Increase/decrease of Capital Stock; incur,

create, increase bonded indebtedness (Sec. 37

RCCP)
 Ways of increasing/decreasing capital stock:
1. By increasing/decreasing the number of shares and
retaining the par value.
2. By increasing/decreasing the par value of existing shares
without increasing/decreasing the number of shares, or
3. By increasing/decreasing the number of shares and
increasing/decreasing the par value.
Increase/decrease of Capital Stock; incur,
create, increase bonded indebtedness (Sec. 37
RCCP)
 Requirements for the increase/decrease of capital stock:
1. Prior written notice to each stockholder
2. Approval by the majority vote of the Board.
3. Ratification by stockholders representing 2/3 of the outstanding
capital stock.
4. A certificate must be signed by a majority of the directors of the
corporation and countersigned by the chairperson and secretary of
the stockholders’ meeting.
5. Filing with the SEC
6. Approval by the SEC
Note:

1. Treasurer’s affidavit is required when there is an increased in capital

stock.
2. Filing with the SEC shall be made within 6 months from the date of
approval by the board and stockholders, it can be extended for
justifiable reason.
3. Approval of Philippine Competition Commission is required in some cases.
4. Decrease of capital stock is not authorized if it shall prejudice the rights of
corporate creditors.
5. Non-stock Corporation cannot decrease; they can increase provided
they amend their Articles of Incorporation.
Bonded indebtedness

 It is a loan secured by a mortgage on corporate

property.
 Corporation (stock or non-stock) may incur, create, or
increase bonded indebtedness.
 SAME REQUIREMENTS with the increase/decrease of
capital stock.
Sale of all or Substantially all
properties. (Sec. 39 RCCP)
 Requirements:
1. Must comply with the requirements of Philippine Competition Act
(RA 10667), and other related laws.
2. There must be written notice of the proposed action and of the
time and place of the meeting. (served personally, or by
electronic means)
3. Approval by majority vote of the Board.
4. Approval of Stockholders representing 2/3 of outstanding
capital, or 2/3 of members.
Sale of all or Substantially all
properties. (Sec. 39 RCCP)
 Requirements:
1. Must comply with the requirements of Philippine Competition Act
(RA 10667), and other related laws.
2. There must be written notice of the proposed action and of the
time and place of the meeting. (served personally, or by
electronic means)
3. Approval by majority vote of the Board.
4. Approval of Stockholders representing 2/3 of outstanding
capital, or 2/3 of members.
When ratification of stockholders
NOT required?
 Ratification is not required:
1. If it is necessary in the usual and regular course of business;
2. if the proceeds of the sale or other disposition of such
property and assets be appropriated for the conduct of the
remaining business. (last paragraph of Sec. 39 RCCP)
3. If the transaction does not cover all or substantially all of the
assets.
When is the disposition deemed to cover
Substantially all of corporate assets?

 If the corporation would be incapable of:

1. continuing the business, or
2. accomplishing the purpose for which it was incorporated.

The determination of whether or not the sale involves all or

substantially all of the corporation’s properties and assets must be
computed based on its net asset value, as shown in its latest
financial statements.
Problem:
AA Corporation is engaged in the business of printing
books. Around 70% of its assets consist of cash in the
bank, 25% printing machine and the remaining 5% cover
its office equipment and supplies. AA Corporation plans
to sell the machine and there is no plan to purchase,
lease or acquire another printing machine. Can the sale
be considered sale of substantially all of the assets of the
corporation?
Yes. It may be considered sale of substantially all of
the assets because without a printing machine, the
corporation would be rendered incapable of continuing
its printing business. The fact that it is only 25% of the total
assets of the corporation is immaterial.
Effect of sale or transfer of assets
 GR: The sale or transfer of the assets of one corporation to
another does not ipso facto include the debts and liabilities of the
transferor. (Nell Doctrine)
 XPTs:
1. Express or implied assumption of liabilities.
2. Merger or consolidation
3. if the purchase was in fraud of creditors.
4. if the purchaser becomes a continuation of the seller.

Case of Nell Company vs Pacific Farms Inc. (1986)

Investment in another business or
corporation. (Sec. 41 RCCP)
 GR: Investment of a corporation in a business which is in line
with its primary purpose requires only the approval of the
board.

