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January 12, 2017 regarding the ownership of said certificate of stock which

N.D.B. has been lost, stolen or destroyed, the issuance of the


new certificate of stock in lieu thereof shall be suspended
We finished shares of stock and stockholders. We took up until the final decision by the court regarding the
delinquency sale and we said that this is not the only way ownership of said certificate of stock which has been
that the corporation can collect the balance of unpaid lost, stolen or destroyed.
subscriptions.
Except in case of fraud, bad faith, or negligence on the
By the way when you have delinquent subscriptions, right part of the corporation and its officers, no action may be
away you know that it covers par value shares. Because if brought against any corporation which shall have issued
it is no par value (NPV) shares, it cannot be issued without certificate of stock in lieu of those lost, stolen or
full compensation. And, whatever is handed over to the destroyed pursuant to the procedure above-described.
corporation is considered full compensation. The (R.A. 201a)
subscription of NPV share is non-assessable and is
considered full and complete upon issuance. This tells you that to reconstitute a lost certificate of stock
is a very cumbersome process. It is in fact a proceeding in
LOST OR DESTROYED CERTIFICATES rem binding against the whole world. It will take normally
one (1) year and you put up a bond if you want to be
Section 73. Lost or destroyed certificates. – The exempt from the one-year duration. It requires publication
following procedure shall be followed for the issuance by to notify all those who may mind to object so that they can
a corporation of new certificates of stock in lieu of those put in their objections to the process. Once that expires,
which have been lost, stolen or destroyed: you have the right to demand your certificate of stock.

1. The registered owner of a certificate of stock in a The landmark case for that is Philex Mining v. Reyes
corporation or his legal representative shall file with the (118 SCRA 602, G.R. No. L-57707, November 19,
corporation an affidavit in triplicate setting forth, if 1982, Melencio-Herrera). This involves Philex Mining, a
possible, the circumstances as to how the certificate was mining company, that today is accepted by the Philippine
lost, stolen or destroyed, the number of shares Stock Exchange (PSE) as having lost permanently one
represented by such certificate, the serial number of the fourth (¼) of its outstanding capital stock. It can no longer
certificate and the name of the corporation which issued be accounted for. There are cases now and then that
the same. He shall also submit such other information surface with the PSE about certificates of stock of Philex
and evidence which he may deem necessary; that have been found but since the publication and period
for claiming are over, they are no longer recognized. You
2. After verifying the affidavit and other information and know, people started throwing away Philex when it reached
evidence with the books of the corporation, said the value of less than one (1) centavo. One time, Philex’s
corporation shall publish a notice in a newspaper of claims deteriorated in value. When it went beyond one (1)
general circulation published in the place where the centavo, wa’ na, gipanglabay nalang sa mga tao ang
corporation has its principal office, once a week for three certificates of stock. It’s not even worth the papers used to
(3) consecutive weeks at the expense of the registered print them because the value of the shares was less than
owner of the certificate of stock which has been lost, one (1) centavo. But then, the operations of Philex started
stolen or destroyed. The notice shall state the name of to pick up. Unya ang mga tao ana nangita na hain na ilang
said corporation, the name of the registered owner and mga certificates of stock. Gipanglabay naman nila, gigamit
the serial number of said certificate, and the number of na pangputos sa mercado. It cannot be accounted now, ¼
shares represented by such certificate, and that after the of the outstanding shares of stock of Philex cannot be
expiration of one (1) year from the date of the last accounted for. This case happened. Philex declared stock
publication, if no contest has been presented to said dividends and Reyes was a stockholder. When he read in
corporation regarding said certificate of stock, the right the newspaper that there is a stock dividend long after it is
to make such contest shall be barred and said awarded, he wrote to the Secretary of the corporation. He
corporation shall cancel in its books the certificate of asked where his stock certificates is. And the secretary of
stock which has been lost, stolen or destroyed and issue the corporation wrote him back and said, “We have mailed
in lieu thereof new certificate of stock, unless the your certificate of stocks. Just wait for it because we mailed
registered owner files a bond or other security in lieu it with return stub in your last known address. Your address
thereof as may be required, effective for a period of one that you provided for us. Are you still living there?” He said,
(1) year, for such amount and in such form and with such “Yes! I’m still in the same address.” So, he waited some
sureties as may be satisfactory to the board of directors, more, about one or two more months, and still he did not
in which case a new certificate may be issued even receive notice that he had in the mail something from
before the expiration of the one (1) year period provided Philex. He asked the nearby post office, and he was told
herein: Provided, That if a contest has been presented that there was no mail for you here from Philex and so he
to said corporation or if an action is pending in court wrote Philex and he said, “I think after more than one year,
we have to consider the stock certificate as lost beyond jurisdiction, the issue being one of intra-corporate
retrieval. So, you issue to me a new certificate of stock relationship between a stockholder and a corporation,
because I did not lose it, you did.” His point is, Section 73 which under P.D. No. 902-A, falls within the original and
will not apply because he was not the one who lost the stock exclusive jurisdiction of the SEC.
