CORP FINALS DOCTRINES

1. Maximization of Shareholders’ Value​: The function of the corporation is to maximize

shareholders’ profit or value.
2. Theory of Concession​: Corp’s juridical personality is not an absolute right but a
privilege; bound to follow laws/court orders.
3. Enterprise Entity: Sep juridical personality is not a shield for commission of injustice and
inequality.
4. Strong juridical personality
a. Stockholders are NOT CO-OWNERS/not a partition but a conveyance.
b. Execution pending appeal is inapplicable.
5. Centralized management: ​Save for instance where Xcode requires stockholders’
approval for certain specific acts, it is the Board/Trustees which exercises all corporate
powers in a corp.
a. Board of Directors/Trustees
i. Exercise corp power
ii. Conduct all business
iii. Control all properties of the corporation
b. Acts needing SH approval
i. ⅔
1. issuance of stock dividends out of unrestricted retained earnings
2. Power to invest funds of corp to another business/purpose
a. Dissenting: Appraisal right
b. Exc: Reasonably necessary to accomplish primary
purpise, no need for approval
3. Amendment to AOI
6. Limited Liability
a. GR: Limitation of an investor’s liability to the​ amount of investment​.
i. Corporate debts are not of stockholders.
ii. Directors are not liable for loss even if the corporation ends up losing
money.
iii. Exc: President signs document to borrow money, should the corporation
fail to pay, president has no liability.
b. EXC: ​Only liable for unpaid subscription.
7. Free transferability of shares
a. Inherent right of stockholder to transfer shares anytime he desires.
b. Corps cannot restrict this.
i. Only have the authority to adopt regulations on formalities and
procedures in effecting the sale/transfer.
c. No transfer of certificate of shares will be valid except as between the
parties
i. Transfer must be recorded in books of corp
ii. Show names of parties to transaction
 iii. Date of transfer
iv. Number of certificate
v. Number of shares transferred.
8. Corporations can now engage in partnerships, joint ventures.
9. Nature of corp:
a. Private: attainment of private interests: threshold: 51% government owned.
b. Quasi public: private but for public purpose.
i. Company imbued with public interests (bdo/bpi): still private-profits go to
owners.
10. Liability of directors and officers is applicable to corps organized by special charter since
Sec4 renders provisions supplementarily applicable to all corps.
11. De Facto Corp: ​Due incorporation and right to exercise corporate power shall not be
inquired collaterally into any private suit.
a. Must claim in good faith to be a corp in this code
b. Only solgen can inquire- quo warranto.
12. Corp by estoppel: ​Liable as general partners, cannot use lack of personality as a
defense, cannot resist performance of contracted obligation.
13. Close corp
a. Less than 20 stockholders
b. Unless ⅔ of stocks is owned by another corp
c. Except mining, oil, banks, imbued with public interest
14. Power of Congress to create corps: ​ONLY GOCC, by special charter,
a. New Agrix not a GOCC since it merely extended a loan to new corporation.
b. EXCEPT: Provided for in Corporation Code.
i. 1 year from GOCC sold to private- allowed
ii. 1 week- not allowed look at intent.
15. Rights of a Corporation
a. Due process
i. Failure to implead = not bind corp
b. Protected against unreasonable search and seizure
i. WHO MAY ASSAIL?: The corporation itself and not the officers.
Corporation have separate distinct personality.
c. Not entitled to invoke right against self incrimination
i. Created by State, cannot refuse to comply when charged with abuse of
privilege,
d. Can engage in profession when authorized by law
i. GEN: Cannot engage since no moral and technical competence
1. Corp selling eyeglasses/hires optometrists is not engaged in
optometry
ii. EXC: Sec 37 of Architectural Act.
e. Not entitled to moral damages
i. GR: Cannot experience physical/mental suffering
 ii. OBITER, NOT CONTROLLING, ​Good reputation is bermisched,
entitled to moral damages
iii. EXC: ​For libel, as expressly authorized by law.
iv. To be entitled to exemplary, one must also be entitled to moral damages.
f. Can be held liable for torts
i. Same manner as natural persons
16. Corporate criminal liability
a. GR: No criminal suit can lie against corporation.
i. Can be a real party in interest for brining a civil action for malicious
prosecutor,
ii. They go after the officers, without prejudice to civil liabilities of the corp.
iii. Imprisonment: cannot be charged: fine can be charged.
b. Corps concealing graft and corruption
i. Failure to install safeguards for transparent and lawful delivery and
policies of ethics= prima facie evidence of corp liability.
c. Liability of Stockholders
i. GR: Not liable, management is with Board.
ii. EXC: ​unless they personally took part in the same.
d. Liability of Board
i. GR: Not liable since not concerned with day to day affairs
ii. EXC: Corporate officers charged with the running of the corporation and
are also members of the Board. (President)
1. Had the power to prevent the wrongful act.
2. Direct control and supervision, must have known or were aware.
iii. Court discretion: ​If offender if corp, court may also held its officers
responsible,
1. Took part
2. Had knowledge
e. LIABLE: ACTING OFFICERS/EMPLOYEES
i. Corp acts through the officer and agents
ii. All who participated are liable, however slight his contribution may be.
iii. EXC: ​Was just acting under direction if his superiors and was unaware of
illegality.
17. NATIONALITY OF CORP
a. To be considered a Filipino,
i. Atleast 60% of whose capital is owned by Filipinos
1. CONTROL: total number of ​Shares entitled to vote in election of
shares
2. BENEFICIAL INTEREST: ​Total number of shares of stock wn
entitled to vote in election.
a. Voting power: ​Vote or direct others to vote for him
b. Investment power: ​Dispose, direct others to dispose it for
him
 c. Right to dividents accrues to beneficial owner.
ii. If there is a doubt to 60-40, apply grandfather rule.
1. Attribute nationality of second or subsequent tier of ownership to
determine nationality of shareholder.
iii. Control test if applicable
1. War
2. Exploitation of natural resources
3. Ownership of private lands
a. Donation to unincorporated organization with trustees as
foreigners=violation of cons prohibition.
b. Basis: ​Nationality of lay members and not of corporation
sole (no nationality)
c. Prohibition only covers ownership of land not
immovable/real prop such as trees fruits etc.
d. Corp with unknown owners whose nationalities are
unknown is not qualified to hold land.
i. Assignment to a nominee designated by such corp
is circumvention of cons. prohibition.
4. Public utilities-60%
a. Nationality test is at the grant of the ​second franchise
(​authorizes the corp to enter into nationalized industry)
b. No need to wait for franchise to own facilities so long as it
does not operate them.
5. Advertising: 70%
a. All executives and managing officers must be citizens of
Philippines.
18. DOCTRINE OF PIERCING THE CORPORATE VEIL
a. GR: Corp has separate personality from directors/members.
i. Assets of SH are not assets of corp, vice versa.
ii. Corp cannot be made to answer for personal liabilities of SH
b. Limit: not to subserve the ends of justice:
i. Perpetrate social injustice
ii. Evade Obli
iii. Confuse Legitimate Issues.
iv. EFFECT: Treated as one.
c. Limited Liability
d. Agency Law: ​Directors are not personally liable for corporate contracts they
enter in behalf of corp.
i. Debts
1. In Personal capacity: Own liab.
2. As Agents: Liability of corp
ii. Obligations: No off set of obligations in two corporations since it has sep.
juridical personality.
 e. Major Equity v Interlocking Directorship
i. Mere ownership by single SH of all or nearly all stock is not sufficient
ground for disregarding corporate personality.
ii. Before corporate fiction can be disregarded, alter-ego elements
must be proven.
f. Tax exemption clause enjoyed by corp cannot be enjoyed by SH.
g. On Suits againt or for corps
i. Corp has no legal standing to file a suit for recovery of certain parcels of
land owned by its members in personal capacity
ii. SH cannot intervene in collection case inv debts of corp
iii. SH have no standing to recover damages arising from wrongful
attachment of corps assets
iv. Corp def with writ of possession has been issued cannot use as defense
that he has obtained equities in corporate plaintiff.
19. PIERCING THE VEIL (SH will be personally liable for acts/contracts of corp)
a. Cloak of cover for fraud/illegality.
i. FRAUD PIERCING ​Justification of wrong
1. There must be fraud/evil motive,
2. Mere proof of control will not justify piercing.
3. Must be used to commit fraud/avoid consequences.
4. Main action: enforcement of pecuniary claims.
5. Mere substantial identity of incorporators does not immediately
warrant piercing
ii. Alter ego​: merely a farce
1. Operated for the sole benefit of one person/one corporation rather
than for business interests it was formed.
2. No need to establish fraud/wrong doing.
3. What needs to be proven: ​That corp personality has been used
for personal agenda of controlling stockholder,
4. Some factors that indicate
a. Same workers, same business
b. Mixing of personal bank accounts with corporate bank
accounts
c. Same owners-indicia of control, ot syufficient.
5. Not a basis to pierce
a. SH used his own money to pay part of loan of corp
b. Use of SH initials in corporate name
6. Applies even in the absence of evil intent
7. Based on estoppel
8. May prevail if no monetary claims are sought to be enforced
against SH/officers of corp.
9. Need complete domination of finances, policies and business
practices
 10. If used to perform legitimate functions, a subsidiary’s
separate existence will be respected.
iii. Equity Piercing:
1. Inconsistent with business purpose of legal fiction
2. Confuse legitimate issues
a. Employee in mother company was assigned to sister
company and died by reason of work related illness and
workmen’s compensation is being sought, piercing can be
done.
