Commercial Law Review Atty.

M Reyes
COURSE OUTLINE BUSINESS ORGANIZATION II I. CORPORATION DEFINED 1.What is a
corporation? (Sec. 2, RA 11232) pel 1.01 Explain the concession theory Read: Tayag v.
Benguet Consolidated Inc., 26 SCRA 242, Nov. 29, 1968 1.02 What are the attributes of a
corporation? 1.03 Consequences of Separate Personality a)as to property p.2 Read: Wise v.
Man Sung Lung, 69 Phil 309 Saw v. CA, 195 SCRA 740, 1991 b) as to obligations Read:
Vasquez v. de Borja, 74 Phil 560 c) as to rights Read: Stonehill v. Diokno, GR 19550, June 19,
1967 p.3 Manila Gas Corp. v. CIR, 62 Phil 895, 1936 d) as to constitutional rights - right
against unreasonable searches and seizure - right against self-incrimination e) as to torts
Read: PNB v. CA, 83 SCRA 237, 1978 f) as to nationality
-place of incorporation test, Sec. 123, CCP Exceptions:
(i)public enemy
ii) investment purposes
-control test. . p.4 - grandfather rule
Read: Narra Nickel v. Redmont Consolidated Mines, GR 195580, April 21, 2014
1.04 Artificial Being a)as to actions b) as to criminal liability Read: Sec. 144, CCP Ching v.
Secretary of Justice, GR 164317, Feb. 6, 2006 c) as to moral damages
Read: Filipinas Broadcasting Network v. Ago Medical, 448 SCRA 413, Jan. 17,2005
Meralco v. TEAM Electronics, 504 SCRA 62, 2007 p.5 Art. 2219(7), Civil Code
What is the doctrine of piercing the veil of corporation entity?
Read: Francisco Motors v. CA, 309 SCRA 721
Cases when doctrine was applied p.6
(i)used to evade obligations to employees or used as a pretext to dismiss employees;
(ii) used to evade lawful obligations or a money judgment;

(iii) dominated by officers or stockholders or other person or entity to the extent that the
corporation is a mere alter ego, adjunct, or business conduit

(iv) used to defeat public convenience;

(v) used to justify wrong; (vi) used to protect fraud or confuse legitimate issues such as
the relation of employer and employee

Read: Claparols vs CIR, 65 SCRA 613, July 31, 1975 (vii) used to defend crime; (viii) used to
confuse legitimate legal or judicial issues; or (ix) used to perpetrate deception or otherwise
circumvent the law Read: Land Bank vs. CA, GR 12 7181, Sept. 4, 2001 Luisito Padilla vs. CA,
GR 123893, Nov. 22, 2001 (x) used as a shield for tax evasion Read: CIR v Norton, 11 SCRA
714, Aug 31, 1964
(xi) used to shield otherwise blatant violation of the prohibition against forum shopping
Read: First Philippine International Bank v. CA, GR 115849, Jan. 4, 1996
(xii) when the separate identity of the corporation is being utilized to violate intellectual
property rights of a third person
Read: Uy vs. Villanueva, 526 SCRA 73, June 29, 2007
When should party raise the doctrine?
Read: Almocera v. Ong, GR 170479, Feb. 18, 2008, 546 SCRA 164
What is the consequence of piercing the corporate veil?
Read: Lanuza v. BF Corporation, GR 174938, Oct. 1, 2014
Explain the instrumentality rule or alter ego theory pez
Read: Concept Builders vs NLRC, 257 SCRA 149
What are the elements for piercing the corporate veil based on the alter ego theory?
(i) instrumentality or control test

