1UNIVERSITY OF THE PHILIPPINES COLLEGE OF LAW CORPORATION LAW Prof. Danilo L. Concepcion Table of Contents CHAPTER I: Introduction ............................................................................................... 1 15 November 2010 ................................................................................................... 2 CHAPTER II: Classification of Private Corporations ..................................................... 4 CHAPTER III: Formation and Organization of Corporation ......................................... 7 22 November 2010 ................................................................................................... 7 24 November 2010 ................................................................................................... 9 26 November 2010 ................................................................................................. 11 1 December 2010 ................................................................................................... 13 CHAPTER IV: The Corporate Entity............................................................................. 15 3 December 2010 ................................................................................................... 16 CHAPTER V: Promoter͛s Contracts Prior to Incorporation ....................................... 19 6 December 2010 ................................................................................................... 19 CHAPTER VI: Corporate Powers ................................................................................. 21 8 December 2010 ................................................................................................... 23 CHAPTER VII: Control and Management of Corporation ......................................... 23 10 December 2010 ................................................................................................. 25 7 January 2011 ........................................................................................................ 29 10 January 2011...................................................................................................... 32 14 January 2011...................................................................................................... 36 17 January 2011...................................................................................................... 39 19 January 2011...................................................................................................... 43 21 January 2011...................................................................................................... 46 24 January 2011...................................................................................................... 48 28 January 2011...................................................................................................... 52 31 January 2011...................................................................................................... 55 2 February 2011...................................................................................................... 59 4 February 2011...................................................................................................... 62 CHAPTER VIII: Duties of Directors and Controlling Stockholders ........................... 63 9 February 2011...................................................................................................... 65 11 February 2011 ................................................................................................... 68 14 February 2011 ................................................................................................... 70 CHAPTER IX: Right of Inspection ................................................................................ 70 CHAPTER X: Derivative Suits ....................................................................................... 73 16 February 2011 ................................................................................................... 73 18 February 2011 ................................................................................................... 75 CHAPTER XI: Financing the Corporation; Capital Structure ..................................... 75 21 February 2011 ................................................................................................... 78 28 February 2011 ................................................................................................... 82 CHAPTER XII: Consideration ....................................................................................... 85 2 March 2011 .......................................................................................................... 87 9 March 2011 .......................................................................................................... 91 CHAPTER XIII: Dividends and Purchase by Corporation of its Own Shares ............. 95 11 March 2011 ........................................................................................................ 96 CHAPTER XIV: Amendments of Charter ..................................................................... 99 16 March 2011 ...................................................................................................... 102 CHAPTER XV: Transfer of Shares .............................................................................. 103 28 March 2011 ...................................................................................................... 107 CHAPTER XVI: Dissolution ......................................................................................... 107 CHAPTER XVII: Corporate Combinations ................................................................. 112 CHAPTER XVIII: Foreign Corporation ....................................................................... 113 Special Corporations ................................................................................................. 114 Non-Stock Corporations ........................................................................................... 