CORPORATION LAW REVISED COURSE OUTLINE Atty. Ferdinand V.

Berongoy
I. Introduction Batas Pambansa Blg. 68, Corporation Code of the Philippines Definition of Corporation (Sec. 2) Theories on Corporate Existence and Powers Theory of Concession Genossenchaft

(*search it from the internet) II. Four (4) General Attributes of a Corporation Four (4) Basic Advantages of Corporate Organizations Classifications of Corporations Stock vs. non-stock corporations as to: Definition (Sec. 3 & Sec. 87) Purpose (See Sec. 88) Distribution of profits Composition Scope of right to vote (Sec. 6 &. Sec. 89) Voting by proxy (Sec. 89 & Sec. 58) Voting by mail (Sec. 89) Who exercises corporate powers (Sec. 23 & 92) Terms of director or trustee (Sec. 23 & Sec. 92) Election of officers (Sec. 25, Sec. 92 & Sec. 97) Place of meetings Director/trustee (Sec. 53) Place of meetings Stockholders/Members (Sec. 51 & Sec. 93) Transferability of interest or membership (Sec. 90) Distribution of assets in case of dissolution (Sec. 94) Case study: CIR vs. CLUB FILIPINO (5 SCRA 321; 1962) Corporation Sole (Section 110) Eleemosynary Corporation Corporation de Jure Corporation de facto (Sec. 20) Corporation by estoppel (Sec. 21) Public Corporation Private Corporation Domestic Corporation

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III. Foreign Corporation (Sec. 123) Formation and Organization of Corporation

(*secure from the Securities and Exchange Commission copies of Articles of Incorporation of a stock corporation and a non-stock corporation) Who may form a corporation? (Sec. 10) Incorporators vs. Corporators (Sec. 5) Characteristics of incorporators and (natural or artificial) number requirement age requirement Residence/Citizenship requirement corporators:

Steps in Formation of Corporation 1. Promotional Stage (Sec. 2, Revised Securities Act) 2. Drafting of Articles of Incorporation (Sec. 14 and 15) 2.1. Corporate name

case study: LYCEUM OF THE PHILS. VS. CA (219 SCRA 610) 2.2. 2.3. 2.4. 2.5. Purpose Clause (Sec. 88) Principal Office Term of existence (Sec. 11) Incorporators and Directors, number and qualifications 2.6. Other matters 2.7. Close corporations (Sec. 96)

3. Filing of Articles; payment of fees (SEC Circular # 4,

1982). 4. Examination of articles; approval or rejection by SEC (Sec. 17) 5. Issuance of Certificate of incorporation (Sec. 19) Defective Attempt to Incorporate: De Facto Corporation (Sec. 20) Requisites for De Facto Corporation (* research in other sources e.g. internet) 1. Use of corporate powers 2. Apparently valid statute or law 3. Substantial or colorable compliance Illustrative Cases:

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Harril vs. Davis (to be provided) Bergenon vs. Hobbs (to be provided) Hall vs. Piccio (to be provided)

Corporation by estoppel (Sec. 21) Illustrative cases: Cranson vs. IBM Corp (to be provided) Salvatierra vs. Garlitos (to be provided) Albert vs. University Publishing (to be provided)

Internal Organization of Corporation 1. Adoption of by laws Sec. 36, Sec. 46, and Sec. 47 When adopted? Where kept? When effective? Additional requirements for special corporations? Contents of by-laws? Case study: LOYOLA GRAND VILLAS v. CA (276 SCRA 681) GOVT. OF PHILIPPINE ISLANDS. V. EL HOGAR FLEISCHER V. BOTICA NOLASCO CO. (47 Phil. 583; 1925) 2. Election of directors and officers; commencement of business (Sec. 22 and Sec. 25)

IV.

The Corporate Entity

1. Theory of Corporate Entity (*research from the

internet) When does the corporations existence as a legal entity commence? (Sec. 19) What rights does the corporation acquire? (Sec. 36) Illustrative case:

SAN JUAN STRUCTURAL & STEEL FABRICATORS v. CA (296 SCRA 631)

2. Piercing the veil of Corporate Fiction (*research

from the internet)

When Can the Veil of Corporate Entity be Pierced?

What are the effects of disregarding the corporate veil? (research from the internet) Illustrative cases: Laguna Transportation vs. SSS (to be provided) Palacio vs. Fely Transportation Company (to be provided)

3. Doctrine

of Business-Enterprise search from the internet)

Transfer

(*

4. Parent-Subsidiary relationship (research from the

internet) What is the general subsidiary relationship? rule governing parent-

When may it be disregarded by the courts?

What are the criteria by which the subsidiary can be considered a mere
instrumentality of the parent company?