(ii) fraud test (iii) harm test

Read: WPM International Trading v. Labayen, GR 182770, Sept., 17, 2014

What is the three-pronged test to determine the application of the alter ego theory p.8
Cases:
Palacio v. Fely Transportation (5 SCRA, 1011, 1962)
Marvel Building v. David (94 Phil 376, 1954)
Yutivo and Sons v. CTA (1 SCRA 160, 1961)
Commissioner v. Norton & Harrison (11 SCRA 714, 1964) p.9 La Campana Coffee v.
Kaisahan ng Mangagagawa (93 Phil 160, 1953) Emilio Cano v. CIR (13 SCRA 290, 1965)
Telephone Engineering v. WCC (104 SCRA 354, 1981) p. 10 Claparols v. CIR (65 SCRA 613,
1975)
National Federation of Labor Union v. Ople (143 SCRA 124, 1986)
AC Ransom Labor Union v. NLRC, 150 SCRA 498, 1987) p. 11 Concept Builders v. NLRC
(257 SCRA 149, 1996)
-probative factors of identify that will justify the application of the doctrine of piercing the
corporate veil
-instrumentality rule
-test in determining the applicability of the doctrine of piercing the veil of corporate fiction
McConnel v. CA, 1 SCRA 722, 1961 p. 12 Tan Boon Bee v. Jarencio, 163 SCRA 205, 1988 p. Ls
Cease v. CA, 93 SCRA 483, 1979
Circumstances that may be considered to justify applying the doctrine
to make the parent corporation liable for the obligations of the subsidiary (PNB v. Ritratto
Group, GR 142616, July 31, 2001) p. 14 When the corporate mask is removed, is the
corporate character thereby abrogated?
Read: Pamplona v. Tinghil, 450 SCRA 421, Feb. 3, 2005)
When application not justified and the general rule on corporate entity applies
Cases: Remo v. IAC, 172 SCRA 405, 1989 pls Del Rosario v. NLRC, 187 SCRA 177, 1990
Indophil Textile Mill Workers v. Calica, 205 SCRA 697, 1992
PNB v. Ritratto Group, 362 SCRA 216, 2001 =. pete Pacific Rehaus Corp. v. CA, 719 SCRA
665, 2014 p. 18 Yu v. NLRC, 245 SCRA 134, 1995 p: 19
What is reverse piercing of the corporate veil
Case:
International Academy of Management v. Litton, Dec. 13, 2017 Palacio v. Fely
Transportation
1.05 Created by Operation of Law
Franchises of a Corporation
(i)primary, corporate or general franchise
Read: JRS v. Imperial Insurance, 11 SCRA 634, 1964
(ii) special or secondary franchise p. 20 How are they created
(i)General Law
(ii) Special Law
Read: Carandang v. Desierto, GR 153161, Jan. 12, 2011
1.06 Right of Succession 1.07 Powers, Attributes and Properties
Theory of Special Capacities/Limited Capacity Doctrine p. 21
CLASSIFICATIONS, DISTINCTIONS OF CORPORATIONS 2. Classifications and Distinctions
2.01 Classes of Corporations (i)as to organizers: 1)public 2) private (ii) as to functions;
1)public 2) private -test to determine the nature of a corporation as public or private Read:
PNB v. Pabolar, 82 SCRA 595 pe22Z (iii) as to governing law; 1)public 2) private Read:
National Coal Corp. v CIR, 146 Phil 583 PNOC-EDC v. NLRC, 201 SCRA 487, 1991 (iv) as to
legal status; 1)de jure corporation 2) de facto corporation - requisites pizs
Read: Seventh Day Adventist v. Northeastern Mindanao Mission, 496 SCRA 215, July 21,
2006
What is the status of a corporation which failed to submit its by-laws within the period
prescribed under the CC? Read: Sawadjaan v. CA, GR 141735, June 8, 2005) (v) corporation
by estoppel Read: Sec. 21, CCP Lim v. Philippine Fishing Gear, 317 SCRA 728, 1991 p. 24
(vi) corporation by prescription (vii) as to existence of stocks 1)stock corporation Read:
Sec. 3, CCP Read: Collector of Internal Revenue v. Club Filipino, 5 SCRA 321, 1962 2)non-
stock corporation p.25 (viii) as to laws of incorporation 1)domestic corporation 2) foreign
corporation Read: Sec. 123, CCP (ix) other corporations 1)close corporation 2) special
corporation 3) educational corporation 4) religious corporation a.corporation sole b.
religious societies (x) corporations going public v. corporations going private (xi) real
estate investment trust or REIT p. 26 Read: Sec. 3, RA 9856
(xii) ecclesiastical v. lay -eleemosynary corporations
(xiii) aggregate v. corporation sole
(xiv) close v. open
(xv) Parent or Holding Companies, Subsidiaries, Affiliates p: 27
(xvi) Quasi corporations and quasi-public corporations 2.02 Distinguished from
Partnerships (i)as to manner of creation
(xvii) as to number of organizers
(xviii) as to powers
(xix) authority of those who compose
(xx) transfer of interest p. 28
(xxi) succession 2.03 Advantages, disadvantages of a corporation COMPONENTS OF A
CORPORATION
3. Components of a Corporation (ijincorporators (Sec. 4, 95, 105) -requirements (Sec. 10)
Read: SEC MC no. 16 (s. 2019) Guidelines on the Number and Qualifications of
Incorporators under the Revised Corporation Code
(ii) corporators p29
(iii) stockholders and members

(iv) directors and trustees

(v) corporate officers

(vi) promoter p. 30
Read: Cagayan Fishing v. Sandiko, 65 Phil 223 3.1 Corporators vs. Incorporators 3.2
Foreign Stockholders
Can all the stockholders in a corporation be foreigners?
FORMATION OF A CORPORATION 4, Formation of a Corporation - when does life of a
corporation commence (Sec. 18) 4.1 Articles of Incorporation p. 31 Contents under Sec. 14
4.2 Documents to be filed with SEC to secure certificate of registration of a stock
corporation p. 32
4.3 What corporate name cannot be used (Sec. 17) piss
Read: Ang mga Kaanib sa Iglesia ng Dios v. Iglesia ng Dios, GR 137592, Dec. 12, 2001
SEC MC no. 13 (2019), amended guidelines and procedures on use of corporate name
4.4 Importance of the Principal Place of Business
Read: Sy v. Tyson Enterprises, 119 SCRA 367, 1982
4.3 Maximum Term of a Corporation
Read: Sec. 11, CCP p. 34 What is the doctrine of relations/relating back doctrine
Read: Alhambra Cigar v. SEC, GR L-23606, July 29, 1968
4.4 Definition of Terms
1)authorized capital stock (Sec. 12)
2) subscribed capital p. 35
3) paid-up capital