115 CHAPTER I: Introduction This is the most boring course Common law institution Business organization 2 main form of business organizations before corporation was brought in the Philippines y Sociedades anonima y Partnership Many form nearest in civil law that we can call equivalent of corporation is sociedades anonima. Or anoneme in French. Americans introduced in our system of law. Corporation supplanted and repealed provisions of law in sociedades anonima Basic material is corporation code Revised version of old corporation law Copy of Delaware corporation law Enacted a corporation law which became a model of all corporation laws in the US To understand the principles and how transformed in the Phil setting Refers to work of old corporation law authors. Salonga, Tolentino, Caguioa, Simplicio Guevarra (who is the lolo of Chiz Escudero) Before the advent of new corporation law, Simplicio Guevarra Today, we use the two-volume work of Campos spouses (Justice and Professor), when they were no longer willing to teach, Jac and DLC took over We͛ll use outline of book as syllabus of course. Although we͛d modify sequencing of some subject matters, the way treated deviate from outline but announces Other reference materials y De Leon ʹ Ateneo prescribed y Ruben Agpala ʹ COMELEC chair y Magic notes y Rosario Lopez ʹ spot the different with Campos spouses y CSV y Puno clan y Paras ʹ Adopted Paras Corporation Principles and Practice y Many other authors not worth mentioning. They only compile in orderly manner. Prof. Perfecto Fernandez ʹ greatest tersarial scholarship scissors cut and paste Jo Laureta ʹ good writer who calls his students bastards and idiots Foreign materials are available in the lib. If only to amuse yourselves. Fletcher Encyclopedia of Corporation rd 3 restatement has 21 volumes. Ganon ka-vast ang subject na ito y It͛s called ͞company law͟ in England because corporation is American invention. It͛s difficult to read British SC decisions. Upper House of Parliament, Justice Learnedhand. Civil law system ʹ no concept of jurisdiction. 2 Cheap source of materials for US and colony. Market for finished product of industries. Move raw materials to mainland and finished products to the islands. Rules dictated by American masters medium is transaction. So they introduced commercial law of US e.g. sales (supplanted civil law), corporation killed sociedades anoneme) but sustained partnership, NIL, insurance in order to do business in the country. Contract of sale attracts several provisions of CC. Many instances they are in conflict with traditional concepts of sale. Kailangan mestizo raw pati yung batas. Adjustment to harmonize conflicting provisions. Principle of corporation conceived and flourished in a common law background. When transported to civil law environment, some provisions collide with so many conflicting provisions so offspring is not bastard. Therefore, bring two codes in class. Civ and corporation. So you can readily look at the article mentioned and see for yourself the wording of the provision. Digest in your handwriting all the cases in Campos book. No digest, no finals. 3. y y y y What is the reason behind the law? There was no prohibition in the original law from which our Corpo Code was copied. Franchise of the corporation. But they observed it was inimical to growth of commerce. For commerce to grow and provide velocity to economic activities, dapat mabilis din pag-churn ng mga business organizations. Going to congress unduly delays formation of business organizations. Not only that, palakasan na sa mga congressman because every franchise, those who contributed more to campaign lobbied with tax holidays and special favorable treatment. To prevent this from happening, several states adopted non-creation by direct legislation principle and then we copied that in the Phil as a lesson from the US experience. There is an exception to the constitutional exception: GOCC? Shares of stock are drawn and controlled by government but they are also private corporation. There is a condition for them to be created by condition. Definition of GOCC is not in the GOCC nor Corpo Code but in Admin Code͛s preliminary provisions. General law adopted by the legislative arm of the government referred to in the constitution is the Corpo Code. i.e. Batasang Pambansa which Sir was a member. He was part of the drafters of the Corpo Code. Observer lang sha at that time. 15 November 2010 There are two types of corporation: public (covered by LGC) and private (Corporation Code) DEFINITION OF A CORPORATION §2: definition of corporation. Not qualified by code but refers only to private corporation 1. Artificial ʹ from PFR: 2 beings/persons are recognized. ͞Natural person͟ is not defined anywhere in the CC. Juridical person has no physical existence as compared with natural. It exists only in the mind, only by contemplation of law. Private corporation has in general for that matter is not a natural person but a juridical person, artificial being. In general: CC recognizes 3 juridical entities a. Partnership b. Corporation c. Trusts ʹ to some extent d. Estate of deceased person ʹ as an extension of deceased person͛s personality Created by operation of law y A smart person would ask why the wording of law is formulated ͞created by operation of law͟ vs. ͞created by law͟ Congress cannot create a private corporation. Congress can only create a general law. y Why can͛t congress create a private corporation by direct legislation? What prevents the congress from doing it? Constitutional limitation, power to enact a law is plenary. Article IX, Section 16 The Congress shall not, EXCEPT by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. Succession y Does not refer to succession as it is known in civil law. At least now. Because in the original concept of succession during Roman times, the heir is successor of personality (takes the place/space formerly occupied by) of the decedent. Ngayon kasi property na lang. y Common law concept ang corporation, it does not refer to civil law succession but continuality of the corporation being separate from personality of the members of the corporation. Separate and distinct personality of corpo and stockholders. As a consequence of distinct