may be made by the Solicitor General in a Law on Business Organizations Reviewer
quo warranto proceeding.
of a contrary tenor. The object of the
De facto corporation – generally refer to principle of estoppel is to prevent injustice
organizations exercising corporate power to an otherwise innocent person.
under colour of a more or less legally
constituted corporation. Sec. 22. Effect of non-use of corporate
charter and continuous in operation of a
Elements of De facto corporation corporation. – If a corporation does not
1. Existence of a valid law under which a formally organize and commence the
transaction of its business or the
corporation can be organized. construction of its works within two (2)
2. An attempt in good faith to incorporate. years from the date of its incorporation, its
3. Actual exercise of incorporate powers. corporate powers cease and the
corporation shall be deemed dissolved.
Quo warranto – an inquiry made into the However, if a corporation has commenced
right of a corporation to conduct business. the transaction of its business but
subsequently becomes continuously
Illustration inoperative for a period of at least five (5)
Seven competent individual organized a years, the same shall be ground for the
corporation by filing the articles of suspension or revocation of its corporate
incorporation and securing a certificate of franchise or certificate of incorporation.
incorporation with the SEC. However, the
addresses of two of the original subscribers This provision shall not apply if the failure
were omitted in the articles of to organize, commence the transactions of
incorporation. In suit filed by X, a creditor, its businesses or the construction of its
against the corporation he alleged that the works, or to continuously operate is due to
corporation has no valid existence and causes beyond the control of the
sought to hold the seven incorporators (also corporation as may be determined by the
directors) liable personally on the Securities and Exchange Commission.
obligation. X’s allegation that the
corporation had no valid existence would Organization
constitute a collateral (side) attack in a The idea of organization in reference to
private suit. Only the Solicitor General as corporations means executive structure,
government lawyer may raise the question election of officers, providing for
by quo warranto proceeding. (Literally by subscription and payment of capital,
“what right”). adoption of by-laws, and other steps
necessary to endow the legal entity with
Sec. 21. Corporation by estoppel. – All capacity to transact business for which it
persons who assume to act as a corporation was created.
knowing it to be without authority to do so
shall be liable as general partners for all The Grant of corporate existence, conferred
debts, liabilities and damages incurred or by the issuance of certificate of
arising as a result thereof: Provided, incorporation, is subject to two subsequent
however, That when any such ostensible conditions, to wit:
corporation is sued on any transaction 1. The corporation must “formally
entered by it as a corporation or on any tort
committed by it as such, it shall not be organize”.
allowed to use as a defense its lack of 2. The corporation must actually begin the
corporate personality.
“transaction of its business”.
One who assumes an obligation to an
ostensible corporation as such cannot resist Failure to comply with either or both of
performance thereof on the ground that these conditions within two (2) years from
there was in fact no corporation. the date of its incorporation, its corporate
power cease and the corporation must be
Estoppel – It is preclusion, which prevent a deemed dissolved.
man from denying a fact in consequences of
his own previous act, allegations, or denial Sec. 23. The board of directors or trustees.
– Unless otherwise provided in this Code,
the corporate powers of all corporation
formed under this Code shall be exercised ,
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all business conducted and all property of Law on Business Organizations Reviewer
such corporations controlled and held by
the board of directors or trustees to be 3. Domestic air carrier, the directing head
elected from among the holders of stock, or 2/3 of the board of directors and
or where there is no stock, from among other managing officers shall be citizens
the members of the corporation, who shall of the Philippines.
hold office for one (1) year and until their
successors are elected and qualified. 4. Registered investments companies, the
directors thereof must be Filipino
Every director must own at least one (1) citizen.
share of the capital stock of the corporation
of which he is a director, which share shall 5. Private development banks, all the
stand in his name on the books of the members of the board of directors shall
corporation. Any director who ceases to be be citizen of the Philippines.
the owner of at least one (1) share of the
capital stock of the corporation of which he 6. In case of financing corporation, at least
is the director shall thereby cease to be a 2/3 of all members of the board of
director. Trustees of non-stock corporations directors shall be citizen of the
must be members thereof. A majority of the Philippines.
directors or trustees of all corporations
organized under this Code must be Sec. 24. Election of directors or trustees. –
residents of the Philippines. At all elections of directors or trustees,
there must be present, either in person or
Qualifications of directors by representative authorized to act by
1. He must own at least one (1) share of written proxy, the owners of the majority of
the outstanding capital stock, or if there be
the capital stock of the corporation in no capital stock, a majority of the members
his name. entitled to vote. The election must be by
2. Majority of the directors must be a ballot if requested by any voting
resident citizen of the Philippines. stockholder or member. In stock
3. A director must not have been corporations, every stockholder entitled to
convicted by final judgement of an vote shall have the right to vote in person
offense punishable by imprisonment or by proxy the number of shares of stock
exceeding six (6) years or a violation of standing, at the time fixed in the by-laws, in
the provisions of the Corporation Code his own name on the stock books of the
committed within five (5) years prior to corporation, or where the by-laws are
the date of election or appointment. silent, at the time of the election; and said
shareholder may vote such number of
The directors, once elected, become the shares for as many persons as there are
representatives of the corporation itself, directors to be elected or he may cumulate
not its stockholders. The directors of a non- said shares and give one candidate as many
stock corporation are required to be votes as the number of directors to be
members thereof and like stock elected multiplied by the number of his
corporations “majority of the directors and shares shall equal, or he may distribute
trustees of all corporations organized under them on the same principle among as many
the Corporation Code must be residents candidate as he shall see fit; Provided, That
citizen of the Philippines”. There are some the total number of votes cast by him shall
special corporation not organized with the not exceed the numbers of shares owned
Corporation Code where directors are by him as shown in the books of the
required to be citizens of the Philippines. corporation multiplied by the whole
They are as follows: number of directors to be elected: Provided,
1. Bank and banking institution, at least however, that no delinquent stocks shall be
voted. Unless otherwise provided in the
2/3 of the members of the board of articles of incorporation, or in the by- laws,
directors shall be citizen of the members of corporation which have no
Philippines. capital stock may cast as many votes as
2. Rural banks, every member of the there are trustees to be elected but may
board of directors shall be citizens of not cast more than one vote for one
the Philippines. candidate. Candidates receiving the highest
number of votes shall be declared elected.
Any meeting of the stockholders or
members called for an election may
adjourn from day to day or from time to
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time but not sine die or definitely if, for any Law on Business Organizations Reviewer
reason, no election is held, or if there are
not present or represented by proxy, at the Sec. 25. Corporate officers, quorum. –
meeting, the owners of the majority of the Immediately after their election, the
outstanding capital stock, or if there be no directors of a corporation must formally
capital stock, a majority of the members organized by the election of a president,
entitled to vote. who shall be a director, a treasurer who
may or may not be a director, a secretary
Methods of voting who shall be a resident citizen of the
The voting methods which may be resorted Philippines, and such other officers as may
to by a voting stockholder are as follows: be provided for in the by-laws. Any two (2)
1. Straight voting. or more positions may be held concurrently
2. Cumulative voting for one candidate. by the same person, except that no one
3. Cumulative voting by distribution. shall act as president and secretary or as
president and treasurer at the same time.
Example of Straight Voting
A owns 100 shares of stock in X corporation. The directors or trustees and officers to be
During the meeting for the purpose of elected shall perform the duties enjoined
electing five directors, he may cast his vote on them by law and by the by-laws of the
by giving each of the five candidates 100 corporation. Unless the articles of
votes, hence, he distribute equally his vote incorporation or the by-laws provide form a
without preference or discrimination. greater majority, a majority of the number
of directors or trustees as fixed in the
Example of Cumulative voting for one articles of incorporation shall constitute a
candidate quorum for the transaction of corporate
In the preceding illustration, if A owns 100 business, and every decision of at least a
voting shares and there are five directors to majority of the directors or trustees present
be elected, A is entitled to 500 votes which at a meeting at which there is a quorum
he may “cumulate” by giving it to candidate shall be valid as a corporate act , except for
Z alone. the election of the officers which shall
Example of Cumulative voting by require the vote of a majority of all the
distribution members of the board.
As in the same example above, if A owns Qualification of corporate officer
100 voting shares, and there are five 1. President. He must be a director.
directors to be elected, A is entitled to 500 2. Treasurer. He may or may not be a
votes which he may distribute to candidate
Y and Z giving the former 300 and the latter director.
200 provided that the total number of 3. Secretary. He must be a resident and
votes cast by him does not exceed 500
votes. citizen of the Philippines
4. Other officers provided for in the by-
Voting of sequestered shares of stock
It has been held that the “Presidential laws.
Commission on Good Government may
properly exercise the prerogative to vote Three levels of corporate control
sequestered stock of corporation, granted 1. The board of director which is
to it by the President of the Philippines xxx
pending the outcome of proceeding to responsible for the corporate policies
determine the ownership of sequestered and the general management of the
shares of stock. xxx Substitution of business affairs of the corporation.
directors is not be done without reason or 2. The officers, who in theory execute the
rhyme, and undertaken only when essential policies lay down by the board , but in
to prevent disappearance or wastage of practice often have wide latitude in
corporate property, and always under such determining the course of business
circumstance as assure that replacements operations.
are truly processed of competence, 3. Stockholders who like amendments of
experience and probity. the articles of incorporation.
Teleconferencing of Board Members
In the Philippines, teleconferencing and
videoconferencing of members of board of
directors of private corporation is a reality,
in light of the Republic Act No. 8792.The
Securities and Exchange Commission issued
53
SEC Memorandum Circular No. 15, on Law on Business Organizations Reviewer
November 30, 2001, providing the
guidelines to be complied with related to has authority to act in his stead, and to
such conferences. Thus, the court agrees perform the duties of the office.
with the RTC that persons in the Philippines
may have a teleconference with a group of Secretary
persons in South Korea relating to business A secretary must be a resident citizen of the
transactions or corporate governance. Philippines. It is generally its duty to make
and keep corporate records; to make
Directors and officers distinguished proper entries of the votes, resolution and
The officers of a corporation, unlike the proceedings of the shareholders and
directors, are true agent of the corporation. directors in the management of the
Each officer may bind the corporation by his corporation, and of all other matters
individual acts within the actual or apparent required to be entered in the records. The
scope of authority. On the other hand, a secretary is the ministerial officer who
director has no authority to act for the cannot bind the corporation unless he is
corporation. authorized to do so.
Authority of corporate officers Treasurer
The corporation transact its business The treasurer of the corporation “may or
through its officers or agents. An officer’s may not be a director”. He is the proper
power as an agent of the corporation must officer and the only proper officer in the
be sought from the statute, charter, and the absence of express provision to the
by-laws or in a delegation of authority to contrary, to receive and keep the money of
such officers, from the acts of board of the corporation and to disburse them as he
directors, formally expressed or implied may be authorized.
from a habit or custom of doing business.
Other officers
Chairman of the Board The by-laws of the corporation may
A chairman of the board of directors must provide for such other officers and agent as
himself director be a director of the may be necessary and convenient
corporation. His duty as presiding officer is considering the nature and needs of the
not an executive one. It has been suggested business. Their compensation is provided
that he well be given advisory duties in for by the by-laws and the board of
determining executive salaries, bonus plans directors in a suitable manner.
and pensions, determining dividend policy,
selecting auditors, and dealing questions Quorum – signifies the number of persons
with labor and company policy. belonging to a corporation required to
transact business.
President
The president must be a director of the Section 25 of the Corporation Code
corporation. The powers of the president of requires more people than a simple
a corporation are vested in him by law or majority to form a quorum. If no such
the by-laws; otherwise, he has no power defining number is determined, a quorum is
over the corporate property and business a simple majority.
than has any other director. However, he
may be given actual authority to make Directors cannot vote by proxy
particular contracts, or to execute The directors cannot vote by proxy but
conveyances, borrow money, execute must personally present, and act by
mortgages, and do other acts, by the themselves.
charter, the by-laws, resolutions of
directors or their informal acquiescence. Sec. 26. Report of election of directors,
trustees and officers. – Within thirty (30)
Vice- President days after the election of the officers,
In the absence of the president, or if the trustees and directors of the corporation,
office of the president becomes vacant, as a the secretary, or any other officer of the
rule, the vice president elected and corporation shall submit to the Securities
appointed by the shareholders or directors and Exchange Commission, the names,
nationalities and residences of the
directors, trustees and officers elected.
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Should a director, trustee or officer die, Law on Business Organizations Reviewer
resign or in any manner cease to hold
office, his heirs in case of his death, the for the purpose, and in either case, after
secretary or any other officer of the previous notice to stockholders or members
corporation, or the director, trustee or of the corporation of the intention to
officer himself, shall immediately report propose such removal at the meeting. A
such fact to the Securities and Exchange special meeting of the stockholders or
Commission. members of the corporation for the
purpose of removal of directors or trustees,
Sec. 27. Disqualification of directors, or any of them, must be called by the
trustees or officers. – No person convicted secretary on order of the president or on
by final judgement of an offense punishable the written demand of the stockholders
by imprisonment for a period exceeding six representing or holding at least a majority
(6) years, or a violation of this Code, of the outstanding capital stock, or, if it be a
committed within five (5) years prior to the non-stock corporation, on the written
date of his election or appointment, shall demand of a majority of the members
qualify as a director, trustee or officer of entitled to vote. Should the secretary failed
any corporation. to refuse to call the special meeting upon
such demand, or fail or refuse to give the
Sec. 27 of the Corporation Code is an notice, or if there is no secretary, the call
additional safeguard that only upright and for the meeting may be addressed directly
honest individuals be entrusted with to the stockholders or members of any by
management of the corporate affairs. any stockholder or member of the
corporation signing the demand. Notice of
A director of a cooperative who is the time and place of such meeting, as well
subsequently elected as member of the as the intention to propose such removal,
Sangguniang Panglungsod (City Council) must be given by publication or by written
becomes automatically disqualified from notice as prescribed in this Code. The
continuing as such director by virtue of the vacancy resulting from removal pursuant to
clear mandate of PD No. 269 providing that this section may be filled by election at the
except for “barrio captains and councillors” same meeting without further notice, or at
elective officials are ineligible to become any regular or at any special meeting called
officers and/or directors of any cooperative. for the purpose after giving notice as
prescribed in this Code. Removal may be
The SEC ruled that firms engage in wholly or with or without cause: Provided, That
partially nationalized activities, aliens are removal without cause may not be used to
banned from being appointed to deprived minority stockholders or members
management position such as president, of the right of representation to which they
vice-president, treasurer, auditor, secretary, may be entitled under Section 24 of this
etc. of said companies. However, they can Code.
be elected directors in preparation to their
allowable participation or share in the Directors or trustee may be removed even
capital of such activities, in accordance with without cause
the Commonwealth Act No. 108, as The legislative policy is that the
amended by PD 715, otherwise known as shareholders shall be the ultimate masters,
the Anti- Dummy Law. not the directors. The shareholders should
be clothed with the power of judging the
Sec. 28. Removal of director or trustees. – competency and fitness of the directors and
Any director or trustee of the corporation of choosing a board that will carry out of
may be removed from office by a vote of their business policy.
the stockholders holding or representing at
least two- thirds (2/3) of the outstanding Directors representing minority may not be
capital stock, or if the corporation be a non- removed without cause. The power to
stock corporation , by a vote of at least two- removed director or trustee even without
thirds (2/3) of the members entitled to cause given to shareholders or members
vote: Provided, That such removal shall take may not be used to deprived minority
place either at a regular meeting of the shareholders or members of the right of
corporation or at the special meeting called representation to which they may be
entitled under Section 24 of the
Corporation Code. Cumulative voting of
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directors in a stock corporation is Law on Business Organizations Reviewer
mandatory and cannot be dispensed with in
the by-laws. Being a statutory right, the majority of the outstanding capital stock at
stockholders cannot be deprived of the use a regular or special stockholders’ meeting.
of cumulative voting. In no case shall the total yearly
compensation of directors, as such
May the result of the duly held election of directors, exceed ten percent (10%) of the
directors be altered by mere agreement of net income before income tax of the
the directors? corporation during the preceding year.
The Securities and Exchange Commission
ruled that: “An agreement by which Sec. 31. Liability of directors, trustees or
director is reposed in any body except officers. – Directors or trustees who willfully
majority of stockholders is in violation of and knowingly vote for or assent to patently
‘public policy’ and ‘enforceable’ ”. unlawful acts of the corporation or who are
guilty of gross negligence or bad faith in
The Securities and Exchange Commission directing the affairs of the corporation or
has jurisdiction or authority to “hear and acquire any personal or pecuniary interest
decide cases” involving controversies in the in conflict with their duty as such directors,
election or appointments of directors, or trustees shall be liable jointly and
trustees, officers or managers of such severally for all damages resulting
corporations, partnerships or associations. therefrom suffered by the corporation, its
Controversy concerning removal of stockholders or members and other
directors or trustees may also be heard by persons.
the SEC.
When a director, trustee or officer attempts
Sec. 29. Vacancies in the office of director to acquire or acquires, in violation of his
or trustee. – Any vacancy occurring in the duty, any interest adverse to the
board of directors or trustees other than by corporation in respect of any matter which
removal by the stockholders or members or has been reposed in him in confidence, as
by expiration of term, may be filled by the to which equity imposes a disability upon
vote of at least a majority of the remaining him to deal in his own behalf, he shall be
directors or trustees, if still constituting a liable as a trustee for the corporation and
quorum; otherwise, said vacancies must be must account for the profits which
filled by the stockholders in a regular or otherwise would have accrued to the
special meeting called for that purpose. A corporation.
director or trustee so elected to fill the
vacancy shall be elected only for the Directors are trustees
unexpired term of his predecessor in office. It is well-stated rule in corporate law that
directors of corporations are trustees and
Any directorship or trusteeship to be filled are required to act in the utmost good faith.
by reason of an increase in the number of
directors or trustees shall be filled only by Liability of corporate directors and officers
an election at a regular or at a special for illegal dismissal of employees
meeting of stockholders or members duly In cases of illegal dismissal, corporate
called for the purpose, or in the same directors and officers are solidarily liable
meeting authorizing the increase of with the corporation, where terminations of
directors or trustees if so stated in the employment are done with malice or in bad
notice of the meeting. faith. (Acesite Corp. vs. NLRC, G.R. No.