Case study: YUTIVO VS. CTA (1 SCRA 160; 1961)

V. FINANCING THE CORPORATION

Capital vs. Capital Stock distinguished (*search from other

sources) TRUST FUND DOCTRINE (*search from the internet) Shares of Stock; Kinds

1. Common Stocks 2. Preferred stocks 2.1. Preference as to dividends 2.2. Preference as to voting 2.3. Preference upon liquidation 3. Par and no par shares 4. Treasury shares (Sec. 9) - CCP NO. 1 RULES GOVERNING REDEEMABLE AND TREASURY SHARES (1982) (to be provided) 5. Redeemable shares (Sec. 8)

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6. Founders shares Subscription Contracts (Sec. 66) 1. Pre-incorporation subscription (Sec. 13 and Sec. 61) 2. Post-incorporation subscription (Sec. 60 and Sec. 72) Pre-emptive right to shares 1. Extend and limitation (Sec. 39) VI. CONSIDERATION FOR ISSUANCE OF SHARES Form of Consideration (Sec. 62) Liability on Watered stocks (Sec. 65) How payment of shares enforced (Sec. 13, Sec. 67, Sec. 68, Sec. 69 and Sec. 70) 1. Delinquency sale: requisites 2. Court Action Effect of delinquency (Sec. 71) Rights and obligations of holders of unpaid but non-delinquent stocks (Sec. 72, 66, 63 and 64) Issuance of certificate (Sec. 64) Lost or destroyed certificate (sec. 73)

VII. CORPORATE POWERS General Powers of Corporation (Sec. 36 and Sec. 45) Specific Powers of the Corporation ( Sec. 36 to Sec. 44) Implied Powers of the Corporation (*research from the internet) The Ultra Vires Doctrine (*research from the internet) Legal Consequence of such ultra vires acts: (*research from the internet) On the Corporation itself? On the immediate parties to the ultra vires contract? On the rights of stockholders? Rectifiable?

Case: Republic of the Philippines vs. Acoje Mining (L-18062, February 28, 1963) VIII. CONTROL AND MANAGEMENT OF CORPORATION Allocation of Power Three levels of Control

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1. Board of Directors 2. The Corporate Officers 3. Stockholders or members (Residual Power) (*research it from the internet) Question: What are their respective powers in the Corporation? Who exercises Corporate Powers? 1. Board of Directors or Trustees (Sec. 23) 1.1. 1.2. Board must act as a body in a meeting (Sec. 25) Requirements of a meeting (Sec. 53 and Sec. 49)

2. Corporate Officers and agents (Sec. 25) 2.1. 2.2. 2.3. President; Function? (Sec. 54) Other functions? Secretary; function? Treasurer; function?

3. Board Committees (Sec. 35) 4. Stockholders or members 4.1. Requirements of stockholders or members meeting and of voting 4.2. Notice (Sec. 49, Sec. 50, Sec. 16, Sec. 37 and Sec. 38) 4.3. Place of meeting (Sec. 51 and Sec. 93) 4.4. Quorum (Sec. 52, Sec. 58 and 59) 4.5. Vote (Sec. 137, Sec. 72, Sec. 89, Sec. 56, and Sec. 55) 4.5.1. Voting right of Treasury shares? (Sec. 9) 4.5.2. Voting right of unpaid shares? (Sec. 72) 4.6. Non-voting stocks or members (Sec. 6) 4.7. Where all stockholders present (Sec. 51) 4.8. Where no meeting called (Sec. 50 and Presidential Decree 902A Section 6 subparagraph C * research this law from the internet www.google.com.ph) 5. Instances when stockholders or members action is necessary 5.1. 5.2. 5.3. 5.4. Election of Directors or trustees (Sec. 24, Sec. 92, and Sec. 93) Quorum required Manner of voting; cumulative voting, hand-raising voting, or ballot voting Qualifications and disqualifications of directors (Sec. 23, Sec. 47(b), and Sec. 27) Case: Gokongwei vs. SEC 5.5. 5.6. 5.7. Term of director or trustee (Sec. 92 and Sec. 108) Vacancies in the board (Sec. 29) Removal of Directors (Sec. 28)

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6. Fundamental changes 6.1. Amendment of Articles of Incorporation (Sec. 16, Sec. 103 and Sec. 96) 6.2. Sale or other disposition of substantially all assets (Sec. 40) 6.3. Investment in another business or corporation (Sec. 42 and Sec. 36) 6.4. Merger and Consolidation (Sec. 77) 6.5. Appraisal Right (Sec. 81, 82, 83, 84, 86, and Sec. 105) 6.6. Adoption, amendment and repeal of By-laws (Sec. 48) 6.7. Increase and decrease of capital stock (Sec. 38) 7. Other instances requiring stockholders action 7.1. 7.2. 7.3. 7.4. Declaration of stock dividends (Sec.43) Management Contracts (Sec. 44) Fixing consideration for no par shares (Sec. 62) Fixing compensation of directors (Sec. 30)