personality, stockholders may come and go and be succeeded by own heirs, they may sell and transfer their shares. In fact they may transfer and sell their shares but the corporation does not change. y Continuation of personality of corporation. Powers, attributes and properties expressly authorized by law and incident to its existence. For a person to have substance, for it to transact business, for the corporation to have acts with juridical effect, that corporation must have full civil capacity. This is true for all persons, it must be in possession of 2 things: 2 elements of civil capacity: a. Juridical personality ʹ Art. 37 CC Juridical capacity, which is the fitness to be the subject of legal relations, is inherent in every natural person and is lost only through death. Capacity to act, which is the power to do acts with legal effect, is acquired and may be lost. Fitness: Is a cat a person? May a cat be a donee in a contract of donation? Natural person is not defined in the code but underlying presumption that it refers to a human being. Heir must be able to accept the inheritance. Dog and the cat may not accept. Pag nilagay under guardianship? §19 ʹ by provision of law, it͛s given juridical personality, i.e. becomes fit to become subject of a legal relation. Capacity to act ʹ Art. 37 CC Juridical capacity, which is the fitness to be the subject of legal relations, is inherent in every natural person and is lost only through death. Capacity to act, 4. 2. y y b. 3 which is the power to do acts with legal effect, is acquired and may be lost. Juridical personality is inherent. A person obtains it from birth. But capacity to act is acquired and may be lost. Capacity to act is presumed. Can do anything under the sun. It may be restricted by certain situations (e.g. insanity, minority). Hence, 1 yr old infant has juridical capacity but no capacity to act. How about in the case of corporation? It has juridical capacity, but what about its capacity to act? §2 powers and attributes expressly authorized by law or incident to existence. No presumption in favor of corporation, you will have to prove it. But of course, magkakaron ng processual presumption. When corporation is incorporated with SEC and certificate of incorporation is issued. In cases na hindi naman hinahanap ng kakontrata mo anyway. Burden of proof rests with corporation if challenged to prove that it has power to do a particular act. on to the stockholders. It may be different in the form of usual contracts we encounter in the civil law. Same structure as the partnership. While a corporation is a contract among the incorporators or stockholders, the personality of the corporation does not commence from the time the incorporators agree on the formation of the corporation. When does the corporation͛s personality commence? S19 it commences from the time the articles of incorporation is approved by the SEC. ͞Is͟ because it refers to a document not to each and every article of the document. Same rule for by-laws, it͛s a document. Sa partnership di kailangan ito. Why is interest of a partner not freely transferable? Not entirely accurate. The interest of a partner in a partnership is freely transferable but not automatically become the partner. The transferee just doesn͛t become automatically become a partner. It͛s because of principle of delectus personae. A partner became a partner because of a special relationship the other partner reposed on him. Namili sila. Not any Tom, Dick or Harry can become a partner. Pamoso, mayaman. Qualities of partner were considered because of special fiduciary relationship. For this reason, you cannot ask just anybody to take your place. Does not include right to include any other partner in the partnership. Not the same in case of corporation, the interest which a stockholder has in the corporation is freely transferable. It͛s not in the law. Saang provision ang freedom of transferability of shares of stock in the corporation? It͛s not in the law because it͛s assumed as the general principle of corporation. History of general principle: Corporation as form of business organization developed as a response to the inadequacies and impracticabilities attendant to partnership. Corporation cannot impose any prohibition on the transferability of shares. Maski wala sa batas, sinusunod natin yun. For prohibition to be valid, there͛s no statutory prohibition. As of now, there is none. S98 buttresses the principle. You are a bunch of illiterates! 1471: discovery of Americas by the Vikings and the Marco Polo was not st the 1 European to reach the Far East. Cavemen Europeans vs. Silk clad Chinese. At least our ancestors, pero Pinoy nakahubad pa. In England, the first of corporations is a mode or as a system of organization of monks. The Abbeys in England had an organization akin to a corporation. But of course, this was copied from the political organization of Greek city states. So ang root ng corporation as a system of organization ay mga municipal corporation in Greece. Inapply lang ang system to a smaller organization like an Abbey or a religious society or a business. Yung Civil Code of Justinian, walang corporation dun. Partnership lang. To finance a ship that will go to the Far East to trade, huge amount is needed, if partnership yan, 1000 yung partners, mahirap. In a general partnership, each of them is a manager because of ͞mutual partnership͟ lagi sila may meeting tuloy. Sell shares of stocks to everyone who has excess cash to finance a bapor and its provisions. Ships don͛t travel alone. They travel in two͛s para may sasagip sa cargos nung isa. Maraming lumulubog sa Cape of Good Hope kasi maalon dun, kasi dun nagmimeet ang Indian Ocean at Atlantic Ocean. Kung liable sila for everything, walang mag-iinvest kaya ininovate nila at tinanggal ang liability with present and future properties. Limited liabilities lang ang investor to the amount he committed in the venture. The amount he commits is the amount of the values he bought. y y y y y y Powers of corporation are two types: express and implied. To be discussed more detail later. (See page 21) CHOICE OF BUSINESS ORGANIZATIONS How is corporation different from a