certificates. Who lost it? As far as Reyes is concerned, it is
Philex. But then the Secretary said, “We have to apply ISSUE: WON RTC has jurisdiction over the case? NO
Section 73 because the certificate of stock is lost.
Regardless of who was culpable for losing the certificate, SC: The controversy between the parties being clearly
Section 73 applies.” So, there is the controversy now an intra-corporate one, it is the SEC, as held by it, and
because Reyes claims he does not have to go through not respondent Court of First Instance, that has original
Section 73. It involves expenses: application, unya ug dili and exclusive jurisdiction, by express mandate of the
ka gusto ug one year, mu-put up ka ug bond, etc. He went law.
to the SEC. SEC castigated Philex for losing the certificate
of stock and made Philex culpable and asked that Philex Q: What do you do with the certificate of stock?
should issue a new certificate. Philex went to the Supreme A: You must keep it in the same place where you should
Court. In the SC, the SEC was overturned. SC says, “Section keep your land titles. Land title—if you lose it, you have to
73 applies regardless of who lost the certificate. The reconstitute it and it requires a court process.
important thing is, a certificate has been issued. Philex
have produced the stub taken from their stock certificate There have been some instances when the loss is
book.” Naa nama’y stub didto. Sa ato pa, ang katong generalized. Like this one time, Quezon City ROD was
certificate connected with the stub and it is listed that it was burned down. Unya kadagha’g yuta anang Quezon City. So,
issued in the name of Mr. Reyes, the certificate is lost. So, Congress passed a law which just made an administrative
you have to follow Section 73. procedure special to Q.C. to reconstitute all those titles
because if you won’t do that, then all the courts in Q.C.
Note: Iba gud ang issue na gi-discuss sa case vs. Fr.’s issue would just be tied down to entertaining reconstitution of
Philex Mining v. Reyes title petitions. Wa’ na’y laing kaso ma-entertain sa pila na
G.R. No. L-57707 | November 19, 1982 ka sala sa Q.C. So, Congress had to pass a new law
Melencio-Herrera mandating an administrative proceeding to reconstitute the
title. Hangtod karon naa pa’y mga titles na problematic sa
FACTS: Richard Huenefeld, is a stockholder of Philex. He Q.C.
originally owned 800k shares of stock. On February 15,
1979, Philex declared a 10% stock dividend. A stock Ang original gud na title naa man sa ROD. So, the ordinary
certificate for 80,000 shares was issued by Philex in favor man and woman never see the original. Ang ROD lang ana
of Huenefeld. On April 18, 1979, Philex sent the stock ang makakita ug ang iyahang mga clerks. Ug gusto ka
certificate to Huenefeld through its transfer agent, First mahibaw unsay itsura anang original, mubayad ka sa ROD
Asian. Huenefeld claims that he never received the stock unya tagaan ka’g certified true copy of the original. Litrato
certificate. na sa original. Wala pa gyud ka nakakita sa original. Ang
kining gikuptan sa tag-iya sa yuta, owner’s duplicate na.