 XPN: Where the corporation undertakes to invest in another

corporation or business other than a primary purpose, it has to
comply with the statutory requirements before it can do so.
Investment in another business or
corporation. (Sec. 41 RCCP)
 Requirements:
1. Prior written notice of the proposed investment and the time
and place of the meeting addressed to each
stockholder/member.
2. Approval by majority vote of the Board.
3. Ratification by 2/3 of the OCS or Membership in the meeting
duly called for such purpose.
Title III
Board of Directors/Trustees and
Officers
Doctrine of Centralized
Management
 GR: all corporate powers, transaction of business and control of the corporate
properties are exercised by the Board of Directors/Trustees.
 XPN’s:
1. In case of delegation to the Executive Committee duly authorized in the
by-laws; (Sec. 34 RCCP)
2. Authorization pursuant to a contracted manager which may be an
individual, a partnership, or another corporation; (Sec.43 RCCP) and
3. In case of close corporations, the stockholders may manage the business
of the corporation instead of a board of directors, if the articles of
incorporation so provide. (Sec. 96 RCCP)
Qualification of Directors/Trustees

1. As director, at least 1 share of capital stock acquired in his

own right. While as a Trustee, he must be a member in good
standing.
2. Natural Person of Legal Age possessed of full legal capacity.
3. He must not be disqualified under Sec.26 of RCCP.
4. Possessed other qualification as may be prescribed by law
and in the By-Laws of the Corporation.
Disqualification under Sec. 26
RCCP
A. Convicted by final judgment:
1. Of an offense punishable by imprisonment for a period exceeding six (6)
years;
2. For violating this Code; and
3. For violating Republic Act No. 8799 otherwise known as “The Securities
Regulation Code”;
B. Found administratively liable for any offense involving fraudulent acts; and
C. By a foreign court or equivalent foreign regulatory authority for acts, violations
or misconduct similar to those enumerated in paragraphs (a) and (b) above.
Note:
 Term of office of a Director is only for 1 year, while a Trustee was
extended to a maximum term of 3 years

 Residency Requirement for Board Members are ABOLISHED/Deleted.

Independent Director
 is a person who, apart from shareholdings and fees received
from the corporation, is independent of management and
free from any business or other relationship which could, or
could reasonably be perceived to materially interfere with the
exercise of independent judgment in carrying out the
responsibilities as a director. (Sec.22 RCCP)
Cases where independent directors
are required: (Sec. 22 RCCP)
1. Corporation registered with SEC, with a capital stock of at least 50M;
having 200 or more shareholders; each shareholder holding at least
100 shares of a class of its equity shares. (Sec. 17.2 of SRC)
2. Banks, quasi-banks, preneed, insurance and trust companies,
nonstock savings and loan associations, pawnshops, corporations
engaged in money service business and other financial
intermediaries; and
3. Other corporations engaged in business vested with public interest
similar to the above, as may be determined by the Commission.
Business Judgment Rule

 Questions of policy or management are left solely to the

honest decision of officers and directors of a corporation and
the courts are without authority to substitute their judgment for
the judgment of the board of directors; the board is the
business manager of the corporation and so long as it acts in
good faith, its orders are not reviewable by the courts or the
SEC.
Requirement for the Business
Judgment Rule to apply:
1. Presence of a business decision including decisions on policy
management and administration;
2. The decision must be intra vires and must comply with the
procedural and substantive requirements of law;
3. Good faith
4. Due care in making the decision;
5. The director must not have personal interest nor self-dealing or
otherwise on breach of the duty of loyalty.
Problem:
PALI sought to offer its shares to the public in order to raise
funds for development of properties and pay its loans with
several banks. To facilitate the trading of its shares, PALI applied
for a listing in the Philippine Stock Exchange Inc. (PSE), a non-
profit corporation. Subsequently, PSE received a letter from the
Heirs of Marcos, requesting PSE to defer PALI’s registration,
contending that certain properties of PALI are owned by Marcos.
Consequently, PSE rejected PALI’s application. The SEC reversed
the ruling of the PSE. Is the SEC correct?
 NO. In applying the business judgment rule, the SEC and the
courts are barred from intruding into business judgments of
corporations, when the same are made in good faith. The said rule
precludes the reversal of the decision of the PSE to deny PALI's listing
application, absent a showing of bad faith on the part of the PSE.
Under the listing rules of the PSE, to which PALI had previously
agreed to comply, the PSE retains the discretion to accept or reject
applications for listing
(PSE v. CA, G.R. No. 125469, October 27, 1997).
Election of Directors/Trustees (Sec.
23 RCCP)
 Methods of Voting:
1. Straight Voting
2. Cumulative Voting for one candidate
3. Cumulative Voting by distribution