partnership? A partnership is form of business organization. Is single proprietorship an organization? No, you should have members. It͛s not really a business organization. Pero it͛s classified as such. ͞Organization͟ no longer refers to the number of persons involved. Instead, it refers to how the business was organized. Single proprietorship is included in the forms. Important? Of course, e.g. you have a client, what form will you advise him/her to pursue? Which one is better suited to his requirements? As to Number of parties Manner of creation Transferability of interest PARTNERSHIP At least 2 partners Upon the meeting of the minds consensual Not freely transferable, requires consent of all other partners. Transferee does not become a partner automatically. Partner͛s liability is unlimited (general); extends to present and future properties. Anyone of them can bind the partnership Dissolved CORPORATION At least 5 Articles of incorporation May transfer interest and transferee becomes stockholder. Transferee takes his place. The amount he commits is the amount of the values he bought. Liabilities Management Death/withdrawal of a partner Why five directors? Why not 3, 4 or 6? It is ideal to avoid ties during board meetings. Law makers think it͛s the smallest ideal number for a corporation to distinguish it from a partnership. Parang sex yan, pag hindi consensual rape yan. Contract takes effect immediately upon meeting of mind of parties. Must it be in writing? No Is a corporation a contract? What are the elements of a contract? Parties, object, consent, vinculum. What is the juridical nature of a corporation? Formation of the corporation is a contract, among the original subscribers and then later Ano sabi ng SC? . hindi ito ang issue because non-stock corporations may also engage in business. Hindi member yung provincial revenue officer. recreation and other allied services exclusively to members.4 Very impractical to allow every stockholders bind the corporation. May a partnership be a stockholder in a corporation? Yes. Noon. and therefore. ayaw papasukin kaya inimbestigahan sila. Usually happens between land owner and developers. To address this undesirable feature of partnership. parang the underlying principle was a corporation which is non-stock non-profit does not engage in business. pay-up tax deficiency! Maraming abogadong members dun. Arguments (na hindi nakalagay mashado jan) they have a basic assumption here: The Club is not liable to pay the percentage business tax/graduated sales tax (now replaced by the VAT. Bawal sumali ang tanga. no mutual agency between the parties. DLC: Joint venture has no separate personality and only single transaction. called board of directors. How do we define ͞engaged in business͟? Invest amount of money or anything of value in return of profit. 1980]? Sarthou͛s question: Differentiate corporations entering into joint venture and partnership. leisure. subscribe and buy shares of stock. because it͛s a person. So nagdemandahan sila. Does not return to us for profit. Case cited in Campos has not been overruled by the SC. Main difference between the two: no common fund. Pero kung titingnan mo ang corporation code. Long story short the issue is: Whether club Filipino is a stock and nonstock corporation? Kung ngayon ito pupunta sa court. 3. Capital stock Which is divided into shares Authorized to distribute dividends Holders Dividends from surplus profits On basis of shares held If one of the features is missing. Club Filipino de Cebu v CIR: SC applying principles of corporation law identified the primary distinction between stock corporation and nonstock corporation. CHAPTER II: Classification of Private Corporations There are two general classes of private corporations: The stock and the non-stock.dz Bad way of making description kasi by elimination ito. Esteban Bautista͛s Treatise of Partnership: doctrine not applicable to limited partnerships. 1. Members contribute fund to club and club will use funds to construct clubhouse where they can avail of those services. Under the regime of old corporation law. 6. May a corporation be a partner in a corporation? Violative of a corporation law principle. 5. Continuity of life as a person during the term of its existence. Capital stocks not pro rata. it won͛t be stock corporation. Personality that succeeds throughout its term. Hindi magiging stock corporation. Authorized capital stocks divided into shares. No return from contributions. It may not be a partner in a GP because it will be bound by an entity other than the board of directors. just to adjust the value which member has in the assets of corporation because of revaluation. we are not exempt from paying. i. That was not really distribution.e. Hindi kayo nagbabayad ng tax! Tumutubo kayo sa bar through mark-ups! Tax evasion. Si Sir ang gumawa ng Master Deed ng mga Ayala Prime Towers. May even exercise the rights of a SH. Bakit nagkaron ng issue? Itong Club Filipino was organized to provide entertainment. Death and withdrawal of partner or stockholder. No dividend? But there was a declaration in your records! They received stock dividends in the past. the other general partners. Not engaged in business because we͛re a non-stock corporation. We are not engaged in business. That͛s the underlying presumption. Punyetang BIR ito. Members do not invest money for profit. 2. corporations are granted with right of succession. Very cumbersome to create a new one. All other corporations are non-stock corporations. Equal among stock holders. corporation sole (S110) STOCK AND NON-STOCK CORPORATION Stock corporations is described in S3 as DzCorporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. not income. 