On February 6, 1980, First Asian wrote Huenefeld Tan-awa dagud na, dako kaayo nagbandera dinha,
informing him that the stock certificate had been gibutang “Owner’s Duplicate.”
delivered to him at his address at Michelle Apartment,
2030 A. Mabini Street, Manila; and that if the certificate Certificate of stock, ang original ana naa sa tag-iya.
could not be located that Huenefeld execute an Affidavit
of Loss, with the notice of loss to be published once a Q: Unsa man nang gikuptan sa secretary sa corporation?
week for three (3) consecutive weeks in a newspaper of A: Stub sa stock certificate book. Unya record sad sa stock
general circulation in accordance with the procedure and transfer book na mao ni ang stock certificate nga gi-
prescribed by R.A. No. 201 (now Section 73, Corporation issue ngadto ni Polano. Mao ni numero sa iyang stock
Code). Huenefeld replied that RA 201 is not applicable certificate. Mao ning number of shares covered in a
because the stock certificate was not lost in the certificate. Mao na’y nakalista didto. Wala’y original ana
possession of the stockholder; that assuming it was, the didto.
expenses of publication and premiums for the bond
should be at Philex's expense; and demanded the Ang original naa sa stockholder, gigisi gikan sa stock
issuance of a replacement stock certificate + damages. certificate book. Pareho gud na’g cheke, diba? Gision nimo
ang cheke nga gi-issue nimo. Mao ra na’y original.
With this, Huenefeld filed a suit for Specific Performance
with Damages against Philex, First Asian and/or the The only way you can nullify a reconstitution of a stock
latter's General Manager, before the RTC to compel the certificate after the one (1)-year period to contest it is you
issuance of a replacement of stock certificate. Philex can challenge it on the ground of fraud, bad faith,
moved to dismiss on the ground that RTC had no
negligence on the part of the corporation or its recorded so that he will not be accused of being remiss in
officers…: his duties as an independent director. As an independent
director of One Network Bank (ONB), it was only once when
xxx Except in case of fraud, bad faith, or I asked that my comment be recorded in the minutes of the
negligence on the part of the corporation and its meeting of the Board of Directors. It was only last part. The
officers, no action may be brought against any BIR insisted that all the stockholders of ONB pay the 10%
corporation which shall have issued certificate of capital gains taxes despite the fact that no cash was paid
stock in lieu of those lost, stolen or destroyed but they were paid in shares of stock of BDO. So I
pursuant to the procedure above-described. demanded that the independent director’s remarks be
recorded in the minutes because the president of ONB was
So you have to follow this procedure because this is the telling, “We have a good authority that that is correct, like
only way that the corporation can be relieved of any and all Punong Bayan.” I said, “I would like to read the written
liability arising from lost or destroyed certificates. Keep opinion of the Punong Bayan.” They did not produce the
those certificates in safety deposit boxes that are fireproof written opinion. I doubt that there was any. It’s pretty
and tech-proof. stupid. My remark was, “In our law school, if you claim
there is CGT for exchanges purely on stock, you flunk the
BOOKS OF THE CORPORATION course of Taxation because that is a fundamental principle.
Now I am an independent director. I will look crazy sitting
Three (3) books: in this board and allowing this to happen.” But it turned out
that the Consunji’s were just paying the CGTs for all
1. Books of Minutes taxholders because they were trying to solve a more serious
problem with “Girl-Boy” Henares.
a. Board of Directors/Trustees Meeting
b. Stockholders/Members Meeting That was the issue. In other words, to get on the good side
of Henares, they did not object to the insistence of the BIR
2. Stock and Transfer Book/Book of Membership on slapping a tax when there is no capital gains realized.
When you are paid solely on shares, and there’s even a
3. Book of Business Transactions decided case. I pointed out the decided case: Shell
Corporation vs. Shell Corporation and Shell
1. BOOKS OF MINUTES Petroleum Corporation. This is just two or three years
old case.
Two parts na:
Let us say you are dealing with self-dealing transactions.
a. Books of Minutes of Board of Directors A director of one corporation is also a director of the same
b. Books of Minutes of Stockholders/Members in corporation and they deal with each other. Remember the
case of nonstock corporations rule of interlocking director?