Note: In non-stock corporation, they may cast as many

votes as there are trustees to be elected but may not
cast more than one vote for one candidate.
Election of Directors/Trustees (Sec.
23 RCCP)
 At all elections of directors or trustees, majority of
stockholders/members entitled to vote shall constitute quorum.
 All shareholders holding voting shares have the right to vote.
 Stockholders may vote: 1) Personally, 2) by proxy, or 3) through remote
communication or in absentia.
1. If allowed in their AOI or By-laws
2. Authorized by Majority of Directors.
3. In cases of corporation vested with public interest
 The election must be by ballot if requested by any voting stockholder or
member.
Removal of Directors/Trustees (Sec.
27 RCCP)
 Requisites for removal.
1. Must take place at a regular/special meeting of
stockholders/members duly called for the purpose.
2. Prior notice to stockholders/members of the intention to remove.
3. 2/3 vote of stockholders/members.
4. The removal may be with or without cause unless he was elected
by the minority, in which case, it is required that there is cause for
removal.
Removal of Directors/Trustees (Sec.
27 RCCP)
 The Commission shall, motu proprio or upon verified complaint, and
after due notice and hearing, order the removal of a director or
trustee elected despite the disqualification, or whose disqualification
arose or is discovered subsequent to an election. The removal of a
disqualified director shall be without prejudice to other sanctions that
the Commission may impose on the board of directors or trustees
who, with knowledge of the disqualification, failed to remove such
director or trustee.
(2016 Bar Question)

Henry is a board director in XYZ Corporation. For being a

fiscalizer in the Board, the majority of the directors want him
removed and his shares be sold at auction, so he can no longer
participate even in the stockholder’s meetings. Henry
approaches you for advice on whether he can be removed as
board of director and stockholder without cause. What is your
advice? Explain “amotion” and the procedure in removing a
director.
Answer:

Henry cannot be removed by his fellow directors. The power to

remove belongs to the stockholders.
He can only be removed by the stockholders owning at least 2/3
of the outstanding capital stock in a meeting called for that
purpose. The removal may be with or without cause except that in
this case, the removal must be with cause because it is intended to
deprive the minority of the right of representation.

Amotion is the premature ousting of a director or officer from his

post in the corporation.
Vacancies in the Board (Sec.28 RCCP)
 It happens due to: a) Removal, b) Expiration of term, c) Death,
resignation, abandonment, and d) increase of number of
Director/Trustee.
 In case of vacancy but still constitute a quorum, at least a majority
of the members are empowered to fill any vacancy occurring in
the board.
 If no quorum or the vacancy was due to removal, or expiration of
term, there must be an election from and among the stockholders
to fill the vacancy.
Emergency Board (Sec. 28 RCCP)

 When the vacancy prevents the remaining directors from

constituting a quorum and emergency action is required to
prevent grave, substantial, and irreparable loss or damage to the
corporation.
 Any corporate officer may temporarily fill the vacancy by a
UNANIMOUS vote of the remaining directors or trustees.
 Notice must be given to the SEC within 3 days from the creation
of an emergency Board.
Doctrine of Corporate Opportunity
 This happen when a director undertakes a business opportunity that
belongs to the corporation.
 The self-interest of the director is in conflict with the interest of the
corporation. Hence, the law does not permit him to seize the
opportunity even if he will use his own funds in the venture.(Sec. 33
RCCP)

