KOrporation Law
Corporation Law Reviewer
GG03 • 2018
Duties of Directors and Controlling Shareholders
The 3-Fold Duty of Directors
• Diligence
• Loyalty
• Obedience
Liability of Directors, Trustees, Officers
THE GENERAL RULE: DIRECTORS, TRUSTEES, OFFICERS OF
THE CORPORATION ARE NOT LIABLE, pursuant to the Business
Judgment Rule
Duty of Diligence; the Business Judgment Rule
• Questions of policy or management are left solely to the
honest decision of officers and directors of a corporation
and the courts are without authority to substitute their
judgment for the judgment of the board of directors; the
board is the business manager of the corporation and so
long as it acts in good faith its orders are not reviewable
by the courts or the SEC. The directors are also not liable
to the stockholders in performing such acts. (Philippine
Stock Exchange, Inc.v. Court of Appeals, GR No. 130644,
1997)
Application of the Business Judgment Rule
• Resolutions and transactions entered into by the Board of
Directors within the powers of the corporation cannot be
reversed by the courts not even on the behest of the
stockholders of the corporation; and
• Directors and officers acting within such business
judgment cannot be held personally liable for the
consequences of such acts.
THE EXCEPTION: When Director is Liable for Judgment (see
Sec. 31, Corporation Code)
NOTE: LIABILITY IS JOINT AND SEVERAL (SOLIDARY) WITH
THE CORPORATION
1. Willfully and knowingly voting for and assenting to
patently unlawful acts of the corporation;
2. Gross negligence or bad faith in directing the affairs of the
corporation;
3. Acquiring any personal or pecuniary interest in conflict of
duty.
CONFLICTS OF INTEREST
Self-Dealing Directors
• Prime White Cement v. IAC: Applies to a situation where
a director or officer is dealing with his own corporation.
• General Rule: Such contracts are void or voidable
• Exception: When the conditions in Sec. 32 (above) are
met
o Exception to the exception: If EITHER of the
conditions in Sec. 32 (1) and (2) are NOT met,
such contracts may be ratified:
§ By the vote of Stockholders
representing at least 2/3 of the
outstanding capital stock/at least 2/3
of the members
§ In a meeting called for the purpose
• There is full disclosure of the
adverse interest of the
directors or trustees is made
at sucha meeting
§ The contract is fair and reasonable
under the circumstances
Related-Party Transactions
• Definition: “a transfer of resources, services or
obligations between a reporting entity and a related party,
regardless of whether a price is charged” (Philippine
Accounting Standards 24, "Related Party Disclosure")
• Involves a parent company which exerts direct or indirect
control over a subsidiary company
o Who are “related parties”:
§ Directors
§ Officers
§ Stockholders
§ Related interests
§ Close family members
§ Corresponding persons in affiliated
companies
• Examples of related-party transactions:
o When an investor has control over an entity
(subsidiary) and has significant influence over
another entity (associate), the investor, the
subsidiary and the associate are related parties
to each other;
o When a person (or a close member of that
person’s family) has significant influence over
two associates, these associates are not related
parties due to insufficient influence;
o Where the key management personnel of an
entity hold an investment, which result in control
or joint control of an investee, the entity and the
investee are related parties to each other;
o When a person has joint control over an entity
and a close member of that person’s family has
joint control or significant influence over another
entity, both entities are related to each other.
• What is required in related-party transactions: reportorial
requirements imposed by the SEC and the BSP in the
Audited Financial Statements (AFS) of the corporation/s
involved
Interlocking Directors
• Unlike self-dealing directors (which involves a contract
between the director himself/herself and the corporation),
interlocking directors involves two corporations, and the
director has interest in both corporations entering into
the transaction or contract
• Contracts of interlocking directors are not void merely on
the ground that it is made by interlocking directors, for so
long as:
o Fraud did not attend the contract
o The contract is fair and reasonable under the
circumstances
• Special rules when there is substantial interest in one
corporation and nominal interest in the other
o Substantial interest = stockholdings exceed
20% of OCS
o The conditions in Sec. 32 apply:
§ The presence of director is not
needed to constitute quorum in the
meeting regarding the transaction
involving interlocking directors;
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§ The vote of the director is not
necessary to approve the contract
involving interlocking directors;
§ The contract is fair and reasonable
under the circumstances;
§ If officer is involved with the contract,
the board of directors approved the
contract
Seizing Corporate Opportunity
• If there is presented to a corporate officer or director a
business opportunity, which the corporation has an
interest or a reasonable expectancy, the self-interest of
the officer or director will be brought into conflict with that
of his corporation. The law does not permit him to seize
the opportunity even if he will use his own funds in the
venture. If he seizes the opportunity thereby obtaining
profits to the expense of the corporation, he must account
all the profits by refunding the same to the corporation.
Requisites:
1. The Corporation is financially able to undertake the
business opportunity.
2. From the nature of the business opportunity, it is in line
with corporation’s business and is of practical advantage
to the corporation.
3. The corporation has an interest or a reasonable
expectancy, by embracing the opportunity.
Consequences of seizing corporate opportunity without the
requisites:
General Rule:
1. Directors must account for all the profits by refunding
the same to the corporation
2. Directors may be removed from the board.
Exception: The act of the director/trustee has been ratified by a
vote of the stockholders owning or representing at least two-thirds
(2/3) of the outstanding capital stock.
Using Insider Information
• Definition of Insider Trading: When an insider of the
corporation sells or buys the securities of an insider, and
that insider possesses material information not
generally available to the public (SRC, Sec. 27)
o What constitutes “material information”:
Material information means information which a
reasonable investor would consider important in
determining whether to buy, sell or hold
securities, or in connection with the exercise of
related voting rights (SRC IRR)
o When is material information nonpublic
(“material nonpublic” information): If the
information:
§ Has not been generally disclosed to
the public and would likely affect the
market price of the security after being
disseminated to the public and the
lapse of a reasonable time for the
market to absorb the information; OR
§ Would be considered by a reasonable
person important under the
circumstances in determining his
course of action whether to buy, sell,
or hold the security
• When an insider can trade securities:
o When the insider proves that information was
not gained from such a relationship; OR
o If the other party who is selling to or buying
from the insider or his agent is identified, the
insider proves (basically, BOTH OF THEM
KNOW about the material information)
§ That he disclosed the information to
the other party
§ He had reason to believe that the
other party otherwise is also in
possession of the information
• Presumption of insider information when:
o The trade is done between spouses or relatives
by affinity or consanguinity within the second
degree, legitimate or common-law
o The transaction took place after the information
came into existence but prior to the
dissemination of such information to the public
and the lapse of a reasonable time for the
market to absorb such information
o When rebutted: A showing that the
purchaser/seller (the non-insider) that he was
aware of the material nonpublic information at
the time of the purchase or sale
Duty of Controlling Shareholder
• Insuranshares v. Northern Fiscal Corp.:
o Those who control a corporation, either through
majority stock ownership, ownership of large
blocks of stock less than a majority,
officeholding, management contracts, or
otherwise, owe some duty to the corporation in
respect of the transfer of the control to outsiders.
o The owners of control are under a duty not to
transfer it to outsiders if the circumstances
surrounding the proposed transfer are such as
to awaken suspicion and put a prudent man on
his guard unless a reasonably adequate
investigation discloses such facts as would
convince a reasonable person that no fraud is
intended or likely to result.
Right of Inspection
Corporate Books and Records include:
• Record of all business transactions
• Minutes of all meetings of stockholders/members; board
of directors/trustees, which shall set forth:
o Time and place of the meeting
o How meeting was authorized
o The notice given
o Whether the meeting was regular/special
§ If special: Purpose/object
o Those present and absent
o Every act done or ordered done at the meeting
o When a stockholder/member/trustee/director
entered or left the meeting (upon demand of
stockholder/member/director/trustee)
• Vote (yeas or nays taken on any motion or proposition)
• Protest of any director/trustee/stockholder/member on
any action proposed (must be recorded in full)
Stock and Transfer Book; Transfer Agent
• When necessary: in stock corporations
• What is kept:
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o A record of all stocks in the names of the
stockholders alphabetically arranged
o Installments paid and unpaid on all stock for
which the subscription was made
o The date of payment of any installment
o Statement of every alienation, sale, transfer of
stock made
o Date of the transfers
o Who made the transfer/To whom transferred
o Other entries provided by by-laws
o Where kept:
o Principal office of the corporation
o Office of the stock transfer agent
• Open to inspection? YES (reasonable hours + business
days)
• Stock and Transfer Agent:
o Must secure a license from the SEC
o Pays a fee fixed by the SEC (renewable annually)
• Can a corporation do it itself (w/o a stock and transfer
agent? YES (follows the licensing and fee requirements
imposed on stock and transfer agents)
• Purpose of a STB: A stock and transfer book is
necessary as a measure of precaution, expediency and
convenience since it provides the only certain and
accurate method of establishing the various
corporate acts and transactions and of showing the
ownership of stock and like matters.
• Nature of a STB: However, a stock and transfer book,
like other corporate books and records, is not in any
sense a public record, and thus is not exclusive
evidence of the matters and things which ordinarily
are or should be written therein. In fact, it is generally
held that the records and minutes of a corporation are not
conclusive even against the corporation but are prima
facie evidence only, and may be impeached or even
contradicted by other competent evidence. Thus, parol
evidence may be admitted to supply omissions in the
records or explain ambiguities, or to contradict such
records.
Extent and Limitations of the Right of Inspection
• When right to inspection accrues: Upon demand:
o At reasonable hours
o On business days
• Expenses, in case director/trustee/stockholder/member
demands a written copy of corporate books and records,
is to be borne by the one making the request
• Liability for Refusal: When there is refusal to allow any
director, trustee, stockholder, member to examine
and copy excerpts from records or minutes:
o If done by officer or agent of the corporation:
officer is liable for DAMAGES + CRIMINAL
LIABILITY under Art. 144, Corp. Code
o If done through Board Resolution:
• Defenses for Refusal: The person demanding
examination and copying of excerpts from records and
minutes:
o Has improperly used the information secured
through any prior examination of
records/minutes of THE CORPORATION or OF
ANY OTHER CORPORATION; or
o Was not acting in GOOD FAITH for a
LEGITIMATE PURPOSE in making his demand
Request for Inspection of Financial Statements (FS):
• Made upon written request by any stockholder/member
• Corporation to supply most recent statements:
o Balance Sheet as of the end of the last taxable
year
o Income statement (profit/loss statement) for the
last taxable year
o Must show in detail assets/liabilities
• Must also be presented in a regular meeting of the
stockholders/members (that of the preceding year)
o Must be duly signed and certified by an
independent CPA
o Exception: if PUC is less than PhP50,000 (may
be signed by treasurer/responsible officer of the
corporation)
Derivative Suits
• Nature and Basis: Those brought by one or more
stockholders/members in the name and on behalf of the
corporation to redress wrongs committed against it,or
protect/vindicate corporate rights whenever the officials
of the corporation refuse to sue, or the ones to be sued,
or has control of the corporation.
• Requirements (Filipinas Port Services v. Go)
o The party bringing suit should be a
shareholder as of the time of the act or
transaction complained of, the number of his
shares not being material;
o He has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the
board of directors for the appropriate relief but
the latter has failed or refused to heed his plea;
and
o The cause of action actually devolves on the
corporation, the wrongdoing or harm having
been, or being caused to the corporation and
not to the particular stockholder bringing the
suit.
• If an appraisal right exists, then you can’t proceed to a
derivative suit (nasa rules on intra-corporate remedies,
and a case. Forgot which.)
• If the demand is for damages against a stockholder, then
the right to institute a derivative suit does not exist.
• Basic Principles in Derivative Suits:
o Remedies within a corporation must be
exhausted.
o A demand must be made with incumbent
directors for them to correct it (If it will be
useless, because they have benefitted from the
action: demand is not necessary)
o Must be a stockholder at the time the
transactions were undertaken
o Must be brought in the name of the corporation.
o Any benefit recovered by the shareholder as a
result of bringing the case must be accounted
for to the corporation, who is the RPI
o It is not a derivative suit if the relief prayed for is
for the benefit of the suing shareholder. It must
be in favor of the entire corporation. If you
represent that to be a derivative suit, I must be
dismissed.
o Directors sued and absolved of liability have the
right to reimbursement (through a director’s and
officer’s liability insurance)
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• Real Party in Interest in a derivative suit: The Equity Debt