Q: Unsa may nakabutang dinha sa Minutes? (“The meeting 1. The presence of this director must not be counted
opened… standing up with a prayer… That is not the book in the minutes, in the determination of the
of minutes. Diary na!) quorum.
A: The books of minutes are the books that contain legally 2. The vote of that director must not be counted in
significant facts. the voting for approval of the transaction.
3. The consideration involved must be fair and
You have to mention the presider, whether he is really there reasonable.
or if it is the Vice President that took his place, then 4. It must be an armslength transaction.
certification by the Secretary whether or not there is a
quorum, then you list down the votings of the various What can you record? The fact that he was there but he
Resolutions because the Resolutions are the acts of the was asked by the president to step out when they are
corporation. That is the record of corporation’s acts. Are discussing the merits of this transaction. The vote must be
there any objections or can we considered it as carried? specifically listed as consisting of the approval of the
Carried, so the Secretary will record it as unanimous. following directors, excluding him personally so that you
Everybody voted for it. Dili anonymous. can comply with the formalities required by the Corporation
Code. Otherwise, some disgruntled stockholders might
If there are independent directors and they say something point to the requirements and ask whether it was complied
that is crucial to the standing of the corporation, the welfare with. So what can you present if it’s not there in the
of the corporation or the public vis-à-vis the corporation, minutes? You must record those legally significant facts.
then that is recorded. Normally, that is the duty of the Ingnon nimo na, “Mr. So and so, was very sad when he was
independent director. Even if he is outvoted he has a right asked to leave...He was wearing this outfit…” Kanang mga
to make sure that his commentary/remark/warning is minutes sa mga meeting ba, ana man kasagaran. Ang
kalain baya ana, basahon baya nang minutes sa meeting
unya magdugay dugay ka ana’g basa. Pagkatinunto ana And then you put the number who voted for that particular
nga minutes. Diary na, dili na minutes. Resolution.

It must contain only legally significant facts. The whole 2. STOCK AND TRANSFER BOOK/BOOK OF
Resolution that is approved must be there. Kanang bank MEMBERSHIP
tag-as kaayo na’g Minutes. Ngano man? Kanang
mangutang sa bangko, that must be approved. Maayo lang Stock and Transfer Book if it is stock corporation; if
ug gamay ra’y amounts then it is handled by the executive nonstock, it is the Book of Membership of the corporation.
committees. Pero if the amounts are already considerable Kasagaran sa mga nonstock nonprofit corporation, wala
beyond the execom’s delegated authority to approve, then gyud kabalo nga naay book of membership.
it is the board. Then you have the loan and the main
features of the loan—the collateral, appraisal of the Kay ngano man? Pagrelease sa ilang certificate of
collateral, etc. It must be there. When you approve, that is incorporation, ingnan sila didto sa SEC, “O, di-a na inyong
the corporation acting to approve the loan agreement. certificate of the corporation. Unya, naa na mo’y book of
membership?” “Unsa man na?” “Kinahanglan na. Isuwat
So, Minutes of the Board of Directors, Minutes of the dinha inyong mga members, kinsay mu-resign, kinsa nasa’y
Meetings of the Stockholders or Members. pulihan, kinsay ma-expelled.” Muingon sila, “Kaila man mi
tanan sa members.” Di sila kahibaw nga kinahanglan na ba.
Q: What is the difference between a regular meeting and a Unya muingon ang SEC, “Ug gusto mo mupalit naa mi.” Pila
special meeting? man na? P500. Unya inig tan-aw nimo anang libro nilang
A: Regular meeting is mandated in the bylaws. baligya mura ra ma’g kanang baligyang libro sa gwardiya,
kanang logbook nila. That is the problem.
