
trustees, if still constituting a quorum;
- YES, crime, etc. disqualifications in otherwise, said vacancies must be
filled by the stockholders in a regular
book
or special meeting called for that
purpose. A director or trustee so
- Possess or dispossess any of the
elected to fill a vacancy shall be elected
qualifications or disqualifications , only or the unexpired term of his
cease to hold at least one share predecessor in office.
When will the vacancies be filled up? Central cooperative exchange vs. Tibe
- Must not exceed net income of 10% tax - General rule was applied in the case
of the preceding year
- Ong acted as officers and acted within
- Acting in special capacity the scope of his authority
- In, sum directors may receive - Court laid down 4 instances when
compensation when even if acting within the scope of his
authority he is held solidarily liable
1. there is a provision in the by-laws to
that effect 1. He assents (a) to a patently unlawful
act of the corporation, or (b) for bad
2. When the stockholders, by a majority faith, or gross negligence in directing
vote of the outstanding capital stock its affairs, or (c) for conflict of interest,
grant the same; and, resulting in damages to the
3. If the director renders extra-ordinary corporation, its stockholders or other
or unsual service persons;
26
2. He consents to the issuance of watered good faith, its actuations are not
stocks or who, having knowledge subject to judicial review
thereof, does not forthwith file with the
corporate secretary his written - They are not insurer of the property of
objection thereto; the company, they were guarantors
that the enterprise undertaken by the
3. He agrees to hold himself personally corporation shall be successful
and solidarily liable with the
corporation; Montelibano vs. Bacolod Murcia
Milling Co.
4. He is made, by a specific provision of
law, to personally answer for his - Directors are not liable due to
corporate action. imprudence or honest error of
judgment
- Watered stocks- issued, fully paid up
when in fact they have not been fully - Duty of loyalty of corporate directors
paid or promised as such
- 31,32,33,34
Llamado vs. CA
- 31,32,33- specific instances when
- The corporate entity theory cannot be corporate officers may violate loyalty
used as a defense to escape liability in
- 32,33 self-dealing and interlocking
violation of B.P. 22
director
- Where the check is drawn by a
Corporate opportunity doctrine
corporation the persons who signed
the check shall be liable. - It places a director of a corporation in
the position of a fiduciary and
Uichico vs. NLRC
prohibits him form seizing a business
- Labor case corporate directors and opportunity and/or developing it at the
officers are solidarily liable with the expense and with the facilities of the
corporation for the termination of corporation. He cannot appropriate to
employment of corporate employee himself a business opportunity which
done with malice and bad faith in fairness should belong to the
corporation.
3 fold duty of directors
Last paragraph of section 31 and the
- obedient provision of section 34 make reference
to recovery of “forbidden profits”
- diligent
Distinction between section 31 and 34
- loyal relative to the ratification by the
stockholders
Business judgment rule
- The second paragraph of section 31
- Questions of policy and management
which makes a director liable to
are left solely to the honest decision of
account for profits if he attempts to
the board of directors and the courts
acquire or acquires any interest
are without authority to substitute its
adverse to the corporation in respect to
judgment as against the former. The
any matter reposed in him in
directors are the business managers of
confidence as to which equity imposes
the corporation and as long as they act
a disability upon him to deal in his
in good faith, its actuations are not
own behalf is not subject to ratification
subject to judicial review. Montelibano
by the stockholders. Whereas, in
vs. Bacolod Murcia Milling
section 34 if a director acquires for
- questions of policy and management himself a business opportunity which
are left solely to the board of directors should belong to the corporation, he is
bound to account for such profits
- BOD, business manager of the unless his act is ratified by the
corporation and as long as they act in stockholders owning ore representing
27
- It can be ratified he merely acquired a - When any of the two requisites are
business owning to the corporation absent it is voidable, but subject to
ratification by 2/3 of the outstanding
- It would be different if it was entrusted capital stock or 2/3 of the member
in his confidence
Requisites for ratification (subject to
Another scenario: ratification by the stockholders holding
or representing at least 2/3 of the
Had A not attended the meeting he would
outstanding capital stock or 2/3 of the
not have known of the sale it is then a matter
members.)
reposed in him in confidence
- it must be at a meeting called for the
A corporation cannot reaquire its
purpose
share if it has no restricted unretained
earnings - full disclosure of the adverse interest
of the director concerned must be
Strong vs. Rapide
made
- What duty did he violate?
- the contract is fair and reasonable
- He violated his duty of loyalty under the circumstances
a derivative suit and for and in behalf From the cases above cited, these are
of the corporation the requirements and the procedures
that must be followed in order that a
- Granting arguendo, that this is a derivative suit may prosper
derivative suit, the same is still
outrightly dismissible for having been 1. That the party bringing the suit should
wrongfully filed in the regular court be a stockholder as of the time the act
devoid of any jurisdiction to entertain or transaction complained of took
the complaint. The case should have place, or whose shares have evolved
been filed with the SEC which upon him since by operation of law.
exercises original and exclusive This rule, however, does not apply if
jurisdiction over derivative suits, they such act or transaction continues and
being intra-corporate disputes, per is injurious to the stockholder or affect
Section 5 (b) of P.D. 902-A him specifically in some other way.
- Not allowed under the OLD law - BOD cannot act by proxy it would be
abdication of powers
How may executive committee created
and constituted? Purpose clauses necessary because it
confers and also limits the actual
- Section 35
authority of the corporation
2. The filing of vacancies in the board; 3. To adopt and use a corporate seal;
in the usual and regular course of business of Section 43. Power to declare
said corporation or if the proceeds of the sale dividends. - The board of directors of a stock
or other disposition of such property and corporation may declare dividends out of the
assets be appropriated for the conduct of its unrestricted retained earnings which shall be
remaining business. payable in cash, in property, or in stock to all
stockholders on the basis of outstanding
In non-stock corporations where there are no stock held by them: Provided, That any cash
members with voting rights, the vote of at dividends due on delinquent stock shall first
least a majority of the trustees in office will be be applied to the unpaid balance on the
sufficient authorization for the corporation to subscription plus costs and expenses, while
enter into any transaction authorized by this stock dividends shall be withheld from the
section. delinquent stockholder until his unpaid
subscription is fully paid: Provided, further,
Section 41. Power to acquire own That no stock dividend shall be issued
shares. - A stock corporation shall have the without the approval of stockholders
power to purchase or acquire its own shares representing not less than two-thirds (2/3) of
for a legitimate corporate purpose or the outstanding capital stock at a regular or
purposes, including but not limited to the special meeting duly called for the purpose.