GR: Director who seized that business opportunity, shall account and
refund to the corporation all the profits.
Exception: The contract or act may be ratified by a vote of the
stockholders representing at least 2/3 of the outstanding capital stock.
Self-Dealing directors (Sec. 31RCCP)
 It is a transaction/contract between a corporation and
1. Director or Trustee
2. Officers
3. Their spouses
4. And relatives within the fourth civil degree of consanguinity or
affinity.
Self-Dealing directors (Sec. 31 RCCP)
GR: It is a voidable contract at the option of the corporation.
Xpns:
1. That the presence of such director or trustee in the board meeting in which the
contract was approved was not necessary to constitute a quorum for such
meeting;
2. That the vote of such director or trustee was not necessary for the approval of the
contract;
3. That the contract is fair and reasonable under the circumstances;
4. In case of corporations vested with public interest, material contracts are
approved by at least 2/3 of the entire membership of the board, with at least a
majority of the independent directors voting to approve the material contract;
5. That in the case of an officer, the contract with the officer has been previously
authorized by the board of directors
Interlocking Director (Sec. 32 RCCP)
 If the interest of the interlocking director is substantial (exceeding
20% of the outstanding capital stock) in both corporation.
GR: it is valid contract.
Xpt: Voidable at the option of corporation if the contract is
fraudulent or not fair or reasonable.
 If the interest of the interlocking director is nominal in one and
substantial in the other.
GR: It is voidable at the option of the corporation to which the
interlocking director has nominal interest.
Xpt: it will be valid if it complies with Sec. 31 RCCP
Corporate Officers: (Sec. 24 RCCP)
Who are the corporate officers?
1. President (who shall be a director)
2. Treasurer (may or may not be a director but must be a resident)
3. Corporate Secretary (must be a citizen and a resident)
4. Compliance Officer (for corporation vested with public interest)
5. Such other officers as may be provided in the By-Laws.
Note:
 There is no Nationality Requirement as to Treasurer (he can be an
alien or a citizen), but the Secretary must be a citizen and a resident
of the Philippines.
 The same person may hold 2 or more position concurrently.
However, President-Secretary, and President-Treasurer is NOT
allowed. (Sec. 24 RCCP)
 In One Person Corporation, a single stockholder may not be
appointed as the Corporate Secretary BUT he/she can be the
Treasurer subject to the giving of a bond to the SEC (Sec. 122 RCCP)
 Other Officers under the By-Laws must be EXPRESSLY mentioned.
Liability of Directors/Trustees and
Officers (Sec. 30 RCCP)
GR: They are NOT solidary liable with the corporation they represent.
XPT:
1. When the Director/Trustee or its Officers:
a) Vote or assent to patently unlawful acts of the corporation.
b) Act in bad faith or with gross negligence in directing the affairs of
the corporation.
c) Acquire any personal or pecuniary interest in conflict with their
duty.
2. By virtue of a Specific provision of law,
Liability of Directors/Trustees and
Officers (Sec. 30 RCCP)
XPT:
3. When a director or who has knowledge of the sale of watered
stocks, consented or fails to object thereto.
4. Agreement or stipulation in a contract to hold himself personally
liable with the corporation.
Meetings of the Board (Sec. 52 RCCP)
 2 Kinds:
1. Regular (Monthly, unless otherwise specified in the By-Laws)
2. Special (Anytime, upon the call of the President or as provided in
the By-laws)
 Notice – must be given at least 2 days before the scheduled
meeting, unless a longer period is provided in the by-laws
 Quorum – Majority of Directors/Trustees shall constitute a quorum,
unless the AOI or the by-laws provides for a greater majority.
 Proxy is not allowed.
Meetings of the Board (Sec. 52 RCCP)
 Who preside: If there is a Chairman, he/she shall preside in all
meetings. In the absence of chairman, the President can preside.
Unless the by-law provides for a presiding officer. (Sec. 53)
 Venue: Anywhere in or out of the Philippines, unless the by-laws
provides otherwise (Sec. 52)
 Teleconferencing or Video Conference – is allowed provided the
proceeding was recorded and stored by the Corporate Secretary.
 Votes required to approve resolution – majority of Directors/Trustees
present or constituting a quorum. Unless the law requires that majority
vote of ALL members of the board.
Trust Fund Doctrine (2007 Bar Question)
 The trust fund doctrine means that the capital stock, properties and
other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors. Stated simply, the trust fund
doctrine states that all funds received by the corporation in
payment of the shares of stock shall be held in trust for the
corporate creditors and other stockholders of the corporation.
Under such doctrine, no fund shall be used to buy back the issued
shares of stock except only in instances specifically allowed by the
Corporation Code.
Trust Fund Doctrine
 Cases where there is violation of this doctrine
 When the corporation releases or condones payment of the unpaid
subscription.
 When there is payment of dividend without unrestricted retained
earnings.
 When properties are transferred in fraud of creditors.
 Issuance of watered stocks.
Distribution of Corporate Asset
For a corporation to distribute their assets without violating Trust Fund
Doctrine, there must be procedure to be followed:
1. Amendment of the AOI to reduce the authorized capital stock
2. Purchase of redeemable shares by the corporation, regardless of
the existence of unrestricted/retained earnings
3. Dissolution and eventual liquidation of the corporation.
4. Procedure in sec. 40 as regards to purchase of shares by the
corporation.
Title VII
Stocks and Stockholders
Subscription Contract (Sec. 59 RCCP)
 Any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed.
 How does a person becomes a shareholder?
1. Enters into a subscription contract with an existing corporation
(he becomes a stockholder upon acceptance of the
corporation of his offer to subscribe).
2. Purchase treasury shares from the corporation.
3. Acquires shares from existing shareholders by sale or any other
contract or through other modes of acquiring ownership.
2 kinds of Subscription contract
1. Pre-incorporation subscription (Sec. 60)
 GR: It is irrevocable for a period of 6 months from the date of
subscription
 Xpt: Subscribers consent to the revocation or the corporation failed
to incorporate within the period.
(Note: if AOI is already filed, Pre-incorporation subscription cannot be
revoked even if it is filed prior to 6 months expiration)
2. Post-incorporation subscription
Consideration for Stocks (Sec.61 RCCP)
Note:
 Shares of stock and generally accepted form of consideration
(par. g and h) are added by the RCCP.
 Promissory notes or future services are not valid considerations.
 The corporation cannot set-off the unpaid subscription with the
unpaid salaries of the shareholder-employee.
 The consideration provided under Sec.61 RCCP may be used for
the issuance of bonds by the corporation.
Shares of Stock
 interest or right which an owner has in the management of the
corporation, and its surplus profits, and, on dissolution, in all of its
assets remaining after the payment of its debt. The Stockholder
may own the share even if he is not holding a certificate of
stock.
 Shares of Stock Certificate of Stock