Example: annual meeting or monthly meeting
Of all the three books, it is the book of membership or the
Normally, big corporations hold monthly meetings. Before, stock and transfer book has to be registered with the BIR.
this university held a monthly meeting, until the out-of-town Kinahanglan man na ug approval sa BIR. Because, it has
directors complained. Now, the board here in AdDU only something to do with the basic constituents of the
meets four times a year— per quarter. But you have San corporation. And if it stock and nonstock, then there is a
Miguel, PLDT, Meralco, they have monthly meetings. basic capitalization of the corporation. So it must be
Normally it is scheduled, say every third Thursday of the registered with the BIR.
month, or every first Monday of the month, etc. So that it’s
easier for the directors to remember. The law requires that these two books (books of Minutes of
Meetings and the Stock and Transfer Book/Book of
Special meetings are those that are called duly called for Membership) must be kept in the principal office of the
a specific/special purpose. corporation, under the control and custody of the
secretary of the corporation. Exception is if the
Suppose a director dies, the Corporation Code says, corporation is nonstock, nonprofit and it has engaged the
“Secretary or president or such other officer must inform services of a stock and transfer agent. The stock and
the SEC in writing of the death of the director and within transfer agent is now in charge of recording the ongoing
one (1) month, the board should meet to elect a transfers of ownership of the shares of stock of corporation.
replacement of that dead director to serve the unexpired Because once you reach a certain number of shares, it
portion of the term.” That is normally the procedure. When becomes impractical for the secretary of the corporation to
the meeting is called, that is a special meeting. What is the handle that. So, it is delegated to a stock and transfer agent
purpose of the meeting? To elect. Suppose the director will who is licensed by the SEC to engage in the maintenance
say, “It’s only 3 months before the next annual meeting. of the stock and transfer book.
Kinahanglan pa ba ta mupili ug mupuli niya? We have more
chance to think it over as to who should take his place. Dili Now when you have this corporation with a stock and
nalang nato siya pulihan, anyway we still have a quorum. It transfer agent, normally the bylaws will provide the times
does not stop the business of the corporation.” That is a when the stock and transfer books are closed, and after the
Resolution. closing date, no subsequent transaction will be recognized
and recorded in the books until the books are subsequently
RESOLUTION declared open. Like for instance, there are certain
corporations that say, “A month before the annual meeting
“Resolved as it is hereby resolved, that the of stockholders, the stock and transfer book is closed.” So,
corporation’s Board of Directors shall no longer elect after that closure date, even if you buy shares in San
the replacement director to serve the unexpired portion Miguel, you are a new stockholder, you cannot attend the
of the late Mr. So and so. His place will be regularly annual meeting because your purchase of the new shares
replaced in the regular annual meeting.” is not recorded in the book and you will not be given a stock
certificate. The transactions are held in abeyance until the Q: Who has control of the book of minutes, stock and
book is opened after the annual meeting. transfer book/book of membership?
A: Corporate secretary. This rule is often violated. Because
Q: What is the reason for that? any corporate secretary is a ceremonial corporate secretary.
A: The reason is for an orderly accounting of the Usually, controller ang gakupot ana. And yet, whatever the
outstanding capital stocks. If you allow all transactions up controller puts down there is presumed to be the hand of
the day before the meeting, you cannot be able to cope up the secretary, kay siya man kaha’y in control and possession
with the necessary paperwork and the determination of of the books of the corporation.
those who have the right to vote.
3. BOOK OF BUSINESS TRANSACTIONS
If you sell your shares after the closing of the stock and
transfer book, technically you are no longer the owner of It is usually kept by the treasurer. But that is a very wide
the shares it is already in the hands of the transferee, but book now. Because that is a record of all transactions of the
since it is your name in the stock and transfer book, you corporation itself. Who is responsible for that? The treasurer
can still attend the meeting of the corporation. Because the of the corporation. All the transactions of the corporation—
transferee as far as the corporation is concerned is still not from buying a safety pin, to buying another corporation. All
the owner. So, naa gani mag away2x sa mga proxies, those transactions are included in the book of business
magbantay ka kung makakuha siya ug igo sa gidaghanon transactions of the corporation.
sa votes— that is how much shares he buys before the
closing date. Section 75. Right to financial statements. – Within
ten (10) days from receipt of a written request of any
Again, there is a determination of the date when the stockholder or member, the corporation shall
outstanding capital stock is determined for purposes of the furnish to him its most recent financial statement,
issuance of dividends. That is called the ex date [in the which shall include a balance sheet as of the end of the
web, it is called ex-dividend date]. It is a Latin terminology. last taxable year and a profit or loss statement for said
So when you say ex date, outside that date, no more. If taxable year, showing in reasonable detail its assets and
you buy shares after that date, your shares of stock are no liabilities and the result of its operations.