3. Raise legal technicalities
a. Complaint for unfair labor case was brought against the
officers but judgment was rendered in name of company.
b. Debtor registers his residence to a family corporation in
exchange for shares and continues to live therein
c. Work pooling to defeat the workers right to collective
bargaining
4. Necessary to achieve justice for those who deal in good faith with
corp.
b. May be pierced for blatant violation of prohibition of forum shopping.
c. “ “ “ for ​interest of justice
i. Fraud that may work inequities among members of corp internally.
d. Must be proven and clearly established, cannot be presumed.
e. Recent developments
i. Piercing is not allowed unless remedy sought is to make officer/corp
pecuniary liable for corp debts
1. Not to determine jurisdiction of court.
ii. Cannot be the other way around, that the corp is being ordered to answer
for the personal liability of certain directors and officers.
iii. Reverse piercing:
1. Outsider reverse piercing ​occurs when a party with a claim
against an individual or corporation attempts to be repaid with
assets of a corporation owned or substantially controlled by the
defendant.
2. In contrast, in insider reverse piercing, ​the controlling
members will attempt to ignore the corporate fiction in order to
take advantage of a benefit available to the corporation, such as
an interest in a lawsuit or protection of personal assets.
iv. Only res judicata
1. Application of piercing is only for particular transaction or instance
or obligation where doctrine was applied.
v. Equitable remedy
1. Remedy of last resort: ​Not available if there are other remedies
available
2. Only to prevent fraud
a. Creation of a corp as mother company of three other corps
to manage and operate assets acquired in foreclosure sale
does not indicate fraud.
3. Victim standing/doctrine of clean hands
a. I.e. assignment was in contravention of laws
4. Not applicable to theorize or advance new interests
a. An employee who retires and avails of retirement benefit
but works for affiliate companies cannot employ piercing to
treat her stint with latter as part of former when there is no
evidence of unfair shielding.
b. The fact that parent company exercises control over the
subsidiary does not justify the disregard of corp
personality.
5. Piercing is a power of the court, cannot be assumed by
sheriff.
6. Thinly capitalized corporations
a. Alter ego piercing: ​Corp has no existing assets of its own
and operation of corp was so merged with SH to be
practically indistinguishable.
b. Fraud piercing: ​Induced creditors to extend loans despite
deficient capitalization
c. Equity piercing: ​Ran up high obligation with printing
company despite knowing that corp was not in position to
pay
7. Due process considerations
a. Suit against controlling SH/mother company is not a suit
against company itself
i. Not impleaded
ii. Not summoned: cannot be held liable on a writ of
execution since court has no jurisdiction
b. Piercing is not available to confer on court jurisdiction
it has not acquired.
c. EXC: ​If separate personality was purposely employed to
evade a legitimate and binding commitment,
d. HOWEVER, ​If officers are sued in official capacity, piercing
can make corp liable since they were not denied due
process (officers are aware).
e. When is piercing available
i. Even during enforcement of judgment
ii. So long as evidence of control was properly
pleaded and provded/ adduced during trial.
iii. Can be made in CA.
20. Promoter’s Contract
a. Person who takes initiative in founding/organizing business/enterprise of issuer.
b. Any contract for acquisition of unissued stock ​be in an existing corp or corp
yet to be formed shall be ​deemed as a subscription regardless of what
parties call it,
i. Still to be formed: irrevocable for 6 months unless
1. All other subscribers consent
2. failure to incorporate
ii. No pre incorporation subs may be revoked after articles was submitted to
the commission.
c. Liability
i. A corp, until organized has no being.
ii. Acts of promoter may be ratified by corp once organized.
iii. Franchise given when corp is still incorporating is still valid commitment
iv. Promoter’s contract may be pursued against the moving spirit but not
against those who were merely convinced to invest based on feasibility
studies undertaken by promoters.
21. De facto corp
a. Filing of articles of incorporation + issuance of certificate of incorporation
b. It is the issuance of Certificate of Incorporation that marks the start of corp’s
existence.
22. Corp by estoppel
a. Persons assume to form a corporation and exercise corporate functions and
enter into ​business relations with third persons
i. No third person involved=no corporation by estoppel.
b. Effects
i. Persons who assume to act and who benefited: ​Liable as general
partners
ii. When sued: cannot use as defense lack of corp personality
iii. Anyone who contracts: ​Cannot resist performance on ground that there
was no corporation.
iv. Not estopped when purpose is not to evade liability but to enforce
the contract against the action for purported corporation.
v. One who takes no part except to subscribe for stock in a proposed
corporation which is not legally formed does not become a partner with
other subscribers who engage in business inder the name of the
pretended corporation.
23. Trust fund doctrine
a. The capital stock of a corporation is a trust fund to be used more particularly for
security of its creditors.
b. Also extends to assets and properties ​belonging to corporation held in trust for
creditors that are in possession of SH regardless of full payment of their
subscriptions.
 c. Share of stock is not an indebtedness of company to the owner
d. Stockholders are not as to their shares creditors of the company, which can be
off-setted against their liabilities to the company.
e. Creditors are preferred over stockholders.
i. Any disposition of corporate funds to prejudice the creditors is null and
void.
f. Dividends must never impair the subscribed capital stock
g. Subscription commitments cannot be condoned or remitted
h. Corporation cannot buy its own shares using subscribed capital as
consideration.
i. Power to buy own shares
1. There must he unrestricted retained earnings in its books to cover
the shares to be purchased
2. Must be for a legitimate corporate reasons
a. Eliminate fractional shares arising stock dividends
b. Collect/Compromise an indebtedness arising out of unpaid
subscription, delinquent sale
c. Pay dissenting withdrawing stockholder.
i. Until liquidation, no part of subscribed capital stock may be turned over except
redeemable shares.
i. Redeemable shares
1. Expressly provided
2. May be purchased by corp from holders upon expiration of period
3. Regardless of unrestricted retained earnings
4. Subject to rules and regulations issues by Commission.
ii. Stock corps are not allowed to retain surplus profits in excess of
100% paid-in capital stock except
1. Justified by expansion
2. Agreement that consent is needed and it is not yet secured
3. Necessary under special circumstances
iii. Corporation liquidation
1. Shall stay 3 years after existence is terminated
2. To settle all claims, bring suits
3. May convey to a trustee
a. All interest which corporation has in the property
terminates.
4. Any asset distributable to creditor/SH which cannot be found or
unknown accrues in favor of government.
iv. Violation of terms in subscription agreement= not a ground to rescind and
ask for distribution of capital assets and property of corp.
24. Corporate name
a. Change its name
i. Amend bylaws
 ii. Approved by SEC ( not effective till approved)
iii. Effect: Does not create new corp/change identity, rights, liabilities
b. Use of name of dissolved corps
i. GR: Not allowed 3 years after approval of dissolution
ii. Exc: Allowed by last stockholders representing majority of stocks
25. Power to invest funds to another business/purpose
a. GR: ​Must have approval of ⅔ of SH
b. EXC: When reasonably necessary to accomplish primary purpose
i. No need for approval.
26. Corporate term
a. GR: Perpetual
b. Exc​: AOI provide otherwise.
c. Amendments- EXTENSIONS
i. Not earlier than 3 years prior to original or subsequent expiry dates
UNLESS
1. There are justifiable reasons for extension
ii. Extension will take effect only on day after expiry
d. EXPIRED TERM- REVIVAL
i. May apply for revival upon approval of SEC
ii. Except banks, other financial intermediaries.
e. EXTENSION OF DEFINITE CORP TERM
i. No extension once the dissolution stage has been reached.
27. Principal place of business
a. Place of residence = place of principal office
b. SH meeting shall be held here.
i. if not practicable, C​ ity/municipality where principal office is located.
ii. Metro Manila, Metro Cebu, Metro Davao, Metropolitan areaa.
28. No minimum capitalization
a. GR: No minimum capitalization
b. EXC: Otherwise provided by law.
c. However, 25% Subscription, 25% paid up stock is required for increasing
Authorized capital stock.
29. Grounds when articles may be disapproved
a. Not compliant with form
b. Patently unconstitutional/illegal
c. Certification concerning amount of Stock is false
d. Required percentage of Filipino ownership is not satisfied.
30. Amendment to AOI
a. Majority vote of board, approved by ⅔ SH.
i. Dissenting: appraisal right
b. When will it take effect
i. Upon approval of commission
ii. Date of filing
 1. If not acted upon 6 months after filing for a cause not attributable
to corporation.
31. By laws
a. Power to adopt by laws is an ​inherent power o ​ n part of the those forming a
corporation.
b. May seek court redress
i. If by law is in conflict with law of land
ii. Or charter of corp
iii. Unreasonable
c. Valid amendment: ​Where reasonableness is a mere matter of judgment and
reasonable minds necessarily differs.
i. Conflict of interest
d. Not essential to corporate birth but needed for orderly governance and
management of corporation.
i. Refused to pay special assessment = suspension of privileges = valid.
e. May be adopted and filed prior to incorporation= all incorporators.
f. When effective: ​Certification from SEC that bylaws are in accordance with
Code.
g. No automatic dissolution simply because the incorporators failed to file the
required bylaws.
h. Failure to file by-laws: De facto corporation.
i. Unjustified failure or refusal: Criminally punishable.
j. LIMITATIONS
i. Cannot be contrary to law, morals, public policy, charter
1. Provision which allows the Board to cancel share of any member
and return to owner its value-
a. contrary to Corp Code which provides that capital can only
be returned after dissolution.
2. Granting permanent seat in the Board.
a. All members must be elected
3. Violate security of tenure/avoid contractual obligations.
ii. Cannot be unreasonable, contrary to their nature
1. Cannot restrict property rights of SH to transfer his share, can only
provide for mode.
iii. Cannot discriminate among its SH/members
iv. Not binding on dealing public.