152308, January 26, 2005, 449 SCRA 360)
Sec. 30. Compensation of directors. – In the
absence of any provision in the by-laws Sec. 32. Dealings of directors, trustees or
fixing their compensation, the directors officers with the corporation. – A contract
shall not receive any compensation, as such of the corporation with one or more of its
directors, except for reasonable per diems: directors or trustees or officers is voidable,
Provided, however, That any such at the option of such corporation, unless
compensation (other than pier diems) may all the conditions are present:
be granted to directors by the vote of the
stockholders representing at least a 1. That the presence of such director or
trustee in the board meeting in which
the contract was approved was not
56
necessary to constitute a quorum for Law on Business Organizations Reviewer
such meeting.
with such officers or agents. (Yao Ka Sin
2. That the vote of such director or Trading vs. Court of Appeals, G.R. No.
trustee was not necessary for the 53820, June 15, 1992, citing Francisco vs.
approval of the contract. GSIS, 7 SCRA 577)
3. That the contract is fair and reasonable Corporate president presumed to have
under the circumstances. authority
As a strict rule, the corporate president has
4. That in the case of an officer, the no inherent power to act for the
contract with the officer has been corporation, slowly giving way to realization
previously authorized by the Board of that such officer has certain limited powers
Directors. in the transaction of the usual and ordinary
business of the corporation. In the absence
Where any of the first two conditions set of agreement or by law provision to the
forth in the preceding paragraph is absent, contrary, the president is presumed to have
in the case of a contract with a director or the authority to act within the domain of
trustee, such contract may be ratified by the general of his or her usual duties.
the vote of the stockholders representing (People’s Aircargo, and Warehousing Co.,
at least two-thirds (2/3) of the outstanding Inc. vs. Court of Appeals, G.R. No. 117847,
capital stock or of two-thirds (2/3) of the Oct. 7, 1998)
members in a meeting called for the
purpose: Provided, That full disclosure of Sec. 33. Contracts between corporations
the adverse interest of the directors or with interlocking directors. – Except in
trustees involved is made at such meeting: cases of fraud, and provided the contract is
Provided, however, That the contract is fair fair and reasonable under the
and reasonable under the circumstances. circumstances, a contract between two or
more corporations having interlocking
Director disqualified to vote if he has directors shall not be invalidated on that
personal interest ground alone; Provided, That if the interest
A director is disqualified to vote at a of the interlocking director in one
meeting of the board if he has any personal corporation or corporations is merely
interest in a matter before the board; in nominal, he shall be subject to the
such case, his vote cannot be counted in provisions of the preceding section insofar
making up a quorum. as the latter corporation or corporations are
concerned.
Disclosure of adverse interest by director
It has been held that in dealing with their Stockholdings exceeding twenty
corporation the directors must make full percent (20%) of the outstanding capital
disclosure of all relevant facts or the stock shall be considered substantial for
transaction is voidable. The failure of a purposes of interlocking directors.
director to inform his fellow directors of his
adverse bargaining position and other Interlocking directors – Interlocking
material circumstances should be seriously directors are persons who serve as member
considered and inspected by the courts as of the board of directors of two or more
manner on the fairness and good faith of competing corporations or corporations
the transaction and whether it is just and engaged in practically the same kind of
reasonable as to the corporation. business.
Exceptions in Signing contract without Effect of Corporate contracts with
authority of Board of Directors is void interlocking directors
If a private corporation intentionally or Interlocking directors of corporations does
negligently clothed its officers or agents not make a contract between or among the
with apparent power to perform acts of it, corporations void and of no effect provided
the corporation will be estopped to deny there in no fraud and reasonable under the
that such apparent authority is real, as to circumstances.
innocent third persons dealing in good faith
Sec. 34. Disloyalty of a director. – Where a
director, by virtue of his office, acquires for
himself a business opportunity which
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should belong to the corporation, thereby Law on Business Organizations Reviewer
obtaining profits to the prejudice of such
corporation, he must account to the latter majority vote of the board, except with
for all such profits by refunding the same, respect to: (1) approval of any action for
unless his act has been ratified by a vote of which shareholders’ approval is also
the stockholders owning or representing at required; (2) the filling of vacancies in the
least two-thirds (2/3) of the outstanding board; (3) the amendment or repeal of by-
capital stock. This provision shall be laws or the adoption of new by-laws; (4) the
applicable notwithstanding the fact that the amendment or repeal of any resolution of
director risked his own funds in the venture. the board which by it express terms is not
so amenable or repealable; and (5) a
Duties of directors distribution of cash dividends to the
Directors owe a three-fold duty to the shareholders.
corporation. First, they must be obedient;
they owe a duty to keep within the powers Sec. 36. Corporate powers and
of the corporation as well as within those of capacity. – Every corporation incorporated
the board of directors. Second, they must under this Code has the power and
be diligent; they owe a duty to exercise capacity:
reasonable care and prudence. The third
duty owing by directors is that of individual 1. To sue and be sued in its corporation
loyalty. name.
Concept of “corporate or business 2. Of succession by its corporate name for
opportunity.” the period of time stated in the articles
The doctrine of “corporate opportunity” is of incorporation and the certificate of
but one phase of the cardinal rule of incorporation.
undivided loyalty on the part of the
fiduciaries. If there is a presented to a 3. To adopt and use a corporate seal.
corporate officer or director a business
opportunity which the corporation is 4. To amend its articles of incorporation in
financially able to undertake, is from its accordance with the provisions of this
nature, in the line of the corporation’s code.
business and is of practical advantage to it,
is one in which the corporation will be 5. To adopt by-laws, not contrary to law,
brought into conflict with that of his morals, or public policy, and to amend
corporation, the law will not permit him to or repeal the same in accordance with
seize the opportunity for himself. this Code.
Director is a fiduciary. 6. In case of stock corporations, to issue or
He who is in such fiduciary position cannot sell stocks to subscribers and to sell
serve himself first and his cestuis treasury stocks in accordance with the
(beneficiary) second. He cannot manipulate provisions of this code; and to admit
the affairs of his corporation to their members to the corporation if it be a
disadvantage and in disregard of the non-stock corporation.
standards of common decency. He cannot
by the intervention of a corporate entity 7. To purchase, receive, take or grant,
violate the ancient principle against serving hold, convey, sell, lease, pledge,
two masters. mortgage and otherwise deal with such
real and personal property, including
Sec. 35. Executive Committee. – The by- securities and bonds of other
laws of a corporation may create an corporations, as the transaction of the
executive committee, composed of not less lawful business of the corporation may
than three members of the board, to be be reasonably and necessarily require,
appointed by the board. Said committee subject to the limitations prescribed by
may act, by majority vote of all its law and the Constitution.
members, on such specific matters within
the competence of the board, as may be 8. To enter into with other corporations
delegated to it in the by-laws or on a merger or consolidation as provided in
this code.
9. To make reasonable donations,
including those for the public welfare or
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for hospital, charitable, cultural, Law on Business Organizations Reviewer
scientific, civic, or similar purposes:
Provided, That no corporation, domestic or trustees and ratified at a meeting by the
or foreign, shall give donations in aid of stockholders representing at least two-
any political party or candidate or for thirds (2/3) of the outstanding capital stock
purposes of partisan political activity. or by at least two-thirds (2/3) of the
members in case of non-stock corporations.
10. To establish pension, retirement, and Written notice of proposed action and of
other plans for the benefit of its the time and place of the meeting shall be
directors, trustees, officers and addressed to each stockholder or member
employees. at his place of residence as shown on the
books of the corporation and deposited to
11. To exercise such other powers as may the addressee in the post office with
be essential or necessary to carry out its postage prepaid, or served personally:
purpose or purposes as stated in its Provided, That in case of extension of
articles of incorporation. corporate term, any dissenting stockholder
may exercise his appraisal right under the
Powers of a corporation conditions provided in this Code.
A corporation has such powers, and such
powers only, as are conferred upon it by Extension of corporate term limited to 50
law or by its agreement. Powers may be years
conferred upon a corporation: The corporate term may be extended for
1. Expressly. periods not exceeding 50 years in any single
2. Impliedly, because they are incidental instance as provided by section 11 of the
Corporation Code. No extension can be
to corporate existence. made earlier than 5 years prior to the
3. Impliedly, because they are necessary original or subsequent expiry date(s) unless
there are justifiable reasons for an earlier
or proper in order to exercise the extension as determined by the SEC.
powers expressly conferred.
Corporation cannot extend expired term.
General express powers A corporation cannot extend its life by
Section 36 of the Corporation Code amendment of its articles of incorporation
enumerates the general and express effected during the three-year statutory
powers of corporations. period for liquidation when its original term
of existence had already expired.
Other corporate powers
The Corporation Code enumerates other Sec. 38. Power to increase or decrease
express powers of corporations as follows: capital stock; incur, create or increase
1. Power to extend or shorten corporate bonded indebtedness. – No corporation
shall increase or decrease its capital stock
term (Sec. 37). or incur, create or increase any bonded
2. Power to increase or decrease capital indebtedness unless approved by a majority
vote of the board of directors and, at a
stock; incur, create or increase bonded stockholders’ meeting duly called for the
indebtedness (Sec. 38). purpose, two-thirds (2/3) of the
3. Power to deny pre-emptive right (Sec. outstanding capital stock shall favor the
39). increase or diminution of the capital stock,
4. Power to sell or dispose assets (Sec. 40). or the incurring, creating or increasing of
5. Power to acquire own shares (Sec. 41). and bonded indebtedness. Written notice
6. Power to invest corporate funds in of the proposed increase or diminution of
another corporation or business or for the capital stock or of the incurring,
any other purpose (Sec. 42). creating, or increasing of any bonded
7. Power to declare dividends (Sec. 43). indebtedness and of the time and place of
8. Power to enter into management the stockholders’ meeting at which the
contracts (Sec. 44). proposed increase or diminution of the
capital stock or the incurring or increasing
Sec. 37. Power to extend or shorten of any bonded indebtedness is to be
corporate term. – A private corporation considered, must be addressed to each
may extend or shorten its terms as stated in stockholder at his place of residence as
the articles of incorporation when improved
by a majority vote of the board of directors 59
Law on Business Organizations Reviewer
shown on the books of the corporation and incorporation. From and after approval by
deposited to the addressee in the post the Securities and Exchange Commission
office with postage prepaid, or served and the issuance by the Commission of its
personally. certificate of filing, the capital stock shall
stand increased or decreased and the
A certificate in duplicate must be signed by incurring, creating or increasing of any
a majority of the directors of the bonded indebtedness authorized, as the
corporation and countersigned by the certificate of filing may declare: Provided,
chairman and secretary of the stockholders’ That the Securities and Exchange
meeting, setting forth: Commission shall not accept for filing any
certificate of increase of capital stock unless
1. That the requirements of this section accompanied by the sworn statement of
have been complied with. the Treasurer of the corporation lawfully
holding office at the time of the filing of the
2. The amount of the increase or certificate, showing that at least twenty-five
diminution of the capital stock. percent (25%) of such increased capital
stock has been subscribed and that at least
3. If an increase of the capital stock, the twenty-five percent (25%) of the amount
amount of capital stock or number of subscribed has been paid either in actual
shares of no-par stock thereof actually cash to the corporation or that there has
subscribed, the names, nationalities been transferred to the corporation
and residences of the persons property the valuation of which is equal to
subscribing, the amount of capital stock twenty-five percent (25%) of the
or number of shares of no-par stock subscription: Provided, further, That no
subscribed by each, and the amount decrease of the capital stock shall be
paid by each on his subscription in cash approved by the Commission, if its effect
or property, or the amount of capital shall prejudice the rise of corporate
stock or number of shares of no-par creditors.
stock allotted to each stockholder if Non-stock corporations may incur or create
such increase is for the purpose of bonded indebtedness, or increase the
making effective stock dividend same, with the approval by a majority vote
therefor authorized. of the board of trustees and of at least two-
thirds (2/3) of the members in a meeting
4. Any bonded indebtedness to be duly called for the purpose.
incurred, created, or increased.
Bonds issued by a corporation shall be
5. The actual indebtedness of the registered with the Securities and Exchange
corporation on the day of the meeting. Commission, which shall have the authority
to determine the sufficiency of the terms
6. The amount of the stock represented at thereof.
the meeting.
Bonds – Bonds are in form and effect similar
7. The vote authorizing the increase or to promissory notes, secured by mortgage
diminution of the capital stock, or the or trust deed upon specified property of the
incurring, creating or increasing of any debtor corporation.
bonded indebtedness.
Properties to a bond
Any increase or decrease in the capital Every bond issue usually involve three
stock or the incurring, creating or increasing parties: (1) the debtor – corporation; (2) the
of any bonded indebtedness shall require creditor – bondholder; and (3) the trustee.
prior approval of the Securities and
Exchange Commission. Bonds classified
One of the duplicate certificate shall be Bonds are classified into: coupon or
kept on file in the office of the corporation
and the other shall be filed with the registered bonds, mortgage bonds,
Securities and Exchange Commission and
attached to the original articles of debentures, convertible bonds,
participating bonds, collateral trust bands,
and guaranteed bonds.
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Coupon or registered bonds Law on Business Organizations Reviewer
Coupon bonds are payable to bearer or to
the order of a person, and have attached to Pre-emptive right – It means literally to
them coupon notes for each instalment of establish a prior right. A stockholder’s pre-
interest as it falls due. emptive right is his right to subscribe to
new shares of stock in proportion to his
Mortgage bond existing stockholdings, before the new
A mortgage bond is one secured by a shares are issued to others.
mortgage on corporate property.
Sec. 40. Sale or other disposition of assets.
Debenture bonds – Subject to the provisions of existing laws
Debenture bonds are not secured by on illegal combinations and monopolies, a
specific corporate property but rather solely corporation may, by a majority vote of its
on the issuer’s ability to pay the board of directors or trustees, sell, lease,
indebtedness. exchange, mortgage, pledge or otherwise
dispose of all or substantially all of its
Convertible bonds property and assets, including its goodwill,
Convertible bonds are those which includes upon such terms and conditions and for
a provision which permits the holder of the such consideration, which may be money,
bond to convert the bond into a specified stocks, bonds or other instruments for the
number of shares of stock of the payment of money or other property or
corporation at his option within a period consideration, as its board of directors or
fixed therein. trustees may deem expedient, when
authorized by the vote of the stockholders
Participating bonds representing at least two-thirds (2/3) of the
The owners or holders of participating outstanding capital stock; or in case of non-
bonds entitle them to participate in stock corporation, by the vote of at least
earnings of the corporation above the two-thirds (2/3) of the members, in a
specified rates of interest fixed. stockholders’ or members’ meeting duly
called for the purpose. Written notice of the
Collateral trust bonds proposed action and of the time and place
Collateral trust bonds are secured by a lien of the meeting shall be addressed to each
on securities deposited with a named stockholder or member at his place of
trustee constituting the collateral. residence as shown on the books of the
corporation and deposited to the addressee
Guaranteed bonds in the post office with the postage prepaid,
Guaranteed bonds are guaranteed or or served personally: Provided, That any
secured by another corporation other than dissenting stockholder may exercise his
the issuing corporation. appraisal right under the conditions
provided in this Code.
Sec. 39. Power to deny pre-emptive right. –
All stockholders of a stock corporation shall A sale or other disposition shall be
enjoy pre-emptive right to subscribe to all deemed to cover substantially all the
issues or disposition of shares of any class, corporate property and assets if thereby
in proportion to their respective the corporation would be rendered
shareholdings, unless such right is denied incapable of continuing the business or
by the articles of incorporation or an accomplishing the purpose for which it was
amendment thereto: Provided, That such incorporated.
pre-emptive right shall not extend to shares
to be issued in compliance with laws After such authorization or
requiring stock offerings or minimum stock approval by the stockholders or members,
ownership by the public; or to shares to be the board of directors or trustees may,
issued in good faith with the approval of the nevertheless, in its discretion, abandon
stockholders representing two-thirds (2/3) such sale, lease, exchange, mortgage,
of the outstanding capital stock, in pledge or other disposition of property and
exchange for property needed for corporate assets, subject to the rights of third parties
purposes or in payment of a previously under any contract relating thereto,
contracted debt. without further action or approval by the
stockholders or members.
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Nothing in this section is intended Law on Business Organizations Reviewer
to restrict the power of any corporation,
without the authorization by the members in the case of non-stock
stockholders or members, to sell, lease, corporations, at a stockholders’ or
exchange, mortgage, pledge or otherwise members’ meeting duly called for the
dispose of any of its property and assets if purpose. Written notice of the proposed
the same is necessary in the usual and investment and the time and place of the
regular course of business of said meeting shall be addressed to each
corporation or if the proceeds of the sale or stockholder or member at his place of
other disposition of such property and residence as shown on the books of the
assets be appropriated for the conduct of corporation and deposited to the addressee
its remaining business. in the post office with postage prepaid, or
served personally; Provided, That any
In non-stock corporations, where dissenting stockholder shall have appraisal
there are no members with voting rights, right as provided in this Code: Provided,
the vote of at least a majority of the however, That were the investment by the
trustees in office will be sufficient corporation is reasonably necessary to
authorization for the corporation to enter accomplish its primary purpose as stated in
into any transaction authorized by this the articles of incorporation, the approval
section. of the stockholders or members shall not be
necessary.
Sec. 41. Power to acquire own shares. – A
stock corporation shall have the power to Sec. 43. Power to declare dividends. – The
purchase or acquire its own shares for a board of directors of a stock corporation
legitimate corporate purpose or purposes, may declare dividends out of the
including but not limited to the following unrestricted retained earnings which shall
cases: Provided, That the corporation has be payable in cash, in property, or in stock
unrestricted retained earnings in its books to all stockholders on the basis of
to cover the shares to be purchased or outstanding stock held by them: Provided,
acquired: That any cash dividends due on delinquent
stock shall first be applied to the unpaid
1. To eliminate fractional shares arising balance on the subscription plus costs and
out of stock dividends. expenses, while stock dividends shall be
withheld from the delinquent stockholder
2. To collect or compromise an until his unpaid subscription is fully paid:
indebtedness to the corporation, arising Provided, further, That no stock dividend
out of unpaid subscription, in a shall be issued without the approval of
delinquency sale, and to purchase stockholders representing not less than
delinquent shares sold during said sale. two-thirds (2/3) of the outstanding capital
stock at a regular or special meeting duly
3. To pay dissenting or withdrawing called for the purposes.
stockholders entitled to payment for
their shares under the provisions of this Stock corporation are prohibited from
Code. retaining surplus profits in excess of one
hundred percent (100%) of their paid-in
Sec. 42. Power to invest corporate funds in capital stock, except: (1) when justified
another corporation or business or for any approved by the Board of Directors; or (2)
other purpose. – Subject to the provisions when the corporation is prohibited under
of this code, a private corporation may any loan agreement with any financial
invest its funds in any other corporation or institution or creditor, whether local or
business or for any purpose other than the foreign, from declaring dividends without
primary purpose for which it was organized its/his consent, and such consent has not
when approved by a majority of the board yet been secured; or (3) when it can be
of directors or trustees and ratified by the clearly shown that such retention is
stockholders representing at least two- necessary under special circumstance
thirds (2/3) of the outstanding capital stock, obtaining in the corporation, such as when
or by at least two-thirds (2/3) of the there is a need for special reserve for
probable contingencies.