longer entitled to dividends. Who is entitled? The one who
sold to you. Siya pa mukuha kay siya pa ma’y nakapangalan At the regular meeting of stockholders or members, the
didto hantod nga nitabok ka ana nga date. Nabaligya na board of directors or trustees shall present to such
niya ang tanang shares niya sa imo, pero naa nasad siya’y stockholders or members a financial report of the
bag-ong shares kay nakakuha man siya sa dividends. operations of the corporation for the preceding year,
Before the ex date man siya, ikaw after the ex date naman which shall include financial statements, duly signed and
ka tag iya. certified by an independent certified public accountant.

Pananglitan muingon ang BDO, “From January 24 up to However, if the paid-up capital of the corporation is less
January 31, all shares can exercise their preemptive right than P50,000.00, the financial statements may be
to subscribe to such number of shares newly issued, certified under oath by the treasurer or any responsible
provided they must pay within that time.” 24 to 31, bayad officer of the corporation. (n)
siya sa iyang rights shares. Paghuman niya’g bayad, after
31, gibaligya niya ang iyang shares. Pagka February 1, Q: Must the financial statements of the corporation be
katong nakadawat, adto sila sa BDO, “Mupalit ko sa shares audited by an independent auditor?
ini.” Dili na mahimo kay napalit naman na before sa former A: Practically all statements should be audited by an
registered owner. The rights offering shares equivalent to independent/external auditor. The only exception is if the
those shares that you bought have already been purchased corporation has a paid-up capital of less than P 50,000.
by the transferor. So dili naka maka-exercise sa rights.
Wa na tingali corporation ron nga less than P 50,000. Pagka
BDO is selling now at 104, 105, 106. But the rights offering, munggos ana. Sari-sari gani nga P 50,000 capital murag
you are entitled to buy shares only at 83. One (1) share for sihag pa man kaayo na. puros na instant noodles gabitay
every five (5) shares that you have, rights offering. Pre- ana sa estante.
emptive right. Kinsa ma’y di mupalit ana? Of course,
muubos nang presyo sa shares of stock sa BDO after that So, most of the corporations now have to have an external
period kay manulod man ning bag-ong shares nga gamay auditor who will certify.
ra nga kwarta ang gilunod ngadto sa BDO (83 ra).
It says “financial statements of the corporation.”
That’s the reason why you have to pay attention to the
stock and transfer book. Q: When does a financial statement become the financial
statement of the corporation?
A: Gamay ra kaayong commentaries nagsuwat sa tubag ini. to read profit and loss statements, the balance sheet, etc.
Just because it is prepared by the Chief Financial Officer, is Otherwise, you should be considered less than the
that already the financial statement of the corporation?! educated.
Just because there is already a statement by the external
financial auditor that these financial statements reflect the MERGER AND CONSOLIDATION
true, correct and accurate financial story following the
generally accepted accounting principles, do they become This is found originally in Section 6, one of those instances
the financial statements of the corporation?! NO! It only where even nonvoting shares cannot be prevented
becomes the financial statement of the corporation once from voting because it is a fundamental exercise of
the stockholders approve by majority vote, in a power of a corporation.
stockholders meeting or members meeting that has
a quorum. If you are a natural person according to SC, “To marry is a
natural right.” Marriage antedated the existence of a state.
That’s one of the purposes of the annual The state only regulates the right to marry but it cannot
stockholders/members meeting. One of the items in the suppress the right to marry. Very beautiful discussion of
annual meeting is when the President makes a report and that of the US Supreme Court when it gave its blessing to
then he explains the financial statements. Ang dali same sex union. Actually, inaccurate gihapon na. Same
masabtan tingali kanang profit and loss statement. Ipang gender union na. Sex is an action word, it is not a status.
explain niya. Then, balance sheet. If no more objections, Same gender unions have been justified by the SC.
we consider this as passed.