1. EXC: Those who have knowledge about their content at time
transaction were entered into.
a. Pena: Invalid deed of assignment failure to meet quorum.
b. PMI Colleges: Contracts without signature of chairman in
violation of by-law are not void unless they have
knowledge of such rule.
k. Mandatory for every member to respect
 i. Bernas v Cinco, only President and BOD can call special meeting. In this
case, it was MSCOC who called. = invalid.
l. Amendments and Revisions of By Laws
i. Majority
ii. To delegate to Board,
1. ⅔ is needed.
2. Revoked whenever SH shall so vote.
32. Corporate Powers
a. Provided by law
i. Acquire, possess properties
ii. Incur Obli
iii. Bring criminal/civil action
iv. Extend or shorten its term
v. Have perpetual existence
vi. Adopt and use corp seal
vii. Amend its AOI
viii. Adopt its bylaws
ix. Issue stocks to subscribers,
x. Receive, purchase, hold, pledge, lease, mortgage real and personal
property
1. If primary purpose of corp is other than sale of land and it is not
within actual or apparent authority, ​SPA must be in writing.
a. Otherwise, void.
xi. Borrow funds
1. SPA is needed.
2. Certification from BOD.
3. Cannot allege that it is in accordance with ordinary course of
business.
xii. Power to be sued/be sued
1. When power is delegated to an officer in by-laws, he/she may
appoint counsel to represent the party in hearings.
2. IF ​CORP IS INJURED PARTY: ​Power to sue is lodged with the
Board.
a. Minority SH cannot sue on corp’s behalf,
3. Certificate of non-forum shopping
a. Must be signed by authorized person
i. For counsel, he must be authorized by the Board.
ii. Can be ratified:
1. Passing of board resolution before filing of
complaint.
2. Submission in motion for recon of authority
is substantial compliance.
b. Otherwise, ​dismissible.
 c. NO NEED FOR BOARD RESOLUTION
i. President
ii. Chairperson of Board
iii. General Manager
iv. Personnel Officer
v. Employment Specialist in a labor case,
4. Summons: restricted enumeration of persons
xiii. Hire employees and appoint agents
1. WHO HAS THE POWER: ​Officer who has general control and
management of corporation’s business
2. Except if expressly lodged with Board.
3. Must be reasonable.
xiv. Enter into partnerships and joint ventures
xv. Make reasonable donations
xvi. Establish pension and retirement for its officers/SH/employees
1. Provide gratuity pay for employees.
b. Incidental
i. Issuance of check
c. Implied
i. Related to primary purpose of business
33. Appraisal right of dissenting SH
a. Demand payment of fair value of shares
i. Effect of changing/restricting rights
ii. Extending/shortening corp term
iii. Sale of all/almost all properties
iv. Merger/Consolidation
v. Investment of corporate funds to other purpose/business.
34. ACTS NEEDING SH RATIFICATION
a. ⅔
i. Extending/Shortening Corporate Term
ii. Increase or Decrease Capital Stock/Create Bonded Indebtedness
1. Need approval of SEC/Phil. Competition Commission.
2. Need treasurer sworn statement that
a. 25% has been subscribed and 25% has been paid in
actual cash.
3. No decrease shall be approved if it will prejudice corp creditors.
iii. Incur/Create/Increase Bonded Indebtedness
iv. Sell/Dispose/Mortgage or Encumber All/Substantially All Assets
1. SUBSTANTIALLY ALL
a. Computed based on its net assets value from latest
financial statements
b. Which would render incapable of continuing the business
or accomplishing purpose for which it was incorporated.
 i. Otherwise, ratification is not needed.
2. May not be sold without authority from the Board.
3. Without ⅔ ratification = null and void.
4. WHEN IS APPROVAL NOT NEEDED
a. Board may abandon such sale without ratification from SH.
b. Reasonably necessary to pursue regular course of
business
v. issuance of stock dividends out of unrestricted retained earnings
vi. Power to invest funds of corp to another business/purpose
1. Exc: Reasonably necessary to accomplish primary purpose,
no need for approval
a. Dela Rama: Sugar Central in jute-bag manufacturing.
2. Dissenting: Appraisal right
vii. Enter into Management/Service/Operating Contracts
1. SH representing both managed and managing own ⅓ of OCT
entitled to vote in managing corp
2. Majority of the board of managing corp is also a board of managed
corp.
a. No contract shall be entered for a period longer than 5
years for any 1 term.
viii. Amendment to AOI
ix. Delegate to Board the power to amend by laws
b. Majority
i. Power to Enter Into Management Contracts
1. No contract shall be entered for a period longer than 5 years for
any 1 term.
ii. Corps with COI issued prior to the effectiveness of this code and they
want to retain term provided in AOI.
iii. Adoption of by-laws
iv. Amendment of by-laws.
35. ULTRA VIRES
a. FIRST TYPE | Outside the purpose of the corp
i. Committed outside the object for which a corporation is created.
ii. Voidable
iii. Act which cannot fall under a corporation’s express or necessary or
incidental powers.
iv. Will not prevail if issued to accomplish a legal wrong to prejudice of
someone who acted in good faith.
v. Ratification: ​If ratified by SH, it cannot be set aside.
vi. Estopped
1. Not a malum prohibitum
2. Senior officers or Board are estopped from questioning legality of
such act.
 b. SECOND TYPE: Centralized Management | Outside scope of authority
i. Board of Directors/ Trustees
1. BOD:1 year from holders of stocks registered
2. Trustee: 3 yrs from members of Corp.
3. Shall hold office until successor is elected and qualified
4. Once he or she ceases to hold one stock = ​cease to be
director/trustee.
ii. Corps with public interest
1. Corps covered by SEC with assets at least 50m plus 200 shares
2. Banks
3. Business vested with public interest
4. Shall have Independent directors
a. 20% of the board.
b. Independent of management and free from any business
which could materially interfere with exercise of
independent judgment.
c. May vote in absentia/present.
5. Exception
a. When ratified
i. Acts showing ratification
ii. Enter into compromise agreement signed by
President pursuant to Board res.
b. When necessary and incidental to carry out a corporation's
purpose.
iii. Acts done in excess of officer’s scope of authority cannot bind corp:
unenforceable
1. Must be done by BOD/Agent authorized by Board.
2. EXC:
a. When ratified
i. Acts showing ratification
ii. Enter into compromise agreement signed by
President pursuant to Board res.
b. When necessary and incidental to carry out a corporation's
purpose.
c. THIRD TYPE: ​Only private rights involved
i. SC did not declare nullity.
36. BOARD OF DIRECTORS
a. Exercises all powers in Corp Code
i. May validly delegate it to individual officers or agents appointed by it.
1. Formal board resolution
2. By laws.
3. Secretary’s Certificate
4. Existence of Board Resolution.
b. Conducts all businesses of corp
c. Controls and holds properties of corp.
d. Separate and distinct from corp itself
i. Corp’s general counsel cannot represent members of the Board who have
been sued by SH in derivative suit for Board is separate from corp itself
e. FOR NONSTOCK/SPECIAL
i. Governing Board may be called anything other than as Board of Trustees.
f. Qualifications
i. Board of Directors/ Trustees
1. BOD:1 year from holders of stocks registered
2. Trustee: 3 yrs from members of Corp.
3. Shall hold office until successor is elected and qualified
4. Once he or she ceases to hold one stock = ​cease to be
director/trustee.
ii. Corps with public interest
1. Corps covered by SEC with assets at least 50m plus 200 shares
2. Banks
3. Business vested with public interest
4. Shall have Independent directors
a. 20% of the board.
b. Independent of management and free from any business
which could materially interfere with exercise of
independent judgment.
c. May be voted 8n absentia/present.
5. Exception
a. When ratified
i. Acts showing ratification
ii. Enter into compromise agreement signed by
President pursuant to Board res.
b. When necessary and incidental to carry out a corporation's
purpose.
g. Theory of State Vested Power
i. BOD can ignore resolutions of SH on corp matters since contracts
between corp and public must be made bu BOD and not by SH.
ii. Director Treasurer has no power to bind corp even in transactions
pursuant to primary purpose of corp esp if by laws provide that only BOD
can enter into such.
iii. MOA among feuding stockholders that vests affairs of corp in one set of
SH is void.
h. Theory of Stock Delegated Power
i. BOD is creation of SH.
ii. Important right of SH: vote for directors to manage corp.
i. Must act as a body to bind corp
i. Quorum
1. GR: Majority of directors/trustees as stated in AOI shall const.
quorum to transact corp business.
a. Every decision reached by atleast majority of directors =
valid as corp act
b. EXC: Election of officers= majority of all members of
board.
2. EXC: AOI/BL provides for greater majority.
ii. Meetings
1. Regular
a. Monthly
b. Unless BL provide otherwise.
2. Special
a. Any time upon call of president
b. Or as provided in by laws.
3. Where
a. Principal place of business
b. City/Municipality
c. Inside/outside PH
i. Unless bylaws provide otherwise.
4. Cannot physically attend/vote
a. Participate through remote communications (video/phone)
b. EXC: Directors or trustees cannot attend or vote by
proxy during meetings.
5. Possible conflict
a. Recuse from voting.
b. Without prejudice to Sec. 31.
6. Other notes:
a. Lack of notice: may be ratified
i. Expressly: by action of BOD in next meeting
ii. Impliedly: Corp’s subsequent course of conduct.
b. Bogus Board: void, no consent.
c. Executive Board
i. Can constitute one even if one is not provided in
articles and bylaws of corporation.
ii. May act by majority vote of ALL members on such
matters within its competence,
iii. As may be delegated by bylaws/majority of the
Board.
iv. EXCEPT
1. Approval of action which needs SH
approval.