corporation if the corporation Once contracted,
o Nominal party: the instituting shareholder has unrestricted board action is not
• Minimal number of shareholdings to bring a derivative return on necessary for
suit: none (SMC v. Kahn) investment; Board payment of
• Q: Is the shareholder who brings the suit entitled to must declare a interest or
reimbursement? dividend repayment of
o A: YES, for reasonable fees and expenses of principal
litigation As to liquidation Equity holder is Creditor has
§ Rationale: It is the CORPROATION entitled to share in priority to
that receives the benefit of judgment, corporate assets corporate assets
and it is the CORPORATE INTEREST after debts have upon liquidation
that is being forwarded been paid
• Q: Can a shareholder recover personally in a
derivative action? (Liken v. Shaffer) D/E RATIO: The proportion of liabilities to equity
o GR: Judgment for a defendant in a derivative If debt is P10M and equity is P5M: debt to equity ratio is 2.
suit operates as a bar against the defendant in
a subsequent derivative suit concerning the CAPITAL STRUCTURE OF THE CORPORATION: Refers to
same transaction brought by different • The percentage of capital (money) at work in a business by
shareholders (res judicata) – because the party type
is the corporation. • Aggregate of securities issued by a company
o Exc: If a subsequent case raises a matter or a
cause of action that was not decided in an Generally, two forms of capital:
earlier case, the matter brought in that cause of • Equity capital: Money contributed and owned by the
action is not barred. shareholders
o Contributed capital: Money originally invested in
exchange for shares of stock or ownership
Financing the Corporation o Retained earnings: Represents profits from past years
that have been kept by the company; used for fund
A. Sources of Financing: each type of capital has its own growth, acquisitions, or expansion.
advantages and disadvantages. Wise corporate o Really, the shares of stock of a corporation
stewardship and management involves finding the best § Authorized capital
capital structure in terms of risk/reward payoff for the § Subscribed capital
shareholders (the holders of equity in the corporation) § Paid-up capital
a. Equity § Outstanding capital stock
b. Debt • Debt capital:
c. Combination of Debt and Equity o May be short term or long term
§ Short-term debt: part of working capital
Equity Debt § Long term: More than two years; impacts long-term
As to ownership Gives a creditor Debt does not give financial position
rights ownership rights: creditor ownership o Long term debt may be considered part of capital
• Right to vote rights in structure
• Right to corporation
participate in B. Shares of Stock; Kinds (Sec. 6, Code)
future
earnings a. Common Shares:
(dividends) • “Ordinary Shares” in other countries
• Right to • No special rights or restrictions
participate in • Exclusive right to vote except where Code or AOI
assets in the give voring rights to other classes or shares
event of • Potential for highest financial gains (entitled to share
liquidation pro rata in divisions of corporate profits)
As to repayment Does not give The creditor has • But also have highest rights (in dissolution and
shareholder the the right to winding up, creditors must be paid first)
right to demand demand payment b. Preferred: Rights depend on what is stated in the Articles
repayment of his regardless of of Incorporation, but have voting rights in instances
investment from financial position enumerated in Sec. 6
the corporation of corporate • Typically has preferential treatment with respect to
(except if preferred debtor, in dividends
shares – may have accordance with • Must have par or stated value (Sec. 6)
maturity) terms of • Receive fixed dividend; holder does not benefit from
agreement increase in profits, but are entitled to dividends
As to return on Equity holder is Creditor has the ahead of common shares
investment entitled to a return right to payment of • Certain privileges that common shares may not have
on investment only interest (and ROI).
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Just because you are a holder of a preferred share
does not mean you have no right to vote. However,
there is always a trade-off (e.g. only entitled to cash
dividends, not stock dividends)
c. Redeemable: Rights depend on what is stated in the AOI.
Can be bought back by the corporation upon expiration
of the fixed period, whether or not the corporation has
unrestricted retained earnings; but note SEC
requirements; shares which the corporation may have to
pay back at a certain point
• What if the redeemable shares mature if there is
no unrestricted retained earnings? A: The SEC
requires a sinking fund to pay for these shares
• Preference as to Dividends (Preferred Shares)
1. Participating and non-participating
a. Participating: After getting fixed
dividend preference, may share with
common shareholders in rest of the
dividend
b. Non-participating: Limited to fixed
dividend rate as provided in the Articles
of Incorporation; do not participate in
the rest of the dividends (the more
usual type of preferred shares)
2. Cumulative vs. Non-Cumulative
a. Cumulative: Where no dividends
declared in a given year, when
dividends are declared in subsequent
years, will be paid dividends for years
when no dividends were received
(regardless of year when profit was
earned); more common
b. Non-cumulative: No need to make up
for dividends not received for years
when the corporation has no profit
c. Discretionary: Right of preferred
shareholders to receive dividends will
depend on discretion of the board on
declaration of dividends, even if the
corporation has retained earnings.
(Wag kayong tatanggap ng ganyang
klaseng shares ha, baka kayo maipit)
d. Mandatory: Positive duty of the board
to declare dividends as long as there
are unrestricted retained earnings
e. Earned cumulative or dividend credit
i. Preferred shareholders cannot
compel dividends from profits of
previous year, but when dividends
are declared, has right to dividends
for years when there were profits
but dividend was not declared
before common shareholder are
paid;
ii. Difference from cumulative
preferred shares: There is a right to
dividends even for years when there
is no profit
3. Convertible or non-convertible
a. Convertible: May be converted to
common shares at a future date (at
option of shareholder, or of board or at
a pre-determined date)
i. AOI must provide for convertibility
of the preferred shares
ii. If AOI does not provide for
convertibility, amendment will be
necessary, which may give rise to
appraisal right.
iii. Sec. 81(1): There is an appraisal
right “in case any amendment to
AOI has the effect of changing or
restricting rights of stockholder or
class of shares”
b. Non-convertible: Cannot be
converted to common shares
4. Par value vs. no par value shares
a. Par value of a share: Nominal peso
amount assigned to a share of stock by
the issuer
b. No par value share: Class of shares
that are not assigned a par value or
base value in the corporate charter
• Sec. 14(8): If stock corporation, AOI must
state:
1. Amount of ACS
2. Number of shares into which
authorized capital stock is
divided
3. In case shares are par value
shares, the par value of each
4. Whether some or all of the
shares are without par value
• Sec. 6: x x x Any or all of the shares or
series of shares may have a par value or
have no par value as may be provided in
the AOI
• Note: The par value does not really reflect
the fair value/does not necessarily relate to
market value of a share. Example: San
Miguel’s par value is Php5.00, but the fair
value of the shares is somewhere between
Php60.
• “Fully paid and non-assessable”: The
subscription is fully paid up, and the
corporation cannot demand more money
beyond what is covered by the
subscription contract.
• The subscription is not covered by par
value; may also cover fair value or “issue
value”
• When the corporation decides to issue its
shares, the corporation will determine what
the issue value should be.
ISSUE VALUE – PAR VALUE = PREMIUM
OVER PAR
How is the premium recorded in the STB? –
Recorded as APIC (additional paid-in capital)
Different kinds of share values:
1. Market Value:
a. Price at which shares of stock are
bought and sold, usually on stock
market
b. Affected by the financial condition of a
corporation and investors’ perception
of such condition and prospects of
corporation
2. Issued Value:
a. No par value shares: Issued price of
no par value shares may be fixed in the
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AOI or by the board pursuant to
authority conferred upon it by the AOI
or the by-laws, or in the absence
thereof, by shareholders representing
at least a majority of OCS at a meeting
duly called for the purpose (Sec. 62,
last paragraph)
b. Par value shares: Selling price of
shares determined by the board; may
be higher than par value (there is a
premium), but not lower than par value.
• Voting Rights
• Preference upon Liquidation
• Preferred Shareholder Not a Creditor
Ø A shareholder is an owner; a creditor is not an owner.
One cannot be a creditor and an owner at the same
time.
Ø Yet preferred shares are fundamentally aimed at
endowing certain owners with rights analogous to
creditor rights, to make such shares more attractive
to investors
Ø Statutes and court decisions are often concerned
primarily with the question of the extent to which a
preferred share can give creditor rights to a
shareholder
Ø See Augusta Trust v. Augusta, Hallowell & Gardiner
Railroad
Stockholders are NOT creditors because:
1) Stock is capital, not debt.
2) Dividends cannot be claimed unless declared,
while debt can be claimed when it matures.
3) Debt is irrespective of the corporation’s
capacity to pay and is demandable upon maturity.
Types of Corporate Debt
Ø Loan/s from a bank or other financial institution
o May be long-term or short-term; secured or
unsecured
o Loans of significant amount may be
“syndicated” or made by a consortium of
banks to a single borrower; priced as a
spread above London interbank offered
rate (LIBOR)
§ “Syndicated”: more than 1 bank
getting together to lend to one
company under one set of
documents
§ What lawyers must consider:
what the three lenders want
§ Fairly common
§ LIBOR: Cost of money; spread:
the pricing of the bank
• i.e. if LIBOR is 12%,
then the price is a 2%
spread = 12% + 2%
Ø Commercial paper
o Short-term, unsecured money market
instrument, issued as a promissory note
§ Really just a promissory note, but
it is issued by a lot of people
§ Must be registered with the SEC,
pursuant to the
o Not backed by collateral; issuing
corporation must have excellent credit
rating, and only large firms with
considerable financial strength are seen as
acceptable issuers of commercial paper
o Primary purpose is to raise short-term
funds so as to meet working capital
requirements
Ø Corporate bonds
o Debt securities issued by corporations
o Interest rate may depend on the
creditworthiness of the issuer and the
duration (period) of the bond
o Long-term; longer duration bonds may pay
higher rates of interest, as investor is
assuming greater risk
o Some corporate bonds have a “call”
feature; corporation has a right to
repurchase bonds at a specific date prior
to the bond’s maturity
§ “Call and Put”:
• Call Option: The right
to “call” or compel a
party to buy shares
• Put Option: The right to
obligate someone to
purchase shares
o Used to raise money and finance a variety
of projects and activities. Owners of bonds
are debtholders, or creditors, of issuer
Doctrine of Equality of Shares
• All stocks issued by the corporation are presumed equal
with the same privileges and liabilities, provided that the
Articles of Incorporation is silent on such differences
o Sec. 6, Corporation Code:
§ Except as otherwise provided in the
articles of incorporation and stated in
the certificate of stock, each share
shall be equal in all respects to every
other share.
§ The board of directors, where
authorized in the articles of
incorporation, may fix the terms and
conditions of preferred shares of
stock or any series thereof: Provided,
That such terms and conditions shall
be effective upon the filing of a
certificate thereof with the Securities
and Exchange Commission.
Subscription Contract
A subscription contract is a contract for the acquisition of
unissued stock.
Pre-incorporation subscription contracts
• Covers:
o Subscriptions made in the AOI (25 of 25 rule)
o Other subscription contracts made prior to
incorporation
• Irrevocability of pre-incorporation subscriptions:
irrevocable for a period of at least 6 mos. prior to date
of subscription
o Exceptions:
§ ALL of the other subscribers
CONSENT to the revocation; or
§ Incorporation fails to materialize within
said period or within a longer period as
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stipulated in the contract of “RESOLVED: That X shall be liable for