Unit of interest in a corporation - Evidence of the holder’s

ownership of the stock as
shareholder.

it is an incorporeal or intangible - it is concrete and tangible

property

It may be issued by the corporation – issued only after the

even if the subscription is not fully subscription is fully paid
paid
Classification of shares (Sec. 6 RCCP)
1. Common Shares - a share which enjoy no preference.
2. Preferred Shares - shares which has preference in the distribution of
dividends, distribution of corporate assets in case of liquidation, or
such other preference as stated in the AOI.
Note:
 Preferred shares may be issued only with a stated par value.
 The Board of Directors, if authorized in the AOI, may fix the terms and
conditions of preferred shares of stock. Such terms and condition shall
be effective upon filing of a certificate with the SEC.
 Holder of preferred shares, does not make him a creditor of the
corporation. He is not entitled to dividends as a matter of right.
3. Par value and no par value shares – The former has nominal value in the
certificate of stock, while the latter has no nominal value.
Note:
 Par value may be fixed by: 1) expressly stipulated in AOI, 2) fixed by the
Board if authorized in the AOI, or 3) stockholders representing at least
majority of the outstanding capital stock at a meeting duly called for the
purpose.
 No-par value share shall not be less than 5 pesos; cannot be issued as
preferred stocks; once issued, they are deemed fully paid and non-
assessable.
 The following entities CANNOT issue no-par value share.
 Banks, trust, insurance and preneed companies, public utilities, building
and loan associations, and other corporations authorized to obtain or
access funds from the public, whether publicly listed or not. (Sec. 6
RCCP)
4. Voting and non-voting shares
Note:
 No share may be deprived of voting rights except those classified
and issued as “preferred” or “redeemable” shares, unless
otherwise provided in this Code: Provided, That there shall always
be a class or series of shares with complete voting rights. (Sec. 6
RCCP)
 Instances where holders of non-voting shares have the right to
vote. (Sec. 6 RCCP)
5. Founder’s Share – these are shares given certain rights and privileges
not enjoyed by any other stock.
Note:
Where the exclusive voting rights are granted to them in respect to the
election of directors, such voting rights shall not exceed 5 years from the
issuance of certificate of incorporation by the SEC. (Sec. 7 RCCP)
Provided, That such exclusive right shall not be allowed if its exercise
will violate Commonwealth Act No. 108, otherwise known as the
“Anti-Dummy Law”; Republic Act No. 7042, otherwise known as the
“Foreign Investments Act of 1991”; and other pertinent law.
6. Redeemable shares – shares issued by the corporation which said
corporation CAN purchase or take up from their holders at a fixed date
at a certain redemption price.
Note:
 Can be issued only if expressly provided in the AOI.
 Terms and conditions thereof must be clearly stated in AOI.
 May be deprived of voting rights as stated in AOI, unless otherwise
provided by law.
 It may be purchased even if there is no surplus profit or URE, as long as
there is sufficient assets to pay the creditors and to answer for the
operation.
 It is subject to the rules and regulations issued by the SEC.
7. Treasury Shares - shares that have been issued and fully paid for and
have thereafter been REACQUIRED by the issuing corporation by
purchase, donation, redemption or some other lawful means.
Note:
 Reacquisition can only be done if there is surplus profit or URE.
 Once reacquired, they are not retired but retain their status as issued
and subscribed shares which may be resold or redisposed by the board
at a reasonable price.
 Not entitled to dividends or vote, until they are reissued.
 They can be distributed as property dividends.
8. Escrow Shares - Shares subjected to an agreement by virtue of which
the shares are deposited by the grantor or his agent with a third person
to be held by the latter until the performance of a certain condition.
The beneficiary of the agreement is not yet a stockholder until the
performance of such conditions and is not therefore entitled to the rights
of shareholders.