2. Filling in of vacancies
 3. Amendment, repeal, adoption of BL.
4. Amendment, repeal of any resolution of
board which by express terms is not
amendable, repealable.
5. Distribution of cash dividends
j.EXERCISE OF POWERS
i. Express/ formal- adoption of Board res
ii. Implied- collectively and knowingly allows President to enter into
important contracts.
k. BUSINESS JUDGMENT RULE:
i. On transactions entered into:
1. When resolutions are passed in GF= valid and binding.
2. No court can substitute judgment.
3. Orders are not reviewable by courts
ii. On personal liability
1. Directors and officers who act for corp
2. Within lawful scope of authority
3. In Good faith
4. Are not liable for consequences of their acts.
5. To be accountable,
a. Bad faith + with malice in doing assailed acts.
l. DOCTRINE OF RATIFICATION
i. Confirmation after conduct.
ii. Must have full and complete knowledge of all relevant facts
connected.
iii. Cannot be made by the same person who wrongfully assumed
power.
iv. Act of board affirming informally the existence of contract v. subsequent
for al board res rejecting= Former prevails, estoppel.
v. May be
1. Expressed
2. Implied
a. Silence
b. Acquiescence
c. Subsequent acts showing approval
d. Acceptance and retention of benefits.
vi. Admission by counsel will not bind the corp absent any enabling act.
37. DOCTRINE OF LACHES/STALE DEMANDS
a. Failure of neglect for long time = presumption that it has been
abandoned/declined to assert
38. DOCTRINE OF APPARENT AUTHORITY
a. Knowingly permits = holds to the public as possessing the power.
i. Corp cannot disown acts of President of obtaining loan
 1. Provided power in by law
2. Previous transactions with same personalities and without Board
authority
ii. In GF, relied on former’s authority to act on behalf of the corp.
b. Agent acts in his own name
i. Principal has no cause of action against whom the agent has contracted
ii. Neither such persons against principal
iii. Liable as if it was entered in his own
1. Exc if thing involved belongs to principal
c. If there are circumstances showing excess authority = people who dealt with
agents cannot held the corp liable.
d. Burden of proof:
i. Corporation first that officer is not authorized
ii. Other party to prove specific acts that there was apparent authority.
39. DISQUALIFICATION of DIRECTORS
a. 5 years prior to election
i. Convicted by final judgment
1. Imprisonment of more than 6 years
2. Violation of Code
3. SEC Regulation Code
ii. Admin. liable for fraudulent acts
iii. Found by foreign courts similar to acts a and b.
iv. Other limitations impose by SEC/Phil. Competition Comm.
40. Qualifications/disqualifications provided by law are minimum qualifications, additional
may be added by bylaws.
41. Proxies cannot be elected as directors/trustees of corporation.
a. Director must be a member.
b. Power of proxy if merely to vote.
42. REMOVAL
a. SH representing ⅔ of OCS
b. ⅔ entitled to vote
c. Need of notice of intention
d. In a regular
e. Or special meeting
i. Called by sec on order of president
1. No sec/fails= SH signing demand may call meeting themselves
ii. Written demand of SH rep majority of OCS
f. May be or without cause
i. Without cause: cannot deprive minority SHs or members of the right
of representation.
g. SEC
i. Remove director elected despite disqualification
 ii. Board who with knowledge if such disqualification failed to remove may
face sanctions.
43. ELECTION OF DIRECTORS AND TRUSTEES
a. Every SH or member has right to nominate
i. Unless right to vote is reserved for holders of founders shares.
b. The following must be present in person or by proxy
i. owners of majority of OCS
ii. If no OCS, Majority of members entitled to vote
c. May vote in absentia or through remote comm
i. Deemed present for purposes of quorum.
ii. Corps with public interest: regardless of bylaws.
iii. Others: when authorized by bylaws.
d. Mode: By ballot, if requested.
e. Stock Corps
i. Vote the number of shares of stock standing in their names.
ii. If by laws are silent
1. Stock
a. Vote such number of shares for as many persons as there
are directors to be elected.
b. Cumulate such share and give 1 candidate as many votes
as number of directors to be elected.
c. Distribute among as many candidates as may be fit.
2. Non stock
a. As many votes as number of trustees
b. May not cast more than one vote for one candidate.
iii. Rules
1. Total number of votes must not exceed number of shares owned
by SHs x number of directors to be elected.
2. No delinquent stock shall be voted
a. Unless provided in by law/AOI.
iv. Failure of elections
1. No election held
2. Owners of majority of OCS are not present
3. Adjourn meeting
4. Proceed with Sec. 25
v. Report of election, non election, death
1. Election
a. within 30 days from elections
b. Submit names and other details of elected officers.
2. Non holding
a. Within 30 days from scheduled election
b. Submit new date for election
i. Not later than 60 days from scheduled date
 3. If reelection is not held/no date designated
a. Upon application of SH, member, board or trustee
b. After verification of unjustified non holding
c. The SEC may summarily order that an election be held.
i. Shares of stock or membership represented =
quorum
ii. Regardless of what is provided in bylaws or AOI.
4. Die/resign or in any manner cease office
a. 7 days from knowledge
b. Report in writing such fact to SEC.
f. ELECTION OF TRUSTEES
i. Not more than 15
ii. Hold office for 3 years until successors are elected
iii. Trustees elected to fill in vacancies before expiration of a term shall only
hold office for the unexpired period.
iv. Independent trustee of nonstock corp
1. Only a member of corp
v. May directly elect officers
1. Unless otherwise provided in AOI.
g. Only those names submitted to SEC are deemed legally constituted to bind the
corporation especially in bringing of suits on behalf of corporation.
44. INDEPENDENT DIRECTORS
a. SEC Reg Code Companies
b. Financial Intermediaries
c. Business Vested with Public Interest
45. VACANCY IN THE BOARD
a. Other by removal/expiration
i. STILL QUORUM:​Vote of majority of remaining directors
ii. NO QUORUM: ​SH/members in regular/special meeting for that purpose.
iii. Election: 45 days from time vacancy arises,
b. Due to term expiration
i. Election: not later than day before such expiration
c. If due to ​removal
i. Election: same day of the meeting, must be stated in agenda.
d. REPLACEMENT DIRECTOR/TRUSTEE
i. Serve only the unexpired terms of predecessor.
e. No quorum + Emergency action is required to prevent grave, substantial
and irreparable loss
i. Temporarily filled FROM OFFICERS OF CORP
ii. Unanimous vote of remaining directors/trustees
iii. Limited to emergency action necessary.
iv. Term will cease
1. Within reasonable time from termination of emergency
 2. Replacement director or trustee has been elected.
v. Notify SEC within 3 days of creation of emergency Board the reason for
such
f. Increase in number of directors, trustees
i. Election in a meeting called for that purpose
ii. In same meeting authorizing increase in directors.
g. All under vacancies
i. Sec 23 and 25 applies. (reporting to SEC)
h. Remaining members cannot elect another to fill in vacancy caused by a hold-over
director.
i. Holdover period is not a part of term of member of BOD.
ii. Vacancy can only be filled up by SH since no limit left to fill up.
46. Directors’/Trustees’ meeting
a. Quorum
i. Stock: Number of outstanding voting stock
1. Majority as stated in AOI
2. Every decisions reached by majority cons quorum shall be a valid
corp acyt.
a. Exc election of officers: majority of all members of board.
ii. Non stock: Actual, living members with voting rights.
b. Kinds of meeting
i. Regular
1. Held monthly
2. Unless BL provee otherwise
ii. Special
1. Any time
2. Upon call of president.
3. As provided by BL.
c. Where
i. Principal Place of residence
ii. City/Municipality
iii. Anywhere in and out of PH
1. Unless prohibited by BL.
d. Need of notice
i. Contents: date, time, place
ii. atleast 2 days prior
1. Unless longer time is required in BL.
iii. May be waived.
1. Express
2. Implied.
e. For those who cannot attend
i. Remote communications
ii. Directors cannot attend or vote by proxy at board meetings.
 f. Conflict: Recuse from voting
47. WHO SHALL PRESIDE
a. Chairman
i. If absent
b. President
c. Unless BL provides otherwise.
48. ABSTENTION
a. PRESUMPTION: ​An abstention is presumed to be counted as an affirmative vote
i. Construed as acquiescence of those who voted affirmatively.
b. May be rebutted in clear evidence to contrary.
49. Minutes
a. No need for signature of all members of Board
b. Signature of corporate secretary = gives minutes probative value and credibility
c. Except if there is evidence to show that other directors and corporate secretary
refused to sign the minutes= presumption of credibility will not prevail.
50. Resolution
a. Formal action by a corporate board authorizing a particular act, transactions.
51. Compensation of directors
a. In absence of provision in BL fixing their compensation
b. Not receive any compensation in their capacity as such
i. Except for reasonable diems
ii. But majority of members may grant and approve the amount in a meeting
c. Director shall not participate in determination of own compe.
d. REASON: They merely perform usual and ordinary duties of their office.
i. Return upon their shares adequately furnishes the motives for service.