4. a corporation may only be bound by its board of directors. Chi: What about SEC OPINION [February 29. Management is given to a smaller group of those who invested in the corporation. It can own. Contrary to general principle of corporation law that only its board may bind its corporation. maraming bina-bribe na government officials. Isang security lang ang tinetrade. we shall divide our discussion into stock and non-stock. Harry Stonehill is a GI during WW2. When DLC was SEC Commissioner. Easier to study non-stock after stock. Kung meron shang authority to declare dividends although the form is non-stock it will be treated as stock so that will be authority prevailing over form. Lumago pa ang kanyang business which lead to his bribery for his businesses to be treated specially and to have protection. on the assumption that CIR v Club gives us the real distinction between these two types of corporation. may third option pa ba. appeared to testify. Let͛s change the facts: y Suppose a corporation is organized as a non-stock corporation and the articles is silent: May the non-stock corporation declare dividends? y Suppose a corporation is organized as non-stock but there is in AOI power to declare dividends: What kind of organization is that? Null and void ba dapat? Club of Filipino v CIR: It is the authority to declare dividends which makes a corporation a stock corporation. No dividends because retained as additional operating capital. principal distinction is authority to declare dividends. no authority for the corporation to declare dividends. CIR v Club Filipino is still good law. From now on. If that is principal distinction. When a corporation is a stock corporation. Invaded corporate offices of Stonehill. BUT what is the effect of the amendment? It͛s as if you dissolved the non-stock and then incorporate a stock corporation. how to classify that corporation. Whether a corporation should be treated as non-stock corporation applying CIR Club. When there͛s prohibition to declare. They needed additional capital to upgrade the facilities and additional operating capital for restaurant and other services. Gusto nila i-amend but remain as non-stock corporation. If authority to declare dividends is in AOI. Stock corporation with prohibition. regardless of form which it was organized. . It collects m onthly membership dues in exchange for which entitled to uses facilities of yacht club. Kaya kinuha yung document para hindi na mabunyag not to file a case against Stonehill.___ Problem will arise if organized as stock corporation but prohibition in AOI to declare dividends. or if the corporation is organized as non-stock corporation (no authorized capital stock divided into shares) and yet there͛s a provision allowing for the declaration of dividends. non-profit corporation. BUT if form prevails. what will you look for in the articles to determine the type of corporation described in the articles. You garahe your sailboats in their marina. y Can we not argue that this corporation. Manila Bay Yacht Club is a non-stock. As such. Sabi ng commissioners. he looked for an opportunity to make money so he made cigarettes through a factory. If form prevails over authority: Argue that authority is illegal because contrary to principles of corporation law that a stock corporation has authority to declare dividends. he had an opportunity to render an opinion. Saka na corporation sole. List of congressmen who receive money. what are its rights and obligations? In Stonehill v Diokno. Point out distinctions. In which case. If you buy a share of stock of corporation. Constitution does not qualify the word person hence even juridical person is entitled to bill of rights. came from S16-A of the old corporation law. Whatever assets were left after paying off obligations will be used to subscribe the initial subscription of resulting corporation. Juridical person ang corporation. corporation has a personality separate and distinct from personality of its stockholders. one truckload of documents from his offices. it has power to declare dividends because of S43. In fact in one case. when you see an actual document articles of incorporation. form prevails over authority. Proposal: Amend the articles to create an authorized capital stocks divided into shares. PARENT AND SUBSIDIARY CORPORATIONS Last meeting. parang yak (large cattle crossed between beasts of burden not related to each other). Wala tayong mga specialized board. authority is distinction. because there is authorization. that͛s the time we go to non-stock. CIR v Club Filipino is no longer a controlling case. Which one prevails: ͞authority to declare stocks͟ OR the ͞form͟? If the form prevails. Amend lang the AOI. Ayaw ng MBYC kasi costly mashado. SC proceeded to examine the articles of incorporation of club Filipino. Contribution to the capital of the resulting non-stock corporation: they don͛t like it because of tax incident Every time a corporation is dissolved and liquidated. President of Yacht Club was then Atty.g. Look at S43 of the code. Not a member unless a stockholder. BUT for it to remain as non-stock corporation. Power to declare dividends. Breakwater. even though the articles is silent. Hindi lang chopsuey yan. How do we solve MBYC problem? Bigyan ng authorized capital stock divided into shares but lagyan ng prohibition to declare dividends remain as non-stock + require that corporation cannot amend that provision without (condition to prevent to avoid matapos maclassify because of prohibition) treated as stock corporation. Arnault was summoned. Another option offered by Sir: Dissolve this stock corporation to convert into non-stock. Questionable decision of the SC here. shares of stock lang. it gives rise to tax incident.5 How do we know whether it͛s a stock or non-stock corporation? The principal distinction between stock and non-stock is the authority of corporation to declare dividends. Why don͛t you follow what other non-stock corporation had done e. I͛ll show you an actual AOI and then tell you what type of private corporation is it? Stock or non-stock? How will you answer the problem. form not authority. remember Arnault v Nazareno? Sabi nung tao ni Stonehill. may payola daw sha. stock or non-stock? Which one prevails over which? Silent because that͛s not allowed. then it will control the characterization of the nature of the corporation. and that corporation will be treated as non-stock although organized as stock. Wala silang shares of stock so wala silang pwedeng ioffer as IPO. must be treated as stock corporation although organized as non-stock? y The other way around will also pose the same problem for