subscription the interest stated in the subscription
o BUT in ALL CASES, if the Articles of contract/AOI, at Y% p.a.. from
Incorporation is submitted to the SEC, the pre- [DATE]”)
incorporation subscription is IRREVOCABLE. § Legal basis: Sec. 67 ¶2, which states
that “Payment x x x together with the
Liability for Unpaid Subscriptions interest accrued, if any x x shall be
made on the date stated in the call
When is a shareholder liable for unpaid subscriptions ? made by the board”
• For instance, remember the 25 of 25 rule upon • INTEREST FOR FAILURE TO PAY ON SUCH DATE
incorporation? (Sec. 67 ¶2, second sentence interest)
o 25% of ACS must be subscribed o Do remember that when the provision states
o 25% of the subscribed must be paid up that “Failure to pay on such date x x x shall
• The paid-up amount (25%) is the MINIMUM for make the stockholder liable for interest at the
purposes of incorporation, but THE SHAREHOLDER IS legal rate on such balance, unless x x x”, this
STILL LIABLE FOR THE OTHER 75% that he has refers to COMPENSATORY INTEREST
subscribed to! § CredTrans review: Compensatory
• When should the unpaid but subscribed shares be interest is liquidated damages.
paid? • How much will the interest be?
o On the date specified in the subscription o At the rate stipulated in the subscription
contract; or contract/AOI/by-laws (but Ma’am said that
o Upon declaration of the board of directors of really, this should be in the AOI) (Sec. 66)
the stock corporation (Sec. 67, Code; this is o At the legal rate of interest, if the RATE is not
the demand for payment. Think ObliCon.) stipulated in the subscription contract/AOI/by-
§ Demand can be made at any time laws
subject to the provisions of the
contract of subscription (or the AOI, Delinquent Subscriptions
because remember: the AOI is also a • Refers to subscriptions which have NOT been paid
subscription contract!) THIRTY (30) DAYS from:
o Date indicated in the subscription contract
Liability for Interest o Date indicated in the call of the board
• INTEREST IMPOSED BY THE SUBSCRIPTION
CONTRACT (Sec. 66 interest) Effect of Delinquency
o FIRST OF ALL, remember that there will be no
interest liable if there is no stipulation as to Delinquent stock:
interest in the contract itself (remember, think • Cannot be entitled to vote
ObliCon!) • Is not entitled to representation at a shareholder’s
§ CredTrans review: THIS refers to meeting
MONETARY INTEREST set by THE • Shall not entitle the shareholder to his rights
PARTIES (in this case, the o Except the right to dividends
stockholder and the corporation)
for the use or forbearance of money
(“cost of money”) (Sun Life v. Tan Kit)
§ If the date is specified in the
subscription contract/AOI for payment
of the subscription, then from that
date (Legal basis: Sec. 67 ¶2,
“Payment x x x together with the
interest accrued, if any [KO note: this
phrase implies that there must be a
stipulation as to interest] shall be made
on the date specified in the contract of
subscription x x x”)
• From the date of the
subscription, if required by
the subscription
contract/AOI (Sec. 66) (this is
an instance of a provision in
the subscription contract
specifiying the date of
accrual of interest)
§ If the date is not specified in the
subscription contract, then upon date
stated in the demand (for instance,
subscription contract can provide:
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Delinquency Sale • PhP10,000 for costs of advertising and delinquency

sale.
STEPS IN DELINQUENCY SALE:
The total amount that needs to be paid is:

Amount (of Value TOTAL

The Board of Directors issues a resolution ordering the sale shares/%)
of stock Unpaid 50,000 1 50,000.00
Subscription
Interest 5% 2,500.00

The resolution shall state the AMOUNT (of the subscription and Costs 10,000.00
the interest); and the time, date, and place of the sale
TOTAL 62,500.00
AMOUNT

There are five bidders at the auction sale:

Publication and Notice of Delinquency Sale
Publication: Once a week for two
consecutive weeks in a newspaper of
general circulation in the province/city
where the principal office of the
corporation is located
1) Franzhi, who offered to buy 50,000 shares at a value
of PhP1.25 per share;
2) Lisa, who offered to buy 40,000 shares at a value of
~PhP1.56 per share;
3) Cindee, who offered to buy 20,000 shares at a value
of ~PhP3.13 per share;
4) Monica, who offered to buy 10,000 shares at a value
of PhP5.00 per share; and
5) Noelle, who offered to buy 25,000 shares at a value
Notice: Personally or by of PhP2.00 per share.
registered mail
Q: Who is the winner of the auction sale?