52. MANAGEMENT AND OTHER OFFICERS
a. Immediately after their election, the directors must elect
i. President who must be a director
ii. Treasurer who must be a resident
iii. Secretary who is a citizen and resident of PH
iv. Other officers as may be provided in by laws.
v. If vested with public interests
1. Elect a compliance officer
b. May hold 2 positions concurrently
i. Except
1. President and Secretary
2. President and Treasurer
a. Unless otherwise allowed in this code
c. Rules on Corporate Powers to Bind the Corporation
i. Implied authority
ii. Even though judgment is address to corp only, officers may be held in
contempt for disobedience to its terms.
iii. A lawful judicial command to a corporation is a command to officers.
 iv. Benefits and privileges must be proven together with the fact that he is
entitled to same.
v. Corp policies need not be in writing. It is valid when
1. Officer authorized within scope of authority
2. Ratified by Board.
vi. Verbal promise by CEO to give manager unlimited sick leave is not
binding without approval from Board.
vii. Clerk is not among the bank officers upon whom putative authority may
be reposed by 3rd party.
53. President
a. Must be a director.
b. Presumed to have the authority to act
i. Within the domain of the general objectives of corporation’s business
ii. Within the scope of his usual duties.
iii. Power to enter to contracts if shown he had been in habit and corp allows
him.
1. Acceptance of benefits = permission to act.
2. However the president must be first qualified.
c. THEORY OF IMPUTED KNOWLEDGE
i. Knowledge of president/agent: ascribed to his principal
d. Dismissal = intra corporate dispute, not a labor dispute.
54. VP
a. Not required to be SH
b. Roots from BL.
c. Rules are from BL.
55. Corporate Secretary
a. custodian of corporate records
b. Obligation to register valid transfers of stock
i. Failure/refusal = action may be brought against him/her
ii. Unless no prima facie validity or uncertain = he cannot be compelled to
issue certificates.
1. Mandamus will not issue to establish a right, but only to enforce
one that is established.
c. Secretary’s Certificate
i. Can be relied upon a third party who does not have to investigate the
truth of facts in certification.
1. A sale that fails to comply with Sec 40 cannot be invalidated when
buyer relies on Secretary’s Certificate.
56. Corporate Treasurer
a. Duties
i. Receive and keep funds of corporation
ii. Disburse them in accordance with authority given by the Board
iii. Certifies increase in capital stock
 iv. Financial matters
b. Unless duly authorized, a treasurer cannot bind the corp in a sale of its assets.
i. Powers are limited.
c. Negligence in signing a confirmation letter for rediscounting of crossed checks
knowing fully well that checks were strictly endorsed for deposits may be held
liable for damage caused.
57. Compliance Officer
a. Tasked to make sure that corporation is compliant with all government
regulations.
58. Manager
a. Manager as general agent and appears to be generally in charge of corporation,
with apparent authority commensurate with ordinary business entrusted him and
usual course and conduct.
b. Power to modify contracts is still with Board
i. Manager cannot verbally alter contracts nor has apparent authority to do
so.
c. Where does powers emanate from
i. Law
ii. By law
iii. Authority from Board
iv. Habitual exercise of authority recognized by Board.
59. Power of Board to Hire and Fire
a. Scope: Officers
i. provided for in Code
ii. Or in by-laws.
iii. Elected or appointed by directors or SH
b. No fixed term = pleasure of Board
c. Removal is equivalent to expiration of term.
d. Employee = labor courts, officer = intra corporate corporation = intra corporate
courts.
e. Even if by laws expressly allows BOD to create new offices and appoint
new officers = any office created and officer appointed to such is a mere
employee and not corporate officer.
i. To hold otherwise will be prone to abuse.
ii. Not specifically in the by-laws.
f. Nature of power to terminate
i. Intra corporate dispute: ​RTC Commercial Courts.
60. FIDUCIARY DUTIES OF DIRECTORS, TRUSTEES AND OFFICERS
a. Duty of Obedience
i. In accordance with affairs of corporation and purpose fkr which it was
organized
ii. Act in manner and within the formalities
1. Prescribed by general law or its charter
 b. Duty of Diligence
i. Not vote for or assent to patently unlawful acts or acts in bad faith or with
gross negligence in directing the affairs of corp
ii. Cannot act negligently, they are sanctioned. = ​ liable
c. Duty of Loyalty
i. Not acquire any personal or pecuniary interest in conflict with their duty as
such directors or trustees.
ii. Corporation ahead of his own interest.
61. Liability of Directors, Trustees or Officers
a. Coverage
i. Knowingly vote or assent to patently unlawful acts of corporation
ii. Guilty of gross negligence or bad faith in directing corp
1. Not presumed.
iii. Acquire any personal or pecuniary interest in conflict with duty
b. Liability
i. Jointly and severally liable for all damages resulting therefrom suffered by
corporation.p, SH, members or other persons.
c. In addition
i. Not attempt to acquire or attempt to acquire adverse to corporation in
respect of any matter which has been reposed in them in confidence,
ii. Or equity imposes disability upon themselves to deal in their own behalf
iii. Or director shall be liable as a trustee and must be account for profits
which otherwise would accrue to the corp.
d. Other notes
i. Directors are personally liable to reimburse amounts of dividends
wrongfully declared and paid to SH
ii. Corporate debts
1. Wrongdoing approved or assented must be patently unlawful:
Liable for corp debts.
iii. Liability will attach
1. Willfully or knowingly voted or assented to a patently illegal act
2. Gross negligence
3. Bad faith
4. Consents to issuance of watered stocks or does not file objection
despite knowledge
5. Agrees to be personally liable
6. Made liable by specific provision of law.
a. No need to resort to piercing of veil
i. No need to make allegations pertaining to piercing.
iv. Particular acts must he alleged AND proven
1. If sued as nominal parties in official capacity = not liable.
v. Officer may divest itself of protection of lim. liability and pay the debt
62. Dealings of Directors with Corporation
 a. Coverage
i. Directors, trustees, officers
ii. Spouse, relatives wn 4th civil degree
b. It is voidable at option of corporation
i. Unless
1. Presence of D not necessary to constitute a quorum
2. Vote of D was not necessary for approval
3. Contract is fair and reasonable under the circumstances
4. Public interests:
a. material contracts are approved by ⅔ of the entire
membership of the Board +
b. Majority of independent directors voting to approve the
material contract.
5. In case of officer, authorized by Board.
ii. If any of first three is not present:
1. May be Ratified with ⅔ of OCS/members.
2. Provided that there is full disclosure of adverse interest of
directors or trustees involved in said meeting
3. And that the contract is fair and reasonable.
63. Disloyalty of a director
a. Acquires a business opportunity which should belong to corporation
b. Obtaining profits to prejudice of such corporation
c. EFFECT: ​Director must account fir and refund to the latter all such profits.
d. UNLESS​ ratified by vote of SH rep. ⅔ of OCS.
64. DOCTRINE OF CORPORATE OPPORTUNITY
a. Corporate officers are not permitted to use their position of trust and confidence
to further their private interests.
b. Applies to confidential employees of Corporation.
i. Any attempt of corporation to protect itself are deemed reasonable.
c. Using insider’s info
i. Director and majority SH and is in charge of selling corporate
landholdings to Government at great prices and purchases stock of SH
without informing the latter of the on-going negotiations = fraudulent
acquisitions by way of deceit.
d. Self dealings of Directors
i. Merely voidable at option of corporation
ii. Not void provided they meet criteria in Sec. 31 (not needed to cons
quorum, vote, fair and reasonable)
e. Material Related Party Transactions
i. Generally allowed.
ii. When RPT amounts to 10% or higher of a company’s total assets =
material related party transactions subject to rules.
1. Disclosure:
 a. within 6 months from effectivity of Act/listing
b. Signed by Chairman of Board and Compliance Officer.
iii. Compliance with rules is mandatory for all publicly listed companies.
1. ⅔ approval of Board plus majority of independent directors.
2. 20% of board must be independent director.
iv. Punishable acts
1. Incomplete signature: late or non filing in Material RPT
2. Incomple, late, non filing of Advisement Report
3. Abusive Material RPT
f. Duty to Maintain Records
i. Unjustifiable failure or refusal to keep and maintain records is punishable
by fine without prejudice to contempt powers.
1. Duty to Adopt, Maintain and Allow Inspection of By Laws
2. Keep, maintain and allow inspection of Articles of Incorporation
and other corporate books.
a. AOI and BL
b. Current ownership structure, voting rights
c. Open to inspection at reasonable hours on business days.
d. May ask for copies
i. Written demand by director, SH, trustees
ii. Bound by confidentiality rules.
e. May NOT ask for copies
i. Party who is not a SH or member
ii. Competitor, represents interests of competitor
f. Officer who refuses to allow inspection
i. Liable to director, trustee, SH, member for
damages
ii. Guilty of offense punishable by Sec 161.
g. If refusal is pursuant to a resolution or order of board
i. Penalties will be imposed upon directors or trustees
who voted for such refusal.
3. POSSIBLE DEFENSE:
a. Person demanding has improperly used any information
secured through any prior examination.
b. Not acting in GF or for a legitimate purpose in making the
demand/ a competitor, representing interests of competitor.
4. IF CORP DENIES/DOES NOT ACT ON DEMAND FOR
INSPECTION
a. Aggrieved party may report to commission.
b. Within 5 days from receipt, conduct a summary
investigation
c. Other books that must be kept
i. Record of all stocks
 ii. Installments paid
iii. Date of installments
iv. Alienation or transfer of stock
5. Keep and update list of members and proxies for nonstock
corporations.
a. List of members and proxies
b. Updated 20 days before any scheduled election.
6. Minutes Book for One Person Corp
a. Records in lieu of meetings
i. Written resolution
ii. Signed and dated by single SH
iii. Recorded in minutes of OPC
iv. Date of recording = date of meeting
7. Annually submit to SEC ​General Info Sheet and Audited
Financial Statements
a. Audited by CPA
b. assets <600K
c. Certified under oath by treasurer or chief financial officer.