Note: The corporation may designate other classes of stocks as long as

they are indicated in the AOI, stock certificate and not contrary to law.
Doctrine of Equality of Shares

Except as otherwise provided in the Articles of Incorporation and

stated in the certificate of stock, each share shall be EQUAL in all
respects to every other share.
Watered stocks
 Those issued not in exchange for its equivalent either in cash, property, share,
stock dividends, or services; thus, the issuance of such stocks is prohibited.
 Director/Trustees and Stockholders are solidary liable for the difference of the
value received and the par value of each share.
How is it committed?
1. Consents to the issuance of stock for a consideration less than its par or
issued value.
2. Consent to the issuance of stocks for a consideration other than cash
(property, service), valued in excess of its fair value.
3. Having knowledge of insufficiency, he/she failed to report or object with the
corporate secretary.
What is Certificate of Stocks?
 It is a written evidence of the shares of stock but it is not the share
itself.
Note:
 It is a prima facie evidence of ownership to determine the real
owner of share.
 Delivery is essential for the issuance
 Can only be issue upon full payment of subscription contract.
 It must be signed by the President or Vice-President and
countersigned by the corporate secretary, and sealed with
corporate seal.
Doctrine of Indivisibility of
Subscription Contract
 A certificate of stock is one, entire, and indivisible contract. It cannot be
divided into portions, so that the stockholder shall not be entitle to a
certificate until he has remitted the full payment of his subscription together
with any interest or expenses, if any is due.
Note:
If the stockholder has not paid the full amount of his subscription, he cannot
transfer part of it in view of the indivisibility of subscription contracts. HOWEVER, it
may be transferred to a single transferee, who as a result MUST ASSUME the
unpaid balance. To do so, they must secure the consent of the corporation since
it partakes the nature of novation under Art. 1293 of the Civil Code.
How shares of stock is transferred?
(Sec. 62 RCCP)
 If there is Certificate of Stock
1. Delivery of the certificate
2. Indorsement by the owner or his agent
3. Must be recorded in the books of the corporation.
 If no Certificate of Stock issued
1. by means of a deed of assignment, and
2. such is duly recorded in the books of the corporation.
Negotiability of Cert. of Stocks
 Although sometimes it is regarded quasi-negotiable because it can
be transferred by indorsement coupled with delivery, it is well-settled
that a certificate of stock is non-negotiable, because the holder
thereof takes it without prejudice to such rights or defenses as the
registered owner’s or transferor’s creditor may have under the law.
 Except when there is estoppel, or the stock certificate is endorsed in
blank by the owner thereof (street certificate).
Example:
A is the registered owner of Stock Certificate No. 000011. He entrusted
the possession of said certificate to his best friend B who borrowed the
said endorsed certificate to support B's application for passport (or for a
purpose other than transfer). But B sold the certificate to X, a bona fide
purchaser who relied on the endorsed certificates and believed him to
be the owner thereof. Can A claim the shares of stocks from X? Explain.
(2001 Bar)