Concept of dividends
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A dividend is a corporate profit set aside, Law on Business Organizations Reviewer
declared and ordered by the directors to be
paid to the stockholders on demand or at a Scrip dividend
fixed time. Scrip dividend is a writing or a certificate
issued to a stockholder entitling him to the
Dividends distinguished from profits payment of money or the like at some
“Dividends” means the profits or that future time inasmuch as the company, at
portion of the profits of the corporation the time the scrip dividends are declared,
which its board of directors, by proper has profits not in cash.
resolution, sets apart for rotable
distribution among the stockholders. It is Liquidating dividend
distinguished from “profits” for the profits Liquidating dividend involves the
in the hands of a corporation do not distribution of assets by a corporation to its
become dividends until they have been set stockholders upon dissolution.
apart, or at least declared, as dividends and
transferred to the separate property of the Sec. 44. Power to enter into a
individual stockholders. management contract. – No corporation
shall conclude a management contract with
Surplus profits – Surplus or net profits of a another corporation unless such contract
corporation is the difference between the shall have been approved by the Board of
total present value of its assets, after Directors and by stockholders owning at
deducting losses and liabilities, and the least the majority of the outstanding capital
amount of its capital stock. (11 Fletcher, stock, or by at least majority of the
Sec. 5335) members in the case of a non-stock
corporation, of both the managing and the
Basis of dividend declaration managed corporation, at a meeting duly
The board of directors of a stock called for the purpose: Provided, That (a)
corporation may declare dividends on the where a stockholder or stockholders
basis of outstanding stock held by the representing the same interest of both the
stockholders. The basis therefore is the managing and the managed corporations
stockholder’s total subscription and not on own and control more than one-third (1/3)
the amount paid by him on the of the total outstanding capital stock
subscription. This is for the reason that his entitled to vote of the managing
entire subscription represents his holding in corporation; or (b) where the majority of
the corporation for which he pays interests the members of the Board of Directors of
on any unpaid portion. (SEC Opinion, Dec. the managing corporation also constitute a
17, 1973) majority of the members of the Board of
Directors of the managed corporation, then
Classes of dividends the management contract must be
Dividends which a corporation may declare approved by the stockholders of the
and distribute to its stockholders may be managed corporation owning of at least
classified into: cash dividend, stock two-thirds (2/3) of the total outstanding
dividend, property dividend, scrip dividend, capital stock entitled to vote, or by at least
and liquidating dividend. two-thirds (2/3) of the members in case of a
non-stock corporation. No management
Cash dividend contract shall be entered into for a period
Cash dividend is one payable in money. longer than five years for any one term.
Stock dividend The provisions of the next preceding
Stock dividend is a dividend payable in stock paragraph shall apply to any contract
instead of cash or property. whereby a corporation undertakes to
manage or operate all or substantially all of
Property dividend the business of the other corporation,
The directors in their discretion may whether such contracts are called service
authorize distributions in bonds or in contracts, operating agreements or
property, such as warehouse receipts for otherwise: Provided, however, That such
whiskey or shares of stock of a subsidiary service contracts or operating agreements
corporation. which relate to the exploration,
development, exploitation or utilization of
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natural resources may be entered into for Law on Business Organizations Reviewer
such periods as may be provided by the
pertinent laws or regulations. deprive either the corporation or the other
part of money or property acquired under
Concept of management contract the contract. On the other hand, the great
A management contract is an agreement weight of authority is to consider executor
under which the board of directors of a contracts as unenforceable.
corporation delegates the powers of
management to another person or Ultra vires contracts accepted doctrines
corporation for a period of time provided 1. If the contract is fully executed on both
for in the agreement.
sides, the contract is effective and the
Effects of Management contracts courts will not interfere to deprive
Contracts by which the board of directors either part of what has been acquired
delegates the power of supervision and under it.
management to another person or 2. If the contract is executor on both sides,
corporation for a specified period are as a rule either party can maintain an
invalid if they involve a surrender by the action for its non-performance.
board of its power and duty of supervision 3. Where the contract is executor on side
and control. only, and has been fully performed on
the other, the courts differ as whether
Management prerogatives an action will lie on the contract against
An owner of a business enterprise is given the party who has received benefits of
considerable margin in managing his performance under it. Majority of the
business because it is deemed important to courts hold that the party who has
society as a whole that he should succeed. received benefits from the performance
is stopped” to set up that the contract
Sec. 45. Ultra vires acts of corporations. – us ultra vires to defeat an action on the
No corporation under this Code shall contract. There is, however, a rule
possess or exercise any corporate powers which is widely recognized by the
except those conferred by this Code or by courts that ultra vires. “Should not be
its articles of incorporation and except such allowed to prevail, when involved for or
as are necessary or incidental to the against the corporation, where it will
exercise of the powers so conferred. defeat the ends of justice or work a
legal wrong.
Intra vires – The acts of a corporation within
its express or implied powers. Acts which are ultra vires are voidable but
Ultra vires – The acts of a corporation may be ratified. In order that such ultra
outside its express or implied powers. vires may be ratified it must be shown that
1. The act was consummated or executed.
It denotes some act or transaction on the 2. No creditors are prejudiced or they
part of a corporation which, although not
unlawful or contrary to public policy of have given their consent thereto.
executed by an individual, is yet beyond the 3. The right of the public or the state are
legitimate powers of the corporation as
they are defined by the statute under which not involved.
it is formed, or which are applicable to it, or 4. All of the stockholders consent thereto.
by its charter or incorporation papers.
A corporation, like an individual, may ratify
Admittedly, if the contract is executed on and thereby render binding upon it the
both sides neither party can maintain an originally authorized acts of its officers or
action to set aside the transaction or to other agents. This is true because the
recover what has been parted with. The questioned investment is neither contrary
courts will not interfere in such a case to to law, morals, public order or public policy.
It is a corporate transaction or contract
which is within the corporate powers but
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which is defective from a purported failure Law on Business Organizations Reviewer
to observe in its execution the requirement the appropriate government agency to the
of the law that the investment must be effect that such by-laws or amendments are
in accordance with law.
authorized by the affirmative vote of the
Necessity of by-laws
stockholders holding 2/3 of the voting The corporation must adopt the code of by-
power. laws for its internal government.
Sec. 46. by-laws Adoption. – Every Corporation has inherent power to adopt
corporation formed under this code, must, by-laws
within one month after receipt of official One of its legal incidents and is usually
notice of the issuance of its certificate of expressly granted by law of the charter
incorporation by the Securities and subject to such limitations as may be
Exchange Commission, adopt a new code of contained in the statute or the charter,
by-laws for its government not inconsistent subject to such limitations as may be
with this code. For the adoption of by-laws contained in the statute or charter, and the
by the corporation the affirmative vote of general requirements of validity. If a
the stockholders representing at least a corporation fails to file its by-laws within
majority of the outstanding capital stock, or the period required by law its certificate of
of at least a majority of the outstanding incorporation may be suspended or even
capital stock, or of at least a majority of the revoked.
members, in the case of non-stick
corporations, shall be necessary. The by- Section 46 allows the adoption and filing of
laws shall be signed by the stockholders or the by-laws before incorporation provided
members voting for them and shall be kept the same is approved by all the
in the principal office of the corporation, incorporators and submitted to the
subject to the inspection of the Securities and Exchange Commission
stockholders or members during office together with the articles of incorporation.
hours; and a copy thereof, duly certified to
by a majority of the directors or trustees By-laws cannot provide for unreasonable
and countersigned by the secretary of the restriction
corporation, shall be filed with the Restriction upon the traffic in stock must
Securities and Exchange Commission which have their source in legislative enactment,
shall be attached to the original articles of as the corporation itself cannot create such
incorporation. impediments. By-laws are created for
protection and not for restriction.
Notwithstanding the provisions of the
preceding paragraph, by-laws may be Elements of valid by-laws
adopted and filed prior to incorporation; in 1. Must not be inconsistent with the
such case, such by-laws shall be approved
and signed by all the incorporators and general law and the Corporation Code.
submitted to the Securities and Exchange 2. Must not be inconsistent with public
Commission, together with the articles of
incorporation. policy.
3. Must be general in application and not
In all cases, by-laws shall be effective only
upon the issuance by the Securities and directed against particular individuals.
Exchange Commission of a certification that 4. Must not be inconsistent with the
the by-laws are not inconsistent with the
Code. articles of incorporation.
5. Must not impair obligations and
The Securities and Exchange Commission
shall not accept for filing the by-laws or any contracts.
amendment thereto of any bank, banking 6. Must not be in restraint of trade.
institution, building and loan association, 7. Must not restrict religious freedom.
trust company, insurance company, public
utility, educational institution or other By-laws validity
special corporations governed by special As a rule, the by-laws of a corporation are
laws, unless accompanied by a certificate of valid if they are reasonable and calculated
to carry into effect the objects of the
corporation, and are not contradictory to
the general policy of the laws of the land.
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Binding effect of by-laws Law on Business Organizations Reviewer
By-laws when valid, substantially the same
force and effect as laws of the corporation transaction of its corporate business
as have the provisions of its charter in so far and affairs.
as the corporation, the persons within it is
concerned. They are in effect written into The enumerations of contents of by-laws
the charter and in this sense; they become are not exclusive and neither does the
part of the fundamental law of the provision require all the matters mentioned
corporation. And the corporation, and its to appear in the by-laws.
directors and officers are bound by and
must comply with them. Strangers, The By-laws must not violate the
however, are not bound to know by-laws Constitution, the Corporation Code, other
which are merely provisions for the special laws and the articles of
government of a corporation and notice of incorporation.
them will not be presumed.
A corporation which has failed to file its by-
Sec 47. Contents of by-laws. – Subject to laws within the prescribed period does not
the provisions of the Constitution, this ipso facto lost its powers as such.
Code, other special laws, and the articles of
incorporation, a private corporation may Sec. 48. Amendments to by-laws. – The
provide in its by-laws for: board of directors or trustees, by a majority
vote thereof, and the owners of at least a
1. The time, place and manner of calling majority of the outstanding capital stock, or
and conducting regular or special at least a majority of the members of a non-
meetings of the directors or trustees. stock corporation, at a regular or special
meeting duly called for the purpose, may
2. The time and manner of calling and amend or repeal any by-laws or adopt new
conducting regular or special meetings by-laws. The owners of 2/3 of the
of the stockholders or members. outstanding capital stock or 2/3 of the
members in a non-stick corporation may
3. The required quorum in meetings of delegate to the repeal any by-laws or adopt
stockholders or members and the new by-laws: provided, that any power
manner of voting therein. delegated to the board of directors or
trustees shall be considered as revoked
4. The form for proxies of stockholders whenever stockholders owning or
and members and the manner of voting representing a majority of the outstanding
them. capital stock or a majority of the members
in non-stock corporations, shall so vote at a
5. The qualifications, duties and regular or special meeting.
compensation of directors or trustees,
officer and employees. Whenever any amendment or new by-laws
are adopted, such amendment or new by-
6. The time for holding the annual election laws shall be attached to the original by-
of directors or trustees and the mode or laws in the office of the corporation, and a
manner of giving notice thereof. copy thereof, duly certified under oath by
the corporate secretary and a majority of
7. The manner of election or appointment the directors or trustees, shall be filed with
and the term of office of all offices the Securities and Exchange Commission,
other than directors or trustees. the same to be attached to the original
articles of incorporation and original by-
8. The penalties for violation of the by- laws.
laws.
Amender or new by-laws shall only be
9. In the case of stick corporations, the effective upon the issuance by the SEC of a
manner of issuing stock certificates. certification that the same are not
inconsistent with this code.
10. Such other matter as may be necessary
for the proper or convenient The authority to make or adopt the original
by-laws of a corporation cannot be given to
the board of directors or trustees. The
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stockholders of a stock corporation or the Law on Business Organizations Reviewer
members of the non-stick corporation
adopt or make the original by-laws. Notice of any meeting may be waived,
expressly or impliedly, by any stockholder
An amendment of by-law renders or member.
stockholder ineligible as director
It is well-settled xxx that corporations have Whenever, for any cause, there is no person
the power to make by-laws declaring a authorized to call a meeting, the SEC, upon
person employed in the service of a rival petition of a stockholder or member, and
company to be ineligible for the on the showing of good cause there for,
corporation’s Board of Directors. An may issue an order to the petitioning
amendment which renders ineligible, or if stockholder or member directing him to call
elected, subjects to removal, a director if he a meeting of the corporation by giving
be also a director in a corporation whose proper notice required by this Code or by
business is in competition with or is the by-laws. The petitioning stockholder or
antagonistic to the other corporation is member shall preside thereat until at least
valid. This is based upon the principle that a majority of the stockholders or members
where the director is so employed in the present have chosen one of their numbers
service of a rival company, he cannot serve as presiding officer.
both, but must betray one or the other.
Such an amendment advances the benefit Corporate decisions; rationale of meetings
of the corporation and is good. As a rule, a majority of the shareholders or
members have no power to vote or act for
Meetings Necessity the corporation as to matters on which
A majority of the stockholders or members shareholders have authority, except at a
can bind the corporation only at a meeting meeting called and conducted according to
regularly held and conducted. To constitute law. Written or oral consent to a corporate
a legal meeting, so as to render the acts and act by the shareholders or members
vote of the majority binding the meeting individually, even though a majority may
must be regularly called by one having agree, is not binding on the corporation.
authority. In the absence of provision to the
contrary such authority exists in the When there is no person authorized to call
directors or managing agents. a meeting
A stockholder or member may petition the
Sec. 49. Kinds of Meeting. – Meetings of SEC upon showing of good cause, to call a
directors, trustees, stockholders, or meeting and directing the petitioner
members may be regular or special. (stockholder or member) to give notice
required by the Code and the by-laws. The
Sec. 50. Regular and special meetings of petitioning stockholder or member shall
stock holders or members. – Regular preside at such meeting until at least a
meetings of stockholders or members shall majority of the stockholders or members
be held annually on a date fixed in the by- present have chosen one of their numbers
laws, or if not so fixed, on any date in April as presiding officer.
of every year as determined by the board of
directors or trustees: Provided, that written Sec. 51. Place and time of meetings of
notice of regular meetings shall be sent to stockholders or members. – Stockholders’
all stockholders or members of record at or members’ meetings, whether regular or
least 2 weeks prior to the meeting, unless a special, shall be held in the city or
different period is required by the by-laws. municipality where the principal office of
the corporation is located, and if practicable
Special meetings of stockholders or in the principal office of the corporation:
members shall be held at any time deemed Provided, that Metro Manila shall, for the
necessary or as provided in the by-laws: purposes of his section, be considered a city
Provided, however, that at least 1 week or municipality
written notice shall be sent to all stock
holders or members, unless otherwise Notice of meetings shall be in writing, and
provided in the by-laws. the time and place thereof stated therein.
All proceedings had and any business
transacted at any meeting of the
stockholders or members, if within the
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powers or authority of the corporation, Law on Business Organizations Reviewer
shall be valid even of the meeting be
improperly held or called, provided all the Sec. 54. Who shall preside at meetings. –
stockholders or members of the The president shall preside at all meeting of
corporation are present or duly represented the directors or trustees as well as of the
at the meeting. stockholders or members, unless the by-
laws provide otherwise.
Place of meetings
(Regular or special) meetings shall be held The meetings of directors or trustees may
in the city or municipality where the be held anywhere in the by-laws. Notice of
principal office of the corp. is located. regular or special meetings of directors or
trustees must be sent to them at least 1 day
If the meeting be improperly held or called prior to the scheduled meeting, unless the
(as when there was a defective notice) the by-laws provided otherwise.
same shall still be valid provided that
1. The act done was within the powers of Sec. 55. Right to vote of pledgors,
mortgagors and administrators. – In case
the corporation. of pledged or mortgaged share in stock
2. All the stockholders or members were corporations, the pledgor or mortgagor
shall have the right to attend and vote at
present or duly represented. meetings of stockholders, unless the pledge
or mortgagee is expressly given such right in
Sec 52. Quorum in meetings. – Unless writing which is recorded on the
otherwise provided for in this Code or in the appropriate corporate books by the pledgor
by-laws, a quorum shall consist of the or mortgagor.
stockholders representing a majority of the
outstanding capital stock or a majority of Executors, administrators, receivers and
the members in the case of non-stock other legal representatives duly appointed
corporations. by the court may attend and vote in behalf
of the stockholders or members without
Quorum – Signifies the number of persons need of any written proxy.
belonging to a corporation required to
transact business. Within the meaning of The pledgor or mortgagor of shatem in the
section 52 above, a quorum shall consist of absence of agreement to the contrary, if
the stockholders representing a majority of the shate remain in his name on the books
the outstanding capital stock or a majority of the corporation has the right to attend
of the members in the case of non-stock and vote at meetings of stockholders.
corporations.
A person who appears on the books of a
Sec. 53. Regular of special meetings of corporation or otherwise as the absolute
directors or trustees. – The meetings shall owner of stock clearly has the right to
be held monthly, unless the by-laws provide vote, although in face he may hold it as
otherwise. trustee.
Special meetings of the board of directors Executor and administrator has the right, to
or trustees may be held at any time upon vote shares belonging to the estate of his
the call of the president or as provided in decedent, and it can make no difference
the by-laws that the share stand on the books of the
corporation in the name of the decedent.
Meetings of directors or trustees of
corporations may be held anywhere in or Sec. 56. Voting in case of joint ownership
outside of the Philippines, unless the by- of stock. – In case of share of stock owned
laws provide otherwise. Notice of regular or jointly by 2 or more persons, in order to
special meetings stating the date, time and vote the same, the consent of all the co-
place of the meeting must be sent to every owners shall be necessary, unless there is a
director or trustee at least 1 day prior to the written proxy, signed by all the co-owners.
scheduled meeting, unless otherwise Authorizing one or some of them or any
provided in the by-laws. A director or other person to vote such share or shares:
trustee may waive this requirement, either provided, that when the shares are owned
expressly or impliedly.
68
in an capacity by the holders therof, any Law on Business Organizations Reviewer
one of the joint owner can vote said shares
or appoint a proxy therfor. of a voting trust specifically required as a
condition in a loan agreement, said voting
If share are owned by 2 or more persons trust may be for a period exceeding 5 years
jointly, the right to vote is in them jointly, but shall automatically expire upon full
and , in order that the shares may be voted, payment of the loan. A voting trust
they must agree upon the vote. This rule of agreement must be in writing and
joint action applies to shares held by several notarized, and shall specify the terms and
executors or trustees, in the absence of conditions thereof. A certified copy of such
provision for a majority vote if the agreement shall be filed with the
fiduciaries disagree. corporation and with the SEC: otherwise,
said agreement is ineffective and
Sec. 57. Voting right for treasury share. – unenforceable. The certificate or of stock
Treasury shares shall have no voting right as covered by the voting trust agreement shall
long as such stock remains in the treasury. be cancelled and new one shall be issued in
the name of the trustee or trustees stating
Treasury shares have no voting rights. that they are issued pursuant to said
agreement. In the books of the corporation,
Sec. 58. Proxies. – Stockholders and it shall be noted that the transfer in the
members may vote in person or by proxy in name of the trustee or trustees is made
all meetings of stock holders or members. pursuant to said voting trust agreement.
Proxies shall be in writing, signed by the
stock holder or member and filed before The Trustee or trustees shall be execute and
the scheduled meeting with the corporate deliver to the transferors voting trust
secretary. Unless otherwise provided in the certificates, which shall be transferable in
proxy, it shall be valid only for the meeting the same manner and with the same effect
for which it is intended. No proxy shall be as certificates of stock.
valid and effective for a period longer than
five years at any one time. The voting trust agreement filed with the
corporation shall be subject to examination
Proxy – In corporate law, is a person who by any stockholder of the corporation in the
votes for and this represents the same manner as any other corporate book
stockholders or members. or record: Provided, That both the
transferor and the trustee or trustees may
Voting by proxy exercise the right of inspection of all
Ordinarily the right to vote shall be corporate books and records in accordance
exercised by the stockholders themselves or with the provisions of this code.
by their duly authorized representatives.