Purchase Total
Amount of
Price per Purchase
Shares
Delinquency sale share Price

Franzhi 50,000.00 ₱1.25 ₱62,500.00

Cannot be held LESS THAN 30 DAYS or
MORE THAN 60 DAYS after delinquency Must be through public
(example: DELINQUENCY -- [30 DAYS] -- auction Ralph 40,000.00 ₱1.56 ₱62,500.00
DELINQUENCY SALE -- [60 DAYS])

Cindee 20,000.00 ₱3.13 ₱62,500.00

Monica 10,000.00 ₱5.00 ₱50,000.00

Noelle 25,000.00 ₱2.00 ₱50,000.00

Winner is determined
Winner is person who can FULLY PAY with the smallest number of
shares/fraction of shares as possible, the balance due on subscription +
interest accrued + costs of advertisment + expenses of sale
Certificate of stock issued in favor of the winner
If there are shares remaining:
Credited in favor of the delinquent stockholder
ILLUSTRATION OF DETERMINATION OF WINNER:
Lisa is a delinquent shareholder of KOrporation Inc., and is liable
to pay KOrporation Inc.:
• PhP50,000 for her unpaid subscription, which consists
in:
o 50,000 shares of stock
o At a par value of PhP1.00 per share
• 5% interest p.a. from date of demand;
• We automatically rule out Monica and Noelle,
because even though they’re purchasing less shares
some of the other bidders, the amount is NOT FULLY
PAID (they only paid for the unpaid subscription, and
did not pay for the interest and expenses)
• Franzhi, Ralph, and Cindee ALL fully paid for the
shares, so they should be ranked. Whoever pays fully
for the least amount of shares is the winner of the
auction sale.
o Cindee is the winner of the auction sale.
Q: Cindee wins the auction sale. Stock certificates
representing 20,000 shares were issued to her. There are 30,000
shares remaining. Can Cindee demand the remaining shares?
A: No. Sec. 68 provides that the shares shall be credited to
the delinquent stockholder.
Q: The auction sale came, but there are no bidders at the auction
sale. Can KOrporation Inc. bid in the auction sale?
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A: Yes, the corporation may bid at the auction sale, for so long
as it has unrestricted retained earnings to cover the shares
to be paid or acquired.
(Sec. 41, Power to Acquire Own Shares, (2) To collect or
compromise an indebtedness to the corporation, arising out of
unpaid subscription, in a delinquency sale, and to purchase
delinquent shares sold during said sale)
When the delinquency sale may be questioned
• Must be within six months from the date of sale
• On the ground of
o Irregularity or defect in the notice
o Irregularity or defect in the sale
• The party questioning MUST FIRST:
o Pay or tender to the party holding the stock
(the buyer) the sum for which the same was
sold (the purchase price)
Q: Is a delinquency sale the only means to collect on delinquent
subscriptions?
A: No. The corporation may institute a collection case for the
unpaid subscription + interest + expenses.
(And on this note, there is no need to “exhaust” delinquency sale
before filing a collection case, either)
Rights of Unpaid Shares
Sec. 72. Rights of unpaid shares. - Holders of subscribed
shares not fully paid which are not delinquent shall have all the
rights of a stockholder. (n)
Pretty self-explanatory.
Consideration for Issuance of Shares of Stock of
Corporations
Form of Consideration
What can be used as consideration for shares of stock:
• Cash
• Property (tangible or intangible) actually received by the
corporation and necessary or convenient for its use and
lawful purposes
o Property value: Fair valuation equal to the par or
issued value of the stock issued
o If intangible property (patents or copyrights):
valuation shall be:
§ Initially determined by the
incorporators/Board
§ Subject to approval of SEC
• Labor/services actually rendered to the corporation
o CANNOT be future service
o Example: Alfonso, the President and CEO of
Dim Lamps Inc., is interested in purchasing
shares of stock. In consideration thereof, he
offered that his salary, as President, for six
months after the sale be withheld. Should the
sale prosper? NO. Future services cannot be
used as consideration for stocks.
• Previously incurred indebtedness of the corporation
o Example: On December 2015, Hill Estate
Corporation incurred a loan from Donna, the
EVP of Hill Estate Corporation. In the amount of
PhP10,000.00. On January 2017, the debt
defaulted. Donna offered to receive shares of
stock, instead of cash, from the corporation.
Tenable?
§ YES.
• Amounts transferred from unrestricted retained earnings
to stated capital.
o THIS IS REALLY ISSUANCE OF STOCK
DIVIDENDS.
• Outstanding shares exchanged for stocks in the event of
reclassification or conversion
Watered stock; liability of directors for watered stock
Q: What is watered stock?
A: Watered stock issued gratuitously, money/property less than par
value, services less than par value, dividends where no surplus
profits exist (ok basta LESS THAN par value)
If watered stock is issued for less than par or issued value:
• The director or officer of a corporation
o Who consented to the issuance of such stocks,
or
o Who has knowledge of the issuance but did
not express his objection in writing + filed
with the Corporate Secretary
Shall be liable SOLIDARILY to
o The corporation
o The corporation’s creditors
• Amount of liability: The difference between the fair value
received at the time of issuance and the par or issued
value of the stock (FAIR – PAR = AMOUNT OF LIABILITY)
How payment of subscriptions is enforced
When balance on subscription payable:
Sec. 13. Amount of capital stock to be subscribed and paid
for the purposes of incorporation. - At least twenty-five
percent (25%) of the authorized capital stock as stated in the
articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) per cent of the total
subscription must be paid upon subscription, the balance to be
payable on a date or dates fixed in the contract of subscription
without need of call, or in the absence of a fixed date or dates,
upon call for payment by the board of directors: Provided,
however, That in no case shall the paid-up capital be less than
five Thousand (P5,000.00) pesos.
Issuance of Certificate of Stock
Sec. 63. Certificate of stock and transfer of shares. - The
capital stock of stock corporations shall be divided into shares
for which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and
sealed with the seal of the corporation shall be issued in
accordance with the by-laws. Shares of stock so issued are
personal property and may be transferred by delivery of the
certificate or certificates endorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer.
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No transfer, however, shall be valid, except as between the
parties, until the transfer is recorded in the books of the
corporation showing the names of the parties to the transaction,
the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation. (35)
Sec. 64. Issuance of stock certificates. - No certificate of
stock shall be issued to a subscriber until the full amount of his
subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid. (37)
How Issued:
• Must be signed by:
o President, or
o Vice President
• Must be countersigned by:
o Corporate Secretary or
o Assistance Secretary
• Must be sealed with:
o Seal of the corporation
• Must comply with other provisions in the by-laws
Character of shares of stock issued: personal property
For transfer of shares to be valid against the whole world:
• Delivery of stock certificates
o Endorsed by the owner/attorney-in-fact/other
person legally authorized to make the transfer
• Recording of the transfer in the books of the corporation,
showing:
o Names of the parties to the transaction
o Date of the transfer
o Number of the certificate/s
o Number of shares transferred
If not recorded in the books: only valid as between the parties
If corporation has any unpaid claim on the stocks: Cannot be
transferred
If subscriber has not paid balance of subscription: Certificate of
stock cannot issue
Dividends and Purchases by Corporation of its Own Shares
Form of Dividends
• Cash
• Stock
o Voting Requirement:
§ Shareholders representing at least 2/3
of the outstanding capital stock, after
resolution by the Board
• Property
If delinquent stock:
• Dividends should be applied FIRST to the unpaid balance
of stock + costs + interest
• If stock dividend: WITHHELD from the delinquent
shareholder
Sources of Dividends (Sec. 43, Code; SEC Memo Circular 11,
2008)
• Unrestricted Retained Earnings, defined as the amount
of accumulated profits and gains realized out of the
normal and continuous operations of the company after
deducting therefrom distributions to shareholders and
transfers to capital stock or other accounts, and which is:
1) not appropriated by its Board of Directors for
corporate expansion projects or programs;
2) is not covered by a restriction for dividend
declaration under a loan agreement; and
3) not required to be retained under special
circumstances obtaining in the corporation such
as when there is a need for a special reserve for
probable contingencies
Authority to Declare Dividends: the board of directors has the
authority to declare dividends (subject to shareholders’ approval +
URE in the case of stock corporations)
When right to dividends vests; rights of transferee: upon
declaration by the board of dividends.
Purchase by Corporation of Own Shares
Sec. 41. Power to acquire own shares. - A stock corporation
shall have the power to purchase or acquire its own shares for a
legitimate corporate purpose or purposes, including but not
limited to the following cases:
1. To eliminate fractional shares arising out of stock
dividends;
2. To collect or compromise an indebtedness to the
corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares
sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled
to payment for their shares under the provisions of this
Code. (n)
Provided, That the corporation has unrestricted retained
earnings in its books to cover the shares to be purchased or
acquired.
Amendments of Charter
Power to Amend Articles of Incorporation
Sec. 16. Amendment of Articles of Incorporation. - Unless
otherwise prescribed by this Code or by special law, and for
legitimate purposes, any provision or matter stated in the articles
of incorporation may be amended by a majority vote of the board
of directors or trustees and the vote or written assent of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, without prejudice to the appraisal
right of dissenting stockholders in accordance with the
provisions of this Code, or the vote or written assent of at least
two-thirds (2/3) of the members if it be a non-stock corporation.
The original and amended articles together shall contain all
provisions required by law to be set out in the articles of
incorporation. Such articles, as amended shall be indicated by
underscoring the change or changes made, and a copy thereof
duly certified under oath by the corporate secretary and a
majority of the directors or trustees stating the fact that said
amendment or amendments have been duly approved by the
required vote of the stockholders or members, shall be
submitted to the Securities and Exchange Commission.
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The amendments shall take effect upon their approval by the
Securities and Exchange Commission or from the date of filing
with the said Commission if not acted upon within six (6) months
from the date of filing for a cause not attributable to the
corporation.
• Voting Requirement: Majority of Board > Resolution > Vote
of shareholders representing at least 2/3 OCS (ina metting for
the purpose)
• Approval by SEC
Grounds for Rejection by SEC
• Not in the form prescribed by the Corp Code
• Patently unconstitutional, illegal, immoral, or contrary to
government rules or regulations
• Treasurer’s Affidavit is false
• Percentage of Filipino ownership non-compliant
• No favorable recommendation in cases of banks, etc.
Effectivity of Amendment
• Upon approval of SEC; OR
• When not acted upon by SEC, for a cause not attributable to
the corporation: six (6) months from the date of filing
What cannot be amended
Special amendments
• Increase or decrease of capital stock, Sec. 38 and 122,
Code
• Corporate term, Secs. 11, 37, and 81, Code
• Close Corporations, Secs. 16, 17, 37, 38, 103, Code
Transfer of Shares
Manner and Effectivity of Transfer, Sec. 63, Code
• Endorsement of Stock Certificate; Registration in
Corporate Books
• Effect of Lack of Registration: binding only between the
parties
• Unpaid shares cannot be transferred; assignment of
subscription
• Remedy if registration refused
Restrictions on Transfers
• GR: Free transferability of shares
• Restrictions, validity, requirements
Unauthorized transfers
Collateral transfers
Non-stock corporations; non-transferability of membership
Dissolution
Causes for Dissolution:
• Voluntary
o Shortening of corporate term through
amendment of AOI
• Involuntary
o Expiration of corporate term (but can be
voluntary daw in a sense that the corporation
can extend its corporate life with the SEC)
o Quo warranto
Sec. 117. Methods of dissolution. - A corporation formed or
organized under the provisions of this Code may be dissolved
voluntarily or involuntarily. (n)
Voluntary dissolution
a) Where no creditors are affected
Sec. 118. Voluntary dissolution where no creditors are affected. -
If dissolution of a corporation does not prejudice the rights of any
creditor having a claim against it, the dissolution may be effected
by majority vote of the board of directors or trustees, and by a
resolution duly adopted by the affirmative vote of the
stockholders owning at least two-thirds (2/3) of the outstanding
capital stock or of at least two-thirds (2/3) of the members of a
meeting to be held upon call of the directors or trustees after
publication of the notice of time, place and object of the meeting
for three (3) consecutive weeks in a newspaper published in the
place where the principal office of said corporation is located; and
if no newspaper is published in such place, then in a newspaper
of general circulation in the Philippines, after sending such notice
to each stockholder or member either by registered mail or by
personal delivery at least thirty (30) days prior to said meeting. A
copy of the resolution authorizing the dissolution shall be certified
by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation. The Securities
and Exchange Commission shall thereupon issue the certificate
of dissolution. (62a)
• Majority vote of directors/trustees > resolution
• Affirmative vote of stockholders owning at least 2/3 of
OCS/members
o In a meeting called for the purpose
o Publication of the place of the meeting
o Registered mail
o Copy of this resolution: certified by majority of
directors/trustees
• SEC shall thereupon issue certificate of dissolution
b) Where creditors are affected
• Petition for dissolution to be filed with SEC
o Signed by majority of directors
o Verified by president/secretary/one of its
directors/trustees
o Upon resolution of 2/3 OCS/members
• If sufficient in form and substance:
o SEC issues ORDER reciting:
§ Purpose of petition
§ Date on or before which objections
may be filed by any person
§ Not less than 30 days
§ Not more than 60 days after
entry of order
§ Publication in 3 consecutive weeks in
newspaper of general circulation
§ municipality/city where
principal office is situated
§ Posting
§ 3 public places in
municipality/city
• Expiry of period for objections - notice - [5 days] - SEC to
hear petition; purpose of hearing:
o Any issue made by the objections filed
o If objections not sufficient: material allegations
of the petition
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• If material allegations of petition are true: render
judgment DISSOLVING corporation
o SEC may appoint receiver to:
§ Collect assets
§ Pay debts of the corporation
4. Failure to organize; continuous inoperation
Sec. 22. Effects on non-use of corporate charter and continuous
inoperation of a corporation.- If a corporation does not formally
organize and commence the transaction of its business or the
construction of its works within two (2) years from the date of its
incorporation, its corporate powers cease and the corporation
shall be deemed dissolved. However, if a corporation has
commenced the transaction of its business but subsequently
becomes continuously inoperative for a period of at least five (5)
years, the same shall be a ground for the suspension or
revocation of its corporate franchise or certificate of
incorporation. This provision shall not apply if the failure to
organize, commence the transaction of its businesses or the
construction of its works, or to continuously operate is due to
causes beyond the control of the corporation as may be
determined by the Securities and Exchange Commission.
5. Involuntary Dissolution
• Government v. Phil. Sugar Estate (no need to read but
just so you’re all aware of this rule)
o ISSUE: Whether or not it was sufficient for the
court to merely prohibit the company from
selling real estate
o RULING: NO, the decision must be modified to
annul the charter of Phil Sugar Estate
§ Nature of the contract: NOT a loan, but
a cuentas en participacion (co-
partnership)
§ No date fixed for the return
of money
§ Return dependent on profits
(indicated that it was capital
contribution)
§ Discretion of trial court to dissolve
corp charter: Wide latitude of
discretion; BUT it should be exercised
for the protection of the people:
§ When abuses and violations
of the corporation
constitute/threaten
substantial injury to the
public; or
§ Amounts to a violation of the
fundamental conditions of
the charter by which the
franchise was granted and
defeats purpose of the grant
of charter
§ SC order to lower court: franchise
should be withdrawn and annulled
within 6 months; disallowed to do and
continue doing business in the
Philippines, UNLESS it liquidates,
dissolves, and separates absolutely
and in every respect its interests in the
Tayabas Land Company
6. Dissolution by minority in close corporations
Sec. 105. Withdrawal of stockholder or dissolution of
corporation. - In addition and without prejudice to other rights
and remedies available to a stockholder under this Title, any
stockholder of a close corporation may, for any reason, compel
the said corporation to purchase his shares at their fair value,
which shall not be less than their par or issued value, when the
corporation has sufficient assets in its books to cover its debts
and liabilities exclusive of capital stock: Provided, That any
stockholder of a close corporation may, by written petition to the
Securities and Exchange Commission, compel the dissolution of
such corporation whenever any of acts of the directors, officers
or those in control of the corporation is illegal, or fraudulent, or
dishonest, or oppressive or unfairly prejudicial to the corporation
or any stockholder, or whenever corporate assets are being
misapplied or wasted.
• How close corps are dissolved:
o By any stockholder, by written petition to the
SEC
o Causes: Whenever any of the acts of the
directors/officers/those in control of the
corporation:
§ Are, to the corporation/any
stockholder:
§ Illegal
§ Fraudulent
§ Dishonest, or
§ Oppressive/unfairly
prejudicial
§ Whenever corporate assets are being:
§ Misapplied, or
§ Wasted
• If close corp is dissolved:
o Any stockholder may compel corporation to
purchase shares
§ At the fair value (not less than
par/issued value)
§ CONDITION: corporation has
sufficient assets in its books to cover
its debts and liabilities exclusive of
capital stock
B. Effects of Dissolution; Winding-Up/Liquidation
a • Upon dissolution:
o Corporation shall be continued as a body
corporate for three years after dissolution;
purpose:
§ Prosecuting and defending suits by or
against it
§ To enable it to settle and close its
affairs
§ To dispose of and convey its property
and distribute its assets
§ NOT for the purpose of continuing the
business for which it is established
o What corporation is authorised to do during the
3-year period:
§ Convey all of its property to trustees
for the benefit of stockholders,
members, creditors, and other
persons in interest
§ After this conveyance of
property in trust:
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§ ALL regard the new Camarines