us: Suppose prohibition to declare dividends. is corporation a juridical entity entitled to protection of bill of rights? Of course says SC. Bottom line: No surplus profit available for declaration of dividends. that should prevail over the form. Maybe. Ayala Alabang created a corporation which owns the assets. tawagin nila si Danny. (now Justice) Tony Carpio. Maski silent ang AOI. should be treated as stock corporation. Best way to put it. Stock muna after finishing that. not automatically make you a member. This is the classification into stock and non-stock. Stonehill instead filed a case against search done in his offices. After liberation. Why use parent then? Kasi yun ang ginamit by analogy to describe the relationship between these two corporations. Pambayad utang.6 SC said tama si Harry Stonehill. AFFILIATE/SISTER CORPORATION Relation of two subsidiaries which are controlled by the same parent corporation. What is the personality of the church? Berlin v Ramirez: Aglipay seceded from Roman Catholic Church. Does a corporation have a citizenship? Yes. Yuchengco. the other corporation is called a subsidiary. can only have nationality but not citizenship. Some jurisdictions don͛t use sister corporation as formal term: Affiliates! They find sister to be too vulgar. The Bicol Bishop suddenly declared: ͞Itong church na ito. If corporation has control over the other (parens patriae). specify place to be searched and thing to be seized! Did SC release all the documents? No. wala yan during the 12 and 14 century. Purpose pa lang. So what is the original condition that it͛s supposed to mimic. implied it is there because there is also citizenship requirement in adoption. Owners own the control company. May a corporation own shares of stock of that other corporation? Yes. Aglipayan na ito!͟ Nueva Caceres filed MTD on the ground that Catholic Church had no standing. Why not brothers? Ayaw ng lalaki na nacocontrol sila. Underlying assumption in adoption: Natural persons lang yun kasi filiation which is not applicable to juridical entities. If it owns all the shares of the other corporation (that͛s possible). that corporation will now control the other corporation. controlled ng parent ang child kasi chattel lang ang latter. because they were owned by your corporation. Behind the mysterious death of a pope is a Jesuit. that concept still reverberates. PERO hindi ba dapat wala rin sha personality to question the warrant? May a corporation adopt a baby? Swerteng bata ang maaadopt ng SMC! May board din sa Family Code: husband. What is the liability of the parish when priest enters for and in behalf of the parish? Crown and the miter. Parents have power of life and death over their children. VENUS MEJIA YOU NEED TO BECOME TAX COMMISSIONER! CORPORATION SOLE ʹ inserted in the code to accommodate the Catholic Church which is a dictatorship of the Infallible Pope which cascades to lower levels like cardinals. Ginawa lang yang dogma so that pope will have ascendancy during quarrels inside the church. ISSUE: What is its personality to bring suit to recover the church? SC said How dare you? Wala pang Pinas may Catholic Church na. Different and separate personality from your corporation. Pero ngayon iba na ibig sabihin ng phrase na yan. Maybe I don͛t know Tax but I know the Commissioner! Therefore. wife and the court in case of spouses͛ disagreement. Kaya nga parent and subsidiary not parent and child. Therefore. So does the citizenship allow the corporation to vote? Constitutional provision implies that only natural persons may be citizens of this country. that͛s why they force who to marry. Karma na yan. Limit the liability of the bishop. joined by many parish priests in Ilocos and one in Bicol. you are not your corporation. duties and obligations of a natural parent.g. Hindi pwede shotgun warrant. Transactions over shares of stocks are treated specially. For these affiliates. Aglipay made his church as religious society not a corporation sole with a board kaya laging nag-aaway. Next meeting: Formation and organization of corporation. a natural parent and a natural child. Kaya nga adoption even though not provided in the law expressly. Corporation. bishops and parish priests. shares of stocks will be bought by the holding company. hindi na lulusot ang corporation. it͛s a th th recent creation. there͛s a special tax treatment for shares of stocks held . In Roman Law. Parent is the holding company. Kaya yung doctrine of infallibility. HOLDING COMPANIES Organized to hold nothing but shares of stocks of corporations When the owner of parent corporation will buy other corporation. Corporation cannot possibly mimic the role. What is the purpose of adoption? Mimic the relationship of parent and child. it therefore maybe a shareholder in another corporation. corporation has power to own property (like shares). Anomalous diba? Iglesia ni Cristo is also organized as a corporation sole. Bakit ginagawa ito? Under the NIRC. 50 years ago. a juridical person. Lopez. Babae lang pambayad utang. Dominion of parents over their children. This principle is followed all over the world. The corporation board will also decide where the baby will go to school. by holding company. only a natural person will qualify to adopt. Father general of Jesuits is the Black Pope. All three of them are affiliates because they have relationship with each other. may isang term na ginagamit: Group of corporations e. Mas maingay pa sa players. no prohibition either.7 CHAPTER III: Formation and Organization of Corporation 22 November 2010 WHO MAY FORM A CORPORATION Who may form a corporation? Law provides for a minimum and maximum number. Usually one or 2 people will think of a business opportunity. Danilo Ortigas y Ayala who own a big track of land in Sta. An incorporator occupies a special position in the incorporation. Are there instances that the promoter is not really kasahog? Sulsol lang. Law does not provide a maximum number of corporators originally forming a corporation. Nos. E. Courts can easily acquire jurisdiction over persons of residents is much easier than when the person is a non-resident. But may he be a subscriber to shares of stock of