Proxy to be valid must be: Any other stock holder may transfer his
1. In writing, signed by the stockholder or shares to the same trustee or trustees upon
the terms and conditions stated in the
member giving it. voting trust agreement, and there upon
2. Filed with the corporate secretary shall be bound by all the provisions of said
agreement.
before the scheduled meeting.
3. It is valid only for the meeting for which No voting trust agreement shall be entered
into for the purpose of circumventing the
it is intended unless otherwise law against monopolies and illegal
stipulated. combinations in restraint of trade or used
4. Even if the proxy is a continuing one it for purposes of fraud.
shall not be longer than 5 year at any
one time. Unless expressly renewed, all rights granted
in a voting trust agreement shall
Sec 59. Voting trusts. – One or more automatically expire at the end of the
stockholders of a stock corporation may be agreed period, and the voting trust
create a voting trust for the purpose of certificates as well as the certificates of
conferring upon a trustee or trustees the stick in the name of the trustee or trustees
right to vote and other rights pertaining to shall thereby be deemed cancelled and new
the share for a period not exceeding 5 years
at any one time: Provided, that in the case 69
certificates of stock shall be reissued in the Law on Business Organizations Reviewer
name of the transferors.
No person can become a stockholder in a
The voting trustee or trustees may vote by corporation by virtue of a subscription for
proxy unless the agreement provides stock unless there is a valid contract
otherswise. between him and the corporation. When a
contract of subscription for stock in a
Concept of voting trusts corporation is binding it is a contract
A voting trust is an agreement by which between the subscriber or subscribers and
stockholders surrender their voting power the corporation, and its formation and
and place it irrevocably in the hands of validity are governed by the same principles
others for a definite period of time. In substantially as any other contract except in
exchange for the certificates of stock the so far as such principles may be rendered
trustee delivers to the stockholder voting inapplicable by particular charter or
trust certificates. statutory provisions. No express promise to
pay is necessary to make the subscriber
Limitations on voting trust agreement liable.
1. It shall be for a period not exceeding 5
No form required of subscription contracts
years but if required under a loan Unless otherwise required by law. Thus, a
agreement, the period may be for more person who accepts a certificate of stock
than 5 years but shall automatically from a corporation, or who acts as a
cease upon full payment of the loan. stockholder by participating in stockholders’
2. It must be in writing and notarized. meeting, making payments, or otherwise,
3. It shall not be entered into to thereby becomes a stockholder and liable
circumvent laws on monopolies and as such, not only to creditors, but also to
restraint of trade, nor shall it be the corporation, although there may have
entered into purposes of fraud. no express contract of subscription.
4. It shall be filed with the corporation and
with SEC otherwise it shall be Sale of Shares of Stock Needs SEC Approval
ineffective and unenforceable. The Securities Act requires that before a
5. It shall be subject to examinations by corporation, except a public utility, bank,
any stockholder in the same manner as corporation association and a few others,
any other corporate book or record. sells, or offers for sale in the Philippines any
6. Parties to the voting trust agreement of its securities, like shares of stocks or
shall be bound by all the provisions of bonds, it must register the same and/or
said agreement. secure a permit from the SEC for the
purpose. The authorization is in the form of
Sec. 60. Subscription contract. – Any an exemption from the requirements of
contract for the acquisition of unissued registration and licensing, and is issued by
stock in an existing corporation or a the way of resolution of the SEC.
corporation still to be formed shall be
deemed a subscription within the meaning Power to issue shares is lodged in the
of this Title, notwithstanding the fact that board of directors and no stockholders’
the parties refer to it as a purchase or some meeting is necessary to consider it because
other contract. additional issuance of shares of stock does
not need approval of the stockholders. The
How can a person become a shareholder in “Board of Trustees shall, in of stock of the
a stock corporation? corporation and shall prescribe the form of
1. By subscription contract with an the certificate of stock of corporation.”
existing corporation for the acquisition Kinds of Subscription:
of unissued shares. 1.1. Pre-incorporation – is one agreed upon
2. By purchase from the corporation of
treasury shares. before the incorporation of the
3. By transfer from a previous stockholder proposed corporation.
of the outstanding shares or existing 1.2. Post-incorporation Subscription –
subscription to shares. entered into after the incorporation or
formation of the corporation.
Binding effect of subscription
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2. Absolute Subscription – one not subject Law on Business Organizations Reviewer
to any condition or happening of
certain unknown events. Sec. 62. Considering for stocks. – Stocks
shall not be issued for a consideration less
3. Conditional Subscription – its fulfillment than the par or issued price thereof.
depends upon the happening of Consideration for the issuance of stock may
uncertain events of contingencies. It be any or a combination of any two or more
does not make the subscriber a of the following:
stockholder or render him liable to pay
the amount of the subscription, until 1. Actual cash paid to the corporation.
performance or fulfillment of the
condition. 2. Property, tangible or intangible, actually
received by the corporation and
4. Subscription upon special terms – where necessary or convenient for its use and
“the corporation agreed, as an lawful purposes at a fair valuation equal
independent element, to do a certain to the par or issued value of the stock
thing or things, but not as condition to issued.
the accrual of liability of the subscriber
or the acquisition of the rights of a 3. Labor performed for or services actually
stockholder. rendered to the corporation.
Sec. 61. Pre-incorporation subscription. – A 4. Previously incurred indebtedness of the
subscription for shares of stock of a corporation.
corporation still to be formed shall be
irrevocable for a period of at least six (6) 5. Amounts transferred from unrestricted
months from the date of subscription, retained earnings to stated capital.
unless all of the other subscribers consent
to the revocation, or unless the 6. Outstanding shares exchanged for
incorporation of said corporation fails to stocks in the event of reclassification or
materialize within said period or within a conversion.
longer period as may be stipulated in the
contract of subscription: Provided, That no Where the consideration is other than
pre-incorporation subscription may be actual cash, or consists of intangible
revoked after the submission of the articles property such as patents of copyrights, the
of incorporation to the Securities and valuation thereof shall initially be
Exchange Commission. determined by the incorporators or the
board of directors, subject to approval by
SEC. 61 Pre-incorporation subscription is the Securities and Exchange Commission.
mandatory (Sec. 13 & 14) at least 25% of
the authorized capital stock has been Shares of stock shall not be issued in
subscribed and at least 25% of the total exchange for promissory notes or future
subscription has been fully paid. service. The same considerations provided
for in this section, insofar as they may be
Subscription for shares of stock of a applicable, may be used for the issuance of
corporation still to be formed shall be bonds by the corporation. The issued price
irrevocable for a period of at least 6 months of no-par value shares may be fixed in the
from the date of subscription, unless: articles of incorporation or by the board of
1. All subscribers consent to its directors pursuant to authority conferred
upon it by the articles of incorporation or
revocation. the by-laws, or in the absence thereof, by
2. The incorporation fails to materialize the stockholders representing at least a
majority of the outstanding capital stock at
within 6 months or a longer period as a meeting duly called for the purpose.
agreed upon.
Consideration for issuance of stock may be
The irrevocability of pre-incorporation any or any combination of any two or
prevents a subscriber from speculating on more of the ff:
the stocks of the proposed corporation and 1. Cash
protects the corporation from financially 2. Property – tangible or intangible
irresponsible subscribers. 3. Labor performed or services actually
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rendered Law on Business Organizations Reviewer
4. Previously incurred indebtedness by the
fact or other person legally authorized to
corporation make the transfer. No transfer, however,
5. Amounts transferred from unrestricted shall be valid, except as between the
parties, until the transfer is recorded in the
retained earnings to stated capital books of the corporation showing the
6. Outstanding shares exchanged for stock names of the parties to the transaction, the
date of the transfer, the number of the
in the event of reclassification or certificate or certificates and the number of
conversion shares transferred.
Sources of corporate capital No shares of stock against which the
1. Funds furnished by shareholders corporation holds any unpaid claim shall be
2. Borrowings transferable in the books of the
3. Profits and stock dividends corporation.
Different modes by which a corporation SEC. 63 The capital stock of stock
may issue shares of stock corporation shall be divided into shares
1. By subscription before and after Certificate of stock shall be issued for said
shares.
incorporation, to original, unissued
stocks. Nature of a certificate of stock
2. By sale of treasury stock after 1. It is a written instrument signed by the
incorporation for money property, or
service. proper officer of a corporation stating
3. By subscription to new stocks, when all or acknowledging that the person
the original stocks have been issued and named therein is the owner of a
the amount of the capital stock designated number of shares of stock.
increased. 2. It indicates the name of the holder, the
4. By making a stock dividend. number, kind and class of shares
represented, and the date of issuance.
Limitations in the issuance of stocks 3. It i merely the evidence of the holder's
1. Shall not be issued for a consideration interest in the corporation, his
ownership of the share represented
less than the par or issued price thereof thereby.
except treasury shares so long as the 4. It is not essential to make one a
price is reasonable. stockholder in a corporation.
2. Shall not be issued in exchange of
promissory notes or future services. Every stockholder has a right to
3. When the consideration is other than have proper certificate issued to
actual cash or consists of intangible him as soon as he has complied
property, the value thereof shall be with the conditions which entitle
initially determined by the him to one.
incorporators or the board of directors,
subject to the approval of the SEC. A corporation cannot issue shares
4. The issued price of no par value shares in excess of the maximum
must be fixed as provided in Sec. 62. authorized in its AOI.
issued price may vary from time to time
but value may not be less than P5. An over issued stock is absolutely
void even if possessor is in good
Sec. 63. Certificate of stock and transfer of faith.
shares. – The capital stock of stock
corporations shall be divided into shares for Shares can be transferred
which certificates signed by the president or represented by the certificate by its
vice president, countersigned by the endorsement by the owner or his
secretary or assistant secretary, and sealed agent and delivery to the
with the seal of the corporation shall be transferee.
issued in accordance with the by-laws.
Shares of stock so issued are personal Restrictions on transfer of stock
property and may be transferred by 1. A by-law prohibits a transfer of stock
delivery of the certificate or certificates
endorsed by the owner or his attorney-in- without the consent or approval of all
stockholders or of the president or
board of directors is ILLEGAL.
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2. A provision in the certificate that is Law on Business Organizations Reviewer
transferable only to some person first
approved by the board of directors dividends as against the
unlawfully restricts the right of the corporation but the transferor,
stockholder. as the nominal owner of the
share, is the trustee for the
3. The condition “non-transferable” benefit of the real owner.
appearing on certificates of stock is 3. It is invalid as against corporate
VOID. creditors, and the transferor is still
liable to the corporation. The
4. corporations which will engage in any transfer of stock by a shareholder
business reserved for Filipino citizens does not relieve him from the
are required to indicate in AOI and all liability to creditors of the
certificates. corporation for unpaid subscription
until the transfer is consummated
Two requirements to effect transfer of by being registered in the books.
stocks 4. It is invalid as against creditors of
Endorsement and delivery of stock the transferor without notice of the
certificate transfer.
-the usual practice is for the stockholder to
sign the form on the back of the stock Shares of stock against which the
certificate. corporation holds any unpaid claim shall
-if the holder of the certificate desires to not be transferable in the books – no
assume the legal right of the stockholder he unpaid claims against the stock.
fills up the blank in the form inserting his
name as transferee. no unpaid subscriptions due and
-then he delivers the certificate to the payable.
secretary of the corporation so that the
transfer may be entered in the books. Sec. 64. Issuance of stock certificates. – No
certificate of stock shall be issued to a
Other modes of transfer subscriber until the full amount of his
1. Assignment thru a separate instrument. subscription together with interest and
2. Judicial or extra-judicial settlement of expenses (in case of delinquent shares), if
any is due, has been paid.
the estate.
SEC. 64 It is prohibited to issue certificates
Validity of stock transfer of stock to a subscriber who has not paid
1. As between parties the full amount of his subscription together
with interest and expenses.
-merely the delivery of the certificate
indorsed by the owner or his attorney- Derivative suit – one brought by one or
in-fact or other person legally more stockholders or members in the name
authorized to make the transfer. and in behalf of the corporation to redress
2. As against third persons wrongs committed against it or to protect
-the transfer of shares must be entered or vindicate corporate rights.
and noted upon the books of the
corporation Individual suit – one brought by a
-only absolute transfer are recorded stockholder in his own name against the
corporation for direct violation of his
Effects of unregistered shares contractual rights such as right to vote, to
1. It is valid and binding as between dividends etc.
the transferor and transferee.
2. It is invalid insofar as the Representative suit – a group of
corporation is concerned except stockholders may bring a direct suit against
when notice is given to the the corporation. This is when a wrong is
corporation for purposes of committed against a group of stockholders.
registration.
a) the transferor has the right to Certificate of Stock – a written instrument
vote and to be voted for, and signed by the proper corporate officers, and
has the right to participate in evidencing the fact that the person therein
any meeting named is the registered owner of the share
b) the transferor has the right to or shares therein described.
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Nature and Functions of Certificates Law on Business Organizations Reviewer
It represents the number of shares which
the corporation acknowledges that the 2. By delivering the certificate
holder of the certificate is entitled to and is accompanied by a separate assignment.
a solemn and continuing affirmation by the
corporation that the person to whom it was 3. Where stock is levied on in execution of
issued is entitled to all the rights and judgment, by delivering the certificate
subject to all the liabilities of a stockholder coupled with an assignment by the
in the company in respect of the number of sheriff who conducted the levy.
shares named, and that the company will
respect his rights and the rights of anyone 4. Transfer by sale of delinquent shares.
to whim he may transfer such shares, by
refusing to admit any new transferee to the Liabilities of a stockholders
rights of a stockholder except upon the 1. Liability to the corporation for unpaid
surrender of the certificate.
subscription
Issuance of Stock Certificate. It requires: 2. Liability to the corporation for interest
1. sign by the president or vice-president,
on unpaid subscription
countersigned by the secretary or 3. Liability to creditors of the corporation
assistant secretary, and sealed with the
seal of the corporation, and issued in on unpaid subscription
accordance with the law. 4. Liability for watered stock
2. The certificate must be delivered or 5. Liability for dividends unlawfully paid
mailed to the subscriber, with the 6. Liability for failure to create a
documentary stamps required by law
affirmed thereon. corporation
3. The par value with respect to shares
with par value, or the full subscriptions, Sec. 65. Liability of directors for watered
as to no-par value shares must be fully stocks. – Any director or officer of a
paid. corporation consenting to the issuance of
4. Where it involves transfer of stocks for a consideration less than its par
outstanding shares, the original or issued value or for a consideration in any
certificate must be retained. form other than cash, valued in excess of its
fair value, or who, having knowledge
Purpose of Registration of Transfer thereof, does not forthwith express his
1. To enable the corporation to know at all objection in writing and file the same with
the corporate secretary, shall be solidarily,
times who its actual shareholders are, liable with the stockholder concerned to
because mutual rights and obligations the corporation and its creditors for the
exist between the corporation and its difference between the fair value received
stockholders. at the time of issuance of the stock and the
2. To afford to the corporation an par or issued value of the same.
opportunity to object or refuse its
consent to the transfer in case it has SEC. 65 watered stocks – stock issued for no
any claim against the stock sought to be value at all or for a value less than its
transferred or for any other valid equivalent either in cash, property, shares,
reason. stock dividends, or services the law
3. To avoid fraudulent or fictitious prohibits the issuance of watered stocks
transfer. (only refers to original issue)
4. It is intended also for the benefit and 1. To protect persons who may acquire
protection of persons who may deal
with the corporation and become stock and those who may become the
creditors, so that they know who are creditors of the corporation on the faith
the stockholders, and as such liable to of its outstanding capital stock being
its creditors. fully paid.
2. To secure equality among subscribers
Right to Transfer shares of stock and prevents discrimination against
1. By delivering the certificate, duly those who have paid in full the par or
issued value.
indorsed on the back.
Who are liable for watered stocks?
Both consenting director or officer and the
stockholder concerned for the whole
amount of difference.
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Trust Fund Theory – involves an implied Law on Business Organizations Reviewer
promise to the corporation to pay the par
value of the shares in money or its 3. Denying a stockholder delinquent for
equivalent, supplementing it by a legal unpaid subscription the right to vote
restriction against release or fictitious (under section 71)
payment of this obligation to the prejudice
of creditors. 4. Collection from cash dividends and
withholding stock dividends (under
Sec. 66. Interest on unpaid subscriptions. – Section 43)
Subscribers for stock shall pay to the
corporation interest on all unpaid Sanctions on stock delinquent
subscriptions from the date of subscription, 1. Rights denied to stockholder shall not
if so required by, and at the rate of interest
fixed in the by-laws. If no rate of interest is be voted or be entitled to vote or
fixed in the by-laws, such rate shall be representation at any stockholders'
deemed to be the legal rate. meeting, nor entitled the holder thereof
to any of the rights of a stockholder
Sec. 67. Payment of balance of except the right to dividends.
subscription. – Subject to the provisions of 2. Right given to the corporation.
the contract of subscription, the board of 3. The corporation has the right to apply
directors of any stock corporation may at cash dividends due on delinquent stock
any time declare due and payable to the to the unpaid balance on the
corporation unpaid subscriptions to the subscription plus cost and expenses.
capital stock and may collect the same or
such percentage thereof, in either case with While stock dividends, corporation to
accrued interest, if any, as it may deem withhold the same from the delinquent
necessary. stockholder until his unpaid subscription is
fully paid.
Payment of any unpaid subscription or any
percentage thereof, together with the When is the balance of subscription
interest accrued, if any, shall be made on payable?
the date specified in the contract of 1. On the date specified in the contract of
subscription or on the date stated in the call
made by the board. Failure to pay on such subscription.
date shall render the entire balance due 2. In the absence of any specified date in
and payable and shall make the stockholder
liable for interest at the legal rate on such the contract of subscription, on the
balance, unless a different rate of interest is date stated in the call made by the
provided in the by-laws, computed from board of directors.
such date until full payment. If within thirty
(30) days from the said date no payment is When does the stock become delinquent?
made, all stocks covered by said A stock becomes delinquent upon failure of
subscription shall thereupon become the holder to pay the unpaid subscription or
delinquent and shall be subject to sale as balance thereof within 30 days from the
hereinafter provided, unless the board of date specified in the contract of
directors orders otherwise. subscription or on the date stated in the
call.
Remedies to enforce payment of stock
subscription Call – a declaration officially made by a
1. Extra-judicial sale at public auction – corporation usually expressed in the form
of a resolution of the board of directors
Permits the corporation to put up requiring payment of all or a certain
unpaid stock for sale and dispose of it prescribed portion of a subscriber's stock
for the account of the delinquent subscription.
subscribers (governed by sections 67-69
of the Corporation Code of the Requisites for a valid call
Philippines). 1. It must be made in the manner
2. Judicial action by court action (provided
under Section 70) prescribed by law.
2. It must be made by the board of
directors.
3. It must operate uniformly upon all
shares.