following cases: Provided, That the (16a)
corporation has unrestricted retained
earnings in its books to cover the shares to be Stock corporations are prohibited from
purchased or acquired: retaining surplus profits in excess of one
hundred (100%) percent of their paid-in
1. To eliminate fractional shares arising out of capital stock, except: (1) when justified by
stock dividends; definite corporate expansion projects or
programs approved by the board of directors;
2. To collect or compromise an indebtedness or (2) when the corporation is prohibited
to the corporation, arising out of unpaid under any loan agreement with any financial
subscription, in a delinquency sale, and to institution or creditor, whether local or
purchase delinquent shares sold during said foreign, from declaring dividends without
sale; and its/his consent, and such consent has not yet
been secured; or (3) when it can be clearly
shown that such retention is necessary under
3. To pay dissenting or withdrawing
special circumstances obtaining in the
stockholders entitled to payment for their
corporation, such as when there is need for
shares under the provisions of this Code. (a)
special reserve for probable contingencies. (n)
Section 42. Power to invest corporate
Section 44. Power to enter into
funds in another corporation or business or for
management contract. - No corporation shall
any other purpose. - Subject to the provisions
conclude a management contract with
of this Code, a private corporation may invest
another corporation unless such contract
its funds in any other corporation or business
shall have been approved by the board of
or for any purpose other than the primary
directors and by stockholders owning at least
purpose for which it was organized when
the majority of the outstanding capital stock,
approved by a majority of the board of
or by at least a majority of the members in
directors or trustees and ratified by the
the case of a non-stock corporation, of both
stockholders representing at least two-thirds
the managing and the managed corporation,
(2/3) of the outstanding capital stock, or by
at a meeting duly called for the purpose:
at least two thirds (2/3) of the members in
Provided, That (1) where a stockholder or
the case of non-stock corporations, at a
stockholders representing the same interest
stockholder's or member's meeting duly called
of both the managing and the managed
for the purpose. Written notice of the
corporations own or control more than one-
proposed investment and the time and place
third (1/3) of the total outstanding capital
of the meeting shall be addressed to each
stock entitled to vote of the managing
stockholder or member at his place of
corporation; or (2) where a majority of the
residence as shown on the books of the
members of the board of directors of the
corporation and deposited to the addressee in
managing corporation also constitute a
the post office with postage prepaid, or served
majority of the members of the board of
personally: Provided, That any dissenting
directors of the managed corporation, then
stockholder shall have appraisal right as
the management contract must be approved
provided in this Code: Provided, however,
by the stockholders of the managed
That where the investment by the corporation
corporation owning at least two-thirds (2/3)
is reasonably necessary to accomplish its
of the total outstanding capital stock entitled
primary purpose as stated in the articles of
to vote, or by at least two-thirds (2/3) of the
incorporation, the approval of the
members in the case of a non-stock
stockholders or members shall not be
corporation. No management contract shall
necessary. (17 1/2a)
35
be entered into for a period longer than five - should be served to those named in
years for any one term. the statute
The provisions of the next preceding - secretary of a dep’t are not those
paragraph shall apply to any contract included in the statute
whereby a corporation undertakes to manage
or operate all or substantially all of the E.B. Villarosa vs. Benito
business of another corporation, whether
such contracts are called service contracts, - decision En Banc repeals all other
operating agreements or otherwise: Provided, pronouncement
however, That such service contracts or
operating agreements which relate to the - section 13 Rule 14 was repealed
exploration, development, exploitation or
utilization of natural resources may be - the old rules was ambiguous and
entered into for such periods as may be
broad and at all time illogical
provided by the pertinent laws or regulations.
(n) the particular revision under Section
11 of Rule 14 was explained by retired
Section 45. Ultra vires acts of
Supreme Court Justice Florenz
corporations. - No corporation under this
Code shall possess or exercise any corporate Regalado, thus:
powers except those conferred by this Code or
by its articles of incorporation and except “xxx the then section 13 of this
such as are necessary or incidental to the Rule allowed service upon a
exercise of the powers so conferred. (n) defendant corporation to “be
made on the president,
Section 36 manager, secretary, cashier,
agent or any of its directors.”
Where should the corporation be
The aforesaid terms were
sued?
obviously ambiguous and
- principal office is important because it susceptible of broad and
establishes the residence of the sometimes illogical
corporation and determining service of interpretations, especially the
summons, venue of action word “agent” of the corporation.
The Filoil case, involving the
- it can be sued in the city or litigation lawyer of the
municipality where its principal office corporation who precisely
is found appeared to challenge the
validity of service of summons
Principal office is also important for but whose very appearance for
venue of meetings that purpose was seized upon
to validate the defective service,
Non-stock corporation may provide in
is an illustration of the need for
its by-laws that the venue of meeting
this revised section with limited
be anywhere in the Philippines
scope and specific terminology.
Upon whom service of summons be Thus the absurd result in the
made? Filoil case necessitated the
amendment permitting service
- Section 11. Service upon domestic only on the in-house counsel of
private juridical entity- when the the corporation who is in effect
defendant is a corporation, an employee of the corporation,
partnership or association organized as distinguished from an
under the laws of the Philippines with independent practitioner.”
a juridical personality, service may be
made upon the president, managing o notes: additional knowledge
partner, general manager, corporate
- special appearance enter for that
secretary, treasurer, or in house
particular appearance you are not the
counsel.
counsel in the case
Delta motor vs. Mangosing
- would apply only if it does not involve
- strict compliance is necessary an intra-corporate controversy
36
What are the modes of increasing - Examples: Php 10M capital for grocery
capital stock? business, mayor didn’t want to issue
license/permit because mayor has 3
1. Increasing the par value of the existing other grocery stores, only allowed sari-
number of shares without increasing sari store permit, reduce capital for
the number of shares; sari-sari so that the money will not
sleep in bank
2. Increasing the number of existing
shares without increasing the par - Example: car rental agencies-Php 10M
value thereof; and, capital for 20 taxi’s, after some time
each taxi is only 250K, nagmura ang
38
“All issues or depositing shares of any class” Does it include those originally
form part of ACS unsubscribed?
Will it need the approval of the stockholders? 1. Where the purchaser expressly or
impliedly agrees to assume such
- NO, if the same is necessary in the debts;
usual and regular course of business
2. Where the transaction amounts to
of said corporation or if the proceeds of
a consolidation or merger of the
the sale or other disposition of such
corporations;
property and assets be appropriated
for the conduct of its remaining 3. Where the purchasing corporation
business is merely a continuation of the
selling corporation;
If X is a manufacturing company, then
it can sell its only property upon 4. Where the transaction is entered
approval of the stockholders because it into fraudulently in order to escape
will render itself capable of continuing liability for such debts.
its business, BUT if the proceeds will
be used to purchase a better one for Power to acquire own shares
the continuance of its business, then it
does not need the approval of the Section 41. Power to acquire
stockholders own shares. - A stock corporation shall
have the power to purchase or acquire
Conditions for the valid exercise of this its own shares for a legitimate
power are the following corporate purpose or purposes,
including but not limited to the
1. Resolution by the majority vote of the following cases: Provided, That the
board of directors/trustees corporation has unrestricted retained
earnings in its books to cover the
2. Authorization from the stockholders shares to be purchased or acquired:
representing at least 2/3 of the
1. To eliminate fractional shares
outstanding capital stock or 2/3 of the
arising out of stock dividends;
members;
2. To collect or compromise an
3. The ratification of the stockholders or
indebtedness to the corporation,
members must be made at a meeting arising out of unpaid subscription, in a
duly called for that purpose delinquency sale, and to purchase
42
delinquent shares sold during said - For any other purpose other than the
sale; and primary purpose, stockholder’s
consent or approval is necessary
3. To pay dissenting or withdrawing
stockholders entitled to payment for - Thus, if it’s for the secondary purpose,
their shares under the provisions of it is necessary
this Code. (a)
- If it’s in connection with the primary
The corporation must at all times have purpose, only board resolution is
“unrestricted retained earnings” to
necessary
exercise this corporate power
Steinberg vs. Velasco
Requirements and steps to be followed
- For as long as there are debts and for a valid investment of corporate
liabilities, a corporation may not funds are:
reacquire its shares (subject to
1. Resolution by the majority of the board
exceptions)
of directors or trustees;
- Creditors of a corporation have the 2. Ratification by the stockholders
right to assume that so long as there representing at least 2/3 of the
are outstanding debts and liabilities, outstanding capital stock or 2/3 of the
the board of directors will not use the members in case of non-stock
assets of the corporation to purchase corporations;
its own stock, and that it will not
declare dividends to stockholders 3. The ratification must be made at a
when the corporation is insolvent. meeting duly called for that purpose;
SUB 1M 10 100K
PU 800K 1M
the case of non-stock corporation will Ballatine gives the following summary
be required. of the doctrines evolved:
- Corporate officers may guarantee or - Not the SEC, but the HIGC
endorse an accommodation only if
- Must – not always imperative
specifically authorized
- Filing of by-laws mandatory
Section 36 paragraph 11
4. It must not impair obligations and - Section 47 of the code, the by-laws
contracts or vested rights; and’ may provide for the qualification and
disqualification
5. It must be reasonable.
- It cannot be said Gokongwei has a
- Must not be inconsistent with existing vested rights
laws. Not be inconsistent with articles
of incorporation - Prevent directors from taking
advantage of position to promote his
By-laws individual interest to the damage of
- None filing would not affect the status others
of the corporation, Loyola grand villas - The validity or reasonableness of a by-
case laws is a question of law
- The word “must” is not always - Subject to the limitations that
imperative reasonableness of a by-law is a mere
- Stockholders are conlusively presumed matter of judgment
to know the provisions of the by-laws - Rule of the majority and not the
How about 3rd persons? tyranny of the minority
- NO. unless there is actual knowledge May the by-laws be amended altered
or appealed?
of the same they are not presumed to
know of the provisions of the by-laws - YES. HOW? Two modes
Fleischer vs. Botika Nolasco 1. By a majority vote of the directors or
- Shares of stock are personal properties trustees and the majority vote of the
outstanding capital stock or members
- Shares of stock may transfer to whom in a non-stock corporation, at a
ever he wishes regular or special meeting called for
that purpose;
- The by-laws is contrary to law
2. By the board of directors alone when
Articles of incorporation delegated by 2/3 of the outstanding
capital stock or 2/3 of the members in
- May provide reasonable restriction
a non-stock corporation.