another corporation? Yes. 60% must be Filipino. there must be genuine stake in the corporation. which means to watch. let͛s form a corporation. But all the 60 may be listed as SH originally forming the corporation. ͞By laws shall be approved and signed by the incorporators͙͟ y Why incorporators only? Sasagutin natin yan when we get to bylaws. Not all the 60 may be incorporators. it may amend articles several time but not amend the incorporators because it͛s fait accompli. What special function do incorporators perform? Is there special function to be performed by the 15 so they have to be separately named by the nd articles? S46. he will promote the corporation. If the corporation will own land. summons may easily be served on them. y cf that section with S61: May a subscriber to a corporation which is still to be registered with SEC withdraw his subscription? Yes. Why not? If he doesn͛t he is only a miron/audience. So that the regulatory agencies in the Philippines can easily compel and enforce regulations against this nascent corporation. Corporation may exist more than 50 years through extension of term. supplier of cyanide. 5. kakausapin money provider. This nascent corporation may comply with regulations through majority vote. May all the incorporators be aliens? Yes. As a GENERAL RULE: An alien may be an incorporator. 7 and 8.g. corporation may not be an incorporator. Unless he owns a share of stock. Kaya lang. There͛ll be no problem about service of summons. If for one reason or another he does not have the resources. no need for him to be an incorporator or subscriber. the five people have to sign the articles. It applies to all incorporators. Since they are residents. See S14. Usually when he has necessary resources to put up business. connection with other corporation who will provide us with contracts. there͛s no prohibition for alien to be incorporator. number of shares subscribed and amount paid on your subscription. Pwede ba yun? There is a difference between an incorporator and corporator. nagkatinginan. he can withdraw provided all of the other subscribers (NB not incorporators) consent to the revocation. i. From the Spanish word mira. Those responsible for promotion are all promoters. Incorporators are only nominees with one share each. unless he has invested in at least a share of stock of the incorporation. he will look for other people to provide lacking ingredients for business to take off. in practice. For the same reason. the promoter decides that corporation is best business organization to accommodate requirement. The idea of forming a corporation is marketed. BUT experience tells us that he who actively participates in the formation. You. But not all original subscribers may be incorporators. In fact. Incorporator must be subscriber to at least one share of stock. Most likely he can say that the business is a partnership. di na ako makikisali sa kita niyo. Hindi uubra na yung 5 tao nagkita sa CR. Original subscribers has no limit as to number. you form a corporation and develop my land.e. May an alien be an incorporator? If you will look at Corporation Code. Limitations and restrictions are not in Corporation Code but in constitution or special laws. all corporations which you will incorporate will be owned by corporation which shall be listed as an original subscriber. All of you may be listed as original subscribers. San nakalagay yung pumipirma sila? S5: ͞and who are signatories thereof͟ Incorporator ay hindi nababago. Process of convening people to participate in the organization. Rosa. Laguna. you͛ll readily notice. Original subscribers do not sign. e. majority of them must be residents of the country. S14 No. That͛s what you call promotion. di na mag-iimbita ng kasosyo yan. End in view: gather all required investments and subscribers and everything necessary for the corporation to go to business. If after analyzing the pros and cons. Original SH? Yes. May all of the students in this class become original members of the corporation? They want their names to be written on the article. How do we know if original subscriber is an incorporator? What differentiates original subscriber from an incorporator? They have to be named one by one. because the law is very very clear. formula. promoted. 2 paragraph. Promotion stage Those who initiate the formation of a corporation are necessarily the promoters of the formation of a corporation. Only 15 of the 60 may be listed as incorporators. incorporators must be natural persons which a partnership is not. resident alien Why does the law require majority of the incorporators to be residents (either alien or citizen)? Law does not limit the residency requirement to aliens. There are many sections there with many paragraphs so ngayon pa lang lagyan niyo na.g. May a partnership be an incorporator? No. Not only that. . he ends up with the controlling interest in the business corporation. Address has to be indicated opposite the name. What if he only provided the elements for business organization to come to fruition but did not join? Still a promoter. capital. y y Constitutional prohibition on mass media which should be controlled and owned by 100% Filipino. STEPS IN FORMING A CORPORATION 1. For the incorporator to have a genuine interest. Pwede ka bigyan ng go signal ng SEC but later on you may not open it because it has already been appropriated by a partnership or a single proprietorship. Sasampalin kayo pag ginawa niyo yan! Sir͛s wife͛s case: Couturier. BTW. Oposa also wants Acme so what he did was add two terms. registered as corporation. Racket yan ng mga lawyers. E di ngayon ano nakalagay sa store. fraud or misrepresentation to the transacting public Not just ͞similar corporation. even if corporation succeeded in registering the name of the corporation as a business name with the DTI. Tas sa opening. We discuss that in Chapter V. can͛t be used by another corporation or partnership again. formalize the organization of corporation as their form of business organization. He registered a corporation whose acronym is BIR. Pinnacle. Hindi Santos ang surname niya. Ano yung business nung investor? Restaurant. Acme. Even before the registration is done.