75
Sec. 68. Delinquency sale. – The board of Law on Business Organizations Reviewer
directors may, by resolution, order the sale
of delinquent stock and shall specifically Procedure:
state the amount due on each subscription 1. The board of directors passes a
plus all accrued interest, and the date, time
and place of the sale which shall not be less resolution declaring payable the whole
than thirty (30) days nor more than sixty or certain percentage of the unpaid
(60) days from the date the stocks become subscription stating the date fixed for
delinquent. payment. If the date of payment is
specified in the contract of subscription,
Notice of said sale, with a copy of the no call is necessary.
resolution, shall be sent to every delinquent 2. The stockholders are given notice of the
stockholder either personally or by resolution by the secretary of the
registered mail. The same shall furthermore corporation. If the stockholders fails to
be published once a week for two (2) pay within 30 days from date specified,
consecutive weeks in a newspaper of the stocks becomes delinquent.
general circulation in the province or city 3. the board of directors, by resolution,
where the principal office of the orders the sale of delinquent stocks,
corporation is located. stating the amount due and the date,
time, and place of sale with notice to
Unless the delinquent stockholder pays to the delinquent stockholders which
the corporation, on or before the date notice shall be published.
specified for the sale of the delinquent 4. On the date of sale, will be sold at
stock, the balance due on his subscription, public auction to higher bidder for cash.
plus accrued interest, costs of
advertisement and expenses of sale, or Highest bidder – the person offering at the
unless the board of directors otherwise sale to pay the full amount of the balance
orders, said delinquent stock shall be sold on the subscription together with accrued
at public auction to such bidder who shall interest, cost of advertisement and
offer to pay the full amount of the balance expenses of sale, for the smallest number of
on the subscription together with accrued shares.
interest, costs of advertisement and
expenses of sale, for the smallest number of In the absence of bidders or highest bidder,
shares or fraction of a share. The stock so the corporation may purchase for itself the
purchased shall be transferred to such delinquent stock.
purchaser in the books of the corporation
and a certificate for such stock shall be Sec. 69. When sale may be questioned. –
issued in his favor. The remaining shares, if No action to recover delinquent stock sold
any, shall be credited in favor of the can be sustained upon the ground of
delinquent stockholder who shall likewise irregularity or defect in the notice of sale, or
be entitled to the issuance of a certificate of in the sale itself of the delinquent stock,
stock covering such shares. unless the party seeking to maintain such
action first pays or tenders to the party
Should there be no bidder at the public holding the stock the sum for which the
auction who offers to pay the full amount of same was sold, with interest from the date
the balance on the subscription together of sale at the legal rate; and no such action
with accrued interest, costs of shall be maintained unless it is commenced
advertisement and expenses of sale, for the by the filing of a complaint within six (6)
smallest number of shares or fraction of a months from the date of sale.
share, the corporation may, subject to the
provisions of this Code, bid for the same, Grounds for the recovery of stock
and the total amount due shall be credited unlawfully sold for delinquency are:
as paid in full in the books of the 1. Irregularity or defect in the notice of
corporation. Title to all the shares of stock
covered by the subscription shall be vested sale
in the corporation as treasury shares and 2. Irregularity or defect in the sale itself of
may be disposed of by said corporation in
accordance with the provisions of this Code. the delinquent stock
Sec. 70. Court action to recover unpaid
subscription. – Nothing in this Code shall
prevent the corporation from collecting by
76
action in a court of proper jurisdiction the Law on Business Organizations Reviewer
amount due on any unpaid subscription,
with accrued interest, costs and expenses. SEC. 72 Before unpaid shares become
delinquent, the holder thereof is not
As a general rule, a corporation may not considered to have violated any contract
maintain a suit for the enforcement of with the corporation, and, therefore, he has
unpaid subscription without first making a all the rights of a stockholder which rights
call. include the right to vote.
Judicial remedy is limited to the amount Sec. 73. Lost or destroyed certificates. –
due on any unpaid subscription with The following procedure shall be followed
accrued interest, costs and expenses for the issuance by a corporation of new
certificates of stock in lieu of those which
Sec. 71. Effect of delinquency. – No have been lost, stolen or destroyed:
delinquent stock shall be voted for be
entitled to vote or to representation at any 1. The registered owner of a certificate of
stockholder's meeting, nor shall the holder stock in a corporation or his legal
thereof be entitled to any of the rights of a representative shall file with the
stockholder except the right to dividends in corporation an affidavit in triplicate
accordance with the provisions of this Code, setting forth, if possible, the
until and unless he pays the amount due on circumstances as to how the certificate
his subscription with accrued interest, and was lost, stolen or destroyed, the
the costs and expenses of advertisement, if number of shares represented by such
any. certificate, the serial number of the
certificate and the name of the
SEC. 71 Stock delinquency does not deprive corporation which issued the same. He
the holder of all his rights as a stockholder shall also submit such other information
except the right to be voted for or be and evidence which he may deem
entitled to representation at any necessary.
stockholders' meeting. He shall still receive
dividends. But delinquent stocks shall be 2. After verifying the affidavit and other
subject to delinquency sale. information and evidence with the
books of the corporation, said
Effects of Stocks declared delinquent: corporation shall publish a notice in a
1. Cannot be voted for or be entitled to newspaper of general circulation
published in the place where the
vote in corporate meetings or be corporation has its principal office, once
represented by proxy at any a week for three (3) consecutive weeks
stockholders’ meeting. at the expense of the registered owner
2. The holder of delinquent stock is not of the certificate of stock which has
entitled to exercise the rights of a been lost, stolen or destroyed. The
stockholder (i.e. to inspect books and notice shall state the name of said
records, etc.). corporation, the name of the registered
3. The holder of delinquent stocks is owner and the serial number of said
entitled to dividends. Section 43 certificate, and the number of shares
provides however, that “ any cash represented by such certificate, and
dividends due on delinquent stock shall that after the expiration of one (1) year
first be applied to the unpaid balance from the date of the last publication, if
on the subscription plus costs and no contest has been presented to said
expense, while stock dividends shall be corporation regarding said certificate of
withheld from the delinquent stock, the right to make such contest
stockholder until his unpaid shall be barred and said corporation
subscription is fully paid”. shall cancel in its books the certificate
of stock which has been lost, stolen or
Sec. 72. Rights of unpaid shares. – Holders destroyed and issue in lieu thereof new
of subscribed shares not fully paid which certificate of stock, unless the
are not delinquent shall have all the rights registered owner files a bond or other
of a stockholder. security in lieu thereof as may be
required, effective for a period of one
(1) year, for such amount and in such
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form and with such sureties as may be Law on Business Organizations Reviewer
satisfactory to the board of directors, in
which case a new certificate may be every act done or ordered done at the
issued even before the expiration of the meeting. Upon the demand of any director,
one (1) year period provided herein: trustee, stockholder or member, the time
Provided, That if a contest has been when any director, trustee, stockholder or
presented to said corporation or if an member entered or left the meeting must
action is pending in court regarding the be noted in the minutes; and on a similar
ownership of said certificate of stock demand, the yeas and nays must be taken
which has been lost, stolen or on any motion or proposition, and a record
destroyed, the issuance of the new thereof carefully made. The protest of any
certificate of stock in lieu thereof shall director, trustee, stockholder or member on
be suspended until the final decision by any action or proposed action must be
the court regarding the ownership of recorded in full on his demand. The records
said certificate of stock which has been of all business transactions of the
lost, stolen or destroyed. corporation and the minutes of any
meetings shall be open to inspection by any
Except in case of fraud, bad faith, or director, trustee, stockholder or member of
negligence on the part of the corporation the corporation at reasonable hours on
and its officers, no action may be brought business days and he may demand, writing,
against any corporation which shall have for a copy of excerpts from said records or
issued certificate of stock in lieu of those minutes, at his expense.
lost, stolen or destroyed pursuant to the
procedure above-described. Any officer or agent of the corporation who
shall refuse to allow any director, trustees,
SEC. 73 The registered owner of certificates stockholder or member of the corporation
of stock in a corporation or his legal to examine and copy excerpts from its
representative shall file with the records or minutes, in accordance with the
corporation an affidavit setting forth how provisions of this Code, shall be liable to
certificate were lost, stolen or destroyed, such director, trustee, stockholder or
the number of shares represented by each member for damages, and in addition, shall
certificate, the serial numbers of the be guilty of an offense which shall be
certificate and name of the corporation punishable under Section 144 of this Code:
which issued the same. Provided, That if such refusal is made
pursuant to a resolution or order of the
The affidavit shall be verified board of directors or trustees, the liability
Corporation shall publish a notice in a under this section for such action shall be
newspaper in general circulation published imposed upon the directors or trustees who
in the place where the corporation has its voted for such refusal: and Provided,
principal office for 3 consecutive weeks. further, That it shall be a defense to any
action under this section that the person
After 1 year from the date of the last demanding to examine and copy excerpts
publication, if no contest presented to the from the corporation's records and minutes
corporation, corporation shall cancel in the has improperly used any information
books the lost certificates and issue new secured through any prior examination of
certificates. the records or minutes of such corporation
or of any other corporation, or was not
Sec. 74. Books to be kept; stock transfer acting in good faith or for a legitimate
agent. – Every corporation shall keep and purpose in making his demand.
carefully preserve at its principal office a
record of all business transactions and Stock corporations must also keep a book to
minutes of all meetings of stockholders or be known as the "stock and transfer book",
members, or of the board of directors or in which must be kept a record of all stocks
trustees, in which shall be set forth in detail in the names of the stockholders
the time and place of holding the meeting, alphabetically arranged; the installments
how authorized, the notice given, whether paid and unpaid on all stock for which
the meeting was regular or special, if special subscription has been made, and the date
its object, those present and absent, and of payment of any installment; a statement
of every alienation, sale or transfer of stock
made, the date thereof, and by and to
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whom made; and such other entries as the 1. Certificated changing the
by-laws may prescribe. The stock and composition of the board of
transfer book shall be kept in the principal directors and officers
office of the corporation or in the office of
its stock transfer agent and shall be open 2. Certificates changing the ownership
for inspection by any director or of the controlling interest in the
stockholder of the corporation at corporation
reasonable hours on business days.
Management contracts duly approved by
No stock transfer agent or one engaged the stockholders.
principally in the business of registering
transfers of stocks in behalf of a stock Sec. 75. Right to financial statements. –
corporation shall be allowed to operate in Within ten (10) days from receipt of a
the Philippines unless he secures a license written request of any stockholder or
from the Securities and Exchange member, the corporation shall furnish to
Commission and pays a fee as may be fixed him its most recent financial statement,
by the Commission, which shall be which shall include a balance sheet as of the
renewable annually: Provided, That a stock end of the last taxable year and a profit or
corporation is not precluded from loss statement for said taxable year,
performing or making transfer of its own showing in reasonable detail its assets and
stocks, in which case all the rules and liabilities and the result of its operations.
regulations imposed on stock transfer
agents, except the payment of a license fee At the regular meeting of stockholders or
herein provided, shall be applicable. members, the board of directors or trustees
shall present to such stockholders or
Books and records to be kept by members a financial report of the
Corporation operations of the corporation for the
1. Record of all business transactions preceding year, which shall include financial
2. Minutes of all meetings of stockholders statements, duly signed and certified by an
independent certified public accountant.
or members, or of board of directors or
trustees However, if the paid-up capital of the
3. Stock and transfer books corporation is less than P50,000.00, the
4. Optional records and supplementary financial statements may be certified under
books as many be necessary or required oath by the treasurer or any responsible
by special laws officer of the corporation.
SEC Rules requiring filing of documents. The Stockholder’s rights to financial statements
SEC requires all corporations whose and reports
securities are listed in any stock exchange 1. Balance sheet as of the end of the last
or with permits to sell shares to the public
or with twenty or more stockholders shall taxable year.
hereafter submit to this Commission within 2. A profit and loss statement for said
thirty (30) days after approval of the
corporate action, certified true copies of taxable year.
the following documents evidencing the 3. The board of directors or trustees shall
same, to wit:
a. Minute of meetings present “a financial report” to
stockholders or members.
1. Calling for payment of unpaid
subscriptions SEC REPORTORIAL REQUIREMENTS
2. Increasing or decreasing the capital Period Requirements
stock
Within 30 days from a) Set up books of
3. Changing the nomenclature of
shares of stock or certificates of registration of accounts duly
indebtedness
articles onaf registered with the
4. Authorizing the borrowing of
material sums of money incorporation BIR wherein receipts
b. Other documents, such as: and disbursements
made are
immediately
recorded.
b) Set up and
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Law on Business Organizations Reviewer
register with the SEC stockholder
its stock and Address
transfer book. Nationality
No. of shares
Within 15 days from c) File its by-laws Within 5 days
end of 3 months with the before the date of subscribed
from registration Commission. annual meeting Amt. subscribed
Submit a statement
a) Within 105 days of sources and by each
after the end of its application of funds Shall be made for
fiscal year certified by an inspection.
independent CPA. Submit list of
i) If paid-up capital > stockholders/memb
P50,000, file a copy ers entitled to vote
of BS and P&L as of a date prior to
statement. the meeting.
b) Within 45 days ii) If paid-up capital The SEC must be notified of any:
< P50,000, same as 1. Change or transfer of address.
Within 30 days from (i) and certified 2. Any investment of corporate funds in
the date of annual under oath by the
meeting Treasurer or any any of the secondary purposes of the
responsible officer. corporation by filing a copy of the
Certified under oath resolution approved by 2/3 of the
by the Treasurer or subscribed capital stock entitled to vote
any responsible authorizing the BoD to invest in any of
officer. the secondary purposes.
Submit:
1) General Sec. 76. Plan of merger or consolidation. –
information sheet Two or more corporations may merge into a
for the fiscal year. single corporation which shall be one
constituent corporations or may
consolidate into a new single corporation
which shall be consolidated corporation.
2) Minutes of The board of directors or trustees of each
corporation, party to the merger or
meeting of consolidation, shall approve a plan of
merger or consolidation setting forth the
stockholders/memb following:
ers electing the BoD
certified by the
Secretary and
subscribed and 1. The names of the corporations
proposing to merge or consolidate,
sworn to before a hereinafter referred to as the
constituent corporations.
notary public.
3) Minutes of
meeting of BoD 2. The terms of the merger or
consolidation and the mode of carrying
electing the officers, the same into effect.
certified by the
secretary and
subscribed and 3. A statement of the changes. If any, in
the articles of incorporation of the
sworn to before a surviving corporation in case of merger;
and, with respect to the consolidated
notary public corporation in case of consolidation, all
the statements required to be set forth
Within 5 days from Submit list of in the articles of incorporation for
stockholders/memb corporations organized under this Code.
ers meeting stockholders/memb
ers as of the date of
annual or special
stockholders/memb
ers’ meeting,
showing:
Name of the
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4. Such other provisions with respect to Law on Business Organizations Reviewer
the proposed merger or consolidation
as are deemed necessary or desirable. combination by consolidation or merger are
called the “constituent” corporations.
Sec. 77. Stockholders’ or members’
approval. – Upon approval by majority vote Sec. 78. Articles of merger or consolidation.
of each of the board of directors or trustees – After the approval by the stockholders or
of the constituent corporations of the plan members as required by the preceding
of merger or consolidation, the same shall section, articles of merger or articles of
be submitted for approval by the consolidation shall be executed by each of
stockholders or members of each of such the constituent corporations, to be signed
corporations at separate corporate by the president or vice-president and
meetings duly called for stockholders or certified by the secretary or assistant
members of the respective corporations, at secretary of each corporation setting forth:
least two (2) weeks prior to the date of
meeting, either personally or by registered 1. The plan of the merger or the plan of
mail. Said notice shall state the purpose of the consolidation.
the meeting and shall include a copy or a
summary of the plan of merger or 2. As to stock corporations, the number of
consolidation as the case may be. The shares outstanding, or in case of non-
affirmative vote of stockholders stock corporations, the number of
representing at least two-thirds (2/3) of the members.
outstanding capital stock of each
corporations in case of stock corporations 3. As to each corporation, the number of
or at least two-thirds of the members in shares or members voting for and
case of non-stock corporations, shall be against such plan, respectively.
necessary for the approval of such plan. Any
dissenting stockholder in stock corporations Sec. 79. Securities and Exchange
may exercise his appraisal right in Commission’s approval and effictivity of
accordance with this Code; Provided, That if merger or consolidation. – The articles of
after the approval by the stockholders of merger or of consolidation signed and
such plan, the board of directors should certified as hereinabove required, shall be
decide to abandon the plan, the appraisal submitted to the Securities and Exchange
right shall be extinguished. Commission in quadruplicate for its
approval: Provided, That in the case of
Any amendment to the plan of merger or merger or consolidation of banks or banking
consolidation may be made, provided such institutions, building and loan associations,
amendment is approved by majority vote of trust companies, insurance companies,
the respective boards of directors or public utilities, educational institutions and
trustees of all the constituent corporations other special corporations governed by
and ratified by the affirmative vote of special laws, the favorable recommendation
stockholders representing at least two- of the appropriate government agency shall
thirds (2/3) of the members of each of the first be obtained. Where the Commission is
constituent corporations. Such plan, satisfied that the merger or consolidation of
together with any amendment, shall be the corporations concerned is not
considered as the agreement of merger or inconsistent with the provisions of this Code
consolidation. and existing laws, it shall issue a certificate
of merger or consolidation, as the case may
Definition be, at which time the merger or
Consolidation – the uniting or consolidation shall be effective.
amalgamation of two or more existing
corporations to form a new corporation. If, upon investigation, the Securities and
The united concern resulting from the union Exchange Commission has reason to believe
is called the consolidated corporation. that the proposed merger or consolidation
Merger – a union effected by the absorbing is contrary to or inconsistent with the
of one or more existing corporations by provisions of this Code or existing laws, it
another which survives and continues the shall set a hearing to give the corporations
combined business. The parties to a concerned the opportunity to be heard.
Written notice of the date, time and place
of said hearing shall be given to each
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constituent corporation at least two (2) Law on Business Organizations Reviewer
weeks before said hearing. The Commission
shall thereafter proceed as provided in this corporation, as the case may be.
Code. Neither the rights of creditors nor any
lien upon the property of any of such
Sec. 80. Effects of merger or consolidation. constituent corporations shall be
– The merger or consolidation, as provided impaired by such merger or
in the preceding sections shall have the consolidation.
following effects:
Steps to achieve merger or consolidation
1. The constituent corporations shall 1. The BoD of each corporation must draw
become a single corporation which, in
case of merger, shall be the surviving up a plan of merger or consolidation.
corporation designated in the plan of 2. A plan must be submitted to the S/M of
merger; and, in case of consolidation,
shall be the consolidated corporation each corporation for approval. The vote
designated in the plan of consolidation. or two-thirds (members) or two-thirds
of the outstanding capital stock
2. The separate existence of the (stockholders) would be required.
constituent corporations shall cease, 3. There has to be a formal agreement
except that of the surviving or the known as the articles of M/C by the
consolidated corporation. officers of each of the constituent
corporations.
3. The surviving or the consolidated 4. The articles of M/C must be submitted
corporation shall possess all the rights, to the SEC for approval.
privileges, immunities and powers and 5. The SEC shall if it deems necessary set a
shall be subject to all the duties and hearing giving notice to all corporations
liabilities of a corporation organized concerned.
under this Code. 6. The SEC issues the certificate of M/C.