- By-laws merely internal laws
- This delegated power, however, is
- Articles is the contract between and considered revoked whenever a
among the parties and corporation majority of the outstanding capital
stock or members shall so vote at a
Gov’t vs. El Hogar regular or special meeting.
1. It must be held on the date fixed in the - If the notice requirement is not
by-laws or in accordance with law complied with the meeting is illegal
and will not bind the corporation
2. Prior notice must be given except when subsequently ratified or
in the case of a close corporation
3. It must be held at he proper place
where the act of any one director may
4. It must be called by the proper party bind the corporation even without a
meeting under the special provision of
5. Quorum and voting requirements Section 101 of the Code.
must be met
Can notice be waived? <sec.53>
Date not complied with, notice, place,
not complied with and the person who Section 53. Regular and
called not authorized, what happens to special meetings of directors or
any resolution called? trustees. - Regular meetings of the
board of directors or trustees of every
- Section 51, any meeting shall be valid corporation shall be held monthly,
unless the by-laws provide otherwise.
provided all the stockholders are
present or duly represented and
Special meetings of the board of
provided it is within the power of the directors or trustees may be held at
corporation. 3RD paragraph of 324 any time upon the call of the president
or as provided in the by-laws.
- If the voting requirement is met, any
resolution passed in the meeting, even Meetings of directors or
if improperly held or called will be trustees of corporations may be held
valid if all the stockholders or anywhere in or outside of the
members are present or duly Philippines, unless the by-laws provide
represented thereat. The last otherwise. Notice of regular or special
53
meetings stating the date, time and Five man member board, a meeting
place of the meeting must be sent to was called today, should the physical
every director or trustee at least one presence or warm bodies requires to
(1) day prior to the scheduled meeting,
constitute a quorum?
unless otherwise provided by the by-
laws. A director or trustee may waive
- NO. it is not required. Teleconference
this requirement, either expressly or
impliedly. (n) or video conference is allowed, E-
commerce law
- YES. Expressly and impliedly
Membership subject to laws
- SEC ruling
Stockholder not yet
A special meeting is valid
May director vote by proxy?
without notice where the
directors are all present or - NO
where they consent to the
meeting. Presence at the If A is a director and a meeting is
meeting waives the want of called for the purpose of electing a new
notice. Moreover, it has been set of BOD can A vote by proxy?
ruled that the meeting of the
- YES. Because it is a stockholders
directors without a formal call
meeting
first being had, and notice
thereof given to the members, If directors meeting, cannot vote by
did not operate to invalidate it proxy
or to render the proceedings
which were taken at it void, for Stockholder’s right to vote
every member of the board were
present, and their joint action - Inherent in stock ownership
had completely bound the
- However this right is not always
corporation as if the meeting
inherent, because it may be denied:
has been called with due
formality, and everyone of the 1. Redeemable and preferred shares,
directors had received proper however if founders shares are
notice. issued others may be denied the
right to vote.
What is the quorum and voting
requirement in the directors meeting? 2. May be denied by the articles of
incorporation or contracts
- Majority of the members of the board
of directors (entire membership) - When not denied they may do so in
person or by proxy
Vote required to pass a valid corporate
act? May the right to vote by proxy be
denied?
- Majority of those present at which
there is a quorum (3 present, vote of 2 May the articles of incorporation deny?
sufficient)
May the by-laws validly provide that
- Exception, majority of all the members proxy voting is not allowed?
of the board in case of election of
corporate officers, unless the articles - NO
provide for a greater quorum or voting
requirement Only non-stock may be denied proxy
voting (may be broaden, limited or
Should the director or trustees be denied)
physically present?
Proxy voting is a matter of right
- General rule, must sit and act as a granted by law
body to have a valid corporate act
Requirements of a valid proxy?
- Section 58
54
How long may a proxy exist? 1. That the voting rights of the stock are
separated from the other attributes of
- Maximum of 5 years
ownership;
- Valid for the meeting in which it is
2. That the voting rights granted are
intended
intended to be irrevocable for a definite
Is proxy revocable? period of time; and,
- Generally revocable, unless coupled 3. That the principal purpose of the grant
with interest of voting rights is to acquire voting
control of the corporation.
Revocation
During the duration of the trust they
- A proxy, like agency in general is are irrevocable unless there is a
revocable unless coupled with an violation either by fraud
interest and revocation need not be
made by formal notice in writing. Requisites
Revocation may be expressed to the - Section 59
proxy holder, to the election
committee, by a subsequent proxy to Section 59. Voting trusts. - One
another or by sale of the shares. Thus or more stockholders of a stock
it may be revoke orally by conduct corporation may create a voting trust
such that appearing and asserting the for the purpose of conferring upon a
right to vote at a meeting by the trustee or trustees the right to vote
registered owner of the shares revokes and other rights pertaining to the
shares for a period not exceeding five
a proxy previously given.
(5) years at any time: Provided, That in
the case of a voting trust specifically
Must be submitted to a validation
required as a condition in a loan
committee agreement, said voting trust may be
for a period exceeding five (5) years but
By-laws of non-stock corporations may
shall automatically expire upon full
deny proxy voting payment of the loan. A voting trust
agreement must be in writing and
What is voting trust agreement? notarized, and shall specify the terms
and conditions thereof. A certified copy
- One created by an agreement between of such agreement shall be filed with
a group of stockholders of a the corporation and with the Securities
corporation and a trustee, or a group and Exchange Commission; otherwise,
of identical agreements between said agreement is ineffective and
individual stockholders and a common unenforceable. The certificate or
trustee, whereby it is provided that for certificates of stock covered by the
voting trust agreement shall be
a term o years or for a period
cancelled and new ones shall be issued
contingent upon a certain event, or in the name of the trustee or trustees
until the agreement is terminated, stating that they are issued pursuant
control over the stock owned by such to said agreement. In the books of the
stockholders, shall be lodged in the corporation, it shall be noted that the
trustee, either with or without transfer in the name of the trustee or
55
trustees is made pursuant to said - The voting trust agreement filed with
voting trust agreement. the corporation shall be subject to
examination by any stockholder of the
The trustee or trustees shall corporation in the same manner as
execute and deliver to the transferors
any other corporate book or record.
voting trust certificates, which shall be
transferable in the same manner and Provided, that both the transfer and
with the same effect as certificates of the trustee or trustees may exercise
stock. the right of inspection of all corporate
books and records in accordance with
The voting trust agreement filed the provisions of this Code.
with the corporation shall be subject
to examination by any stockholder of Legal title is transferred to the voting
the corporation in the same manner as trustee
any other corporate book or record:
Provided, That both the transferor and May the voting trustee vote by proxy?
the trustee or trustees may exercise
the right of inspection of all corporate - Yes, legal owner may vote by proxy
books and records in accordance with
the provisions of this Code. May the proxy holder vote by proxy?
- By pulling their votes they can decline August 08 property is ravaged by fire all are
the resolution passed by the board turned into shares
- Purchaser can neither require the - 2nd example galling sa treasury shares
issuance hindi sa unissued share
What are the requisites for the B stole and forged the signature
C is purchaser in good faith and for value will
issuance of a valid certificate of stock?