NO. Since the shares were already transferred to "B", "A" cannot claim the
shares of stock from "X".
The certificate of stock covering said shares have been duly endorsed by
"A" and entrusted by him to "B". By his said acts, "A" is now estopped from
claiming said shares from "X", a bona fide purchaser who relied on the
endorsement by “A” of the certificate of stock.
Registration of transfer of shares
 Generally it must be registered with the books of the corporation so
that it has binding effect upon the corporation and the transferee or
any third person.
 Need not be registered if there is no ABSOLUTE transfer yet. (e.g. the
certificate of stock is merely pledged or mortgaged unless it is
foreclosed in accordance with law)
 Presentation and surrender of endorsed stock certificate not
necessary to effect registration.
 Availability of Mandamus to compel registration.
 Registration of transfer of shares does not prescribe.
Basic rights of Shareholder
1. direct or indirect participation in management
2. voting rights (Sec 6 and 57 RCCP)
3. right to remove directors (Sec. 27 RCCP)
4. propriety rights:
 right to dividends;
 Appraisal right (Sec.80 RCCP)
 right to issuance of stock certificate for fully paid share. (Sec. 63 RCCP)
 proportionate participation in the distribution of assets in liquidation
(Sec. 139 RCCP)
 right to transfer of stocks in corporate books (Sec. 62 RCCP)
 pre-emptive right (Sec. 38 RCCP)
5. right to inspect books and records (Sec. 73 RCCP)
Basic rights of Shareholder
6. right to be furnished with the most recent financial statement/report. (sec.
74 RCCP)
7. right to recover stocks unlawfully sold for delinquent payment of
subscription
8. right to the issuance of new certificates in lieu of lost, stolen or destroyed
certificates (Sec. 71 RCCP)
9. right to file individual suit, representative and derivative suit.
Obligation of stockholders
1. Liability to the corporation for unpaid subscription (Sec. 66 to 69 RCCP)
2. Liability to the corporation for interest on unpaid subscription if so required by
the By-Law (Sec. 65 & 66 RCCP)
3. Liability to the creditors of the corporation for unpaid subscription subject to
the Limited Liability Rule;
4. Liability for watered stock (Sec. 64 RCCP)
5. Liability for dividends unlawfully paid (Sec. 42 RCCP)
6. Administrative, civil and criminal liability of a stockholder responsible for
violation of the RCCP (Sec. 171 RCCP)
Suits by stockholders/members
 Derivative Suit – one filed by stockholders/members in behalf of the
corporation
Requisites:
1. He was a stockholder/member at the time the acts or transactions
subject of the action occurred and at the time the action was filed;
2. He exerted all reasonable efforts to exhaust all remedies available
under AOI, by-laws, or the law.
3. No appraisal rights are available for the act/s complained of;
4. The suit is not a nuisance or harassment suit
5. The corporation is impleaded as a plaintiff
Suits by stockholders/members
 Individual Actions - those brought by the shareholder in his own name
against the corporation when a wrong is directly inflicted against him.

 Representative Actions - those brought by the stockholder in behalf of

himself and all other stockholders similarly situated when a wrong is
committed against a group of stockholders.
Pre-emptive right (Sec. 38 RCCP)
 it is the shareholder's right to subscribe to all issues or disposition of shares
of any class (including sale or re-issuance of treasury shares) in
proportion to their stockholdings.
 It is granted to all stockholders, unless such right is denied by the articles
of incorporation or an amendment thereto.
 The By-laws alone cannot deny pre-emptive right. However, it may fix
reasonable procedure for the exercise of the pre-emptive right.
Pre-emptive right shall not be exercise in the following:
1. shares issued in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or
2. to shares issued in good faith with the approval of the
stockholders representing 2/3 of the outstanding capital stock, in
exchange for property needed for corporate purposes
3. or in payment of a previously contracted debt.
4. If the right is denied by the AOI or an amendment thereto. (Sec.
38 RCCP)
5. Waiver of the right by the stockholder.
Voting rights of stockholder
 Every stockholder has a right to participate in a corporate meeting and
vote thereat in person, by proxy, or by remote communication or in
absentia as may be allowed in the AOI.
 Stockholder’s meeting may be: Regular or Special.
 Quorum = Majority of Stockholder/members shall constitute quorum,
unless otherwise provided by RCCP or the by-laws.
Note: excluded from computation of quorum are those delinquent
shares and non-voting shares, except those matters enumerated in sec. 6
whereby non-voting shares may vote.
 Who calls the meeting? – Officials designated in AOI or by-laws; the
Board; the SEC upon the petition of stockholder/members if there is no
person authorized to call or unjustly refused to do so.
Voting rights of stockholder
NOTE: in the removal of Directors/Trustees, the call must be made by the
Corporate Secretary upon:
 Order of the President, or
 Written demand by majority stockholders/members. (Sec. 27 RCCP)
 Place of Meeting = principal office but if not practicable, in the city or
municipality where the principal office is located. (Sec. 50 RCCP)
 Proxy voting by stockholder is allowed. Provided it is made in writing, in
any form authorized by the by-laws, received by corporate secretary
within reasonable time, period of validity shall not exceed 5 years.
 Attendance/vote through Remote Communication is allowed provided
it is made before the corporation finishes the tally of votes.
Voting Trust Agreement (Sec. 58 RCCP)
 one or more stockholder/s of a stock corporation may create a
voting trust for the purpose of conferring upon a trustee/s the right
to vote and other rights pertaining to the shares for a period not
exceeding 5 years at any one time.