The M/C becomes effective upon the
4. The surviving or the consolidated issuance of the corresponding
corporation shall thereupon and certificate.
thereafter possess all the rights,
privileges, immunities and franchises of Remedy of creditors of constituent
each of the constituent corporations; corporations
and all property, real or personal, and The only remedy is either against the united
all receivables due on whatever corporation, or to pursue the assets of the
account, including subscriptions to constituents into its hands on the ground of
shares and other chooses in action, and fraudulent conveyance.
all and every other interest of, or
belonging to, or due to each constituent Sec. 81. Instances of appraisal right. – Any
corporation, shall be taken and deemed stockholder of a corporation shall have the
to be transferred to and vested in such right to dissent and demand payment of the
surviving or consolidated corporation fair value of his shares in the following
without further act or dead. instances:
5. The surviving or consolidated 1. In case any amendment to the articles
corporation shall be responsible and of incorporation has the effect of
liable for all the liabilities and changing or restricting the rights of any
obligations of each of the constituent stockholders or class of shares, or of
corporations in the same manner as if authorizing preferences in any respect
such surviving or consolidated superior to those of outstanding shares
corporation had itself incurred such of any class, or of extending or
liabilities or obligations; and any claim, shortening the term of corporate
action or proceeding pending by or existence.
against any of such constituent
corporations may be prosecuted by or 2. In case of sale, lease, exchange,
against the surviving or consolidated transfer, mortgage, pledge or other
disposition of all or substantially all of
the corporate property and assets as
provided in this Code.
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3. In case of merger or consolidation. Exercising the appraisal right
By one who has voted against the proposed
Sec. 81, not exclusive. corporate action, by making a written
demand on the corporation within thirty
Such appraisal right may also be exercised (30) days after the date on which the vote
when a stockholder dissents when a was taken for payment of the fair value of
corporation or business or for a purpose his shares. Those who are absent and
other than its main purpose. (Sec. 42) present abstained their vote cannot
exercise the appraisal right.
When a stockholder of a close corporation
may for any reason compel the corporation Sec. 83. Effect of demand and termination
to purchase his shares from the par or of right. – From the time of demand for
issued value, when the corporation has payment of the fair value of a stockholder’s
sufficient assets in its books to cover its shares until either the abandonment of the
debts and liabilities, exclusive of capital corporate action involved or the purchase
stock. (Sec. 105) of the said shares by the corporation, all
rights accruing to such shares, including
Sec. 82. How right is exercised. – The voting and dividend rights, shall be
appraisal right may be exercised by any suspended in accordance with the
stockholder who shall have voted against provisions of this Code, except the right of
the proposed corporate action, by making a such stockholder to receive payment of the
written demand on the corporation within fair value thereof: Provided, That if the
thirty (30) days after the date on which the dissenting stockholder is not paid the value
vote was taken for payment of the fair of his shares within 30 days after the award,
value of his shares: Provided, That failure to his voting and dividend rights shall be
make the demand within such period shall immediately be restored.
be deemed a waiver of the appraisal right. If
the proposed corporate action is Sec. 84. When right to payment ceases. –
implemented or effected, the corporation No demand for payment under this Title
shall pay to such stockholder, upon may be withdrawn unless the corporation
surrender of the certificate(s) of stock consents thereto. If, however, such demand
representing his shares, the fair value for payment is withdrawn with the consent
thereof as of the day prior to the date on of the corporation, or if the proposed
which the vote was taken, excluding any corporate action is abandoned or rescinded
appreciation or depreciation in anticipation by the corporation or disapproved by the
of such corporate action. Securities and Exchange Commission where
such approval is necessary, or if the
If within a period of sixty (60) days from the Securities and Exchange Commission
date the corporate action was approved by determines that such stockholder is not
the stockholders, the withdrawing entitled to the appraisal right, then the right
stockholder and the corporation cannot of said stockholder to be paid the fair value
agree on the fair value of the shares, it shall of his shares shall cease, his status as a
be determined and appraised by three (3) stockholder shall thereupon be restored,
disinterested persons, one of whom shall be and all dividend distributions which would
named by the stockholder, another by the have accrued on his shares shall be paid to
corporate and the third by the two (2) thus him.
chosen. The findings of the majority of the
appraisers shall be final, and their award Effect of refusal of corporation to pay
shall be paid by the corporation within
thirty (30) days after such award is made: If... Then...
Provided, That no payment shall be made to
any dissenting stockholder unless the FV of the shares Restore all his rights
corporation has unrestricted retain earnings
in its books to cover such payment: and within thirty (30) automatically.
Provided, further, That upon payment by
the corporation of the agreed or awarded days from the award
price, the stockholder shall forthwith
transfer his shares to the corporation. Insufficiency of the Restore by
unrestricted RE reacquiring his
former status as a
stockholder.
Abandoned;
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Rescinded; Same effects as Law on Business Organizations Reviewer
Unsecured approval above.
of the SEC; The rate of dividends
Stockholder is not The regularity with which they have
entitled;
Withdrawal been paid
(dissenting The management and reputation of
stockholder with
consent of the corp) the company
Its prospects for the future
Sec. 85. Who bears costs of appraisal. – All other circumstances which will
The costs and expenses of appraisal shall be
borne by the corporation, unless the fair aid them in estimating the future
value ascertained by the appraisers is course of the stock in the market
approximately the same as the price which
the corporation may have offered to pay The important thing to consider in arriving
the stockholder, in which case they shall be at the appraisal value is whether the
borne by the latter. In case of an action to valuation arrived at is fair, just and
recover such fair value, all costs and reasonable to all parties concerned.
expenses shall be assessed against the
corporation, unless the refusal of the Other instances when appraisal right may
stockholder to receive payment was be granted
unjustified. 1. Amendment of “any provision or matter
Consideration of the costs of appraisal stated in the articles of incorporation.”
Expenses of appraisal: 2. When the corporate term is extended.
3. Any purpose other than the primary
Appraisers’ fees
Attorneys’ fees purpose.
Expert accountants’ fees 4. Close corporation – a stockholder may
Witnesses before the appraisers’
compel the corporation to purchase FV
fees “for any reasons.”
Thus, clarifies an otherwise delicate aspect Exercise of appraisal right provided
of appraisal proceeding. compensatory alternative to investor
Appraisal statutes extending to corporate
Sec. 86. Notation on certificate(s); right of purpose or duration amendments would
transferee. – Within ten (10) days after seem to be of limited value.
demanding payment for his shares, a
dissenting stockholder shall submit the Appraisal rights cannot challenge this power
certificate(s) of stock representing his but they can provide a compensatory
shares to the corporation for notation alternative to an investor faced with a loss
thereon that such shares are dissenting of existing stock rights and should be so
shares. His failure to do so shall, at the employed.
option of the corporation, terminate his
rights under this Title. If shares represented When right of stockholder to payment
by the certificate(s) bearing such notation ceases
are transferred, and the certificate(s) 1. The demand for payment is withdrawn
consequently cancelled, the rights of the
transferor as a dissenting stockholder under with the consent of the corporation.
this Title shall cease and the transferee shall 2. The proposed corporate action is
have all the rights of a regular stockholder;
and all dividend distributions which would abandoned or rescinded by the
have accrued on such shares shall be paid corporation.
to the transferee. 3. Proposed action is disapproved by the
SEC where such approval is necessary.
Valuation of shares of dissenting 4. Such stockholder is not entitled to
shareholders exercise his appraisal right.
Appraisers should consider the elements
that tend to affect market quotations: Sec. 87. Definition. – For the purposes of
this Code, a non-stock corporation is one
where no part of its income is distributable
as dividends to its members, trustees, or
officers, subject to the provisions of this
Code on dissolution: Provided, That, any
profit which a non-stock corporation may
obtain as an incident to its operation shall,
whenever necessary or proper, be used for
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the furtherance of the purpose or purposes Law on Business Organizations Reviewer
for which the corporation was organized,
subject to the provisions of this Title. under such conditions which may be,
prescribed by, the Securities and Exchange
The provisions governing stock Commission.
corporations, when pertinent, shall be
applicable to non-stock corporations, Voting by proxy may be denied in articles
except as may be covered by specific or by-laws
provisions of this Title. The law makes voting by proxy merely
directory in the case of non-stock
Definition corporations and even allows the articles of
Non-stock corporation – one where no part incorporation or by-laws thereof to deny
of its income is distributable as dividends to proxy voting.
its members, trustees, or officers.
If proxy voting may be denied outrightly in
Sec. 88. Purposes. – Non-stock corporations the articles or by-laws of non-stock
may be formed or organized for charitable, corporations, it necessarily follows that the
religious, educational, professional, cultural, qualifications or limitations on who should
fraternal, literary, scientific, social, civic be appointed proxies may also be made
service, or similar purposes, like trade, therein.
industry, agricultural and like chambers, or
any combination thereof, subject to the Sec.90. Non-transferability of membership.
special provisions of this Title governing – Membership in a non-stock corporation
particular classes of non-stock corporations. and all rights arising therefrom are personal
and non-transferable, unless the articles of
Distinction between a stock corporation incorporation or the by-laws otherwise
provide.
and a non-stock corporation
Sec.91. Termination of membership. –
Point of Stock Non-Stock Membership shall be terminated in the
manner and for the causes provided in the
Comparison Corporation Corporation articles of incorporation or the by-laws.
Termination of membership shall have the
Membership Ownership Consent of effect of extinguishing all rights of a
member in the corporation or in its
of stock the property, unless otherwise provided in the
articles of incorporation or the by-laws.
associates
Sec.92. Election and term of trustees. –
Solicitation of gifts, donations or Unless otherwise provided in the articles of
contributions by non-stock corporations incorporation or the by-laws, the board of
A certificate of registration must be secured trustees of non-stock corporations, which
from the Insurance Commissioner may be more than fifteen (15) in number as
otherwise the articles of incorporation may be fixed in their articles of
cannot be filed. incorporation or by-laws, shall, as soon as
organized, so classify themselves that the
Sec. 89. Right to vote. – The right of the term of office of one-third (1/3) of their
members of any class or classes to vote may number shall expire every year; and
be limited, broadened or denied to the subsequent elections of trustees comprising
extent specified in the articles of one-third (1/3) of the board of trustees shall
incorporation or the by-laws. Unless so be held annually and trustees so elected
limited, broadened or denied, each shall have a term of three (3) years.
member, regardless of class, shall be Trustees thereafter elected to fill vacancies
entitled to one vote. occurring before the expiration of a
particular term shall hold office only for the
Unless otherwise provided by the articles of unexpired period.
incorporation or the by-laws, a member
may vote by proxy in accordance with the No person shall be elected as trustee unless
provisions of this Code. he is a member of the corporation.
Voting by mail or other similar means by 85
members of non-stock corporations may be
authorized by the by-laws of non-stock
corporations with the approval of, and
Unless otherwise provided in the articles of Law on Business Organizations Reviewer
incorporation or the by-laws, officers of a
non-stock corporation may be directly “RESOLVED, that the corporation or
elected by the members. associatin will comply with the S.E.C.
REQUIREMENTS FOR NON-STOCK
Three-year term for trustees in non-stock CORPORATION dated May 24, 1963 , in
corporation the course of its operation.”
The term of trustees in non-stock 4. LIST OF MEMBERS of the association
corporation is three (3) years except containing their manual signature and
educational corporations where the term is attested by the Acting Secretary, if the
five (5) years. incorporators are the present members
so far, state such fact in writing and
Elections of directors by regions in non- further state that the list of additional
stock corporations not allowed members who will be admitted in
The Securities and Exchange Commission in accordance with the by-laws of the
an opinion stated that the “Election of association shall e submitted to the
members of the Board of Directors of a non Commission from time to time. (3
stock corporation by zones or regions would Copies)
violate the law which requires that at all
elections of directors, there must be Sec. 94. Rules of distribution. – In case
present a majority of the members entitled dissolution of a non-stock corporation in
to vote. ” accordance with the provisions of this Code,
its assets shall be applied and distributed as
Sec.93. Place of meetings. – The by-laws follows:
may provide that the members of a non-
stock corporation may hold their regular or 1. All liabilities and obligations of the
special meetings at any place even outside corporation shall be paid, satisfied and
the place where the principal office of the discharged, or adequate provision shall
corporation is located: Provided, That be made therefore.
proper notice is sent to all members
indicating the date, time and place of the 2. Assets held by the corporation upon a
meeting: and Provided, further, That the condition requiring return, transfer or
place of meeting shall be within the conveyance, and which condition
Philippines. occurs by reason of the dissolution,
shall be returned, transferred or
Supporting papers required to be conveyed in accordance with such
submitted to the Securities and Exchange requirements.
Commission:
1. LETTER OF UNDERTAKING addressed to 3. Assets received and held by the
corporation subject to limitations
the Commission signed by at least a permitting their use only for charitable,
majority of the incorporators or by a religious, benevolent, educational or
duly authorized representative, to the similar purposes, but not held upon a
effect that the association will change condition requiring return, transfer or
its corporate name in the event another conveyance by reason of the
person, firm or entity has acquired a dissolution, shall be transferred or
prior right to use the same name or conveyed to one or more corporations,
similar to it. (3 copies) societies or organizations engaged in
2. MODUS OPERANDI or a detailed activities in the Philippines substantially
explanation as to how the association similar to those of the dissolving
shall carry out its objectives signed by corporation according to a plan of
atleast a majority of the incorporators distribution adopted pursuant to this
or by a duly authorized representative. Chapter.
(3 Copies)
3. RESOLUTION of the Board signed by 4. Assets other than those mentioned in
atleast a majority of the Directors or the preceding paragraphs, if any, shall
certified under oath by the Secretary in be distributed in accordance with the
the following tenor to wit: (3 Copies) provisions of the articles of
incorporation or the by-laws, to the
extent that the articles of incorporation
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or the by-laws, determine the Law on Business Organizations Reviewer
distributive rights of members, or any
class or classes of members, or provide shall be held of record by not more
for distribution. than a specified number of persons, not
exceeding twenty (20).
5. In any other case, assets may be
distributed to such persons, societies, 2. All the issued stock of all classes shall be
organizations or corporations, whether subject to one or more specified
or not organized for profit, as may be restrictions on transfer permitted by
specified in a plan of distribution this Title.
adopted pursuant to this Chapter.
3. The corporation shall not list in any
Sec. 95. Plan of distribution of assets. – A stock exchange or make any public
plan providing for the distribution of assets, offering of any of its stock of any class.
not inconsistent with the provisions of this Notwithstanding the foregoing, a
Title, may be adopted by a non-stock corporation shall not be deemed a close
corporation in the process of dissolution in corporation when at least two-thirds
the following manner: (2/3) of its voting stock or voting rights
is owned or controlled by another
The board of trustees shall, by majority corporation which is not a close
vote, adopt a resolution recommending a corporation within the meaning of this
plan of distribution and directing the Code.
submission thereof to a vote at a regular or
special meeting of members having voting Any corporation may be incorporated as a
rights. Written notice setting forth the close corporation, except mining or oil
proposed plan of distribution or a summary companies, stock exchanges, banks,
thereof and the date, time and place of insurance companies, public utilities,
such meeting shall be given to each educational institutions and corporations
member entitled to vote, within the time declared to be vested with public interest in
and in the manner provided in this Code for accordance with the provisions of this Code.
the giving of notice of meetings to The provisions of this Title shall primarily
members. Such plan of distribution shall be govern close corporations: Provided, That
adopted upon approval of at least two- the provisions of other Titles of this Code
thirds (2/3) of the members having voting shall apply suppletorily except insofar as
rights present or represented by proxy at this Title otherwise provides.
such meeting.
Sec. 97. Articles of incorporation. – The
Distribution of assets of non-stock articles of incorporation of a close
corporations to the members on dissolution corporation may provide:
is not forbidden, unless it holds its assets
upon some trust, public or private, in which 1. For a classification of shares or rights
case the claims of the state, the and the qualifications for owning or
beneficiaries, or of the founder and his holding the same and restrictions on
successors may have to be considered. their transfers as may be stated therein,
A non-stock (non-profit) corporation may subject to the provisions of the
not ordinarily organize as a stock following section.
corporation, authorized to issue shares of
stock, but may issue membership 2. For a classification of directors into one
certificates which do not entitle to the or more classes, each of whom may be
holder to dividends. voted for and elected solely by a
particular class of stock.
Sec. 96. Definition and applicability of
Title. – A close corporation, within the 3. For a greater quorum or voting
meaning of this Code, is one whose articles requirements in meetings of
of incorporation provide that: stockholders or directors than those
provided in this Code.
1. All the corporation's issued stock of all
classes, exclusive of treasury shares, The articles of incorporation of a close
corporation may provide that the business
of the corporation shall be managed by the
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stockholders of the corporation rather than Law on Business Organizations Reviewer
by a board of directors. So long as this
provision continues in effect: identity and personality of each shareholder
are important to his associates, so that
1. No meeting of stockholders need be although they may consider their business
called to elect directors. as corporation in their dealings with third
persons, among themselves the
2. Unless the context clearly requires stockholders act and feel as partners.”
otherwise, the stockholders of the
corporation shall be deemed to be Entities which may not be organized as
directors for the purpose of applying close corporations
the provisions of this Code.
Mining or oil companies
3. The stockholders of the corporation Stock exchanges
shall be subject to all liabilities of Banks
directors. Insurance companies
Public utilities
The articles of incorporation may likewise Educational institutions
provide that all officers or employees or Corporations declared to be vested
that specified officers or employees shall be
elected or appointed by the stockholders, with public interest
instead of by the board of directors.
Stockholders authorized to manage close
Requisites of Close Corporation corporations
Within the meaning of a close corporation As a rule, management of stock corporation
under the Corporation Code the following is normally given to board of directors or
are its attributes: trustees. However, the Corporation Code
1. Its stockholders are limited not provides: “The articles of incorporation of a
close corporation may provide that the
exceeding 20 persons. business of the corporation shall be
2. Its shares of stock are subject to one or managed by the stockholders of the
corporation rather than by a board of
more restrictions on transfer. directors.” Also, “The articles of
3. Its shares of stock are not listed in any incorporation may likewise provide that all
officers or employees or that specified
stock exchange. officers or employees shall be elected or
appointed by the stockholders, instead of by
Salient Feature of Close Corporations the board of directors.”