8. Devices affecting control 8.1. 8.2. 8.3. 8.4. IX. Proxy device (Sec. 58 and Sec. 89) -> General proxy? (*research from the internet) -> Limited proxy? (*research from the internet) Voting Trust (Sec. 59) Pooling and voting agreements (Sec. 100) Cumulative voting (*research from the internet)

DUTIES OF DIRECTORS AND CONTROLLING STOCKHOLDERS

1. Business Judgment Rule (research from the internet) 2. Liability for breach of duty; Sec. 31. 3. Fiduciary duties; Conflict of Interests 3.1. The self-dealing director (Sec. 32) *research from the internet this understanding 3.2. Fixing compensation of directors and 3.3. Seizing Corporate Opportunity (Sec. 31) *research from the internet this understanding 3.4. Interlocking Directors (Sec. 33) concept for better officers (Sec. 30) 34 in relation to Sec. concept for better

X.

RIGHT OF INSPECTION

1. Basis of Right *research from the internet for more knowledge 2. Records covered (Sec. 74 and Sec. 75) 3. Extent of and Limitations on Right (Sec. 74) 3.1. Limitations as to time and place 3.2. Purpose 4. Who may exercise such Right? 5. Remedies available if inspection is refused *research from the internet for more knowledge XI. DIVIDENDS AND PURCHASE BY CORPORATION OF ITS OWN SHARES

1. 2. 3. 4.

Form of Dividends (cash, property and stock) Source of dividends (Sec. 43) unrestricted retained earnings meaning? Dividend Declaration Discretionary with the Board Limitations; 4.1. 2nd paragraph, Sec. 43. 4.2. Sec. 29, 1997 National Internal Revenue Code (NIRC) *research from the internet for more knowledge (www.bir.gov.ph) 4.3. 5. When right to dividends vests; rights of transferee *research from the internet for more knowledge 6. Purchase by Corporation of its own Shares (Sec. 41) 6.1. Limitation on such power - Proper purposes - Existence of unrestricted retained earnings XII. 1. 2. 3. 4. 5. AMENDMENTS OF CHARTER

Amendments by Stockholders (Sec. 36[4] in relation to Sec. 16) Grounds for rejection of amendment (Sec. 17) Amendment changing stockholders right (Sec. 81) Effectivity of Amendment Special Amendments 5.1. Increase of Capital Stock (Sec. 38) 5.2. Reduction of Capital Stock (Sec. 122) 5.3. Change in Corporate Term (Sec. 37 in relation to Sec. 11) TRANSFER OF SHARES

XIII.

1. Manner and Effectivity of Transfer (Sec. 63) 1.1. Indorsement of stock certificate; 1.2. Registration in corporate stocks 1.3. Effect of lack of registration 1.4. No registration of transfer of unpaid shares

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2. Non-transferability and Terminaion of Membership in Non-stock corporations (Sec. 90 and Sec. 91) XIV. DISSOLUTION

1. Causes of Dissolution 1.1. Expiration of original term either extended or shortened (Sec. 120) 1.2. Voluntary dissolution when no creditors affected (Sec. 118) 1.3. Voluntary dissolution where creditors are affected (Sec. 119 and Sec. 122) 1.4. Failure to organize and commence business; cessation of business for 5 years (Sec. 22) 1.5. Involuntary dissolution (Sec. 121) 1.5.1. Section 6, Presidential Decree 902-A *research this law from the internet 2. Effects of Dissolution; Winding Up and Liquidation (Sec. 122) 2.1. 2.2. 2.3. 2.4. Loss of Juridical personality Executory Contracts (Sec. 145) Methods of Liquidation Distribution of assets after payments of debts

3. Distribution of Assets of Non-stock Corporations (Sec. 94 and Sec. 95) XV. CORPORATE COMBINATIONS

1. Merger and Consolidation 1.1. 1.2. 1.3. Nature and distinction Express authority to merge granted by the Code; Requirements (Sec. 76, 77, 78, 79 and 80) Remedies of creditors and dissenting stockholders; Appraisal Right (Sec. 81[3])

2. Sale of Substantially all assets 2.1. Legal requirements (Sec. 40) 2.2. No assumption of liabilities; exceptions (*research this from the internet) 2.3. Remedies of dissenting stockholders; Appraisal right (Sec. 81[2] 2.4. Comparison with merger and consolidation (*research this from the internet)