Note: Trustee can be voted as a director because he becomes the

legal title-holder or owner of the shares of stock covered by the
voting trust agreement.
Procedural Requirement for VTA

1. The agreement must be in writing and notarized and specify the

terms and conditions thereof.
2. A certified copy of such agreement shall be filed with the
corporation and with the SEC, otherwise, it is ineffective and
unenforceable.
3. The certificate/s of stock covered by the VTA shall be cancelled.
4. A new certificate shall be issued in the name of the trustee/s
stating that they are issued pursuant to the VTA.
5. The transfer shall be noted in the books of the corporation, that it is
made pursuant to said VTA.
Procedural Requirement for VTA
6. The trustee/s shall execute and deliver to the transferors voting trust
certificates, which shall be transferable in the same manner and with
the same effect as certificates of stock.
7. GR: No VTA shall be entered into for a period exceeding 5 years at any
one time (i.e., for every voting trust)
XPN: In case of a voting trust specifically requiring a longer period as a
condition in a loan agreement, the period may exceed 5 years but shall
automatically expire upon full payment of the loan.
8. No VTA shall be entered into for the purpose of circumventing the law
against monopolies and illegal combinations in restraint of trade. and
9. The agreement must not be used for purposes of fraud (RCCP, Sec. 58).
Appraisal Right (Sec. 80 RCCP)
right of a dissenting stockholder to withdraw from the corporation
and demand payment of the fair value of his/her shares, which
right is exercised after dissenting from or voting against proposed
corporate acts involving fundamental changes in the corporate
structure.
When is this right available? (Sec. 80)
1. In case of amendment of AOI which affects:
a) rights of stockholders, or class of shares, or
b) authorizing preferences in any respect superior to those of
outstanding shares of any class.
2. Change of corporate term, extending or shortening. (Sec 11, 36, RCCP)
3. In case of sale, lease, exchange, or other disposition of all or
substantially all of the corporate property. (Sec. 39 RCCP)
4. Investment of Corporate funds for any purposes other than the primary
purpose. (Sec. 41 RCCP)
5. Merger or consolidation (Sec. 76 RCCP)
Rules for the exercise of Appraisal Right
1. the stockholder must be a dissenting stockholder
2. the stockholder must make a written demand on the corporation within
30 days after the vote was taken.
3. the proposed action is any one of the instances mentioned earlier.
4. the price to be paid is the fair value of the shares on the date before
the vote was taken.
5. the fair value shall be agreed upon, but if there is no agreement within
60 days from date the vote was taken, the fair value shall be
determined by majority of 3 disinterested persons. (Sec. 81
6. the dissenting shareholder shall submit his certificates of stock within 10
days from demanding payment for notation that the shares are
dissenting shares. (Sec. 85 RCCP)
When is this right lost or extinguished?
1. The shareholder withdraws the demand with the corporation's consent.
(sec 83 RCCP)
2. The proposed action is abandoned or rescinded by the corporation
(Sec. 83 RCCP)
3. The SEC disapprove the action (Sec 83 RCCP)
4. The dissenting stockholder fails to make a demand within 30 day period
required in Sec. 81
5. There is transfer of the shares by the dissenting shareholder (Sec 85 RCC)
6. Dissenting shareholder fails to submit his/her stock certificate within 10
days from demand of payment. (Sec. 85 RCC)