8. FAILURE TO SUBMIT REPORTORIAL REQUIREMENTS
a. Corp may be placed in delinquent status
i. 3 times in 5 years
b. Give reasonable notice to appropriate regulatory agency
9. IF VESTED with public interests
a. Submit Director Compensation and Performance Report.
g. Duty to Creditors and other stakeholders
i. Trust fund doctrine
ii. Bank owes highest form of diligence
iii. Hospitals three legal relationship
1. Hospital and doctors
2. Hospitals and patients:
a. Regardless of relationship with doctor, hospitals may
be held liable to patient for failure to follow established
code of conduct.
b. Doctor is an agent of the hospital
3. Doctors and patients
iv. Board is charged with duty of protecting assets of corporation
v. Electricity distribution utilities are duty bound to make periodic inspections
off equipment.
1. If they are remiss= risk of forfeiture.
vi. Duty to Good Corporate Governance
1. Perform duty as prescribed by law, rules of good governance and
by laws,
2. Section 26- Disqualification of Directors, Trustees or Officers
 a. Convicted by final judgment
i. Offense with imprisonment for more than 6 years
ii. Violation of code
iii. Violation of Securities and Exchange Code
b. Administratively liable for fraudulent acts.
c. Found hy foreign court/agency
3. Duty to present to SH/members at annual meetings reports and
records that SEC may require
a. Regular meetings are held annually on a date fixed by
by-laws.
b. If no date fixed, on any date after April 15.
c. Written notice 21 days prior to meeting.
i. Unless diff period is required.
ii. May be sent using email/other manner as allowed
by its guidelines.
d. What must be presented
i. Items that SEC may require in interest of good
corporate governance
vii. Jurisprudence on Labor Law
1. Only responsible officer who has a hand in illegally dismissing an
employee should be liable
2. Corporate officers are not liable for dismissal UNLESS
a. Made in bad faith
b. And with evident malice.
3. Directors and officers are solidarily liable for termination of
employment with malice and bad faith. (AC Ransom)
a. Will apply only
i. if persons liable for dismissal are
stockholders-officers.
1. If not stockholder but mere officer = not
luable.
b. HOWEVER, if the corporation is still existing, and not
insolvent = officers are not liable.
4. FINAL RULING: Need showing of bad faith and malice,
officers are not ipso facto employers.
5. Personal liability of Trustees and officers of non stock corp
a. Not exempt from Abuse of rights doctrine
b. I.e. sent a notice to member despite knowledge of his
death.
65. RIGHTS OF SH AND MEMBERS
a. What are shares of stocks
i. Shares are not properties of corporation but of stockholders to whom
issued.
 ii. Aliquot part in proceeds of the liquidation.
iii. SH is not a co-owner of corp property nor is he entitled to any definite
portion of its assets.
b. Rights from ownership of shares
i. Registration in SH name
ii. Issuance of stock cert
iii. Right to receive dividends.
iv. The preemptive right
1. All SH shall enjoy preemptive right to all issues or disposition of
shares of any class.
2. In proportion to resp. shareholding
3. UNLESS denied by AOI, amendment thereto.
4. NOT EXTEND TO:
a. Shares issued in compliance with laws requiring stock
offerings or min. stock ownership by public.
b. Stocks issued in GF with approval of SH representing ⅔
OCT in exchange for property needed for corporate
purposes pr payment of previous debt.
5. Can be withdrawn
a. But not in breach of fiduciary duties as to perpetuate
control over corp
c. To secure standing
i. Record his ownership on stock and transfer books
d. Right to Transfer or Dispose of Shareholdings
i. Certificate of stock and Transfer of Shares
1. Must be signed by pres/vp
2. Countersigned by sec/assistant sec
3. Sealed with seal of corp
ii. How to transfer
1. Delivery of certificate
2. Indorsed by owner, attorney in fact or other person authorized.
iii. No transfer shall be valid EXCEPT to parties
1. Until transfer is recorded in books showing
a. Names and parties to transaction
b. Date of transfer
c. Number of certs
d. Number of shares transferred
2. Securities in trading markets
a. Issue in uncertificated or scripless form
iv. No share of stock against corp holds any unpaid claim shall be
transferable in books of corp
v. Restrictions on Transfer
 1. Agreement by which a person obliged himself not to engage in
competitive trade is valid
2. Restriction on transfer that has a reasonable business purpose
and limited in coverage is valid and binding.
vi. Right of First Refusal
1. Corp Code imposes no restrictions as to whom stocks may be
transferred.
2. Indication on stock that it is non transferrable does not compel a
corp to buy back the shares absence a contractual obligation and
of legal provision applicable.
3. Right of first refusal is an attribute of ownership.
a. Waives is act of ownership.
4. Corps cannot create restrictions in stock transfers
5. No law disqualifies a person from purchasing shares in
landholding corp beyond allowed foreign equity.
a. Fact that corp owns the land cannot deprive the SH of right
of first refusal.
vii. REMEDY IF REGISTRATION REFUSED
1. Mandamus will not lie.
a. When petitioner is not registered SH
b. Nor has SPA from latter.
2. Corporations only look at its books to determine who its
stockholders are
a. Mere indorsee claiming to be owner will not be recognized
in absence of express instructions of registered owner.
3. Mandamus if
a. Wrongfully or unjustifiably refuses to record transfer
b. Duty to record is ministerial.
4. A stipulation on SC that any assignment is not binding unless
registered in corp books as required by by laws without providing
when registration should be made
a. Begin when demand for registration is made
b. Not at time of assignment of certificate.
c. Action to enforce right shall not accrue unless there has
been a demand and a refusal concerning the transfer.
e. Right to Dividends
i. Stock dividends: Amount a corp transfers from surplus profit to its capital
account,
ii. Dividends from retained earnings can only be declared to those who are
SH of corp
iii. Dividends cannot be declared to creditors as settlement of debts.
iv. Not a matter of right but of consensus: need approval of SH rep ⅔ of OCS
v. Interest bearing stocks
 1. Corp agrees absolutely to pay interest before dividends are paid
2. Legal only when construed as requiring payment of interest as
dividends from net earnings or surplus only.
vi. Can only be determined by Board out of unrestricted retained earnings.
f. Right to attend meetings
i. Classification of shares
1. Classification, rights, privileges and restrictions must be stated in
AOI.
2. Must be equal to alk other shares
a. Except as provided in AOI and certificate of stock
ii. Classes
1. No share may be deprived of voting rights
a. Except preferred or redeemable shares
b. Unless otherwise provided in Code
2. There shall always be a class with complete voting rights.
iii. Holders of non voting shares can vote
1. Amendment of AOI
2. Adoption, amendment of by law
3. Sale, lease, mortgage of all/almost all properties
4. Incurring, creating or increasing bonded indebtedness
5. Increase/decrease authorized capital stock
6. Merger or consolidation with another corp
7. Investment of corp funds in other purpose/corp
8. Dissolution.
iv. To approve a particular corporate act: only stocks with voting rights.
v. May or may not have par value
1. Banks/financial institutions are not allowed to issue no par value.
vi. Preferred shares of stocks
1. May be given preference in distribution of dividends and
distribution of corporate assets in case of liquidation.
2. Must be stated with par value,
3. Board when authorized in AOI kay prescribe terms and conditions
4. Will only be effective upon filing a certificate thereof with SEC
vii. Stocks without par value
1. Deemed fully paid and non-assessable.
2. Holder is not liable to corp or to its creditors in respect thereof
3. Must be issued for consideration of at least 5.00 per share
4. Consideration received Will be treated as capital and shall not be
available for distribution as dividends.
viii. Kinds of meetings
1. Regular
a. held annually on date fixed ln BL or any date after April 15
b. Written notice 21 days prior
 i. Unless shorter period is required
ii. May be sent by email/ other mode as allowed by
SEC
c. What must be presented
i. Minutes of most recent regular meeting
1. Voting tabulation procedures
2. Opportunity to ask questions
3. Matters discussed, resolutions reached
4. Record of voting results
5. Lists of who attended
6. Such other items SEC may require in
interest of good corp governance.
ii. Members list
iii. Detailed and comprehensible assessment of corp’s
performance
iv. Financial report for preceding year
v. Explanation of dividend policy
vi. Profiles of directors/trustees
vii. Attendance
viii. Appraisal and performance reports of board
ix. Disclosures on self-dealings
x. Profiles of directors nominated for reelection.
xi. Any other matter proposed ny director, trustee, SH,
member
2. Special
a. Any time
i. Deemed necessary
ii. Or as provided for in by laws
iii. 1 week notice to all SH, members
1. Unless otherwise provided in BL, Law or
regulation.
3. Notice
a. May be waived expressly or impliedly
i. Attendance = waiver
1. Exc: attend only to object to transaction
because meeting is not lawfully called or
convened
b. NOT ALLOWED
i. General waivers of notice in AOI
4. No person authorized/refusal of authorized person to call the
meeting
a. Petition to SEC showing good cause
b. SEC may issue order to call the meeting
 c. Petitioning SH or member must preside
i. UNTIL the majority of SH or members present have
chosen a presiding officer.
5. Stock and transfer book or membership book shall be closed at
least 20 days before regular meetings and 7 days for special
meetings
a. Unless BL provide longer period.