interest which the Corporation (formed October 30, 1957)
corporation had in as a continuation of the old."
the property § The assignment was ineffective; "At
TERMINATES; most, it is the transferee of the
§ Legal interest properties of the old corporation (or
VESTS IN THE more properly, the assets of the
TRUSTEES; stockholders) plus the certificate of
§ Beneficial interest public convenience to operate the ice
VESTS IN THE plant in Naga and Magarao."
STOCKHOLDERS, § SC approved Buenaflor’s
MEMBERS, application for 5 tons and revoked
CREDITORS, OR the new corp’s grant
OTHER • National Abaca v. Pore (1961)
PERSONS IN o Cash advances case
INTEREST o ISSUE: Whether or not an action filed within
§ (Review: Trusts - parties to a the 3-year period may be continued after the
trust: expiry of the 3-year period
§ Trustor: o SC: NO, as a general rule (why this was
Corporation granted in the present case is an exception)
§ Trustee: The § GR: Where a statute continues the
trustee to whom existence of a corporation for a
the corp conveyed certain period after its dissolution
the property for the purpose of prosecuting and
§ Beneficiary/ies: defending suits, etc., the
stockholders/mem corporation becomes defunct upon
bers/creditors/oth the expiration of such period, at
er persons in least in the absence of a provision
interest) to the contrary, so that no action
• Upon winding-up: can afterwards be brought by or
o Properties which are distributable to against it, and must be dismissed.
stockholders/members who cannot be § Our Corporation Law
found are ESCHEATED to the city/municipality contains no provision
where assets are found authorizing a corporation,
• Distribution of properties/assets by the corporation: after three (3) years from the
o NOT ALLOWED except upon: expiration of its lifetime, to
§ Lawful dissolution continue in its corporate
name actions instituted by it
§ After payment of debts and liabilities
within said period of three (3)
1. Loss of juridical personality
years.
• Buenaflor v. Camarines Sur Industry (1960) § Suits by or against a
o The ice-plant case corporation abate when it
o ISSUE: Whether or not the new corporation ceased to be an entity
can be granted the certificate of public
capable of suing or being
convenience based on the “prior operator
sued; but trustees to
rule”, when the old corporation from whom it
whom the corporate
bases this “prior operation” ceased to exist
assets have been
as a juridical entity
conveyed pursuant to the
o SC: NO authority of section 78 may
§ When the old Camarines Corporation sued and be sued as such
docketed its application October 1, in all matters connected
1957, it had:
with the liquidation.
§ no juridical personality, § (this is why
§ ceased to exist as a amendment of the
corporation and complaint to
§ could not sue nor apply for include the Board
certificate, for it was of Liquidators is
incapable of receiving a important!)
grant § Exc: If the trustee is the one who
§ It was not even a corporation sued/was sued in matters
de facto connected with the liquidation
§ "Remembering the Camarines
• Cebu Port Union v. State Marine (1957)
Corporation's automatic cessation in
o The stevedoring case
November 1956 (three years after
o ISSUE: Whether or not a corporation which
November 1953) we must decline to
has been dissolved can be sued
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o SC: NO o Two or more corporations (called “constituent