4) outstanding capital stock (Sec. 173) Read: Sec. 137, CCP

5) capital Read: Gamboa v. Teves, 652 SCRA 690, June 28, 2011 Art. 12, Sec. 11, 1987
Constitution 4.5 Amendment of Articles of Incorporation 1.Procedure (Sec. 15)
2. When effective (Sec.15)_ . p. 36
3. Congress Read: Sec. 145, CCP Special Amendments of AOI Read: Sec. 36, 37 Ordinary
Amendments p37 Items Not Subject to Amendment
4. Grounds when AOI or amendment may be disapproved Read: Sec. 16
4.6 When can SEC suspend or cancel certificate of registration (Sec. 6L, PD 902A) p. 38
Read: Sec. 21, RA 11232 What does formal organization include p. 39 BY-LAWS
5. Definition
Read: China Banking v. CA, 270 SCRA 503, 1997
5.1 Requisites
Read: Grace Christian High School v. CA, GR 108905, Oct. 23, 1997 Loyola Grand Villas v.
CA, 276 SCRA 681, 1997 p. 40
Thomson v. CA, 298 SCRA 280
10 Salafranca v. Philamlife, 300 SCRA 469, 1998 5.2 Adoption and Amendment -Original
By-Laws (Sec. 45, RA 11232) Read: Loyola Grand Villas -Amendment (Sec. 47) 5.3 Binding
Effect of By-Laws p.41 1)as to corporation and its components 2) as to third persons Read:
China Banking v. CA, 270 SCRA 503, 1997
PMI Colleges v. NLRC, 277 SCRA 462, 1997
POWERS OF A CORPORATION 6. Powers of a Corporation 6.1 Kinds a)Express Powers b)
Implied c) Incidental 6.2 Express Powers p: 42 a)General Powers (Sec. 35, RA 11232) b)
Specific Powers (Sec. 37-44) 1) power to extend or shorten corporate term (Sec. 36) 2)
increase/decrease corporate stock (Sec. 37) p.43 Read: Philippine Trust Co. v. River, 44 Phil
469, 1923 3) incur or create bonded indebtedness (Sec. 37) p.45
4) deny preemptive right (Sec. 38, 101)
11 Read: Benito v. SEC, 123 SCRA 722, 1983
5) sell, dispose, lease, encumber all or substantially all of corporate assets (Sec. 39) p. 47

6) purchase or acquire own shares (Sec. 40, 8, 9, 56 41) p. 48

7) invest in another corporation, business other than the primary purpose (Sec. 41) p. 49

8) declare dividends (Sec. 42)

9) enter into mgmt. contract (Sec. 43) p. 50

10) amend the AOI (Sec. 15) p.51 6.3 Ultra Vires Acts (Sec. 44)

Read: Atrium Management v, CA, GR 109491, Feb. 28, 2001) p. 52 1)Effects of Ultra Vires
Acts
-as to executed contracts
-as to executory contracts
-as to part executed and part executory
2) Distinguished from acts that do not comply with formalities

3) Distinguished from unauthorized acts

Read: AF Realty v. Dieselman Freight Services, GR 111448, Jan. 16, 2002

Consequences of ultra vires acts
6.4 Exercise of Powers p: 53 Who may exercise the powers of a corporation (Sec. 22)
When not exercised by the board directly
Powers that cannot be exercised by or cannot be delegated to the executive committee
What is the executive committee (Sec. 34) p. 54
Read: Filipinas Port Services v. Go, GR 161886, March 16, 2007
12 Can corporate officers like the President bind the corporation
Read: Inter-Asia Investment v, CA, GR 125778, June 10, 2003
Five classification of power of agents p.55 Apparent authority of officer
Read: Inter Asia
Explain the Doctrine of Apparent Authority
Read: Lapu Lapu Foundation v. CA, GR 126006, Jan. 29, 2004. p. 56 Under what
circumstances could apparent authority be inferred
Read: Advance Paper Corp. v. Arma Traders, GR 176897, Dec. 11, 2013
6.4 Instances where concurrence of stockholders necessary for exercise of powers of
corporations
1)approval of majority of board and concurrence of stockholders representing 2/3 of
outstanding capital (or 2/3 of members) is necessary in the exercise of the following
powers:
(i)power to extend or shorten corporate term (Sec. 36)
(ii) increase/decrease corporate stock (Sec. 37)

(iii) incur or create bonded indebtedness (Sec. 37)

(iv) deny preemptive right (Sec. 38)

(v) sell, dispose, lease, encumber all or substantially all of corporate assets (Sec. 39)

(vi) invest in another corporation, business other than the primary purpose (Sec. 41)

(vii) declare stock dividends (Sec. 42)

(viii) to enter into management contract (Sec. 43) p57

(ix) amend the AOI (Sec. 15)

2) approval of the stockholders representing majority of the

outstanding capital is necessary together with board approval in the following:
13 (i)to enter into management contract if any of the two instances stated above are absent
(Sec. 43)
(ii) to adopt, amend, or repeal the by-laws (Sec. 45 and 47)
3) without board resolution, stockholders may by:
(i)2/3 of outstanding capital (Sec. 48)
(ii) majority of outstanding capital
6.5 Dividends
Who may declare dividends (Sec. 42)
a)BOD alone
b)BOD with approval of stockholders representing not less than 2/3 of outstanding capital
Conditions that must be present to declare dividends
Can board be compelled to declare dividends every year
Read: Republic Planters Bank v. Agana, 269 SCRA 1, 1997 p.58 -Exception
Can board refuse to declare dividends even if retained surplus profits in excess of 100% of
paid-in capital?
Can dividends be declared out of capital?
-Exception:
-Wasting assets corporation
What can be included in unrestricted retained earning? p.59 (SEC Memorandum Circular
no. 11, 2008)
What items cannot be used for dividend distribution (unrealized items)
Can gain on sale of corporation's real property be considered part of retained earnings? p.
60
Can treasury shares be declared as dividends?
How are dividends allocated p. 61
14 Who are entitled to dividends
Read: Cojuangco v. Sandiganbayan, 586 SCRA 790, April 24, 2009
Can dividends be declared for preferred shares which were guaranteed a quarterly
dividend? What are interest bearing stocks and what is the condition for the same to be
legal
Read: Republic Planters Bank v. Agana, GR 51765, March 3, 1997
6.6 Sale of all or substantially all properties
-Requisites
When is it considered substantial
What is the voting requirement for a corporation to be able to sell its sole property
Read: Islamic Directorate v. CA, GR 117897, May 14, 1997 Effect on creditors p. 62 Read:
Jiao v. NLRC, 670 SCRA 184, April 18, 2012
Art. 1311 of the Civil Code
Nell v. Pacific Farms, Inc. (G.R. No. L-20850, 15 SCRA 415, 1968
Y-1 Leisure Philippines v. James Yu, GR 207161, Sept. 8, 2015
tnd dF fe For of JIN] 19