1. It has only a few stockholders, who if
Sec. 98. Validity of restrictions on transfer
not related by blood or marriage, know of shares. – Restrictions on the right to
each other well and are aware of each transfer shares must appear in the articles
other’s business skills. of incorporation and in the by-laws as well
2. All or more of them are active in the as in the certificate of stock; otherwise, the
corporate business, either as directors, same shall not be binding on any purchaser
officers or as key men in management. thereof in good faith. Said restrictions shall
3. The stocks of the corporation are not not be more onerous than granting the
listed on the exchange nor is there existing stockholders or the corporation the
trading in them outside the stock option to purchase the shares of the
market. transferring stockholder with such
*It would seem that base on these reasonable terms, conditions or period
features many corporations in the stated therein. If upon the expiration of said
Philippines would be close period, the existing stockholders or the
corporations. corporation fails to exercise the option to
purchase, the transferring stockholder may
Reasons for formation of close sell his shares to any third person.
corporations
“The existence of close corporations can be Sec. 99. Effects of issuance or transfer of
attributed to the desire of intimate groups stock in breach of qualifying conditions. –
of business associates to obtain the 1. If stock of a close corporation is issued
advantages of a corporate organization, like
that of limited liability. However, the or transferred to any person who is not
entitled under any provision of the
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articles of incorporation to be a holder Law on Business Organizations Reviewer
of record of its stock, and if the
certificate for such stock conspicuously 6. The term "transfer", as used in this
shows the qualifications of the persons section, is not limited to a transfer for
entitled to be holders of record thereof, value.
such person is conclusively presumed to
have notice of the fact of his ineligibility 7. The provisions of this section shall not
to be a stockholder. impair any right which the transferee
may have to rescind the transfer or to
2. If the articles of incorporation of a recover under any applicable warranty,
close corporation states the number of express or implied.
persons, not exceeding twenty (20),
who are entitled to be holders of record Restrictions on transfer of shares of stock
of its stock, and if the certificate for The corporation may provide in its articles
such stock conspicuously states such of incorporation, in its by-laws as well as in
number, and if the issuance or transfer the certificate of stock restrictions on the
of stock to any person would cause the right of stockholders to transfer their shares
stock to be held by more than such of stocks. If not so provided as aforesaid the
number of persons, the person to same “shall not be binding on any purchaser
whom such stock is issued or thereof in good faith.” Charter restrictions
transferred is conclusively presumed to on the transfer of shares are binding on all
have notice of this fact. who become shareholders, as they become
parties to the charter contract and take
3. If a stock certificate of any close their shares subject to it. Considerable
corporation conspicuously shows a latitude allowed incorporators and
restriction on transfer of stock of the shareholders in imposing transfer
corporation, the transferee of the stock restrictions in the articles of incorporation
is conclusively presumed to have notice and they will not usually be declared
of the fact that he has acquired stock in against public policy unless palpably
violation of the restriction, if such unreasonable under the circumstances.
acquisition violates the restriction.
“Stock in the corporation is not merely
4. Whenever any person to whom stock of property. It also creates a personal relation
a close corporation has been issued or analogous otherwise than technically to a
transferred has, or is conclusively partnership. There seems to be no greater
presumed under this section to have, objection to retaining the right of choosing
notice either (a) that he is a person not one’s associates in a corporation than in a
eligible to be a holder of stock of the firm.”
corporation, or (b) that transfer of stock
to him would cause the stock of the Reasons for restriction on shares of stock
corporation to be held by more than In a close corporation, the identity of the
the number of persons permitted by its other stockholders is important to each; the
articles of incorporation to hold stock of incorporators have confidence in one
the corporation, or (c) that the transfer another which they may not have in an
of stock is in violation of a restriction on outsider. Furthermore, the incorporators
transfer of stock, the corporation may, may feel that the success of the enterprise
at its option, refuse to register the depends upon the retention of the
transfer of stock in the name of the personnel who formed it, or they may be
transferee. manufacturing under secret processes
which they do not want outsiders to learn.
5. The provisions of subsection (4) shall In the family corporation it is often the
not applicable if the transfer of stock, desire of he father to pass the corporation
though contrary to subsections (1), (2) to his son without interference from other
of (3), has been consented to by all the outside the family. Any one of these factors
stockholders of the close corporation, may induce the incorporators to attempt to
or if the close corporation has amended restrict the transfer of stock.
its articles of incorporation in
accordance with this Title. Effect of the transfer of stock in breach of
qualifying conditions
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Unless “consented to by all the Law on Business Organizations Reviewer
stockholders or if the close corporation has
amended its articles of incorporation,” a operation of the business and affairs of
transfer of shares of stock in breach of a close corporation, the stockholders
qualifying conditions would justify the shall be held to strict fiduciary duties to
corporation through the corporate each other and among themselves. Said
secretary to refuse to register the transfer stockholders shall be personally liable
of stock. Such transfer need not be for for corporate torts unless the
value, hence it may be the result of a corporation has obtained reasonably
donation. adequate liability insurance.
Sec. 100. Agreements by stockholders. – Effect of the Stockholders’ agreement
1. Agreements by and among stockholders before and after formation of corporation
Stockholders’ agreements before and after
executed before the formation and formation and organization of the
organization of a close corporation, corporation survive incorporation and shall
signed by all stockholders, shall survive be valid and binding for as long as they are
the incorporation of such corporation not inconsistent with the articles of
and shall continue to be valid and incorporation. Agreements made prior to
binding between and among such incorporation require fairly literal
stockholders, if such be their intent, to performance. There must be an actual
the extent that such agreements are contractual relation. Given such relation,
not inconsistent with the articles of the pre-incorporators are promoters and
incorporation, irrespective of where the may arrange agreements to form and
provisions of such agreements are manage the corporation.
contained, except those required by
this Title to be embodied in said articles Sec. 101. When board meeting is
of incorporation. unnecessary or improperly held. – Unless
the by-laws provide otherwise, any action
2. An agreement between two or more by the directors of a close corporation
stockholders, if in writing and signed by without a meeting shall nevertheless be
the parties thereto, may provide that in deemed valid if:
exercising any voting rights, the shares
held by them shall be voted as therein 1. Before or after such action is taken,
provided, or as they may agree, or as written consent thereto is signed by all
determined in accordance with a the directors.
procedure agreed upon by them.
2. All the stockholders have actual or
3. No provision in any written agreement implied knowledge of the action and
signed by the stockholders, relating to make no prompt objection thereto in
any phase of the corporate affairs, shall writing.
be invalidated as between the parties
on the ground that its effect is to make 3. The directors are accustomed to take
them partners among themselves. informal action with the express or
implied acquiescence of all the
4. A written agreement among some or all stockholders.
of the stockholders in a close
corporation shall not be invalidated on 4. All the directors have express or implied
the ground that it so relates to the knowledge of the action in question and
conduct of the business and affairs of none of them makes prompt objection
the corporation as to restrict or thereto in writing.
interfere with the discretion or powers
of the board of directors: Provided, If a director's meeting is held without
That such agreement shall impose on proper call or notice, an action taken
the stockholders who are parties therein within the corporate powers is
thereto the liabilities for managerial deemed ratified by a director who failed to
acts imposed by this Code on directors. attend, unless he promptly files his written
objection with the secretary of the
5. To the extent that the stockholders are corporation after having knowledge
actively engaged in the management or thereof.
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Sec. 102. Pre-emptive right in close Law on Business Organizations Reviewer
corporations. - The pre-emptive right of
stockholders in close corporations shall unnecessary or even if improperly held
extend to all stock to be issued, including would be valid. The by-laws, however, may
reissuance of treasury shares, whether for provided otherwise or a stockholder may
money, property or personal services, or in file his written objection in writing after
payment of corporate debts, unless the having knowledge of the action taken by
articles of incorporation provide otherwise. the directors.
Exceptions in Section 39, not applicable Pre-emptive right in close corporations;
It is submitted that in a close corporation, Issuance of new Stock
the exceptions provided in Sec 39 are not A stockholder in a close corporation has a
applicable. The first exception mentioned right to purchase his pro rata share of the
therein regarding the shares issued in new stock. If the pre-emptive right is
compliance with laws requiring stock violated he can sue the corporation for
offerings or minimum stock ownership by damages, enjoin the stock issue, obtain an
the public cannot by its very nature refer to order permitting him to subscribe, or obtain
a close corporation. The pre-emptive right cancellation of the issue. But even where
of shareholders in close corporation is thus the stockholder’s pre-emptive right is
broadened to include all issues without any preserved. The right may be inadequate as
exception, unless of course, restricted by a protective devise for the stockholder in a
the articles of incorporation and printed in close corporation because the lack of a
the stock certificates. It may be mentioned market for his stock leaves him with the
however, that any prior waiver of pre- alternatives of investing more capital or
emptive right must be expressly provided having the value of his stock diluted.
for in the articles of incorporation and not
in an ordinary agreement executed by the Sec. 104. Deadlocks. - Notwithstanding any
parties. This rule however, would not contrary provision in the articles of
militate against the unanimous agreement incorporation or by-laws or agreement of
of all the stockholders. stockholders of a close corporation, if the
directors or stockholders are so divided
Sec. 103. Amendment of articles of respecting the management of the
incorporation. – Any amendment to the corporation's business and affairs that the
articles of incorporation which seeks to votes required for any corporate action
delete or remove any provision required by cannot be obtained, with the consequence
this Title to be contained in the articles of that the business and affairs of the
incorporation or to reduce a quorum or corporation can no longer be conducted to
voting requirement stated in said articles of the advantage of the stockholders
incorporation shall not be valid or effective generally, the Securities and Exchange
unless approved by the affirmative vote of Commission, upon written petition by any
at least two-thirds (2/3) of the outstanding stockholder, shall have the power to
capital stock, whether with or without arbitrate the dispute. In the exercise of such
voting rights, or of such greater proportion power, the Commission shall have authority
of shares as may be specifically provided in to make such order as it deems appropriate,
the articles of incorporation for amending, including an order:
deleting or removing any of the aforesaid
provisions, at a meeting duly called for the 1. Canceling or altering any provision
purpose. contained in the articles of
incorporation, by-laws, or any
Rule and Exceptions when board meeting stockholder's agreement.
unnecessary
General Rule: the directors of a corporation 2. Canceling, altering or enjoining any
cannot act individually or separately in resolution or act of the corporation or
order to bind the corporation. They must its board of directors, stockholders, or
act as a board at a meeting duly called for officers.
the purpose.
Exception: Section 101. It enumerates the 3. Directing or prohibiting any act of the
instances when a board at a meeting is corporation or its board of directors,
stockholders, officers, or other persons
party to the action.
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4. Requiring the purchase at their fair Law on Business Organizations Reviewer
value of shares of any stockholder,
either by the corporation regardless of provided either for directorial disputes or
the availability of unrestricted retained for stockholder disputes. Although there
earnings in its books, or by the other are some disadvantages of arbitration
stockholders. proceedings, nevertheless, the advantages
of arbitration, in saving both money and
5. Appointing a provisional director. hard feelings, would seem to outweigh the
disadvantages in most cases.
6. Dissolving the corporation.
Provisional director and SEC supervised
7. Granting such other relief as the management
circumstances may warrant. In accordance with Section 104, the SEC
may in case of deadlocks in the close
A provisional director shall be an impartial corporation appoint a provisional director.
person who is neither a stockholder nor a “A provisional director shall be an impartial
creditor of the corporation or of any person who is neither a stock-holder nor a
subsidiary or affiliate of the corporation, creditor of the corporation and whose other
and whose further qualifications, if any, qualifications, may be determined by the
may be determined by the Commission. A SEC.”
provisional director is not a receiver of the
corporation and does not have the title and Under Section 2 (Pres Decree No. 1653), the
powers of a custodian or receiver. A SEC has the power “to create and appoint a
provisional director shall have all the rights management committee, board, or body to
and powers of a duly elected director of the undertake the management of
corporation, including the right to notice of corporations, partnership or other
and to vote at meetings of directors, until associations in appropriate cases wherein
such time as he shall be removed by order there is imminent danger or dissipation,
of the Commission or by all the loss or wastage or destruction of assets or
stockholders. His compensation shall be other properties or paralization of business
determined by agreement between him operations of such corporations or entities
and the corporation subject to approval of prejudicial to the interest of the minority,
the Commission, which may fix his party-litigants or the general public.”
compensation in the absence of agreement
or in the event of disagreement between Sec. 105. Withdrawal of stockholder or
the provisional director and the dissolution of corporation. – In addition
corporation. and without prejudice to other rights and
remedies available to a stockholder under
Deadlock – Deadlock signifies a standstill in this Title, any stockholder of a close
the management of the corporate affairs corporation may, for any reason, compel
resulting from the evenly divide action of the said corporation to purchase his shares
directors or stockholders in a close at their fair value, which shall not be less
corporation. than their par or issued value, when the
corporation has sufficient assets in its books
In the event of deadlocks SEC may to cover its debts and liabilities exclusive of
arbitrate capital stock: Provided, That any
In the event of a deadlock in a close stockholder of a close corporation may, by
corporation, the SEC has the power to written petition to the Securities and
arbitrate the deadlock “upon written Exchange Commission, compel the
petition of any stockholder.” In close dissolution of such corporation whenever
corporations that are subject to a checks any of acts of the directors, officers or those
and balances system because of control in control of the corporation is illegal, or
devices there are bound to be deadlocks, fraudulent, or dishonest, or oppressive or
and some steps must be taken to cope with unfairly prejudicial to the corporation or
them. Many of the problems that arise can any stockholder, or whenever corporate
be settled by arbitration, Arbitration (the assets are being misapplied or wasted.
determination of a matter of difference
between contending parties) may be • Appraisal rights in regular corporations
can be opted by the dissenting stockholder
only in cases where the fundamental
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change in the corporate structure or Law on Business Organizations Reviewer
operations is involved, whereas a
stockholder of a close corporation may, for or other institutions of learning shall, as
any reason, compel the said coporation to soon as organized, so classify themselves
purchase his shares at their par value, when that the term of office of one-fifth (1/5) of
the corporation has sufficient assets in its their number shall expire every year.
books to cover his debts and liabilities Trustees thereafter elected to fill vacancies,
exclusive of capital stock. ( In Appraisal occurring before the expiration of a
right, fair value of shares is given but in particular term, shall hold office only for the
Withdrawal Right, the fair value cannot be unexpired period. Trustees elected
less than the par or issued value of the thereafter to fill vacancies caused by
shares; In Appraisal right, there must be expiration of term shall hold office for five
present unrestricted retained earnings in (5) years. A majority of the trustees shall
the books of the corporation) constitute a quorum for the transaction of
business. The powers and authority of
• The corporation is not a close corporation trustees shall be defined in the by-laws.
even if the shares belong to less than
twenty if not all the requisites are present. For institutions organized as stock
San Juan Structural and Steel Fabricators v. corporations, the number and term of
CA (1998) directors shall be governed by the
provisions on stock corporations.
EDUCATIONAL CORPORATIONS
For Educational corporations, where the **
trustees should be divided into multiples of There are three (3) ways by which a
five. So you should have five, ten or fifteen religious organization can provide for the
trustees if they are organized as non-stock administration of its properties:
corporation. And unless otherwise provided 1. by forming a non-stock corporation
in the articles of incorporation or by-laws, 2. by corporation sole
the terms of the trustees should be five 3. by religious aggregate or society
years, and every year only one fifth (1/5) is
elected, again to provide for continuity in Corporation sole may constitute of one
policies. But you can provide that they will person only so the head of a religious sect
be all elected instead for a term of one would incorporate himself for the purpose
year, everybody has to be elected. of administering the properties of a
religious sect. To incorporate what you will
Sec. 106. Incorporation. – Educational file with the SEC is an affidavit. The affidavit
corporations shall be governed by special will state that the affiant is the head of a
laws and by the general provisions of this religious denomination or sect and would
Code. want to become a corporation sole. and the
rules of his religion allow him to incorporate
Sec. 107. Pre-requisites to incorporation. – as a corporation sole and that he is charged
Except upon favourable recommendation of with the administration of its properties
the Ministry of Education and Culture, the and in fact he will be required to submit an
Securities and Exchange Commission shall inventory and the manner in which the
not accept or approve the articles of successor will be chosen and the place
incorporation and by-laws of any where he will hold his office.
educational institution. The Roman Catholic Archbishop of Manila is
a corporation sole so if Cardinal Sin dies the
Sec. 108. Board of trustees. – Trustees of new archbishop will simply submit his
educational institutions organized as non- appointment and he need not incorporate
stock corporations shall not be less than again because the corporation is different
five (5) nor more than fifteen (15): from the occupant of the position. The
Provided, however, That the number of Iglesia ni Kristo is incorporated as a
trustees shall be in multiples of five (5). corporation sole.
The court has held in Roman Catholic
Unless otherwise provided in the articles of Apostolic Adm. of Davao, Inc. v. Land
incorporation on the by-laws, the board of Registration Commission that although the
trustees of incorporated schools, colleges, Bishop was a foreigner, he could register a
parcel of land in his name because he is a
mere administrator the property really
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belongs to the faithful and since they are Law on Business Organizations Reviewer
Filipinos they could register the land in the
administrator’s name. Who may form and for what purpose?
Under the law if a corporation sole wants to Sec. 110. Corporation sole. – For the
dispose of or mortgage real property, he purpose of administering and managing, as
has to get authorization from the Regional trustee, the affairs, property and
Trial Court unless the rules of the religious temporalities of any religious
sect allow him to dispose of or mortgage denomination, sect or church, a corporation
real property and that is usually the case. sole may be formed by the chief
The last is the religious aggregate or archbishop, bishop, priest, minister, rabbi
religious society. It can incorporate for the or other presiding elder of such religious
purpose of managing its properties and the denomination, sect or church. (154a)
articles would indicate that the members
constitute a religious order or society and How formed?
that at least 2/3 of the members have Sec. 111. Articles of incorporation. – In
agreed to incorporate, that the rules allow order to become a corporation sole, the
them to incorporate they desire to chief archbishop, bishop, priest, minister,
incorporate to manage their properties in rabbi or presiding elder of any religious
the place where located. The recollects are denomination, sect or church must file with
incorporated to manage their properties, the Securities and Exchange Commission
they are the single biggest bloc of articles of incorporation setting forth the
stockholder of San Miguel Corporation. following:
RELIGIOUS CORPORATIONS 1. That he is the chief archbishop, bishop,
Sec. 109. Classes of religious corporations. priest, minister, rabbi or presiding elder
– Religious corporations may be of his religious denomination, sect or
incorporated by one or more persons. Such church and that he desires to become a
corporations may be classified into corporation sole.
corporations sole and religious societies.
Religious corporations shall be governed by 2. That the rules, regulations and
this Chapter and by the general provisions discipline of his religious denomination,
on non-stock corporations insofar as they sect or church are not inconsistent with
may be applicable. his becoming a corporation sole and do
not forbid it.
a) Corporation Sole
Corporation sole is a special form of 3. That as such chief archbishop, bishop,
priest, minister, rabbi or presiding
corporation usually associated with the elder, he is charged with the
clergy and consists of one person only administration of the temporalities and
and his successors, who are the management of the affairs, estate
incorporated by law to give some legal and properties of his religious
capacities and advantages. denomination, sect or church within his
Nationality. A corporation sole does not territorial jurisdiction, describing such
have any nationality but for purposes of territorial jurisdiction.
applying our nationalization laws,
nationality is determined not by the 4. The manner in which any vacancy
nationality of its head but by the occurring in the office of chief
nationality of the members constituting archbishop, bishop, priest, minister,
the sect in the Philippines even if it is rabbi of presiding elder is required to
headed by the Pope. (Roman Catholic be filled, according to the rules,
Apostolic Church v. LRC, 1957) regulations or discipline of the religious
Effect of Separation of Members. denomination, sect or church to which
Members of the sect who left and who he belongs.
formed a separate religious group are
not entitled to any right to vote over 5. The place where the principal office of
the properties of their former sect. the corporation sole is to be established
(Canete v. CA, 1989) and located, which place must be within
Dissolution. By filing a verified the Philippines.
declaration of dissolution. (JRS at 323)
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The articles of incorporation may include Law on Business Organizations Reviewer
any other provision not contrary to law for
the regulation of the affairs of the as said court may have directed, and that it
corporation. is to the interest of the corporation that
leave to sell or mortgage should be granted.