C acquire title
1. It must be signed by the president or
vice-president and countersigned by
the secretary or assistant secretary;
Forged transfers
100 pesos per share
Stolen by B and forged the signature of A - If the corporation should issue a new
B sells to C will C acquire title? NO certificate in pursuance of a forged
transfer, the corporation incurs no
liability to the person in whose favor it
is issued and it may demand its return
for cancellation. The corporation in
such case has been guilty of no
misrepresentation. On the other hand,
ENDORSEMENT FORM it is the duty of the purchaser to
determine that the indorsement of the
C armed with the endorsement form owner is genuine. However, if the new
certificate, sold to D (innocent certificate issued to the purchaser
purchaser for value), will D acquire comes into the hands of a bona fide
title? purchaser for value, the corporation
will be stopped from denying validity
- NO, subject to such rights and defenses thereof, since by issuing such new
as the true and lawful owner may have certificate it represents that the person
named therein is a stockholder of the
What if C now goes to the corporation
corporation. The corporation is thus
and presents the form?
forced to recognize both the original
- Then the corporation shall cancel the certificate and new certificate-the
old certificate and issues a new one, original, because the true owner could
now in the name of C, now registered not be deprived of his title by a forged
in the name of C, will C acquire title? transfer, and the new, because of its
representation that the person named
A found out what happened and goes therein is the owner of shares in the
to the corporation who has a better corporation. But if the recognition of
title C or A? both stockholders would result in an
over issue of shares, then only the
- A, A cannot be deprived of his right by original and true owner can be
virtue of an unauthorized transfer recognized as a stockholder. The bona
fide purchaser of the new certificate
Corporation can compel C to deliver
will however have a right of damages
the new stock certificate because he
against the corporation. The
made a representation that the
corporation, in turn, would have a
certificate where good.
right of action against the person who
63
Notice of said sale, with a copy X Co. has 1M authorized capital stock
of the resolution, shall be sent to every
delinquent stockholder either 500 thousand is already subscribed
personally or by registered mail. The
same shall furthermore be published A subscribed to 100 thousand shares,
once a week for two (2) consecutive 50 thousand is already paid leaving 50
weeks in a newspaper of general thousand unpaid
circulation in the province or city
where the principal office of the The corporation is at a loss of 250
corporation is located. thousand, the board decides to make a
call for the payment of the unpaid
Unless the delinquent subscriptions, however A could not
stockholder pays to the corporation, paid, hence declared delinquent and
on or before the date specified for the decides to sell his share at a public
sale of the delinquent stock, the auction
balance due on his subscription, plus
accrued interest, costs of 55 thousand is to be paid, remaining
advertisement and expenses of sale, or balance plus cost and expenses
unless the board of directors otherwise
orders, said delinquent stock shall be BIDDERS:
sold at public auction to such bidder
who shall offer to pay the full amount
X-55K FOR 99,900 shares
of the balance on the subscription
together with accrued interest, costs of
advertisement and expenses of sale, Y-55K FOR 99,500 shares
for the smallest number of shares or
fraction of a share. The stock so Z-55K FOR 99,000 shares (winning
purchased shall be transferred to such bidder)
purchaser in the books of the
corporation and a certificate for such Assume there is no bidder, may the
stock shall be issued in his favor. The corporation bid?
remaining shares, if any, shall be
credited in favor of the delinquent - NO. It cannot bid because the law
stockholder who shall likewise be says, subject to the provisions of this
entitled to the issuance of a certificate CODE. Section 68 and 41 should be
of stock covering such shares. reconciled. Section 68 states that:
67
Should there be no bidder at the date of the sale at the legal rate;
the public auction who offers to pay and,
the full amount of the balance on the
subscription together with accrued 2. The action shall be commenced by the
interest, costs of advertisement and filing of a complaint within six months
expenses of sale, for the smallest from the date of the sale.
number of shares or fraction of a
share, the corporation may, subject to - The reason for such is the stability of
the provisions of this Code, bid for transactions of the shares of stock
the same, and the total amount due
shall be credited as paid in full in the
Suppose in the example, since there
books of the corporation. Title to all
are no unrestricted retained earnings,
the shares of stock covered by the
hence the corporation cannot bid, is
subscription shall be vested in the
the corporation left without any
corporation as treasury shares and
recourse?
may be disposed of by said corporation
in accordance with the provisions of
this Code. (39a-46a) - Section 70. Court action to recover
unpaid subscription. - Nothing in this
Code shall prevent the corporation
from collecting by action in a court of
proper jurisdiction the amount due on
- There was no unrestricted retained any unpaid subscription, with accrued
earnings in the example given interest, costs and expenses. (49a)
therefore the corporation cannot bid ,
section 41, it states that:
Velasco vs. Poizat
Section 41. Power to acquire
- The subscriber is as much bound to
own shares. - A stock corporation shall
pay the amount of the share
have the power to purchase or acquire
subscribed by him as he would be to
its own shares for a legitimate
pay any other debt, and the right of
corporate purpose or purposes,
the company to demand payment is no
including but not limited to the
less incontestable.
following cases: Provided, That the
corporation has unrestricted retained
earnings in its books to cover the - Two available remedies: the first and
shares to be purchased or acquired: most special remedy given by the
statute consist in permitting the
corporation to put up the unpaid stock
1. To eliminate fractional shares
and dispose of it for the account of the
arising out of stock dividends;
delinquent subscriber. The other
remedy is by action in court.
2. To collect or compromise an
indebtedness to the corporation,
De Silva vs. Aboitiz and Co.
arising out of unpaid subscription, in a
delinquency sale, and to purchase
delinquent shares sold during said - Discretionary on the part of the board
sale; and of directors to do whatever is provided
in the said article relative to the
application of the part of the 70
3. To pay dissenting or withdrawing
percent of the profit distributable in
stockholders entitled to payment for
equal parts on the payment of the
their shares under the provisions of
shares subscribed to and fully paid
this Code. (a)
Lingayen Gulf vs. Baltazar
What if the shares of A were sold
without compliance of the
requirements? May A question the - Exception: pursuant to a bona fide
sale? compromise or to set off a debt due
from the corporation, a release
supported by consideration, will be
- The law prescribes two conditions
effectual as against dissenting
before an action to recover delinquent
stockholders and subsequent and
stocks irregularly sold may be allowed.
existing creditors. A release which
These are:
might originally have been held invalid
may be sustained after a considerable
1. The party seeking to maintain such lapse of time
action first pays or tenders to the party
holding the stock the sum for which
Apocada vs. NLRC
the same was sold, with interest from
68
- Unpaid subscriptions will become due - NO. Garcia vs. Suarez case
and payable only upon certain
instance Garcia vs. Suarez
- If no call and no stipulation in contract - Prescription will not run until and
then it will not be demandable or unless there is demand
payable at all
- Prescription should be determined
Lumanlan vs. Cura from the time demand has been made
and not from the time of subscription
- Trust Fund Doctrine- subscription to
the capital of a corporation constitute If declared delinquent, what would be
a fund to which the creditors have a the effect as to the owner of said
right to look for satisfaction of their shares?
claims and that the assignee in
insolvency can maintain an action - Section 71. Effect of delinquency. - No
upon any unpaid stock subscription in delinquent stock shall be voted for or
order to realize assets for the payment be entitled to vote or to representation
of its debts. at any stockholder's meeting, nor shall
the holder thereof be entitled to any of
PNB vs. Bitulak the rights of a stockholder except the
right to dividends in accordance with
- Where it not for the promise, the the provisions of this Code, until and
defendants would have not subscribed unless he pays the amount due on his
subscription with accrued interest,
- Trust Fund Doctrine, it is established and the costs and expenses of
doctrine that subscriptions to the advertisement, if any. (50a)
capital of a corporation constitute a
fund to which creditors have a right to - However if the shares are not
look for satisfaction of their claims and delinquent, subscribers to the capital
that the assignee in insolvency can of a corporation, though not fully paid,
maintain an action upon any unpaid are entitled to all the rights of a
stock subscription in order to realize stockholder, according to section 72
assets for the payment of its debts.
Section 72. Rights of unpaid
- A corporation has no power to release shares. - Holders of subscribed shares
an original subscriber to its capital not fully paid which are not delinquent
stock from the obligation of paying for shall have all the rights of a
his shares, without a valuable stockholder. (n)
consideration for such release; and as
against creditors a reduction of the May the rules governing delinquency
capital stock can take place only in the sale apply to a non-stock corporation?
manner and under the conditions Are there unpaid shares in a non-stock
prescribed by the statute or the corporation?
charter or the articles of incorporation.