6. Postponement
a. Notice + reason at least 2 weeks before scheduled
meeting
b. Unless diff period is provided.
g. Right to Nominate Director ot Trustee
h. Right to Vote
i. May be
1. Limited
2. Broadened
3. Denied to extent specified in AOI/BL
ii. Unless limited, broadened, denied= each member regardless of class is
entitled to one vote.
iii. Manner of voting
1. May be done by proxy
2. Remote communication
3. Unless otherwise provided in AOI, BL.
iv. Until challenged successfully, a register SH has right to participate in any
meeting and in absence of fraud, the action of SH meeting cannot be
collaterally attacked on account of such participation
1. Even if shown later that shares were already sold.
v. How exercised: In person
1. Through a proxy
2. When authorized by BL Remote communication/in absentia
vi. Jurisprudential Doctrines
1. Sequestration of shares does not entitle govt to exercise acts of
ownership since even sequestered shares may be voted upon by
registered owner
a. EXC: Using coco levy funds (public): voting kay be
exercised hy PCGG
vii. When can SH vote
1. Option to Maintain Fixed Term
2. Extension/shortening of fixed term
3. Amendment of AOI
4. Election of director/trustee
5. Removal of director/trustee and filling up vacancy
6. Granting compensation to directors or trustees
 7. Approval of material contract
8. Ratifying contracts between corp with interlocking directors
9. Investment in other business or corp
10. Increase or decrease in capital stock
11. Incurring, increasing bonded indebtedness
12. Sale, disposition or encumbrance of all or sub. all of corporate
assets
13. Declaration of stock dividends
14. Entering into management contracts
15. Adoption, amendment and repeal of bylaws
16. Fixing of consideration of no par value
17. Merger and consolidation.
viii. Right to vote of secured creditors and administrators
1. In case SH grants security interest in his/her shares
a. SH-Grantor
i. shall have right to attend and vote at meeting of SH
b. Secured creditor-
i. expressly given such right in writing which is
recorded in books
c. Executors, admins, receivers appointed by court
i. May attend and vote even without written proxy.
d. Jurisprudence
i. Shares are pledged by endorsements in blank=
pledgee does not become owner by failure of SH to
pay his loan.
ii. Without proper foreclosure, lender cannot demand
shares be registered in his name.
iii. No administrator = heir can represent the
deceased.
ix. Right to Vote in case of joint ownership
1. Consent of all co- owners is necessary.
a. Unless there is written proxy
b. signed by all co-owners
c. authorizing one of some of them to vote such share
2. When share is in and-or capacity
a. Any of joint owners can vote and appoint a proxy.
x. Treasury shares have no voting rights.
1. Proxies
a. In writing
b. signed and filed by SH or member
c. In any form authorized by BL
d. Received by corp sec within reasonable time before
scheduled meeting
 e. Valid only for meeting which it is intended
i. Unless otherwise provided in proxy form
1. Limit: not exceed 5/years at any one time.
i. Right to Propose Holding of a Special Meeting and Items to be Included
i. Notice of Meeting
1. Must be accompanied by
a. Agenda for meeting
b. Proxy form which shall be submitted to corp sec within
reasonable time prior to meeting
c. Requirements to be followed if voting through
remote/absentia.
d. Requirement and procedures for nomination and election.
2. May be waived
a. Expressed
b. Implied
i. Attendance
1. Except if to object
ii. All proceedings and transactions
1. Within powers and authority of corp
2. SHALL BE VALID ​even if meeting is improperly called
3. Provided
a. All SHs or members are present and represented at
meeting
b. Not one of them expressed their objection.
iii. Valid even if shorter period so long as provided for in by laws
iv. Quorum
1. SH rep majority of OCS ​in AOI
a. Unless otherwise provided by AOI/BL
2. Majority of members of nscs
3. Every decision reached by majority is valid corporate act.
4. Based on totality of shares which have been subscribed and
issued whether it be founder’s shares or common shares.
a. Stock: Based on ​outstanding voting stock
b. Nonstock: ​Members actually living with voting rights.
v. Right to Participate thru remote comm or in absentia
1. If allowed by BL.
2. Aside from corps vested with public interest
a. No need for BL
j. Right of appraisal
i. SH who dissents from certain corporate actions have the right to demand
payment of fair value of his shares.
ii. May be exercised when
 1. There is a fundamental change in charter/AOI substantially
prejudicing the rights of SH.
2. Does not vest unless objectionable corporate action is taken.
k. Contracts affecting SH
i. Proxy
1. Proxy solicitation: securing and submission of proxies
2. Proxy validation: validation of such secured and submitted
proxies.
3. Power of SEC to regulate proxies could be exercised
a. EXC: Election contests
ii. Voting Trust Agreements
1. Purpose: Conferring upon a trustee the right to vote and other
rights pertaining to shares for a
2. Period: ​period not exceeding 5 years.
a. For VTA required as condition in loan agreement
i. More than 5 years
ii. But shall automatically expire upon full payment.
3. Form
a. In writing
b. Notarized
c. Specifies terms and conditions
d. Filed with corporation and commission
i. Failure: ineffective
4. Effect
a. Cancellation of stock certifications
b. Issuance of new ones stating that they are issued in
pursuant of such agreement.
i. Books of corp must state that fact also.
c. Voting stock certificate is also transferable.
d. VTA is subject to examination by any SH
e. Both trustor and trustee can inspect corporate books or
records.
f. Any other may transfer shares to same trustee upon terms
and conditions stated in VTA
g. Bound by all provisions of such agreement
h. Voting trustee may vote by proxy or any manner
authorized by BL
i. Unless agreement provides otherwise.
5. Not allowed
a. Circumvent law against anti-competitive agreement
b. Abuse of dominant position
c. Anti competitive merger and acquisition
d. Violation of nationality requirements
 e. Perpetuation of fraud.
6. Automatic expiration at end of period
a. Unless expressly renewed.
b. Certificate of stocks shall be cancelled and new ones
should issue in name of the trustor.
7. Separates voting rights and other tights covered from other
attributes of ownership, intended to be ​ ​irrevocable ​for a definite
period of time and purpose of to give trustee the voting control of
corp.
8. Right to terminate
a. Trustor may terminate for breach
iii. Pooling Agreements or Shareholders Agreements
1. WHAT
a. Agreements duly signed and executed before the
formation and organization of close corp ​shall survive
incorporation
i. if such was their intent
ii. extent: consistent with AOI.
2. Voting arrangements
a. As provided
b. As agreed
c. in acc with procedure agreed bythem
3. No provision in a written agreement signed by SH related to
corp affairs may be invalidated between parties
a. On Reason that: SH may become partners themselves
4. Written agreement among or all SH in close corp shall not be
invalidated
a. On ground that it relates to conduct of business as to
restrict or interfere with discretion and power of board.
b. Agreements imposed on SH who are parties thereto the
liabilities for managerial acts are imposed on directors
5. SH actively engaged in management of operation of close corp
shall be held​ to strict fiduciary duties.
6. SH shall be personally liable for corporate torts
a. Unless c​ orporation has obtained reasonably adequate
liability insurance.
l. Right to Inspect and Copy Corporate Record
i. An incident if ownership- be it beneficial, equitable or quasi-onwership.
ii. Rationale
1. Necessity of self protection on part of SH
a. For them to be able to have intelligent participation in the
governance of the corporation as a business organization
that they partially own.
iii. Every stockholder, regardless of amount of shares, should be given
reasonable access to corporate books.
iv. The right to inspect remains valid and enforceable during the 3​ year
liquidation period.
v. Specific records covered
1. AOI, BL, amednments
2. Current ownership, voting structtpure
3. Names and addresses of all members
4. Record of all business trans
5. Resolutions
6. Minutes
a. Upon demand
i. Time of entry and exit
ii. Yeas and nays
iii. Protest of director, trustee or SH.
7. Stock and transfer book
a. For stock corporations
b. Contents
i. Names of SH alphabetically
ii. Installments paid/unpaid
c. Kept
i. Principal office OR
ii. office of stock transfer agent
1. Stock transfer agent
a. Engaged principally in business of
registering stocks
b. Secure license and fee
2. Corps are allowed from transferring their
own stocks
a. Those engaged in secondary
markets may be required to have
independent stock agent.
3. Open for inspection at reasonable hours on
business days
8. Financial statements
a. 10 days after receipt of written request
b. Most recent financial statement
i. In form and substance of financial reporting
required by the SEC.
c. Duty to report at regular meetings
i. Financial report for preceding year
1. Duly signed and certified acc to Code.
2. Rules SEC may prescribe.
 a. EXC <600K OR other amount as
determined by Dept. of Finance.
i. Certified under oath by
Treasurer and Present
vi. Right to inspect
1. Reasonable hours on business days
2. In person or by a representative
vii. Right to Copy
1. Upon written demand
2. Bound by confidentiality rules
viii. Who has no right
1. Not a SH or member on record
2. A competitor or someone who represents conflicting interests
ix. In case of refusal,
1. refusing officer is liable to SH, member, trustee, director for
damages.
2. If refusal is pursuant to a board res,
a. Penalty will be imposed on BOD who voted for such
refusal.
x. In case of denial, or no act upon request to inspect
1. Report denial to SEC
2. Who will conduct summary investigation
3. And issue such order to allow inspection
xi. Possible defense
1. Improperly used any info obtained through prior examination of
records of corp/other corp
2. Not acting in GF or for a legitimate purpose
3. A competitor or representing interest of a competitor.
xii. Reportorial requirements to SEC
1. WHAT
a. Annual financial statements
i. total assets <600k
1. Certified by treasurer or president
b. GIS
c. For companies vested with public interest
i. Director/trustee compensation report
ii. “ appraisal or performance report
iii. and standards used to assess such.