Q: Is merger and consolidation an implied, inherent or
Many corporations, kanang PLDT, dili na maglangan ana. express right of the corporation?
Wa pa gani magsugod ang meeting, naa na’y dako nga A: Most commentaries will say that this is an express
screen ana na magshow sa financial statements, resolutions right. Corporations can enter into merger and consolidation
passed by Board of Directors because they will be asking because the law itself gives it the authority to do so. In fact,
for the ratification by the stockholders of all the resolutions the merger and consolidation result in the creation of
passed by the BOD in the past year. Naa ra na dinha, another corporation or the amalgamation of an existing
magsige ra’g roll, wala pa magsugod ang meeting. The corporation.
whole idea is to remove the possibility that the stockholders
are not voting in ignorance. They have been informed. So, there are formalities that have to be followed.
Makaingon ang management that they are ratifying
intelligently. Stockholders have a right to a copy of the Just as a summary, keep this in mind. The plan of merger
financial statements. Take note that this right is distinct or consolidation must be approved not just by the Board of
from the right of inspection of stockholders. Stockholders Trustees/Board of Directors, but also by two-thirds (2/3) of
have the right to inspect the books of the corporation. the outstanding capital stock or members of the
corporation. Plan palang na ha. Second, the Articles of
Q: Does he have the right to bring along a CPA to help him Merger and Consolidation that has reduced the plan into
make sense of what he is inspecting? legal language that is binding and suitable as far as the SEC
A: YES. Otherwise if he cannot bring along, he has no right. is concerned, must be approved again by two-thirds (2/3)
He must be given enough aid to be able to understand the of the outstanding capital stock voting and nonvoting or
books that he is looking into. two-thirds (2/3) of the members. Finally, any amendment
of the Articles of Merger or Consolidation must again be
There’s a new case wherein the SC says that the officer who approved by two-thirds (2/3) of the outstanding capital
denies any stockholder from looking into the books without stock. Very cumbersome process.
valid reason may be charged criminally under the
Corporation Code. Many commentators say that that This is when you realize that you are talking about two-
particular ruling is obiter because nobody was really sent to thirds (2/3) of the outstanding capital stock, not two-thirds
jail in that case. SC just brought it out. But that is (2/3) of the stockholders. Because it is 2/3 of the
significant, ha because if you deny a stockholder his right outstanding capital stock, then it is possible to have a
to inspect the books, then you can be charged criminally for meeting of stockholders and it is only one stockholder
preventing the stockholder from exercising his right to present in that meeting. He gets all the proxies, all the
inspection. voting trust agreements of all those stockholders. In the
very least, 2/3 kuha na niya, sigurado na ang merger. Dili
If you hold shares of stock in any corporation, you must pa gani niya na makuha, wala’y merger or consolidation nga
know and understand the basics of financial statements. mahitabo. No commentator will tell you that.
You have to have some understanding. That is why for me,
now it’s already the 21st century. Part of the concept of an It starts with the president who will say, “Kaning akong
educated man is that you have some understanding of corporation mura’g wa’ na ni kaugmaon kung magpabilin ni
financial statements. You need to know the basics on how siya. Kinahanglan it must grow not organically but by
acquisition or by merger. Kay mao sad ginabuhat sa akong extraordinary expenses will be held at bay. You apply due
competitors. Maong kinahanglan mulihok nako.” Unya diligence to maintain as close as possible to your latest
karon dili niya madala ang stockholders. Wa’y mahitabo. Iya financial statements which is the basis for the valuation of
gyud nang kumbinsihon. Kumbinsihon na niyang mga your company. That is what you call due diligence
dagkong stockholders. Human, muadto na siya sunod sa agreement.
mga gagmay, tilukon niya, aron makakuha siya’g 2/3.