- Rules governing stock corporations,
Edward Keller and Co. vs. COB when applicable, also applies to a non-
stock corporation
- May the stockholder be held liable for
the debts of the corporation? YES. To - There are delinquent shareholders also
the extent of their unpaid subscription in a non-stock corporation. Example is
membership dues
- As to the liability of the stockholders,
it is settled that a stockholder is A corporation paid 50% of subscription
personally liable for the financial and was later on declared delinquent
obligations of a corporation to the when he could not pay upon call; A is
extent of his unpaid subscriptions also a director of the corporation. Will
A, upon declaration of delinquency ,
69
of the new certificate of stock in lieu - YES, the code provides that:
thereof shall be suspended until the
final decision by the court regarding Except in case of fraud, bad
the ownership of said certificate of faith, or negligence on the part of the
stock which has been lost, stolen or corporation and its officers, no action
destroyed. may be brought against any
corporation which shall have issued
Except in case of fraud, bad certificate of stock in lieu of those lost,
faith, or negligence on the part of the stolen or destroyed pursuant to the
corporation and its officers, no action procedure above-described. (R.A. 201a)
may be brought against any
corporation which shall have issued Assuming the last paragraph is not
certificate of stock in lieu of those lost, there; would it be not the same, that
stolen or destroyed pursuant to the they should be held liable due to
procedure above-described. (R.A. 201a) fraud, bad faith or negligence?
right to vote and be voted upon either event of a deadlock as allowed under
personally or by proxy as provided for section 104; and,
under sections 50 and 58 of the code;
16. Also in the case of a close corporation,
2. To enter into a voting trust agreement to withdraw therefrom, for my reason,
subject to the procedure, requirements and compel the corporation to
and limitations imposed under section purchase his shares as provided for
50; under section 105.
secures a license from the Securities shall include a balance sheet as of the
and Exchange Commission and pays a end of the last taxable year and a
fee as may be fixed by the profit or loss statement for said taxable
Commission, which shall be renewable year, showing in reasonable detail its
annually: Provided, That a stock assets and liabilities and the result of
corporation is not precluded from its operations.
performing or making transfer of its
own stocks, in which case all the rules At the regular meeting of stockholders
and regulations imposed on stock or members, the board of directors or
transfer agents, except the payment of trustees shall present to such
a license fee herein provided, shall be stockholders or members a financial
applicable. (51a and 32a; P.B. No. report of the operations of the
268.) corporation for the preceding year,
which shall include financial
To summarize: statements, duly signed and certified
by an independent certified public
1. Records of all business transactions accountant.
which include, among others, journals,
ledger, contracts, vouchers and However, if the paid-up capital of the
receipts, financial statements and corporation is less than P50,000.00,
other books of accounts, income tax the financial statements may be
returns, and voting trust agreements certified under oath by the treasurer or
which must be kept and carefully any responsible officer of the
preserved at its principal office; corporation. (n)
May this right be exercised, other than - The right of inspection given to a
by the stockholders themselves? stockholder can be exercised either by
himself or by any proper
- Yes, while the right is founded on representative or attorney-in-fact, and
stock ownership thus personal in either with or without the attendance
nature it may be made by the of the stockholder
stockholder’s agent or representative
since it may be unavailing in many - The right may be regarded as personal,
instances in the sense that only a stockholder
may enjoy it; but the inspection and
What if the right of the stockholder to examination may be made by another.
inspect is denied? What is his remedy? Otherwise it would be unavailing in
many instances.
1. Mandamus
o Note: Usually hires an auditor or
2. Damages either against the accountant to safeguard his
corporation or responsible officer who interest
refused the inspection
Pardo vs. Hercules Lumber Co.
3. Criminal complaint for violation of his
right to inspect and copy excerpts of - The law is clear, it may be exercised
all business transactions and minutes during reasonable hours on any
of meeting. Section 74 provides that business days, the by-laws cannot
Any officer or agent of the corporation deny this right all together
who shall refuse to allow any director,
trustees, stockholder or member of the - The general right given by the statute
corporation to examine and copy may not be lawfully abridged to the
excerpts from its records or minutes, extent attempted in this resolution. It
in accordance with the provisions of may be admitted that the officials in
this Code, shall be liable to such charge of a corporation may deny
director, trustee, stockholder or inspection when sought at unusual
member for damages, and in addition, hours or under other improper
shall be guilty of an offense which conditions; but neither the executive
shall be punishable under Section 144 officers nor the board of directors have
of this Code. The latter provision the power to deprive a stockholder of
imposes a penalty of a fine of not less the right altogether.
than P1,000 but not more than
76
- The shares remain to stand in his Who bears the cost of appraisal?
name until he is paid, unless there is a
stipulation in the by-laws - It depends
When may the right to be paid the - The corporation bears the cost if
value of his shares cease? Can he
withdraw his right of appraisal? a. The price offered by the corporation
is lower than the fair value of the
- Yes, he may withdraw, but there must shares of the dissenting
be consent by the corporation as stockholder as determined by the
provided for by section 83 of the code: appraisers;
What provision of the code will govern - Voting by mail or other similar means
non-stock corporations? Would the may also be authorized and allowed by
provision governing stock corporations the by-laws of non-stock corporations.
also apply to non-stock corporations? Generally, in stock corporations, the
vote must be cast at a duly constituted
- Yes, 2nd par. Of section 87 provides: meeting. The only exception, in case of
the latter, is in the matter of general
amendment of the articles of
The provisions governing stock
incorporation where the written assent
corporation, when pertinent, shall be
of the stockholder may be sufficient.
applicable to non-stock corporations,
except as may be covered by specific
provisions of this Title. (n) How is the governing board constituted
in a non-stock corporation? How many
members?
How is the right to vote exercised in a
non-stock corporation compared to a
stock corporation - It may exceed 15 in a non-stock
May a member in a non-stock corporation unless the AOI or by-laws
corporation vote cumulatively? provide otherwise, as provided for by
section 92 of the code:
- General rule is NO
Section 92. Election and term
of trustees. - Unless otherwise provided
May it be granted or allowed by the by-
in the articles of incorporation or the
laws?
by-laws, the board of trustees of non-
stock corporations, which may be
- Yes more than fifteen (15) in number as
may be fixed in their articles of
May the right to cumulative voting be incorporation or by-laws, shall, as
denied in a stock corporation? soon as organized, so classify
84
Section 95. Plan of distribution - All the issued stocks of all classes is
of assets. - A plan providing for the subject to restrictions
distribution of assets, not inconsistent
with the provisions of this Title, may - Shall not be listed in the stock
be adopted by a non-stock corporation exchange not publicly offered
in the process of dissolution in the
following manner:
- 3 qualifying conditions must be
contained in the articles of
The board of trustees shall, by
incorporation, to be considered as a
majority vote, adopt a resolution
close corporation, if not, it will not be
recommending a plan of distribution
considered as such and will be
and directing the submission thereof
governed by the general provisions of
to a vote at a regular or special
the code
meeting of members having voting
rights. Written notice setting forth the
proposed plan of distribution or a - Even if 100 % is owned by one person
summary thereof and the date, time it will not be considered a close
and place of such meeting shall be corporation without the 3 qualifying
given to each member entitled to vote, provisions
within the time and in the manner
provided in this Code for the giving of - Identity of stockholders, specified
notice of meetings to members. Such persons
plan of distribution shall be adopted
upon approval of at least two-thirds
88
Term of office of governing board in an - Section 111 and section 112 provides
educational institutions for the contents and procedures
- No, not any person can form a 5. The place where the principal office
corporation sole, section 110 provides: of the corporation sole is to be
established and located, which place
Section 110. Corporation sole. - must be within the Philippines.