Sec. 112. Submission of the articles of The application for leave to sell or mortgage
incorporation. – The articles of must be made by petition, duly verified, by
incorporation must be verified, before the chief archbishop, bishop, priest,
filing, by affidavit or affirmation of the chief minister, rabbi or presiding elder acting as
archbishop, bishop, priest, minister, rabbi corporation sole, and may be opposed by
or presiding elder, as the case may be, and any member of the religious denomination,
accompanied by a copy of the commission, sect or church represented by the
certificate of election or letter of corporation sole: Provided, That in cases
appointment of such chief archbishop, where the rules, regulations and discipline
bishop, priest, minister, rabbi or presiding of the religious denomination, sect or
elder, duly certified to be correct by any church, religious society or order concerned
notary public. represented by such corporation sole
regulate the method of acquiring, holding,
From and after the filing with the Securities selling and mortgaging real estate and
and Exchange Commission of the said personal property, such rules, regulations
articles of incorporation, verified by and discipline shall control, and the
affidavit or affirmation, and accompanied intervention of the courts shall not be
by the documents mentioned in the necessary.
preceding paragraph, such chief archbishop,
bishop, priest, minister, rabbi or presiding Filling of vacancies
elder shall become a corporation sole and Sec. 114. Filling of vacancies. – The
all temporalities, estate and properties of successors in office of any chief archbishop,
the religious denomination, sect or church bishop, priest, minister, rabbi or presiding
theretofore administered or managed by elder in a corporation sole shall become the
him as such chief archbishop, bishop, priest, corporation sole on their accession to office
minister, rabbi or presiding elder shall be and shall be permitted to transact business
held in trust by him as a corporation sole, as such on the filing with the Securities and
for the use, purpose, behalf and sole Exchange Commission of a copy of their
benefit of his religious denomination, sect commission, certificate of election, or
or church, including hospitals, schools, letters of appointment, duly certified by any
colleges, orphan asylums, parsonages and notary public.
cemeteries thereof.
During any vacancy in the office of chief
Need for by-laws archbishop, bishop, priest, minister, rabbi
No need for by-laws since the business or presiding elder of any religious
denomination, sect or church incorporated
is conducted by only one man. as a corporation sole, the person or persons
authorized and empowered by the rules,
Power to acquire and alienate property regulations or discipline of the religious
Sec. 113. Acquisition and alienation of denomination, sect or church represented
property. – Any corporation sole may by the corporation sole to administer the
purchase and hold real estate and personal temporalities and manage the affairs,
property for its church, charitable, estate and properties of the corporation
benevolent or educational purposes, and sole during the vacancy shall exercise all the
may receive bequests or gifts for such powers and authority of the corporation
purposes. Such corporation may sell or sole during such vacancy.
mortgage real property held by it by
obtaining an order for that purpose from Dissolution
the Court of First Instance of the province Sec. 115. Dissolution. – A corporation sole
where the property is situated upon proof may be dissolved and its affairs settled
made to the satisfaction of the court that voluntarily by submitting to the Securities
notice of the application for leave to sell or and Exchange Commission a verified
mortgage has been given by publication or declaration of dissolution.
otherwise in such manner and for such time
95
The declaration of dissolution shall set Law on Business Organizations Reviewer
forth:
at a duly convened meeting of the
1. The name of the corporation. body.
2. The reason for dissolution and winding 3. That the incorporation of the religious
up. society or religious order, or diocese,
synod, or district organization desiring
3. The authorization for the dissolution of to incorporate is not forbidden by
the corporation by the particular competent authority or by the
religious denomination, sect or church. constitution, rules, regulations or
discipline of the religious denomination,
4. The names and addresses of the sect, or church of which it forms a part.
persons who are to supervise the
winding up of the affairs of the 4. That the religious society or religious
corporation. order, or diocese, synod, or district
organization desires to incorporate for
Upon approval of such declaration of the administration of its affairs,
dissolution by the Securities and Exchange properties and estate.
Commission, the corporation shall cease to
carry on its operations except for the 5. The place where the principal office of
purpose of winding up its affairs. the corporation is to be established and
located, which place must be within the
Religious societies or corporations Philippines.
aggregate
Sec. 116. Religious societies. – Any religious 6. The names, nationalities, and
society or religious order, or any diocese, residences of the trustees elected by
synod, or district organization of any the religious society or religious order,
religious denomination, sect or church, or the diocese, synod, or district
unless forbidden by the constitution, rules, organization to serve for the first year
regulations, or discipline of the religious or such other period as may be
denomination, sect or church of which it is a prescribed by the laws of the religious
part, or by competent authority, may, upon society or religious order, or of the
written consent and/or by an affirmative diocese, synod, or district organization,
vote at a meeting called for the purpose of the board of trustees to be not less
at least two-thirds (2/3) of its membership, than five (5) nor more than fifteen (15).
incorporate for the administration of its
temporalities or for the management of its Case
affairs, properties and estate by filing with Long v. Basa (2001)
the Securities and Exchange Commission, • Since in matters purely
articles of incorporation verified by the ecclesiastical the decisions of the proper
affidavit of the presiding elder, secretary, or church tribunals are conclusive upon the
clerk or other member of such religious civil tribunals, then a church member who is
society or religious order, or diocese, synod, expelled from the membership by the
or district organization of the religious church authorities, or a priest or minister
denomination, sect or church, setting forth who is by them deprived of his sacred
the following: office, is without remedy in the civil courts.
Long v. Basa, 366 SCRA 113 (2001).
1. That the religious society or religious Additional Material: SEC Opinion No. 04-45,
order, or diocese, synod, or district Nov.28, 2004 to Ferrer and Ferrer Law
organization is a religious organization Office re term of existence of religious
of a religious denomination, sect or corporation.
church.
SEC Opinion No. 04-45, (Nov. 28, 2004)
2. That at least two-thirds (2/3) of its Re: Term of Existence of Religious
membership have given their written Corporations
consent or have voted to incorporate, Section 116 (as well as Sec. 160 of the
former Corporation Law) does not provide
for a term of existence of religious
corporations, whether classified as a
96
corporation sole or a corporation Law on Business Organizations Reviewer
aggregate. As such, the law intends that
religious organizations may exist dissolve the juridical entity. For
perpetually (SEC Opinion dated Dec. 10, dissolution to be effective “[t]he
1981). Moreover, where the Articles of requirements mandated by the
Incorporation does not provide for a term Corporation Code should have been
of existence, it shall be understood that the strictly complied with.” Vesagas v. Court
intention is for the corporation to exist for of Appeals, 371 SCRA 509, 516 (2002).
an indefinite period (SEC Opinion dated Oct. A corporation cannot extend its life by
23, 1995) amendment of its articles of
incorporation effected during the three-
DISSOLUTION year statutory period for liquidation
Dissolution of a corporation is the when its original term of existence had
extinguishment of the franchise of a already expired, as the same would
corporation and termination of its constitute new business. Alhambra
corporate existence. Cigar & Cigarette Manufacturing
Company, Inc. v. SEC, 24 SCRA 269
Modes of Dissolution: (1968).
1. Voluntary Dissolution When the period of corporate life
2. Involuntary Dissolution expires, the corporation ceases to be a
3. Shortening of term body corporate for the purpose of
4. Expiration of term (JRS at 311) continuing the business for which it was
5. Failure to organize and commence organized. PNB v. Court of First Instance
of Rizal, Pasig, Br. XXI, 209 SCRA 294
business within two years from the date (1992).
of issuance of certificate of
incorporation DISSOLUTION **
6. Legislative Dissolution (CLV’s CLR at There are different ways to dissolve a
936) corporation one is voluntarily and the other
involuntarily, under the law there are three
Effects of Dissolution: provisions governing voluntary dissolution.
1. Transfer of Legal title to corporate The first one is if no creditors are affected.
In all the methods of voluntary dissolution,
property. you need a resolution approved by a
2. The corporation ceases as a body majority of directors and a resolution
approved by at least 2/3 of the stockholders
corporate to continue the business for In Section 118, where no creditors are
which it was established. affected the directors and the stockholders
3. Continuation of a body corporation (the pass the resolution dissolving the
corporation continues as a body corporation and that will be filed in the SEC
corporate for 3 years for purposes of for approval. In a case where a suit was filed
winding up or liquidation). and the corporation said, we have already
4. After the expiration of the 3 year been dissolved and they submitted a board
winding up period, the corporation resolution, the SC held that it is not enough
ceases to exist for all purposes. (JRS at to dissolve a corporation.
314). The Second one, is under Section 119 where
creditors are affected. Here the board and
The termination of the life of a juridical the stockholders will approve the
entity does not by itself cause the dissolution but a petition will be filed signed
extinction or diminution of the rights by the majority of the directors and verified
and liability of such entity, since it is by the president, secretary or one of the
allowed to continue as a juridical entity directors which will indicate the claims of
for 3 years for the purpose of creditors. That will be set for hearing and
prosecuting and defending suits by or not less than thirty (30) days nor more than
against it and enabling it to settle and sixty (60) days after the entry of the
close its affairs, to dispose of and issuance of the order and a copy of the
convey its property, and to distribute its order will be published once a week for
assets. Republic v. Tancinco, 394 SCRA three consecutive weeks in a newspaper of
386 (2002). general circulation and that will also be
posted for three weeks in three public
A board resolution to dissolve the
corporation does not operate to so 97
places like the bulletin board of a municipal Law on Business Organizations Reviewer
hall, post office, the plaza and then the SEC
will set that for hearing and determine w/n corporation for every infraction, the
the corporation should be dissolved. infraction must be serious, because
The third one you will just shorten the dissolution is imposing the death penalty
corporate life and this is the simplest and upon the corporation.
fastest way of dissolving the corporation The Court said the employees of a railroad
voluntarily like when Ford Philippines are required to wear uniform indicating
decided to close its subsidiary they simply their positions in their nameplate, now tell
amended the articles of corporation that me if one employee did not have such a
the corporation will exist until December nameplate you are going to dissolve a
31, 1978. corporation because that is a legal
The SEC will require getting a tax clearance requirement?
from the BIR and the stockholders will be It has to be a serious violation! But in one
required to sign an undertaking that they case, the SC dissolved a corporation which
will answer for the claim of the creditors to was engaging in banking without
the extent of the liquidating dividends they authorization from the monetary board, it
will receive. was accepting deposits from the public, the
Then you can have an involuntary court considered that as a serious violation.
dissolution. This could be done by filing a When a minority stockholder files a case
quo warranto case under rule 66 of the ROC and asks to dissolve the corporation, the
on the ground mentioned there or a court said that that is a harsh remedy unless
corporation can be dissolved for certain the situation is really beyond redemption
violation of the corporation code as you should not impose that remedy.
mentioned in the Corporation Code or PD The corporation has three years after it
902-A and also a minority stockholder may should have been dissolved for the purpose
file a petition to dissolve the corporation of winding up its affairs. The SEC has said
where the majority is mismanaging the the three year period should be counted
assets of the corporation, dissipating its from the time the dissolution was approved
assets, and fraudulently disposing of its by the SEC even if the directors and
properties and a receiver may be appointed stockholders pass a resolution dissolving
in an action for involuntary dissolution. the corporation that is not effective until it
The SC held in the leading case of El Hogar has been approved by the SEC.
Filipino, 50 Phil. 399(1927) the first For three years, the corporation will
corporation organized under the continue to exist it will no longer be a going
Corporation Act, the government filed a concern but only for the purpose of winding
case to dissolve that corporation and up that is why the SC has said that the
invoked 17 grounds, the SC denied the corporation cannot for example renew its
petition. contract of lease because it is no longer a
Building and loans association like banks are going concern.
required to dispose of within 5 years of any During the three year period, it should
properties they foreclosed they disposed of devote its time prosecuting and defending
the properties after 6 years but they law suits, winding up its affairs disposing its
exerted their best efforts, they hired real properties so they can be used to pay off its
estate brokers, they advertised in creditors and to distribute balance to the
newspapers but they just could not find stockholders.
buyers, they acquired this land and building, There are two ways of providing for the
the SC held that it is not illegal, that they winding up of its affairs under the law. This
leased the space that they did not need for is voluntary either the directors themselves
their office, that is not illegal they are may take care of winding up the affairs of
maximizing their property, that they the corporation or they may appoint a
provide a provision in the by-laws that trustee like when Ford Philippines decided
stockholders can be compelled to surrender to close its subsidiary here one of the last
their shares, to be bought out well the court acts of the BOD was to pass a resolution
said that that is void but that is not appointing Ricardo Romulo as trustee
sufficient ground to dissolve the vesting upon him legal title to all the assets
corporation. In other words the court is of Ford Philippines to be used to pay off its
saying that you do not dissolve a creditors and to dispose of its properties of
Ford Philippines. to distribute the balance
as liquidating dividends.
98
Supposed to be, this was the rule before if Law on Business Organizations Reviewer
any case is not finished within the three
year period, the case will be abated object of the meeting for three (3)
whether the corporation is plaintiff or consecutive weeks in a newspaper
whether it is defendant but recent published in the place where the principal
jurisprudence has rendered that obsolete. office of said corporation is located; and if
That rule is applicable if it is the directors no newspaper is published in such place,
winding up the corporation. if the then in a newspaper of general circulation
corporation is under receivership, it is the in the Philippines, after sending such notice
receiver who may wind up the affair of the to each stockholder or member either by
corporation. But if it is the trustee that will registered mail or by personal delivery at
not apply, the trust will subsist until the least thirty (30) days prior to said meeting.
affairs of the corporation are wound up and A copy of the resolution authorizing the
until any creditor can sue the trustee dissolution shall be certified by a majority of
provided that the applicable prescriptive the board of directors or trustees and
period has not yet lapsed. So if his cause of countersigned by the secretary of the
action is based on a written contract he has corporation. The Securities and Exchange
ten (10) years to sue the trustee. Commission shall thereupon issue the
The Court has said that the remedy there if certificate of dissolution.
the three years will end and there are still
pending cases, is for the board to appoint a When a corporation is contemplating
trustee but more recent jurisprudence has dissolution, it must submit tax return on
fashioned a practicable solution to that the the income earned by it from the
lawyer handling the cases may be beginning of the year up to the date of
considered as trustee of the corporation its dissolution and pay the
and therefore the cases will not be abated corresponding tax due. BPI v. Court of
but should continue. Appeals, 363 SCRA 840 (2001).
In one case, the SC held that the directors
may be considered as trustees after three Requirements where creditors are affected
years so that they can continue to wind up Sec. 119. Voluntary dissolution where
the affairs of the corporation and in effect creditors are affected. – Where the
the three year period has become dissolution of a corporation may prejudice
ineffectual. the rights of any creditor, the petition for
dissolution shall be filed with the Securities
What are the various methods of and Exchange Commission. The petition
dissolving corporations? shall be signed by a majority of its board of
Sec. 117. Methods of dissolution. – A directors or trustees or other officers having
corporation formed or organized under the the management of its affairs, verified by its
provisions of this Code may be dissolved president or secretary or one of its directors
voluntarily or involuntarily. or trustees, and shall set forth all claims and
demands against it, and that its dissolution
Voluntary was resolved upon by the affirmative vote
Requirements where no creditors are of the stockholders representing at least
affected. two-thirds (2/3) of the outstanding capital
stock or by at least two-thirds (2/3) of the
Sec. 118. Voluntary dissolution where no members at a meeting of its stockholders or
creditors are affected. – If dissolution of a members called for that purpose.
corporation does not prejudice the rights of
any creditor having a claim against it, the If the petition is sufficient in form and
dissolution may be effected by majority substance, the Commission shall, by an
vote of the board of directors or trustees, order reciting the purpose of the petition,
and by a resolution duly adopted by the fix a date on or before which objections
affirmative vote of the stockholders owning thereto may be filed by any person, which
at least two-thirds (2/3) of the outstanding date shall not be less than thirty (30) days
capital stock or of at least two-thirds (2/3) nor more than sixty (60) days after the
of the members of a meeting to be held entry of the order. Before such date, a copy
upon call of the directors or trustees after of the order shall be published at least once
publication of the notice of time, place and a week for three (3) consecutive weeks in a
newspaper of general circulation published
in the municipality or city where the
99
principal office of the corporation is Law on Business Organizations Reviewer
situated, or if there be no such newspaper,
then in a newspaper of general circulation 6. Affidavit of stockholders/directors/
in the Philippines, and a similar copy shall officers/members regarding any valid
be posted for three (3) consecutive weeks claim against the corporation.
in three (3) public places in such
municipality or city. 7. Latest balance sheet which must be
earlier than the date of the meeting of
Upon five (5) days’ notice, given after the the stockholders approving the
date on which the right to file objections as amendment of the articles of
fixed in the order has expired, the incorporation.
Commission shall proceed to hear the
petition and try any issue made by the 8. Notice of dissolution.
objections filed; and if no such objection is 9. Tax clearance from the BIR.
sufficient, and the material allegations of 10. Affidavit of the publisher anent the
the petition are true, it shall render
judgment dissolving the corporation and publication of the notice of the
directing such disposition of its assets as dissolution once a week for three (3)
justice requires, and may appoint a receiver consecutive weeks in two (2)
to collect such assets and pay the debts of newspapers of general circulation in the
the corporation. Philippines.
Sec. 120. Dissolution by shortening The SEC may appoint a receiver to collect
corporate term. – A voluntary dissolution such assets and pay the debts of the
may be effected by amending the articles of corporation.
incorporation to shorten the corporate It has been held that where corporate
term pursuant to the provisions of this directors are guilty of a breach of trust and
Code. A copy of the amended articles of intracorporate remedy is futile, the minority
incorporation shall be submitted to the stockholders may resort to the courts for
Securities and Exchange Commission in appropriate relief and, incidentally, as for
accordance with this Code. Upon approval the appointment of a receiver for the
of the amended articles of incorporation of protection of their rights.
the expiration of the shortened term, as the
case may be, the corporation shall be Section 121. Involuntary dissolution. – A
deemed dissolved without any further corporation may be dissolved by the
proceedings, subject to the provisions of Securities and Exchange Commission upon
this Code on liquidation. filing of a verified complaint and after
proper notice and hearing on the grounds
SEC requirements on shortening corporate provided by existing laws, rules and
term regulations.
1. Amended article of incorporation
Rules of Court provides that a quo
shortening its corporate term in warranto proceedings may be brought
accordance with Section 16 of the Code. against a corporation:
2. A director’s certificate signed by at least 1. When it has offended against a
a majority of the directors/trustees and
attested by the secretary, certified provision of an Act for its creation or
under oath, stating that the amended renewal.
articles of incorporation is a true and 2. When it has forfeited its privileges and
correct copy as amended by the franchises by non-user.
stockholders representing at least 2/3 3. When it has committed or omitted an
of the outstanding capital stock or at act which amounts to a surrender of its
least 2/3 of the members in case of corporate rights, privileges, or
non-stock corporations. franchises.
3. A certification that no creditor shall be 4. When it has misused a right, privilege,
prejudiced by the dissolution. or franchise conferred upon it by law,
4. A list of creditors, if any. or when it has exercised a right,
5. Consent of the creditors with regard to privilege or franchise in contravention
the dissolution. of law.
Section 122. Corporate liquidation. – Every
corporation whose charter expires by its
own limitation or is annulled by forfeiture
or otherwise, or whose corporate existence
100
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