DIRECTORS AND OFFICERS 7.Directors and Officers p.65 7.1 Qualifications of directors
Read: Sec. 22, 26, CCP Lee v. CA, 205 SCRA 752, 1992 Term of Directors (Sec. 22) 7.2
Independent Directors (Sec. 22) p. 67
7.3 Business Judgment Rule
Read: Montelibano v. Bacolod Murcia Milling, 5 SCRA 36, 1962; Phil. Stock Exchange v. CA,
281 SCRA 232, 1997 p. 68
15 Saber v. CA, 437 SCRA 259, Aug. 31, 2004 7.4 Criminal Liability Read: Espiritu v. Petron,
GR 170891, Nov.24, 2009 Anti-Dummy Law, CA 108, Sec. 2A 7.5 Methods of Voting -
Election of Directors (Sec. 23, 7) 1)straight voting 2) cumulative voting for one candidate 3)
cumulative voting by distribution Read: Rev. Ao-As v. CA, GR 128464, June 20, 2006 Sec. 89,
CCP Election at Large p. 70 Read: Rev. Ao-As v. CA, GR 128464, June 20, 2006 Quorum
Required for Election Mode of Voting Election by Ballot (Sec. 23) p. 71 Effect if No Election
or Lack of Quorum (Sec. 25) 7.6 Removal and Vacancies in the Board (a)Requisites for
Removal Read: Sec. 27, CCP (b) Filling of vacancies in the Board (Sec. 28) p72 (c)
Replacement of Hold-Over Directors p73 Read: Valle Verde Country Club v. Africa, GR
151969, Sept. 4, 1009 Election Contest Deadlock in Close Corporation
Compensation of Directors (Sec. 29)
16 7.7 Liability of Directors, Trustees, Officers (Sec. 30) p. 74 Three Fold Duty of Directors
Degree of Diligence Required pe75 7.8. Self-Dealing Directors, Trustees, officers (Sec. 31)
Levels of Degree of Consanguinity/Affinity 7.9 Interlocking Directors (Sec. 32) p. 76 7.10
Doctrine of Corporate Opportunity (Sec. 33) Disloyalty of a Director Read: Guth v. Loft 7.11.
Are corporate agents solidarily liable with corporation Read: Lanuza v. BF Corp., GR
174938, Oct. 1, 2014 p. 78 Uichico v. NLRC, 273 SCRA 35. 1997 Requisites to Hold
Director/Officer Personally Liable Read: Polymer Rubber v. Ang, GR 185160, July 24, 2013
Patently Unlawful Acts Read: Carag v. NLRC, 520 SCRA 28, April 2, 2007 Llamado v. CA, 270
SCRA 423, 1997 p. 79 7.12 Corporate Officers (Sec. 24) Read: Mark II Marketing v. Joson,
Dec. 12. 2011
Is service of summons on secretary of the president of a domestic private corporation
binding on the corporation
Service in Intra Corporate Controversy p. 80 Read: Sec. 11, Rule 14, Rules of Civil Procedure
EB Villarosa v. Benito, 312 SCRA 65, 1999
Who can appoint/remove officers of the corporation
Ty Read: Nectarina Raniel v. Paul Jochico, GR 153413, March 1, 2007 Can trustee in voting
trust agreement run for a seat in the BOD Read: Sec. 59(par 1), CCP Leev. CA 7.13 Meetings
of the Board (a)Kinds: 1)annual meeting 2) regular 3) special p. 81 (b) Notice (c) Quorum
Read: Sec. 52, RA 11232
(d) Proxy not allowed

(e) President, Sec. 53

(f) Pledged or Mortgaged Shares

Read: Sec. 54 |
(g) Board meeting thru teleconference or video conference allowed Read: Sec. 52, 91, 100
Notice of Meeting (Sec. 52)
TRUST FUND DOCTRINE
8.0 Trust Fund Doctrine p. 83 Read: CIR v. CA, 301 SCRA 152, 1999
Halley v. Printwell, 649 SCRA 116, May 30, 2011
Ong Yong v. Tiu, GR 144476, April 8, 2003
Central Textile Mills v. NWPC, 260 SCRA 368, 199) p. 84
18 8.1 Examples when doctrine is violated
8.2 Distribution of Assets and the Trust Fund Doctrine
This doctrine is the underlying principle and/or articulated in the ff: a)procedure for
distribution of capital assets embodied in the CCP, b)Sec. 40 on power of corporation to
acquire its own shares
c)Prohibition against distribution of corporate assets and property unless the stringent
requirements therefor are complied with.
-Corporate Liquidation
Read: Ong Yong v. Tiu, GR 144476, April 8, 2003 p. 85
STOCKHOLDERS AND SHARES 9.0 Stockholders and Shares 9.1 What is a subscription
contract Read: Sec. 59, CCP How does one become a shareholder Kinds of subscription
contracts 1)Pre-incorporation subscription Read: Sec. 60 2) Post-incorporation
subscription Valid considerations for stocks (Sec. 61) What is an underwriting agreement
p- 86 Doctrine of Individuality and Indivisibility of Subscription Read: Sec. 63 9.2 Shares of
Stock Shares of stock vs. certificate of stock p. 87
Read; Sec. 64, CCP
19 Lincoln Philippines v. CA. 293 SCRA 92, 1998 Bitong v. CA, 292 SCRA 503, 1998
Requisites for Issuance of Stock Certificate
Read: Sec. 71
Classification of Shares (Sec. 6, CCP)
1)Common shares
2) Preferred shares
(i)cumulative
(ii)non-cumulative p. 88
(iii)participating
(iv)non-participating
Read: Sec. 6, CCP Republic Planters v. Agana, 269 SCRA 1, 1997 SEC Opinion, May 24, 1994
3) Redeemable shares (Sec. 8)
Limitations on issuance of RS
Read: Republic Planters Bank v. Agana SEC Opinion, Aug. 24, 1987
4) Treasury Shares (Sec. 9) p. 89