§ Regarding jurisdiction over the subject corporations” agree to consolidate
matter: the Court of Industrial o Result: new single corporation called the
Relations can only hear very particular “consolidated corporation"
cases; the present case is not part of • Requirements for plan of merger/consolidation:
them o Names of the constituent corporations
§ Case had a cause of action o Terms of the merger/consolidation, and how
(agreement between the Union and effected (“mode carrying the same into effect”)
the President/current owner of the o Statement of the changes (if any) to the AOI of
ship) the surviving corporation (for merger); or
§ BUT STATES MARINE CANNOT BE statements required to be set forth in the AOI of
SUED, because: the consolidated corporation (for consolidation)
§ The purpose of the suit was o Such other provisions with respect to the
to honor a contractual proposed merger/consolidation as deemed
obligation. To do this would necessary/desirable
require that a corporation • Stockholders'/Members’ Approval (voting requirement!)
would continue “the o Majority vote of Board
business for which it was o Notice to shareholders
established”, which is clearly § Two weeks prior to the date of the
prohibited in that 3-year meeting for the purpose
period after dissolution § Personally/reg mail
§ The proper, § Should state purpose of meeting +
indispensable party is plan of merger/consolidation
Joseph Gotianuy, who had o Affirmative vote of 2/3 of OCS/members
that agreement with the o Dissenting shareholders may exercise their right
Union; indispensable party (appraisal right)
must be pleaded § But if the plan of merger/consolidation
§ (Therefore, States Marine is abandoned: appraisal right is
cannot even be pleaded - extinguished
can’t be sued) • Articles of merger/consolidation; requirements:
2. Methods of Liquidation o Executed by the constituent corporations
3. Distribution of Assets After Payment of Debts o Signed by the President or VP of the constituent
4. Distribution of Assets of Non-Stock Corporations corporations
o Certified by the secretary or assistant secretary
• These are IN ORDER: of each corporation
o Apply assets to the liabilities of the corporation o What shall be set forth in the articles:
o Apply specific assets held by the corporation § The plan of merger/consolidation
upon a condition that they be returned upon § Ownership:
dissolution: returned to whoever conveyed it, in § If stock corporation: # of
accordance with such requirements; shares outstanding
o Specific assets which limit the use of the asset § If non-stock corporation: #
only for charitable, religious, benevolent, of members
educational or similar purposes + NOT held § Breakdown of approval of plan
upon a condition requiring return upon
§ If stock: number of shares
dissolution: transferred to corporations
voting for/against plan
substantially similar to those of the dissolving
§ If non-stock: number of
corporation pursuant to a plan of distribution
members voting for/against
o Other assets not mentioned in the provision:
plan
distributed according to AOI or by-laws
§ To the extent that the AOI or by-laws • Effectivity of merger/consolidation
determine the distributive rights of o The articles should be submitted to the SEC
members/classes of members § 4 copies
o In any other case: distributed to other persons, o If banks/banking institutions/building and loan
societies, organisations, or corporations, associations/trust companies/public utilities,
whether for-profit or not, as specified in a plan etc.: favorable recommendation of concerned
of distribution government agency should first be secured
o When the merger/consolidation is effective:
Corporate Combinations WHEN THE SEC IS SATISFIED (UPON
APPROVAL OF THE SEC)
A. Purposes of Combinations; Methods o If SEC not satisfied: SEC shall give parties an
opportunity to be heard:
• Largely economic
B. Merger and Consolidation
§ Written notice of the date/time of
hearing shall be given to each
constituent corporation at least 2
• When merger happens: weeks before the hearing
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§ (when the SEC will not be satisfied: pledge or other disposition of property and assets, subject to the
when the SEC has reason to believe rights of third parties under any contract relating thereto, without
that the proposed further action or approval by the stockholders or members.
merger/consolidation is contrary to or
inconsistent with the provisions of this Nothing in this section is intended to restrict the power of any
Code or existing laws. corporation, without the authorization by the stockholders or
2. Effects members, to sell, lease, exchange, mortgage, pledge or
o Constituent corporations shall become a single otherwise dispose of any of its property and assets if the same is
corporation necessary in the usual and regular course of business of said
§ Called “surviving corporation” if corporation or if the proceeds of the sale or other disposition of
merger such property and assets be appropriated for the conduct of its
§ Called “consolidated corporation” in remaining business.
consolidation
o Separate existence of constituent corporations In non-stock corporations where there are no members with
shall cease voting rights, the vote of at least a majority of the trustees in office
§ Except of the surviving will be sufficient authorization for the corporation to enter into any
corp/consolidated corp transaction authorized by this section. (28 1/2a)
o Surviving/consolidated corp shall exercise the
• Edward J. Nell v. Pacific Farms (1965)
rights, privileges, immunities, powers granted,
o Nell filed a collection case against Insular Farms,
and liabilities of a corp under the Corp Code
and won in that case
o Surviving/consolidated corp shall possess
o Writ of execution was issued after finality of
rights, privileges, immunities and franchises of
judgment. This was returned unsatisfied (no
each of the constituent corporations and all the
leviable property)
properties... etc. of the constituent corporation
o Nell now filed a case against Pacific Farms for
without further act or deed
collection
o Surviving/consolidated corp = responsible and
liable for liabilities and obligations of each of the
§ Theory: alter ego doctrine; Pacific
Farms was the alter ego of Insular,
constituent corporations; pending claims and
because Pacific purchased all or
actions, etc.;
substantially all the shares of stock,
§ Rights of creditors or liens upon
real properties, and personal
property of the constituent
properties of Insular
corporations shall not be impaired
o ISSUE: Whether or not Pacific was the alter
ego of Insular (or, in the alternative, for
C. Sale of all or substantially all corporate assets
purposes of the topic – whether or not the
• “Quasi-merger”
purchase of all or substantially all shares of
Sec. 40. Sale or other disposition of assets. - Subject to the stock constituted a merger or consolidation)
provisions of existing laws on illegal combinations and o SC: NO
monopolies, a corporation may, by a majority vote of its board of § Reason: there is no assumption as to
directors or trustees, sell, lease, exchange, mortgage, pledge or debt
otherwise dispose of all or substantially all of its property and § Where one corporation sells/otherwise
assets, including its goodwill, upon such terms and conditions transfers its assets to another
and for such consideration, which may be money, stocks, bonds corporation, the other corporation
or other instruments for the payment of money or other property does not assume the debts and
or consideration, as its board of directors or trustees may deem liabilities of the other corporation;
expedient, when authorized by the vote of the stockholders exceptions:
representing at least two-thirds (2/3) of the outstanding capital
§ Where the purchaser
stock, or in case of non-stock corporation, by the vote of at least
expressly/impliedly agreed
to two-thirds (2/3) of the members, in a stockholder's or
to assume the debts
member's meeting duly called for the purpose. Written notice of
§ Where the transaction
the proposed action and of the time and place of the meeting shall
amounts to a
be addressed to each stockholder or member at his place of
merger/consolidation of the
residence as shown on the books of the corporation and
corporations
deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That any dissenting
§ Where the purchasing
corporation is merely a
stockholder may exercise his appraisal right under the conditions
continuation of the selling
provided in this Code.
corporation
A sale or other disposition shall be deemed to cover substantially § Where the transaction is
all the corporate property and assets if thereby the corporation entered into fraudulently in
would be rendered incapable of continuing the business or order to escape liability for
accomplishing the purpose for which it was incorporated. such debts
§ Besides, the theory of alter ego
After such authorization or approval by the stockholders or presumes that there are two
members, the board of directors or trustees may, nevertheless, in corporations, and this negates the
its discretion, abandon such sale, lease, exchange, mortgage, theory of merger or consolidation
D. Taxation
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NIRC, Sec. 40(C)
(C) Exchange of Property. -
(1) General Rule. - Except as herein provided, upon the sale or
exchange or property, the entire amount of the gain or loss, as
the case may be, shall be recognized.
(2) Exception. - No gain or loss shall be recognized if in
pursuance of a plan of merger or consolidation -
(a) A corporation, which is a party to a merger or consolidation,
exchanges property solely for stock in a corporation, which is a
party to the merger or consolidation; or
(b) A shareholder exchanges stock in a corporation, which is a
party to the merger or consolidation, solely for the stock of
another corporation also a party to the merger or consolidation;
or
(c) A security holder of a corporation, which is a party to the
merger or consolidation, exchanges his securities in such
corporation, solely for stock or securities in such corporation, a
party to the merger or consolidation.
No gain or loss shall also be recognized if property is transferred
to a corporation by a person in exchange for stock or unit of
participation in such a corporation of which as a result of such
exchange said person, alone or together with others, not
exceeding four (4) persons, gains control of said corporation:
Provided, That stocks issued for services shall not be considered
as issued in return for property.
• GR: sale or exchange of property (capital asset) shall
be recognized (capital gain/loss) for purposes of
taxation
• Exception: if MERGER OR CONSOLIDATION, where:
o A corporation exchanges property for stock
(and that stock is from a constituent
corporation)
o A shareholder exchanges stock from one
corporation for stock in another (constituent)
corporation
o A security holder of a corporation exchanges
the securities in one constituent corporation
for the stock of another constituent
corporation
o Property is transferred to a corporation in
exchange for stock/unit of participation
§ And as a result of the exchange, the
person who transferred the
property (and gains stock) gains
control of the corporation
§ But the stocks that are
issued are not considered
as issued in return for the
property
E. Philippine Competition Act, Sec. 16-23
• PCC has the power to review mergers and acquisitions
• If the value of the transaction >PHP1B: cannot
consummate the plan of merger until 30 days after
notifying the PCC
o The PCC can also additionally impose other
criteria that may be applied to the merger
o If the agreement of merger is effected in
violation of this requirement: administrative fine
(1%-5% of the value of the transaction)
o Before expiry of 30-day period: PCC can
request information that are reasonably
necessary and directly relevant to the
prohibition
§ If parties receive request for
information: the period within which
NOT to consummate the agreement
EXTENDS for another 60 days
§ BUT the period cannot exceed 90
days
o If no decision has been promulgated by the PCC
after the lapse of the period: plan of merger
deemed APPROVED
If what is involved is a bank/banking institution/etc., and the PCC
issues a favorable no-objection ruling to the merger: this doesn’t
mean that the favorable recommendation from the appropriate
government agency is
Foreign Corporations
Sec. 123. Definition and rights of foreign corporations. - For
the purposes of this Code, a foreign corporation is one formed,
organized or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and
corporations to do business in its own country or state. It shall
have the right to transact business in the Philippines after it shall
have obtained a license to transact business in this country in
accordance with this Code and a certificate of authority from the
appropriate government agency. (n)
• Definition of Foreign Corporation:
o Those formed under laws other than those of
the Philippines; and
o Those whose laws allow Filipino citizens and
corporations to do business in its own country
or state
Requisite for doing business in the Philippines: LICENSE
Requirements for License:
1. Articles of Incorporation and By-Laws
2. An application form under oath setting forth
a) Date and term of incorporation
b) Address of the corporation
c) Name, address, residence of resident agent
d) Place of operation
e) Specific purposes
f) Names and addresses of directors
g) Statement of Authorized capital stock
h) Statement of Outstanding capital stock
i) Statement of Paid-in amount
j) Additional information determined by SEC
3. Statement that the corporation is solvent
4. Duly executed certificate under oath attesting that its
country permit Filipinos to do business in that country
5. 60% Filipino control requirement
6. Business operation not inconsistent with Investment
Priorities Plan
7. Business not in conflict with 1987 Constitution
8. Business not adequately exploited by Phil nationals
9. Entry of applicant not promote monopolies
Sec. 129. Law applicable. - Any foreign corporation lawfully
doing business in the Philippines shall be bound by all laws,
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rules and regulations applicable to domestic corporations of the
same class, except such only as provide for the creation,
formation, organization or dissolution of corporations or those
which fix the relations, liabilities, responsibilities, or duties of
stockholders, members, or officers of corporations to each other
or to the corporation.
Licensing:
1) Places the corporation under Philippine jurisdiction;
2) Allows a foreign corporation to be in the same footing as
domestic corporations;
3) Protects the public dealing with such foreign corporations
What constitutes doing business; Effect of doing business
without a license (Sec. 133, Code)
• What constitutes doing business: Continuity of
commercial dealings incident to prosecution of purpose
and object of the organization.