Pagkuha niya sa 2/3 anha pa siya mu-invest and go to the Kana ha, pangutan-on mo ana sa Bar. Pareha ra na sa
process of merger and consolidation. pangutana nga, “What is a coupon bond?” Naa ba gud na
sa balaod nga wa’ man na. nganong gipangutana man na
One of the critical processes is valuation. Pila ba ning sa Bar examination? Pagbantay mo ana basin pangutan-on
akoang i-acquire na corporation nga akong i-merge? Pila mo ana, “What is due diligence agreement in a merger or
may peso value niini? Then you will need a very thorough consolidation?”
audit. Mubayad ka ana, dako kaayo na’g gasto. Unya ug
international nga corporation nang imong gipalit, it’s in 70 After agreeing to that due diligence or within that
countries. Gilaliman ka ana, unsaon na nimo pag audit agreement of due diligence, there is usually an agreement
ana?! Muingon ka, “Financial statements ra na.” Financial of secrecy and nondisclosure. Mura naman ka’g gahubo
statements are true only as of a given date. In the ana atubangan sa gusto magbuot nimo. Ang imong mga
meantime, time passes. What happens in the meantime? pamaagi, ang imong mga assets imong paabrehan sa ilang
Naa pa siguro ana’y factory nga nangasunog, nangakiha mga accountants. Tan-awon nila. Unya ug dili mahidayon
nga mga trabahante, nay mga pildi sa kaso. Tan-awa nang ang inyong kasabutan nga merger or consolidation, unsaon
Volkswagen, naa na sila’y liability sa diesel engine fraud. man na nimo aron dili ka mahalung-an ana, dili ka mapakay
Imagine US$ 3 Billion ang bayronon nila sa gobyerno, and kung unsa na dinha imong mga industrial secrets? That is
that is just the US market. Wa’ pa gani na ang EU market. nondisclosure and secrecy agreement. Mao nang gamiton
Unya paliton na nimo ang Volkswagen, ilang mga planta. nga hinungdan. Mangutana sa imoha ang media, “There is
a rumor that you are engaged in talks for a merger.” “I’m
Valuation—that is important. Unya, madoble nang imohang sorry I cannot comment on that because we are under
problema kay ug paliton na nimo by shares of stock of the nondisclosure agreement.” Unsa man nang tubaga? Sa ato
acquiring corporation instead of paying it money, then the pa, naa na na. nganong dili man ka mu-disclose? Ug wa pa,
buyer will also be valuated, whether the value it appends to maka-disclose pa ka nga, “Wa’ gyud.” Pero dili man ka
its shares of stock is really a fair and reasonable value. muingon nga wala kay naa man kay nondisclosure
agreement sa ato pa naa na.
Each one will hire its own financial adviser as to how to go
about this. Nganong dili man ka gusto nga mahibaw-an na? Because
stockholders are making their own decisions. Basic
Q: What is the purpose of the financial adviser? decisions of that nature—alien to the thoughts and dreams,
A: If you are dealing with international corporations, they are usually decisions in fear. “Ipamaligya na nato ning
hire financial advisers that are very reputable in the finance shares nato ani kay wa’ na ni, alkanse na ta ani. Paliton
and investment world. And they are supposed to make naman ning corporation. Kay dili pa ni alkanse sila unta’y
sure that these corporations that are merging or mamalit.” Unya daghan kaayo na, edi ang presyo sa shares
consolidating are following the basic rules of of stock mag saka2x. It becomes volatile. How will you peg
investment, valuation, waivers, due diligence, etc. the value? Dakong problema. That’s why as much as
possible they want the shares of stock to steadily maintain
That is their job and their names are at stake. So that, the its current value while there is the due diligence process
public can rely on the figures that are finally agreed upon and nondisclosure obligation.
as being fair and reasonable. So, if you are merging for
instance, a car company is merging with another car ---------------------Nothing follows-------------------------------
company. The target for the acquisition is advised by
Deutsche Bank—a very reputable bank. The acquirer is
advised by Credit Swiss. It gives the credibility to the
numbers.

While they are doing the valuations and the auditing, they
sign a due diligence agreement: “The parties agree that
they will maintain the operations of each corporation that is
constituent of this merger/consolidation as close as possible
to the last audited balance sheet; That they will not make
extraordinary investments so as to make it totally different
from the balance sheet.” Mahurot mang cash nimo ug naa
nasad kay bag-ong liabilities nga i-contract. So all