For the purpose of administering and
managing, as trustee, the affairs, The articles of incorporation
property and temporalities of any may include any other provision not
religious denomination, sect or contrary to law for the regulation of
church, a corporation sole may be the affairs of the corporation. (n)
formed by the chief archbishop,
bishop, priest, minister, rabbi or other
Section 112. Submission of the
presiding elder of such religious
articles of incorporation. - The articles
denomination, sect or church. (154a)
of incorporation must be verified,
before filing, by affidavit or affirmation
Is it required to file the articles of of the chief archbishop, bishop, priest,
incorporation in the SEC? minister, rabbi or presiding elder, as
the case may be, and accompanied by
- Yes a copy of the commission, certificate of
election or letter of appointment of
What should be contained in the such chief archbishop, bishop, priest,
articles of incorporation? minister, rabbi or presiding elder, duly
96
- Alienable public land is converted into The declaration of dissolution shall set
private land when the same has been forth:
openly, continuously and exclusively
in possession of the property as 1. The name of the corporation;
concept of an owner for 30 years,
automatically that is 2. The reason for dissolution and
winding up;
Republic of the Philippines vs. IAC
3. The authorization for the dissolution
- Determination of the character of the of the corporation by the particular
land should be in mind religious denomination, sect or
church;
- If they still form part of public domain
they cannot be owned, but if they are 4. The names and addresses of the
converted into private land, the persons who are to supervise the
constitutional prohibition will not winding up of the affairs of the
apply corporation.
special corporations do not provide for contract. Hence, petitioner was duly
such rule bound to remove the improvements
before the expiration of the period of
DISSOLUTION lease. Its failure to do so when the
lease was terminated was tantamount
What is dissolution? to a waiver of its rights and interest
over the improvements on the leased
- Extinguishment of the corporate premise.
franchise and the termination of
corporate existence o 3 modes of dissolution, 3
modes of voluntary dissolution
3 modes of dissolution and 3 modes of liquidation and
winding up- FREQUENTLY
ASKED IN THE FINALS
1. By expiration of its term;
Should this be strictly complied with? 5. Posting of the same order for three (3)
consecutive weeks in three (3) public
- Yes, compliance with the requirements places in such city or municipality.
and formalities prescribed above is
mandatory such that failure to comply 6. Upon five (5) days’ notice, given after
therewith will have no effect on the the date on which the right to file
legal existence of the corporation. objections has expired, the SEC shall
hear the petition and try any issue
made by the objections filed.
Will dissolution be effective and valid
by a mere resolution of the BOD and 7. Judgment dissolving the corporation
stockholders? and directing of its assets as justice
requires and the appointment of a
- No, a mere resolution by the receiver (if necessary in its discretion)
stockholders or the BOD of a to collect such assets and pay the
corporation to dissolve the same does debts of the corporation.
not affect the dissolution but that
some other steps, administrative or o The foregoing are also
judicial is necessary. (Daguhoy mandatory requirements
Enterprises vs. Ponce)
the case may be, the corporation shall 6. Failure to file required reports in
be deemed dissolved without any appropriate forms as determined by
further proceedings, subject to the the Commission within the prescribed
provisions of this Code on liquidation. period.
(n)
- Other grounds are provided for in the
o Intra-corporate- special corporation code itself: among them
commercial courts are:
- Because in El Hogar the government - Minority stockholders may not ask for
was at fault, the government wasn’t the dissolution of a corporation in
able to issue the certificate of title on private suits and that such actions
time should be brought by the Government
through its legal officers, except in
- When the case was instituted, El cases where the intervention of the
Hogar was already able to dispose the State, for one reason or another,
properties in question, in Philippine cannot be obtained, as when the
Sugar Estate it was still the holding State is not interested because the
the properties in order to enrich itself complaint is strictly a matter
at the expense of the taxpayers between the stockholders and does
not involve, in the opinion of the
Republic vs. Security Credit and legal officer of the Government, any
Acceptance Corp. et al. of the acts or omissions warranting
quo warranto proceeding , in which
- The corporation here is a lending minority stockholders are entitled
institution and not a banking to have such dissolution. It should
institution be exercised if necessary in order not
to entirely ignore and disregard the
- Defendant corporation violated the law rights of said minority stockholders,
because before a corporation may especially when said minority
engage into a banking activity it must stockholders are unable to obtain
first obtain a secondary franchise from redress and protection of their rights
the Central Bank within the corporation itself.
Stockholders should not be left
- Defendant corporation threatens without recourse
substantial injury to the general
public, dissolution is warrant Present set up
May a corporation ask for dissolution business for which it was organized. It
of the corporation when there is no cannot apply for a new certificate or a
prejudice to the general public? secondary franchise for it is incapable
of receiving a grant.
- Yes, in a close corporation, a petition
for the dissolution of the corporation - Awarding it to Camarines Sur is
may be instituted by any one tantamount to a medal for its illegal
individual shareholder on the ground, acts
even by mere dishonesty
- It cannot apply for a new certificate or
Effects of dissolution a secondary franchise for it is
incapable of receiving a grant. It was
- The dissolution of a corporation not not even a corporation de facto. And
only terminates its primary franchise then, there is no application
to be a corporation, but generally subscribed by the new corporation
prevents it from further exercising
other or secondary franchises which - And yet as stated, the new corporation
have been conferred to its. It has not filed any application for
terminates its power to enter into certificate of public convenience in
contracts or t o continue the business Sabang, and has not published such
as a going concern. application.
- Based on this general rule, the Cebu Port Labor Union vs. State
Supreme Court held that a Marine Co
corporation, whose corporate life
expired, cannot lawfully pursue the
- Even a cursory reading of the provision
business for which it was organized. It
would convey the idea clearly
cannot apply for a new certificate or a
manifested in the limitation “but not
secondary franchise for it is incapable
for the purpose of continuing the
of receiving a grant. Neither can it
business for which it was established,”
enforce a contract executed prior its
that the 3-year period allowed by the
dissolution for the purpose of
law is only for the purpose of winding
continuing the business of its
up its affairs.
organization.
- Preferred shares may give the holder However the 3 year period is not
thereof, preference only in the absolute
dividends but also in the distribution Liquidation may be undertaken in
of corporate assets upon liquidation or either of the 3 ways
termination of the corporate existence.
If such is the intent, the contract of 1. By the corporation itself through the
subscription must so indicate lest they BOD
are placed on equal footing with
common shareholders - Usual method or procedure of
- Preference may be participating or liquidating a corporation and although
non-participating there is no law authorizing it, neither
is there anything that prohibits the
BOD from undertaking the same
Dissolved corporations are granted a
period of 3 years to liquidate
- If this method is resorted to, the board
will only have a period of 3 years to
Section 122. Corporate
finish its task of liquidation
liquidation. - Every corporation whose
charter expires by its own limitation or
is annulled by forfeiture or otherwise, - Claims for or against the corporate
or whose corporate existence for other entity not filed within the period will
purposes is terminated in any other become unenforceable as there exist
manner, shall nevertheless be no corporate entity against which they
continued as a body corporate for can be enforced
three (3) years after the time when it
would have been so dissolved, for the - Actions pending for or against the
purpose of prosecuting and defending corporation when the 3 year period
suits by or against it and enabling it to expires, are abated since after the
settle and close its affairs, to dispose of period, the corporation ceases for all
and convey its property and to intents and purposes and is no longer
distribute its assets, but not for the capable of suing or being sued
purpose of continuing the business for
which it was established. 2. By a trustee appointed by the
corporation
At any time during said three
(3) years, the corporation is authorized - The corporation may opt to convey all
and empowered to convey all of its corporate assets to a trustees who will
property to trustees for the benefit of take charge of liquidation
stockholders, members, creditors, and
other persons in interest. From and - If this method is used, the three year
after any such conveyance by the period limitation imposed by section
corporation of its property in trust for 122 will not apply provided the
the benefit of its stockholders, designation of the trustee is made
members, creditors and others in within that period
interest, all interest which the
corporation had in the property 3. By appointment of a receiver
terminates, the legal interest vests in
the trustees, and the beneficial
- A receiver may be appointed by the
interest in the stockholders, members,
proper forum on petition or motu
creditors or other persons in interest.