5) Par value and no par value shares

6) Founder Shares (Sec. 7)

7) Escrow Shares p. 90 Read: SEC Opinion, Nov. 20, 1989 Instances when non-voting
shares may vote (Sec. 6)

Limitations on the issuance of “no par value” shares

20 Doctrine of Equality of Shares Read: Sec. 6[5] What shares could be deprived of voting
rights
Read: Castillo v. Angeles Batinghasay, 440 SCRA 42, Oct. 18, 2004
Sec. 6 Watered Stocks p. 92 Read: Sec. 64 Effects of Issuance of Watered Stock p. 93
TRANSFER OF SHARES 10.0 Transfer of Shares (Sec. 62) How are shares of stocks
transferred Read: Rural Bank of Lipa v. CA, GR 124535, Sept. 28, 2001 p. 94 Chua Guan v.
Samahan, 62 Phil 472, 1935) Chemphil Export v. CA, GR 112438-39, Dec. 12,1995 Reyes v.
RTC-Zenith, Aug. 11, 2008 Vicente Ponce v. Alsons, GR 139802, Dec. 10, 2002 p: 95 Effect if
deed of assignment is without endorsement and delivery Read: Rural Bank of Lipa Sec. 63,
CCP Fil-Estate Golf v. Vertex Sales, GR 202079, June 10, 2013
What are the legal effects if a stock certificate is endorsed in blank by its owner
Read: Guy v. Guy, 680 SCRA 214, Sept. 5, 2012 Can a corporation restrict transfer of stock
by its shareholders __p. 96
Read: Thomson v. CA, GR 116631, Oct. 28, 1998
21 Valid Restrictions on Right to Transfer Read: Lambert v. Fox Reason for the registration
of transfer for the voting of shares _—_p.97
Read: Republic v. Sandiganbayan, GR 107789, April 30, 2003, 402 SCRA 84
Forged and Unauthorized Transfer
Unauthorized Issuance of Stock Certificate
Right of First Refusal
Read: PMI v. NLRC, 227 SCRA 462 p. 98 RIGHTS AND OBLIGATIONS OF STOCKHOLDERS
11.0 Rights and Obligations of Stockholders
11.1 Basic Rights of Stockholders
1)direct/indirect participation in management;
2) voting rights (Sec. 6)

3) right to remove directors (Sec. 27)

4) proprietary rights:

(i)right to dividends
(ii)appraisal right (Sec. 80)
(iii)right to issuance of stock certificate for fully paid shares (Sec. 63)
(iv)proportionate participation in distribution of assets in liquidation
(v)preemptive right (Sec. 38)
5) right to inspect books and records (Sec. 73)

6) right to be furnished with most recent FS/financial report (Sec. 73,

7) right to recover stocks unlawfully sold for delinquent payment of subscription; and

22 8) right to file individual, representative, and derivative suits.

9) right to withdraw in close corporations (Sec. 103)
10) right to transfer shares

Obligations of stockholder p:99 1)liability to corporation for unpaid subscription

2) liability to corp for interest on unpaid subscription if so required by by-laws (Sec. 65)