• What does not constitute doing business: Isolated,
occasional or casual transactions do not amount to
engaging in business.
o But where the isolated act is not
incidental/casual but indicates the foreign
corporation’s intention to do other business,
said single act constitutes engaging in business
in the Philippines.
• Tests in determining whether a corporation does
business or not:
o Isolated Transactions Test:
§ GR: A single act or transaction does
not amount to engaging in business,
and there would therefore be no need
to apply for a license to do business
§ Exc: Where a single act or transaction,
however, is not merely incidental or
casual but indicates the foreign
corporation's intention to do other
business in the Philippines, said single
act or transaction constitutes doing
business
o Twin Characterization Test
§ Purpose for organizing the business
must be taken into consideration
§ Continuity of commercial dealings
and arrangements must also be
considered
o Contract Test
§ Determination of whether or not the
salient points of the contract finds
themselves in the Philippines
Without a license: The foreign corporation CANNOT sue, but it can
be SUED on any valid cause of action recognized under Philippine
laws.
INSTITUTING SUIT/BEING SUED
Can sue Can be sued
LICENSED + DOING YES YES
BUSINESS
UNLICENSED + DOING NO YES
BUSINESS
UNLICENSED + NOT YES YES
DOING BUSINESS [only
on ISOLATED
TRANSACTION]
Resident Agent
A resident agent is an agent who transacts business for and on
behalf of a foreign corporation; and existence of a resident agent
is a condition precedent for licensing of a foreign corporation.
Requirements:
1. Either a natural or juridical person
• If natural:
• Must be residing in the Philippines
• Of good moral character
• Of sound financial standing
• If juridical: must be a domestic corporation
2. Lawfully transacting in the Philippines
Registration of Resident Agent (Prior to Licensing)
1. A written power of attorney designating some person who
must be a resident of the Philippines, on whom any
summons and other legal processes may be served in all
actions or other legal proceedings against such
corporation; and
2. Consent that service upon such resident agent shall be
admitted and held as valid as if served upon the duly
authorized officers of the foreign corporation at its home
office.
a. Whenever such service of summons or other
process is made upon SEC, it must, within 10 days
thereafter, transmit by mail a copy of such summons
or other legal process to the corporation at its home
or principal office. When SEC sends such copy, it
shall constitute a necessary part of and shall
complete such service.
b. In case of a change of address of the resident agent,
it shall be his or its duty to immediately notify SEC in
writing.
Intellectual Property Code
Special Rule in IP cases, in sum:
• If under IP convention + not engaged in business in the
Philippines: CAN SUE, even WITHOUT license
Grounds for revocation of license
Sec. 134. Revocation of license. - Without prejudice to other
grounds provided by special laws, the license of a foreign
corporation to transact business in the Philippines may be
revoked or suspended by the Securities and Exchange
Commission upon any of the following grounds:
1. Failure to file its annual report or pay any fees as
required by this Code;
2. Failure to appoint and maintain a resident agent in the
Philippines as required by this Title;
3. Failure, after change of its resident agent or of his
address, to submit to the Securities and Exchange
Commission a statement of such change as required
by this Title;
4. Failure to submit to the Securities and Exchange
Commission an authenticated copy of any amendment
to its articles of incorporation or by-laws or of any
articles of merger or consolidation within the time
prescribed by this Title;
5. A misrepresentation of any material matter in any
application, report, affidavit or other document
submitted by such corporation pursuant to this Title;
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6. Failure to pay any and all taxes, imposts, assessments
or penalties, if any, lawfully due to the Philippine
Government or any of its agencies or political
subdivisions;
7. Transacting business in the Philippines outside of the
purpose or purposes for which such corporation is
authorized under its license;
8. Transacting business in the Philippines as agent of or
acting for and in behalf of any foreign corporation or
entity not duly licensed to do business in the
Philippines; or
C. 9. Any other ground as would render it unfit to transact
business in the Philippines. (n)
Sec. 136. Withdrawal of foreign corporations. - Subject to
existing laws and regulations, a foreign corporation licensed to
transact business in the Philippines may be allowed to withdraw
from the Philippines by filing a petition for withdrawal of license.
No certificate of withdrawal shall be issued by the Securities and
Exchange Commission unless all the following requirements are
met;
1. All claims which have accrued in the Philippines have
been paid, compromised or settled;
2. All taxes, imposts, assessments, and penalties, if any,
lawfully due to the Philippine Government or any of its
agencies or political subdivisions have been paid; and
3. The petition for withdrawal of license has been
published once a week for three (3) consecutive weeks
in a newspaper of general circulation in the Philippines.
Securities Regulation Code
Section 2. Declaration of State Policy. – The State shall
establish a socially conscious, free market that regulates itself,
encourage the widest participation of ownership in enterprises,
enhance the democratization of wealth, promote the
development of the capital market, protect investors, ensure full
and fair disclosure about securities, minimize if not totally
eliminate insider trading and other fraudulent or manipulative
devices and practices which create distortions in the free
market. To achieve these ends, this Securities Regulation Code
is hereby enacted.
State Policy:
• To establish a market that is:
1. Socially-conscious
2. Free (in the sense of “free market”
3. Self-regulating
• To encourage the widest participation in enterprises
• To enhance the democratization of wealth
• To promote the development of the capital market,
• To protect investors
• To ensure full and fair disclosure about securities
• To minimize if not totally eliminate insider trading and other
fraudulent or manipulative devices and practices which create
distortions in the free market.
What are securities? (Sec. 3, SRC)
Section 3. Definition of Terms. –
3.1. "Securities" are shares, participation or interests in a
corporation or in a commercial enterprise or profit-making
venture and evidenced by a certificate, contract, instruments,
whether written or electronic in character. It includes:
(a) Shares of stocks, bonds, debentures, notes evidences
of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or
participation in a profit sharing agreement, certifies of
deposit for a future subscription;
(c) Fractional undivided interests in oil, gas or other
mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of
participation, trust certificates, voting trust certificates
or similar instruments
(f) Proprietary or nonproprietary membership certificates
in corporations; and
(g) Other instruments as may in the future be determined
by the Commission.
In sum: securities include shares, participation, or interests in a
corporation or in a commercial enterprise or profit-making
venture, which is evidenced by:
• A certificate
• A contract
• Instruments
Whether written or electronic in character.
Requirement of Registration for Securities
Section 8. Requirement of Registration of Securities.– 8.1.
Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed
with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such
substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
8.2. The Commission may conditionally approve the registration
statement under such terms as it may deem necessary.
8.3. The Commission may specify the terms and conditions
under which any written communication, including any summary
prospectus, shall be deemed not to constitute an offer for sale
under this Section.
8.4. A record of the registration of securities shall be kept in
Register Securities in which shall be recorded orders entered by
the Commission with respect such securities. Such register and
all documents or information with the respect to the securities
registered therein shall be open to public inspection at
reasonable hours on business days.
8.5. The Commission may audit the financial statements, assets
and other information of firm applying for registration of its
securities whenever it deems the same necessary to insure full
disclosure or to protect the interest of the investors and the
public in general.
Registration is required in order to sell or offer for sale for
distribution within the Philippines.
1. Registration shall be undertaken through a registration
statement duly filed with the SEC
2. The SEC can conditionally approve a registration
statement, subject to such terms that it deems necessary
3. The SEC may audit the FS, assets, etc. of a firm applying
for registration of its securities
Uncertificated securities
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• Refers to securities which are not certificated
• Allowed:
1. When there is a resolution by the Board and agreement
by the shareholder/investor/securities intermediary
• Shall be without prejudice to the rights of the
securities intermediary to subsequently require the
corporation to issue a certificate in respect of any
shares recorded in its name
2. When so provided in the AOI and by-laws, subject to a
condition that the investors may not require the
corporation to issue a certificate in respect of any shares
recorded in their name
• The SEC may require provisions in the AOI or by-laws on the
use of uncertificated securities
• Transfers may be validly made and consummated by
appropriate book-entries in the securities intermediaries or in
the STB held by the corporation
1. These shall be binding on the parties to the transfer
2. This has the effect of delivery of a security in bearer
form/duly indorsed in blank
3. But this transfer is only valid as to the corporation when a
transfer is recorded in the books of the Corporation
• Valid transfers of uncertificated securities does not mean that
compliance with BSP rules, banking laws, and regulations
• Best evidence of transactions involving uncertificated
securities: the clearing agency record
1. Corporation shall not be bound unless the corporate
secretary is duly notified in such a manner as the SEC
may provide
Exempt securities: Registration of securities is not required:
• For any security issued or guaranteed by the Government
• Securities issued by any government with which the
Philippines maintains diplomatic relations on the basis of
reciprocity (but SEC may prescribe compliance with form and
content)
• Certificates issued by a receiver/trustee in case of bankruptcy
(duly approved by the proper adjudicatory body)
• Securities under the supervision of the Office of the Insurance
Commission, Housing and Land Use Rule Regulatory Board,
or the Bureau of Internal Revenue.
• Any security issued by a bank except its own shares of stock
• Any other securities which the SEC may add:
1. Which is not necessary to public interest;
2. After public hearing
Tender offer, needed for:
• Any group or group of persons who:
1. Intends to acquire at least 15% of any class of any equity
security of a listed corporation with assets of at least
PHP50M + 200 or more shareholders each; or
2. Intends to acquire at least thirty percent (30%) of such
equity (of a listed corporation) over a period of twelve
months(12)
Fraud, manipulation, and insider trading
Fraud covered:
1) Manipulation of Security Prices
• Creating a false or misleading appearance of active trading
which may include
1. Transactions which involve no change in beneficial
ownership
2. Entering an order/s for the purchase and sale of securities
with the knowledge of a simultaneous order of such
securities of substantially the same size, time and price
• To affect, alone or with others, a securities or transactions in
securities that:
1. Raises the price or induces the purchse of a security; or
2. Creates active trading to induce such a trade through
manipulative devices
• To circulate or disseminate information that a listed security
will rise or fall because of manipulative market operations
• To make a false or misleading statement with respect to any
material fact which he knew or had reasonable ground to
believe was so false or misleading, for the purpose of inducing
the purchase or sale of any security listed or traded in an
Exchange.
• To effect, either alone or others, any series of transactions for
the purchase and/or sale of any security traded in an Exchange
for the purpose of pegging, fixing or stabilizing the price of
such security; unless otherwise allowed by this Code or by
rules of the Commission.
2) Fraudulent Transactions
§ Employing any device, scheme, artifice todefraud;
§ Obtain money or property by means of any untrue
statement
§ Engage in any act, transaction, practice or course of
business which operates or would operate as a fraud or
deceit upon any person
3) Insider Trading
(see discussion on insider trading)
Jurisdiction of the SEC
• Over corporations/partnerships/associations who are the
grantees of primary franchises and/or licenses/permits
issued by the government
• To formulate policies and recommendations (to Congress)
concerning the securities market;
• Approve, reject, suspend, revoke, require amendments to
registration statements;
• Other functions mentioned in Section 5
o And for this purpose, jurisdiction over other
cases not covered in the Securities Regulation
Code (e.g. intra-corporate disputes) are
transferred to the RTC
Cases mentioned in PD 902-A which are transferred to the
RTC:
Section 5, PD 902-A. In addition to the regulatory and
adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of
associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving.
a) Devices or schemes employed by or any acts, of the board of
directors, business associates, its officers or partnership,
amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholder, partners, members of associations or organizations
registered with the Commission.
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
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corporation, partnership or association and the state insofar as
it concerns their individual franchise or right to exist as such
entity;
c) Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations,
partnerships or associations.
Intra-Corporate Disputes
Trial Court branches that shall exercise jurisdiction over the
cases. The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the
enactment of this Code. The Commission shall retain jurisdiction
over pending suspension of payment/rehabilitation cases filed
as of 30 June 2000 until finally disposed.