proprio upon the dissolution of the
corporation
Upon the winding up of the
corporate affairs, any asset
- The appointment of a receiver is,
distributable to any creditor or
however, permissive rather than
stockholder or member who is
105
mandatory and the law tends to at the end of three years from the time
recognize that in cases of voluntary of dissolution; but if a receiver or
dissolution there is no occasion for the assignee is appointed, with or without
appointment of a receiver except under a transfer of its properties within 3
special circumstances and upon years, the legal interest passes to the
proper showing assignee, the beneficial interest
remaining in the members,
- If a receiver is appointed, the 3 year stockholders, creditors and other
period fixed by law within which to interested persons and said assignee
complete the task of liquidation will may bring an action, prosecute that
not likewise apply because the which has already been commenced
dissolved corporation is substituted by for the benefit of the corporation, or
the receiver who may sue or be sued defend the latter against any other
even after that period action already instituted or which may
be instituted even outside of the period
o Mere appointment of a receiver of three years fixed for the offices of
without anything more does the corporation.
imply in the dissolution of a
corporation Board of Liquidators vs. Kalaw
continued as a body corporate for What if the law of the state of the
three (3) years after the time when it foreign corporation does not allow
would have been so dissolved, for the Filipino citizens to do business in their
purpose of prosecuting and defending country?
suits by or against it and enabling it to
settle and close its affairs, to dispose of - The phrase “and whose laws allow
and convey its property and to Filipino citizens and corporations to do
distribute its assets, but not for the business in its own country or state” is
purpose of continuing the business for not, however, an accurate inclusion in
which it was established. the definition as ay corporation
registered or organized under the laws
At any time during said three of another state is necessarily a foreign
(3) years, the corporation is authorized corporation whether or not the state of
and empowered to convey all of its its incorporation allow Filipino citizens
property to trustees for the benefit of or corporations to do business in that
stockholders, members, creditors, and forum.
other persons in interest. From and
after any such conveyance by the - The said phrase was inserted by the
corporation of its property in trust for framers of the law only as a condition
the benefit of its stockholders, precedent to the grant of a license of a
members, creditors and others in foreign corporation to do business in
interest, all interest which the the Philippines.
corporation had in the property
terminates, the legal interest vests in Composed of 100% Americans;
the trustees, and the beneficial organized under the laws other than
interest in the stockholders, members, the Philippines
creditors or other persons in interest.
- The test is the “incorporation test”
Upon the winding up of the
corporate affairs, any asset
- General rule: the place of its
distributable to any creditor or
incorporation irrespective of the
stockholder or member who is
nationality
unknown or cannot be found shall
be escheated to the city or
municipality where such assets are - Exception: control test would apply in
located. determining the corporate nationality,
i.e., the citizenship of the controlling
Except by decrease of capital stockholders determines the
stock and as otherwise allowed by this nationality of the corporation
Code, no corporation shall distribute
any of its assets or property except If a foreign corporation wants to
upon lawful dissolution and after transact business in the Philippines,
payment of all its debts and liabilities. what must it do?
(77a, 89a, 16a)
- Obtain a license
FOREIGN CORPORATIONS
How may it do so?
Definition
- According to sec. 125:
- Section 123. Definition and rights of
foreign corporations. - For the purposes Section 125. Application for a
of this Code, a foreign corporation is license. - A foreign corporation
one formed, organized or existing applying for a license to transact
under any laws other than those of the business in the Philippines shall
Philippines and whose laws allow submit to the Securities and Exchange
Filipino citizens and corporations to do Commission a copy of its articles of
business in its own country or state. It incorporation and by-laws, certified in
shall have the right to transact accordance with law, and their
business in the Philippines after it translation to an official language of
shall have obtained a license to the Philippines, if necessary. The
transact business in this country in application shall be under oath and,
accordance with this Code and a unless already stated in its articles of
certificate of authority from the incorporation, shall specifically set
appropriate government agency. (n) forth the following:
2. The address, including the street thereof in English under oath of the
number, of the principal office of the translator shall be attached thereto.
corporation in the country or state of
incorporation; The application for a license to
transact business in the Philippines
3. The name and address of its shall likewise be accompanied by a
resident agent authorized to accept statement under oath of the president
summons and process in all legal or any other person authorized by the
proceedings and, pending the corporation, showing to the
establishment of a local office, all satisfaction of the Securities and
notices affecting the corporation; Exchange Commission and other
governmental agency in the proper
4. The place in the Philippines where cases that the applicant is solvent and
the corporation intends to operate; in sound financial condition, and
setting forth the assets and liabilities
5. The specific purpose or purposes of the corporation as of the date not
which the corporation intends to exceeding one (1) year immediately
pursue in the transaction of its prior to the filing of the application.
business in the Philippines: Provided,
That said purpose or purposes are Foreign banking, financial and
those specifically stated in the insurance corporations shall, in
certificate of authority issued by the addition to the above requirements,
appropriate government agency; comply with the provisions of existing
laws applicable to them. In the case of
6. The names and addresses of the all other foreign corporations, no
present directors and officers of the application for license to transact
corporation; business in the Philippines shall be
accepted by the Securities and
7. A statement of its authorized capital Exchange Commission without
stock and the aggregate number of previous authority from the
shares which the corporation has appropriate government agency,
authority to issue, itemized by classes, whenever required by law. (68a)
par value of shares, shares without
par value, and series, if any; Is there any deposit or security
requirement?
8. A statement of its outstanding
capital stock and the aggregate - Yes, within 60 days after the issuance
number of shares which the of the license, a foreign corporation,
corporation has issued, itemized by except those engaged in foreign
classes, par value of shares, shares banking or insurance, shall deposit
without par value, and series, if any; with the SEC, for the benefit of
creditors, securities consisting of
9. A statement of the amount actually bonds or other evidence of
paid in; and indebtedness of the Philippine
government or its political subdivision,
or of government owned or controlled
10. Such additional information as
corporation, shares of stock in
may be necessary or appropriate in
“registered enterprises” as this term is
order to enable the Securities and
defined in R.A. 5186, shares of stock
Exchange Commission to determine
in domestic insurance companies and
whether such corporation is entitled to
banks or any combination thereof with
a license to transact business in the
an actual market value of 100,000
Philippines, and to determine and
assess the fees payable.
- Additional securities may be required
by the SEC if the actual market value
Attached to the application for
of the securities on deposit has
license shall be a duly executed
decreased by at least 10%. Section 126
certificate under oath by the
of the code provides:
authorized official or officials of the
jurisdiction of its incorporation,
attesting to the fact that the laws of Section 126. Issuance of a
the country or state of the applicant license. - If the Securities and
allow Filipino citizens and corporations Exchange Commission is satisfied that
to do business therein, and that the the applicant has complied with all the
applicant is an existing corporation in requirements of this Code and other
good standing. If such certificate is in special laws, rules and regulations, the
a foreign language, a translation Commission shall issue a license to
109
SEC does not have the sole authority P.D. 902-A was amended by R.A. 8799
to suspend or revoke the license of a or the SECURITIES REGULATION
foreign corporation doing business in
CODE in the year 2000
the Philippines, other government
The jurisdiction of SEC for cases
agencies like the Central Bank , the
Insurance Commission may also do so falling under section 5 thereof was
within their respective dominion, transferred to the courts of general
despite the provision of section 134 jurisdiction designated by the SC, they
If the SEC believes that revocation is were called special commercial courts,
warranted, section 135 provides that: the only exceptions were revocation of
corporate franchise and calling of
Section 135. Issuance of elections
certificate of revocation. - Upon the However the SEC retained receivership
revocation of any such license to
or suspension payments within June
transact business in the Philippines,
the Securities and Exchange 20,2000
Commission shall issue a Jurisdiction of special commercial
corresponding certificate of revocation, courts are exclusive and original,
furnishing a copy thereof to the jurisdiction is conferred by law; 1
appropriate government agency in the Special Commercial Court per region
proper cases. except MAKATI and QUEZON CITY
which has two
The Securities and Exchange Devices or Schemes
Commission shall also mail to the
corporation at its registered office in
117
- Also known as the Blue Sky Law since it registration statement filed with and approved
was enacted to protect the public from by SEC. Prior to such sale, information on the
unscrupulous promoters who stake business securities, in such form and with such
which have no basis and sell shares and substance as the Commission may prescribe,
interest therein to investors, who are then left shall be made available to each prospective
holding certificates representing nothing more purchaser. (Sec 8)
than a claim to a square of the blue sky.