3) liability to creditors of corporation for unpaid subscription

4) liability for watered stock (Sec. 64)
5) liability for dividends unlawfully paid (Sec. 42); and
6) liability for failure to create corporation (Sec. 10)
7) as general partners in corporation by estoppel
8) personal liability for torts in close corporation 11.2 Suits by stockholders/members
a)Derivative Actions Read: Cua v. Ocampo, GR 181455-56 and 182008, Dec. 4, 2009
SMC v. Khan, 176 SCRA 447, 1989 b)Individual Actions p. 100 c)Representative
Actions | 11.3 Preeemptive right (Sec. 38)
• when not available p. 101 11.4 Right to Vote Exception to Stockholder’s Right to Vote
(Sec. 6, 56) a)Stockholders’ meeting -kind of meeting, date of meeting, required notice
p. 102
Read: Sec. 49, 50
23 Matters Required to be Taken up at Meeting
Read: Sec. 27, 28, 31, 36, 37, 39, 41, 42, 43, 45, 47, 61, 76, 134
Who Cannot Participate in Meetings p. 103 Read: Sec. 82, 49
Quorum of meeting of stockholders and members
Read: Sec. 51
Excluded from computation of quorum
Read: Tan v. Sycip, 499 SCRA 216, 2006
Who will call special meeting of stockholders p. 104 Read: Sec. 49
Place of Meeting
Read: Sec. 50, 92
Matters Which Board Must Present to Stockholders (Sec. 49)
b)Proxy p. 105
Kinds of Proxy
Read: Sec. 49, 55, 57, 88
1)proxy form p. 106 2) validity period
c)Voting Trust
Read: Section 58
VTA vs Proxy p. 107 LeevCA p. 108
Three Tests to Determine if VTA
d)Limitations on the right to vote
24 Read: Sec. 6, 40, 54, 56, 62
SEC Opinion, April 7, 1987 11.5 Appraisal Right p. 110 Read: Section 80, 82
Instances where it may be exercised: p: 111
Read: Sec. 36, 41, 80 Rules for exercise of appraisal right Read: Sec. 81, 83, 85 Who bears
cost of appraisal COLLECTION OF UNPAID SUBSCRIPTION 12. Collection of Unpaid
Subscription (Sec. 67) p. 113 When Must it Be {aid 12.1 Remedies of corporations to
enforce payment of stocks Read: Sec. 66-69, 42
12.2 Meaning of “unpaid claim” for purposes of declaring shareholder delinquent p. 115
Read: China Banking v. CA, March 26, 1997 12.3 Call Read: Baltazar v. Lingayen Gulf, 14
SCRA 522, 1965 12.4 Procedure for Collection and Delinquency Sale 12.5 Effects of Stock
Delinquency (Sec. 71) p. 116 Lost or Destroyed Certificates (Sec. 72) | BOOKS
13. Books ps 117
13.1 Books required to be maintained by corporation:
Read: Sec. 73
25 13.2 Entries in Stock and Transfer Book
Who is authorized to make entries | p. 118 Read: Torres v. CA, 278 SCRA 793, 1997
Probative value of stock and transfer book
Read: Bitong v. CA, 292 SCRA 503, 1998
13.3 Right of stockholders to inspect books
Requirements:
Read: Sec. 73
-remedy if stockholder being improperly deprived of right to inspect
Right to Financial Statements (Sec. 74) p. 119
MERGER .OR CONSOLIDATION 14. Merger vs. Consolidation Read: Section 75, RA 11232
14.01 Definitions 1)Merger 2)Consolidation Read: PNB v. Andrada Electric, GR 142936,
April 17, 2002 14.02 Effects of Merger or Consolidation Read: BPI v. BPI Employees Union,
GR 164301, Oct. 19, 2011 p:i21 14.03 Procedure p. 122
Effectivity of Merger or Consolidation (Sec. 78) p..123
NON-USE OF CORPORATE CHARTER
15. Non-Use of Corporate Charter
26 15.01 Effects of Non-Use of Corporate Charter and Continuous Inoperation of
Corporation (Sec. 21) DISSOLUTION
16. Dissolution 16.01 Dissolution of Corporation 16.02 Modes of Dissolution
a) voluntary dissolution

b) involuntary dissolution

c) shortening of term

d) expiration of term Read: Sec. 133 a)Voluntary dissolution where no creditors affected
(Sec. 134) b)Voluntary dissolution where creditors affected (Sec. 135) p25
c)Dissolution by shortening corporate term (Sec. 136) p.126 -done by amending AOI.
The amended AOI shall be filed with SEC and corporation deemed dissolved upon
approval of amended AOI or upon expiration of the new term Withdrawal of Request
and Petition for Dissolution (Sec. 137) p.127 d)Involuntary Dissolution (Sec. 138)
Read: Sec. 21 16.03 Effects of dissolution p. 128 a)transfer of legal title to corporate
property b)on continuation of corporate business c)creation of a new corporation