Section 1. (a) Cases covered. - These Rules shall govern the

procedure to be observed in civil cases involving the following:
(1) Devices or schemes employed by, or any act of, the
board of directors, business associates, officers or
partners, amounting to fraud or misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of
any corporation, partnership, or association;
(2) Controversies arising out of intra-corporate,
partnership, or association relations, between and
among stockholders, members, or associates; and
between, any or all of them and the corporation,
partnership, or association of which they are
stockholders, members, or associates, respectively;
(3) Controversies in the election or appointment of
directors, trustees, officers, or managers of
corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books.

(b) Prohibition against nuisance and harassment suits. -

Nuisance and harassment suits are prohibited. In determining
whether a suit is a nuisance or harassment suit, the court shall
consider, among others, the following:
(1) The extent of the shareholding or interest of the
initiating stockholder or member;
(2) Subject matter of the suit;
(3) Legal and factual basis of the complaint;
(4) Availability of appraisal rights for the act or acts
complained of; and
(5) Prejudice or damage to the corporation, partnership,
or association in relation to the relief sought.

In case of nuisance or harassment suits, the court may, motu

proprio or upon motion, forthwith dismiss the case.

Cases Covered
• Devices or schemes amounting to fraud which may be
detrimental to the interest of the public, stockholders, partners,
members of any corporation, partnership, association;
• Controversies arising out of intra-corporate partnership
• Controversies in the election/appointment of directors,
trustees, officers, managers
• Derivative suits
• Inspection of corporate books

Cases Prohibited: nuisance or harassment suits

Jurisdiction over ICD: Regional Trial Courts designated as

Special Commercial Courts

5.2. The Commission’s jurisdiction over all cases enumerated

under section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the Regional