EXCEPT: Exempt Securities under Sec 9
-SEC. 2. Declaration of State Policy. – The a) Any security issued or guaranteed by
State shall establish a socially conscious, free the Government of the PH, or by any
market that regulates itself, encourage the political subdivision or agency thereof,
widest participation of ownership in or by any person controlled or
enterprises, enhance the democratization of supervised by, and acting as an
wealth, promote the development of the instrumentality of said Government.
capital market, protect investors, ensure full b) Any security issued or guaranteed by
and fair disclosure about securities, minimize the government of any country with
if not totally eliminate insider trading and diplomatic relations with the PH, or by
other fraudulent or manipulative devices and any state, province or political
practices which create distortions in the free subdivision thereof on the basis of
market. reciprocity: Provided, that the SEC
may require compliance with the form
BROKER - person who buys and sells and content of disclosures the
securities for the account of others. Commission may prescribe.
c) Certificates issued by a receiver or by a
DEALER - person who buys and sells trustee in bankruptcy duly approved
securities for his/her own account in the by the proper adjudicatory body.
ordinary course of business. d) Any security or its derivatives the sale
or transfer of which, by law, is under
NOTE: No person shall engage the supervision and regulation of the
in the business of buying or selling Office of the Insurance Commission,
securities in the Philippines as a Housing and Land Use Regulatory
broker or dealer, or act as a Board, or the Bureau of Internal
salesman, or an associated person Revenue.
of any broker or dealer unless e) Any security issued by a bank except
registered as such with the its own shares of stock.
Commission. (Sec 28)
AND Exempt Transactions under Sec 10
SECURITES - shares, participation or a) A judicial sale, or sale by an executor,
interests in a corporation or in a commercial administrator, guardian or receiver or
enterprise or profit-making venture and trustee in insolvency or bankruptcy.
evidenced by a certificate, contract, b) By or for the account of a pledge
instrument, whether written or electronic in holder, or mortgagee or any other
character. It includes: similar lien holder selling or offering
CODE: COFDIPS for sale or delivery in the ordinary
a) Certificates of assignments, certificates course of business and not for the
of participation, trust certificates, purpose of avoiding the provisions of
voting trust certificates or similar this Code, to liquidate a bona fide debt,
instruments; a security pledged in good faith as
b) Other instruments as may in the security for such debt.
future be determined by the c) An isolated transaction in which any
Commission; security is sold, offered for sale,
c) Fractional undivided interests in oil, subscription or delivery by the owner
gas or other mineral rights; thereof, or by his representative for the
d) Derivatives like option and warrants; owner’s account, such sale or offer for
e) Investment contracts, certificates of sale, subscription or delivery not being
interest or participation in a profit made in the course of repeated and
sharing agreement, certificates of successive transactions of a like
deposit for a future subscription; character by such owner, or on his
f) Proprietary or non proprietary account by such representative and
membership certificates such owner or representative not being
incorporations; and the underwriter of such security.
g) Shares of stock, bonds, debentures, d) Distribution by a corporation, actively
notes, evidences of indebtedness, engaged in the business authorized by
asset-backed securities; its AOI, of securities to its stockholders
or other security holders as a stock
GR: Securities shall not be sold or offered for dividend or other distribution out of
sale or distribution within the PH, without a surplus.
121
substantially the same size, time and trading to induce the purchase through
price for the sale or purchase of such said devices or schemes.
security has, or will be entered by or
for the same or different parties. 8. Circulating or Disseminating
Information – circulating an
Note: Wash sale and matched orders information that any of the security
become illegal when they are used as a listed in the exchange will or is likely
means to create false appearance of to rise or fall because of manipulative
active trading in the security concerned. market operations of any one or more
persons conducted for the purpose of
3. Marking the close – placing the raising or depressing the price of the
purchase order, at or near the close of security and thus inducing the
the trading period. The price that was purchase of such security.
closed will then be the price that will 9. Making False or Misleading
be posted on the following trading day. Statements with respect to any
4. Painting the tape – involves a series material fact which he knew or had
of transactions that are reported reasonable ground to believe was so
publicly to give the impression of an false or misleading for the purpose of
activity in a security. inducing the purchase or sale of such
5. Squeezing the float – the part of an security.
outstanding security intentionally held 10. Pegging or Fixing Or Stabilizing the
by dealers or other persons with a view price of security effected either alone or
of reselling them later for profit. with others through any series of
6. Hype and dump – Act employed by a transactions for the purchase or sale
person or group of persons of thereof, if done for such purpose.
purchasing the outstanding capital 11. Short sale – selling of security which
stock of a dormant public shell the vendor does not own unless done
company for a nominal amount and in accordance with the rules and
merge it with their privately held regulations of the SEC.
company. They would then gain 12. Insider Trading – the act of an insider
control of the majority stocks of the to buy or sell security of the issuer
merged entity. Stock certificates are while in possession of material
often re-issued in the name of the information with respect to such
merged entity to relatives and security that is not generally made
associates who act as nominees of the known to the public unless (a) The
person or persons employing the insider proves that the information was
device. They would then look for a not gained from such relationship; or
broker-dealer who would be willing to (b) If the other party selling to or
make a “hype” of the securities. The buying from the insider (or his agent)
broker-dealer then generates volume is identified, the insider proves: (i) that
and advance bid price. When the he disclosed the information to the
market reaches a high price, they other party, or (ii) that he had reason
would “dump” their shareholdings and to believe that the other party
bail out. otherwise is also in possession of the
7. Boiler Room Operations – involves an information.
intensive selling campaign through
numerous salesmen by telephone or Note: When is information
through direct mail offerings for “material non-public”? - if: (a) It has
securities of either a certain type or not been generally disclosed to the
from a specific issuer. Investors are public and would likely affect the
induced to purchase through hard-sell market price of the security after being
based on unfounded predictions and disseminated to the public and the
mailing of misleading market letters. lapse of a reasonable time for the
market to absorb the information; or (b)
Note: Marking the close, Painting the would be considered by a reasonable
tape, Squeezing the float, Hype and person important under the
dump, Boiler Room Operations become circumstances in determining his course
unlawful if it is effected to either raise of action whether to buy, sell or hold a
the price or induce the purchase of a security.
security or of a controlling, controlled, or
commonly controlled company by Note: Who is an “insider”? - “Insider”
others or to depress the price to induce means: (a) the issuer; (b) a director or
the sale of a security, whether of the officer (or person performing similar
same or of a different class, of the same functions) of, or a person controlling the
issuer or of a controlling, controlled issuer; (c) a person whose relationship
company or common controlled or former relationship to the issuer
company by others or to create active gives or gave him access to material
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information about the issuer or the All suits to recover damages shall be
security that is not generally available brought before the Regional Trial Court,
to the public; (d) a government which shall have exclusive jurisdiction to hear
employee, or director, or officer of an and decide such suits. The Court is
exchange, clearing agency and/or self- authorized to award damages in an amount
regulatory organization who has access not exceeding triple the amount of the
to material information about an issuer transaction plus actual damages.
or a security that is not generally
available to the public; or (e) a person
who learns such information by a NOTES
communication from any of the If there are goods involved in the
foregoing insiders. multimarket, it is beyond the
jurisdiction of SEC (Ex First Quadrant)
INDEPENDENT DIRECTOR Criminal charge for violation of SRC is
Person other than an officer or a specialized dispute, hence it must be
employee of the corporation, its parent or first referred with SEC (Baviera vs.
subsidiaries, or any other individual having a Paglinawan G.R. No. 168380
relationship with the corporation, which Feb 8, 2007)
would interfere with the exercise of T3 Rule in trading of Securities –
independent judgment in carrying out the Trading day + 3 more days you must
responsibilities of a director. comply with your obligations.
OPTION TRADING
Put – a transferrable option or offer to
deliver a given number of shares of
stock at a stated price on any given
time during the stated period.
Call – a transferrable option to buy a
specified number of share at a stated
price
Straddle – a combination of put and
call.
SETTLEMENT OFFERS
At any time, during an investigation or
proceeding under this Code, parties being
investigated and/or charged may propose in
writing an offer of settlement with the
Commission. The Commission may only
agree to a settlement offer based on its
findings that such settlement is in the public
interest. Any agreement to settle shall have no
legal effect until publicly disclosed. Such
decision may be made without a
determination of guilt on the part of the
person making the offer.
DAMAGES