d)reincorporation of dissolved corporation p: 129

e)continuation of a body corporation
27 f)cessation of corporate existence for all purposes
Read: Republic v. Bisaya Land, 81 SCRA 9
LIQUIDATION 17. Liquidation Read: Sec. 139 17.1 Modes of Liquidation p. 130
17.2 Does the SEC have jurisdiction over liquidation of a dissolved corporation
Read: Consuelo Metal v. Planters Development Bank, 555 SCRA 465, June 26, 2008
Liquidation after Three Years pia. Liquidation by Trustee
If Receiver Appointed by Court
Read: Sumera v. Valencia, 67 Phil 721
Read: Gelano v. CA, 103 SCRA 90, 1991
Reburiano v. CA, 301 SCRA 242, 1999
FOREIGN CORPORATION
18. Foreign Corporation Read: Section 140 18.01 Foreign Corporation — power to sue and
be sued As to Whether or Not FC can sue As to Whether or Not FC can be sued p: 132
Read: Sec. 150 18.02 What constitutes “doing business’ in RP for FCs
1)continuity test
28 2)substance test Read: Mentholatum v. Mangaliman, 72 Phil 524
18.03 Does an isolated transaction by FC qualify as doing business in RP
18.04 Contract Test of “doing business” in Philippines p:133 Read: B Van Zuiden v. GTVL
Manufacturing, GR 147905, May 28, 2007
Natl Sugar Trading Corp. v. CA, 316 Phil, 1995; Cargill v. Intra Strata Assurance, GR 168266,
March 15, 2010
Steel Case v. Design International, GR 171995, April 18, 2012 18.05 Requisites for obtaining
license to do business
18.06 Effect of Estoppel and Subsequent Compliance p. 134 Read: Steel Case v. Design
International Home Insurance v. Eastern Shipping, 123 SCRA 424, 1988 18.07 Issuance of a
License (Sec. 143) 18.08 Who May Be Resident Agent (Sec. 144) Service of Process (Sec.
145) 18.09 Revocation of License (Sec. 151) p. 135
18.10 Withdrawal of Foreign Corporation
CLOSE CORPORATIONS 19. Close Corporations 19.01 Requirements for Close Corporations
(Sec. 95) p. 136 Read: San Juan Structural v. CA, 296 SCRA 631, 1998 19.02 Which cannot
be close corporations (Sec. 95) 19.03 Preemptive Right in Close Corporation Read: Sec. 101,
38
19.04 Deadlocks (Sec. 103) p. 137
29 19.05 Characteristics
Close Corporations v. Ordinary Stock Corporations p. 138 19.06 AOI of Close Corporations
(Sec. 96) p. 139 19.07 Validity of Restrictions on Share Transfer (Sec. 97)
19.08 Appraisal Right (Sec. 104)
19.10 Dissolution (Sec. 104)
19.11 When Board Meeting Unnecessary (Sec. 100) p. 140
19.12 Agreements by Stockholders (Sec. 99) NON-STOCK CORPORATIONS
20. Non-Stock Corporations p. 141
Read: Section 86
20.01 Purposes (Sec. 87)
20.02 Rights of Members
a)Right to vote (Sec. 88) p. 142 SEC Opinion, Oct. 10, 1989
b)Right to transfer membership (Sec. 89)
20.03 Termination of Membership (Sec. 90)
a)When property rights are involved
Read: Valley Golf v. Caram, GR 158805, April 16, 2009
b)Lien p. 143
Read: Calatagan v. Caram, GR 165443, April 16, 2009
c)Notice
d)Effect of death of member
Read: Tan v. Sycip, 499 SCRA 216, Aug. 17, 2006
20.04 Conversion
-from stock to non-stock
30 -from non-stock to stock corporation
20.05 Order of Distribution of Assets (On Dissolution of Non-Stock Corp., Sec. 93) p. 144
Read: SEC Opinion Nov. 27, 1985
20.06. Trustees and Officers (Sec. 91)
Qualification
Term
Officers p. 145 Meetings
Read: Lions Club v. CA, 121 SCRA 621, 1983
SPECIAL CORPORATIONS
RELIGIOUS CORPORATIONS 21. Religious Corporations 21.1 Kinds (Sec. 107)
a)corporation sole b)religious societies p. 146 Read: Alfredo Long v. Lydia Basa, GR
134963-64, Sept. 27, 2001 Number of Trustees 21.2 Corporation Sole (Sec. 107)
a)Nationality Read: Roman Catholic Apostolic Church v. LRC, 102 Phil 596, 1957 b)Effect of
Separation of Members p. 147 Read: Canete v. CA, 171 SCRA 13, 1989
c)Conversion to Corporation Aggregate
eal Read: JEMELIF v. Bishop Lazaro, GR 184088, July 6, 2010 d)Dissolution (Sec. 113)
21.3. Acquisition and Alienation of Property (Sec. 111)
22. Educational Corporations (Sec. 105, 106)
Read: BP 232 ' p. 148 22.1 Laws Governing Educational Corporations
Read: Art. 14, Sec. 4(2), 1987 Constitution
23. One Person Corporations 23.1 Who May Form OPC (Sec. 116)
23.2 Minimum Capital
23.3 Articles of Incorporation (Sec. 14, 118)
23.4 Bylaws (Sec. 119) p. 149 23.5 Display of Corporate Name (Sec. 120)
23.6 Directors and Officers (Sec. 121, 122)
23.7 Nominee and Alternate Nominee (Sec. 124, 125) p. 150 23.8 Minutes Book (Sec. 127)
23.9 Records in Lieu of Meetings (Sec. 128)
23.10 Reportorial Requirements
23.11 Liability of Single Shareholder (Sec. 130) p. 151 23.12 Conversion from Ordinary
Corp. to OPC (Sec. 131)
23.13 Conversion from OPC to Ordinary Corp. (Sec. 132)
24. Miscellaneous Provisions ». (pi Ts2 24.1 Outstanding Capital Stock (Sec. 173)
24.2 Stock Ownership in Corporations (Sec. 176)
24.3 Reportorial Requirements of Corporations (Sec. 177)
24.4 Visitorial Power (Sec. 178) p. 153
32 24.5 Powers, Functions of SEC (Sec. 179) 24.6 Arbitration for Corporations (Sec. 181) .
p.154 25. Investigations, Offenses and Penalties
Read: Sec. 158-171
Jurisdiction of Special Commercial Courts p. 156
AM 03-03-03-SC (as amended) June 21, 2016
INTRA-CORPORATE CONTROVERSIES
23. Intra-corporate controversies p. 157 23.1What makes a controversy intra-corporate
Read: Marc II Marketing v. Joson, 662 SCRA 35, Dec. 12, 2011 23.2 Tests to determine
whether an action is an intracorporate dispute
(1) the relationship test and
(2) the controversy test Read: Gulfo v. Ancheta, 678 SCRA 459, Aug. 15,2012
Rivera v. Florendo, 144 SCRA 643, 1986
Abejo v. dela Cruz, 149 SCRA 653, 1987 p. 158
Tay v. CA, GR 126891, 1998
Viray v. CA, 191 SCRA 308, 1990
Peneyra v. IAC, 181 SCRA 244, 1990
Speed Distributing Corp v. CA Should the complainant be a stockholder at the time of the
institution of the complaint or petition or at the time the act or transaction complained of
took place? p. 159
23.3 What are considered intra-corporate controversies under the Interim Rules on ICCs?
33 23.4 Can RTC order conduct of stockholders’ meeting in connection with an intra-
corporate dispute under its jurisdiction p. 161
Read: Yuico v. Quiambao, 513 SCRA 208, January 29, 2007 23.5 What is an election contest
Read: Sec. 2, Interim Rules of Procedure Governing Intra-Corporate Controversies
23.6 Which body has jurisdiction over validation of proxies which relate to the existence of
quorum for the election of directors
Read: SEC v. CA, GR 187702, Oct. 22,2014
23.7 Can SEC pass upon validity of proxies in relation to election controversies
Read: GSIS v. CA, 585 SCRA 679, April 16, 2009
23.8 When is an alleged intracorporate suit considered a harassment sult p. 162
Read: Guy v. Guy, GR 189486, Sept. 5, 2012
23.9 Is a suit by a stockholder demanding accounting of association dues from a
condominium corporation intra-corporate in nature
Read: Chateau de Baie Condominium Corp, v. Sps Moreno, 644 SCRA 288, Feb. 23,2011
23.10 Would a pending intra-corporate case against an officer preclude the filing of a
criminal action against said officer
23.11 Is an action to correct the General Information Sheet of the corporation so as to
recognize the complainant as stockholder of the company an intra-corporate dispute? Does
the dissolution of the corporation bar the filing of such action?
Read: Aguirre v. FQB +7, GR 170770, Jan. 9, 2013
23.12 Controversies in Appointment, Election, Removal of Directors and Officers p. 163
Read: Midland Construction v. Movilla, GR 118088, Nov. 23, 1995 Tabang v. NLRC, GR
121143, Jan. 21, 1997
Lozon v. NLRC, GR 107660, 1995
34 Espino v. NLRC, GR 109642-43, 1995
-what court has original and exclusive jurisdiction
SECURITIES REGULATION CODE (RA. 8799) 1.Powers and Functions of the SEC Read:
Section 5, RA 8799 22.5 Transferred Jurisdiction . p.165 Read: Sec. 5.2, SRC
What are are within the jurisdiction of the RTC (special commercial courts)
SECURITIES 2.What are securities 2.1 What is an uncertificated security p. 166 Read: Sec.
3.14, SRC 3.Definition of Terms a) Issuer b)Broker c)Dealer d)Clearing Agency e)Exchange
f)Pre-need plans g)Promoter h)Prospectus i)Registration statement j)Uncertificated
security
k)Underwriter
35 3.1 What are investment contracts p. 167 -Requisites of investment contract: Read: SEC
v. Prosperity.Com, GR 164197, Jan. 25, 2012 Power Homes v. SEC, GR 164182, Feb. 26,
2008 Is networking marketing an investment contract? Read: SEC v. Prosperity.Com 3.2
What are derivatives a)Options p. 168 b)Call Options and put options c)Warrants 3.3 What
are commodity futures contracts? Commodity?
– 4, How does the SEC protect the public who wishes to invest in securities
Read: PSE v CA, 281 SCRA 232, 1997 5. State the basic rules TE 5 registration of securities
p. 169 Read: Sec. 8.1, SRC
PSE v. CA, 281 SCRA 232, 1997 6. Securities exempt from requirement of registration 7.
Transactions exempt from registration requirement p. 170 8. Grounds for revocation,
rejection of securities (Sec. 13.1) peL71
9. Devices and practices on manipulation of security prices identified under the SRC (Sec.
24.1) p. 172
1) Wash Sale
2) Matched Orders
3) Market Rigging or Jiggling
9.1 Fraudulent transactions, market manipulation p. 174
36 1)Marking the close 2)Squeezing the float 3)Hype and dump 4)Boiler room operations
p.L7S 5)Short sale Read: IRR, SRC, 2015 Rule 24.2, IRR, SRC 6)Painting the Tape p. 176
7)Stop loss order Read: Rule 24.2
10. Define “put,” “call,” and “straddle.” What is the rule regarding these three practices in
the SRC (Regulation of option trading), Sec. 25