2. WHEN
a. Annually
b. within period set by SEC
3. Failure to submit 3 times in 5 years
a. Corp may be placed under delinquent status
 b. SEC Need to give reasonable notice
4. Redaction of confidential info
a. It must be filed in supplemental report labeled as
confidential with
i. Request for confidential treatment
ii. Grounds thereof
xiii. LIMITATIONS ON RIGHT TO INSPECT
1. Bound by confidentiality rules
2. No right to inspect (not SH, member, competitor)
a. Not been guilty of improperly using any info
b. In good faith
c. For legitimate purpose
i. Set forth in request reasons for such.
d. Reasonable hours on business days.
3. Burden of showing unlawful intention: corporate officers.
xiv. SUMMARY OF RULES
1. Right to inspect
a. Exercisable through agents and representatives
b. Cannot be denied on ground that director is on unfriendly
terms with officers of corp
2. Right to copy
a. Not include bringing the books outside corp premises
3. Right to minutes
a. Only after minutes were written and approved by BOD.
4. Cannot be limited to period of 10 days prior to meeting
a. Unreasonable restriction on exercise of right to inspect at
reasonable hours on business days
xv. REMEDIES IF DENIED
1. SEC power of summary investigation
2. Mandamus
3. Criminal sanction under Sec 161
a. Prior demand
b. Refusal
c. If pursuant to resolution: imposed on Corp officers who
denied
d. If possible defense is invoked, prove otherwise.
e. Proof of malice is not needed.
4. Criminal sanction under Sec 158 for SH who abuses right of
inspection/reproduction
xvi. REMEDIES NOT AVAILABLE
1. Appointment of receiver
a. If there are other remedies, solvent
2. Injunction to prevent SH from inspecting
 a. SH cannot be prevented from gaining access to
i. Records of business transactions
ii. Minutes of any meeting.
m. Right to File Derivative Suits
i. Governed by Interim Rules on Intra Corp Disputes.
1. A family corp is not exempted from complying with clear
requirements and formalities for filing of such suits
ii. What is a derivative suit
1. Elements
a. Brought by minority SH
b. in the name of corporation
c. To redress wrongs committed against the corp
i. Either by officers
ii. OR third persons
d. That directors refuse to sue.
2. Purpose
a. Allows SH to enforce rights which are derivative or
secondary
b. Protection of minority SH against majority SH.
3. Different kinds of suits
a. Individual suit
i. When it belongs to a SH personally
1. Denial of right to inspect
b. Class suit
i. Cause of actions belong to group of SH
1. Rights violated to preferred SH
c. Derivative suit
i. In behalf of SH/member
ii. from acts committed by director, trustee, corporate
officers and even third persons.
4. Condition precedent: When Board cannot properly exercise
business judgment
a. GR: Power to sue is lodged with the Board.
i. In absence of authority to institute a suit, a person
is disqualified from ins a sue in behalf of corp
b. EXC: Derivative suit filed by SH
i. To protect and vindicate corporate rights
ii. Whenever officials of corp refuse to sie or ones
being sued.
iii. Suing SH: nominal party
iv. Corp: real party in interest.
c. Minority SH cannot override business judgment of officers
or BOD.
 i. Right to file derivative suit is only implicitly
recognized in laws making BOD liable for damages
suffered by corp or SH in violation of their duty.
d. Instances
i. Diverting corp funds to personal funds
ii. Corporation has a defense but is not asserting it,
e. Requisites
i. Relator is a SH
1. At time acts subject of action occured
2. Time of filing of complaint.
ii. Exerted all possible efforts
1. Alleged them in particularity
2. Exhausted all legal remedies available
under AOI, BL etc
a. EXCEPT
i. Validity of foreclosure if
legality of board lies at center
of issue
ii. Remedy is in complete
control of person against
whom the suit is being filed.
iii. No appraisal right available
1. Must be alleged
iv. Suit is not harassment or nuisance.
1. Factors to consider
a. Extent of interest of reporting SH
b. Subject matter
c. Legal and factual basis
d. Availability of appraisal rights
e. Prejudice to corporation
2. If found to be nuisance/harassment
a. Motu proprio or upon motion
dismiss the case.
v. Relief must be for benefit of corp
1. Cannot demand def to pay the value of their
resp. participation in assets that have been
damaged
2. Suit to enforce preemptive right is not a
derivative suit
a. TRO will not bar such action
b. Brought on behalf of SH not corp.
3. When it is not for benefit of corp, it is
improper derivative suit.
 f. WHO MAY BRING
i. SH
1. Time acts occured
2. Time of filing.
3. Note
a. Heirs as co owners of shares prior to
partition = not SH
i. Unless they comply with SEC
63 on transfer of shares.
g. Other rules
i. Counsel for corp cannot represent BOD in
derivative suit filed against them
1. Separate personality
2. Conflicting interests
ii. Appointment of receiver can be ancillary relief
iii. VENUE: RTC which have jurisdiction over
principal place of business.
n. Right to proportionate share of remaining assets upon dissolution
i. Corporate liquidation
1. Ground
a. Term expires
b. Annulled by forfeiture
c. Terminated in any other way
2. 3 year stay period
a. To prosecute claims
b. Distribute assets
c. Pay debts
d. Close its affairs
3. Can appoint trustee
a. After appointment, corp will lose all interest in property
i. Legal interest: trustee
ii. Beneficial interest: SH, members
4. If not found, unknown
a. Asset will be escheated in favor of government
5. No corporation can distribute any of its assets
a. Requisites for dissolution
i. After lawful dissolution
ii. Ater payment of all its debts
b. Except
i. Decrease of capital stock
66. CAPITAL STOCK
a. In general
 i. Corp is allowed to obtain funds for capital expenditures by ​floating either
shares or bonds
ii. An investment is an expenditure to acquire property or other assets in
order to produce revenue.
1. Placing of capital or laying out of money in a way intended to
secure income or profit
2. Cannot be assured of divident.
iii. Once issued, shares are not owned or assets of corporation.
1. Owned by SH on record.
2. Corporation whose shares are subject of transaction need not be
part of it to be valid.
iv. To bind corporation, ​it must be registered in its books.
b. Concept of Capital Stock.
i. Outstanding Capital Stock
1. Total shares issued
2. Under binding subscription contracts to subscribers
3. W/N fully or partially paid
4. except treasury shares.
ii. Paid Up Capital
1. Portion of ​Authorized Capital Stock
2. which have been subscribed AND paid.
3. Advances of SH for future subscriptions are not part of OCS.
iii. Capital
1. Capital structure of corporation,
iv. Subscribed Capital
1. Amount that corporation receives, inclusive of premium if any, in
consideration of original issuance of shares.
c. Classification of shares
i. Common shares
1. Represent residual ownership interest in corp.
2. No extraordinary rights or privileges
3. Entitles the SH to a pro rata division after dissolution
4. Cannot be deprived of voting rights
ii. Preferred shares
1. Kinds
a. Cumulative or Non Cumulative
b. Participating or Non Participating
c. Priority in Asset Distribution Upon Dissolution
d. Par or No Par Value
2. Notes
a. SH with preferred shares issued at 1% dividend rate are
not entitled to payment thereof as a ​matter of right.
 i. a need of prior declaration of dividents which can
come only from existing retained earnings,
b. Still has voting rights
i. Amendment of AOI
ii. Adoption and amendment of BL
iii. Sale or encumbrance of all/substantially all
iv. Incurring, increasing bonded indebtedness
v. Increase and decrease of capital stock
vi. Merger and consolidation of coro with another corp
vii. Investment of fund to another company, purpose
viii. Dissolution.
c. In absence of provisions in AOI denying voting rights to
preferred shares, they have same right as common share.
d. Reason for prohibition on voting
i. They are mere investors.
iii. Redeemable shares
1. Shares that can be redempted.
a. Redemption​- repurchase or reacquisition of stock in
exchange for money or property.
2. Optional redemption: ​If option is with corporation.
a. SH cannot compel corp to buy back the share.
iv. Founders’ share
1. May have exclusive rights and privileges
2. If given exclusive right to vote, be voted: ​must not exceed 5
years from date of incorporation
3. EXCEPT
a. Not allowed to violate
i. Anti Dummy Law
ii. Foreign Investments Act
iii. Other pertinent laws.
v. Treasury shares
1. What
a. Issued and fully paid for
b. Reacquired by corporation
c. Either by purchase, donation, forfeiture
d. Do not have the status of being outstanding share
e. Not entitled to be voted
f. Nor participate in dividend declarations.
g. May be disposed again for a reasonable price fixed by
BOD.
h. anay be held indefinitely, resold or reitree.
2. Purpose
 a. May be used for stock bonus plan for management and
employees
b. Acquiring another company
d. Stock warrants and stock options
e. Reclassification and exchange of shares
i. ​ o not bring substantial alteration in subscriber’s
Reclassification : D
proportionate interest.
ii. Exchange: ​Shifting of balance of stock features like priority in dividend
declaration/absence of vot8ng rights.
iii. Neither yields income for tax purposes.
1. Tax issue may only arise if subscriber disposes of his entire
interest, not when there is still maintenance of proprietary interest.
iv. Sample:
1. Conversion of common to preferred shares
f. Hybrid Securities
g. Quasi reorganization
i. Reduction of capital stock
1. Need to be approved by majority of BOD and SH representing ⅔
of ICS
2. Need prior approval of SEC and PCC
3. application Must be made 6 months after approval of SH and BOD
a. May be extended for justifiable reason
4. In case of increase
a. Need sworn statement of treasurer that
b. 25% increase has been subscribed and 25 % has been
paid which is total to 25% of subscription.
5. Cannot be employed to avoid obligations under Labor Code
ii. Stock split v. Stock Consolidation
1.