11. Acts considered unlawful with respect to purchase and sale of securities p: 177

Read: Section 26
12. Who is an insider (Sec. 3.8)
12.1 Duties of an insider when he is trading securities (Sec. 27)
12.2 Presumption (Sec. 27) p. 178 12.3 What is Material Non-Public Information (Sec. 27.2)
12.4 Prohibition imposed on insiders regarding material non-public information
13. Tender Offer p. 179
Read: CEMCO Holdings v. National Life Insurance, GR 171815, Aug. 7, 2007
13.2 When tender offer is mandatory 13.3 Exempt from Mandatory Tender Offer
Requirement
13.4 Obligations of person making tender offer p. 180
3/ 13.05 Direct and indirect acquisition Read: CEMCO Holdings 14. Margin Trading p. 181
Read: Abacus Securities v. Ampil, GR 160016, Feb. 27, 2006 14.1 Prohibitions Mandatory
Close-Out Rule 14.2 In pari delicto Read: Abacus v. Ampil 15. The Independent Director
Rule p. 182 15.1 Who is an independent director Read: Sec. 38, SRC Rule 38 par 2, 3,
amended IRR, SRC, 2003
SEC MC no. 9 (Jan. 12, 2012) on term limit of independent directors
15.2 When is appointment of independent director required
16. Regulation of brokers, dealers, salesmen (SRC)
Read: Sec. 28.1, 28.2, 29
People v. Petralba (439 SCRA 158, 2004) p. 184 16. Violations of SRC
Read: Sec. 53.1, SRC
Baviera v. Paglinawan, GR 168380, Feb. 8, 2007
Which body has jurisdiction over civil suits involving SRC violations (like those involving
liability for selling unregistered securities
Read: Pua v. Citibank, GR 180064, Sept. 16, 2013 p. 185 17. Civil and Administrative
Sanctions
Read: Sec. 54-61, SRC
38 Settlement Offers (Sec. 55) p. 186 Civil Liabilities (Sec. 56-61) Damages (Sec. 63) p. 189
Limitation of Actions (Sec. 62, SRC)
39