͟ So how do we deal with it? We go to the SEC and to check whether the name has been appropriated and then reserve. Registered as a business name with DTI on a store na Oposa Shoes.000. isang km na ang haba. It may even be trade name or brand name. Who holds registry? IPO It might be copyrighted. Top. Dagdag ng 2 in order to make it different from an existing corporation. May not allow if it is: [1] identical [2] deceptively or confusingly similar to that of any existing corporation ʹ because there may be unfair competition. What am I trying to tell you? Even if corporation has succeeded in registering the corporation under the chosen name. Maglist down ng mga newly opened establishments sa US tas ireregister dito sa Pilipinas. E. Sari-sari store sa admin bldg sa ilalim ng chapel ng White Plains. Wide latitude of discretion. Pero kung may corporation na Acme Devt Corporation. nakipagcontract na sha. On the day of the opening. E.͟ What is the status of the contract? Is that valid? We will discuss what a promoter can do later. SEC has freedom in determining WON a name is confusingly deceptively similar. Oposa ang apelido. Illustration: There is a good vacant lot we can turn into a parking building with beerhouse underneath. to ensure that your client will have exclusive use of a particular name. kapag nakaisip kayo ng pangalan and you put it in AOI and you bring it to SEC. hindi UP grad so ang alam lang niya. Drafting the AOI ʹ maraming kaduktong na documents yan and we will discuss it later Concrete example: There͛s a businessman who wanted to go to business and chose corporation as the form of business organization so he requested his lawyer to register a corporation with the SEC. In fact. first na naregister 1930s pa lang. Lahat ng topmost gusto nila. San Miguel Corporation and Saint (pronounced as San because it͛s French lol) Miguel Corporation. SEC also looks into the line of business. Ergo. Ano parusa niya? RP kasi wala nang death penalty. you only want my land. E. upahan niyo na lang. It͛s like fraud committed by some BIR people. it͛s RP. design ladies shoes carrying his surname as the brand name. When used by one corporation already. What exactly do we do here? a. May Dad͛s Corporation open Dad͛s restaurant in Megamall? Nilapitan may-ari to benta the right to use the name. What has copyright? Intellectual creation which is protected by law. Summit.g. What am I trying to tell you? Not simply because you͛ve succeeded in registering a particular name as corporation name. mabibilang sa kamay ang may ganong apelyido.8 May a promoter enter into contracts? Yes. There already exists a corporation under that name. it will not give you exclusive name as business name. E. But the name may also be a business name. He was paid P200. Zenith. Registration If Oposa succeeded in gathering required number in his business proposal. Kung gusto mo talaga magamit ang acme. Nakakuha sila ng magandang spot sa MegaMall. the SEC will add 2 more terms to make it different. Ang dami niyang inincorporate. Please check if this name has already been appropriated. eh by the time corporation is registered. (1) Corporate name If you were the draftsman. It will take 2 weeks to complete the registration process. you may not have the right to use it as a business name because somebody else has appropriated it with the DTI. Pwede rin open a business under that name but you may not use it as a brand name kasi appropriated in a patent office. the copyright registry with the National Library sa Kalaw. itataas na niya. what͛s the first thing you should do to come up with a draft of the articles? What to name this corporation? What can you use as a corporate name? Why must this business organization have a name? See S18 Can we use Pacquiao Trading Corporation? S18 gives us restriction on the name a corporation may use. may appeals naman under PD 902-A go to CA from SEC on petition for review on certiorari. this corporation may still be prevented from using corporate name as a brand name.g. Therefore. What is in a name? A particular name͙ May be corporate/partnership name. Hudyo yan. SEC may say. in the application of bank account. dumating ang sheriff of Mandaluyong RTC enjoining them from using the name because somebody else has registered it as business name with the DTI. Who holds registry? National Library 2. ͞Sorry naunahan na kayo. Now she͛s in the process of cancelling the registration of the first registrant. Nagbukas ng resto sa MegaMall so may malaking karatula sa labas.͟ but may also include partnership. Yung lawyer. 3 na idagdag mo. He tried convincing the owner of land to join the corporation as stockholder. People might part with their money or valuable resources believing they are transacting with the real SMC. you should check not only with the SEC (corporation and partnership registry). Ganyang ganyan yung nangyari sa Dad͛s.g. Who holds the registry? DTI. hence Acme Real Estate Development Corporation. there͛s one who got charged with plunder. may TRO dahil registered by another owner. Opened an account under the name of the corporation.e. or ipapaupahan sa iba. That͛s called a ͞promoter͛s contract. . they will now register i. See Page 19. with ͞check payable to BIR͟ hundreds of millions of pesos ang naideposito niya.g. Registered na kagad by someone not having that surname. Shadong original diba? Nagpaverify. DaniCon and Oposa͛s dad organized the first debating and poetry reading club in the college. also business trade registry of DTI and then also tradename and trademark registry of IPO and lastly. But landowner refuses. he may enter on behalf of corporation still to be formed. Acme Inc. If you do not agree with the SEC. Gustong name? Restaurants R (baligtad pa) Us. nagparehistro lang. differentiate between RP and life penalty? But in the law penalizing plunder. When name is already appropriated. shoes. Nakalagay dun sa mga shoes ay Oposa. But they only have registries of corporation and partnership. expired na agad. Hindi yan pwede because the word is copyrighted. name of national heroes. then that will take the place of the cash. SEE MAGIC NOTES to produce finished case. For them to know that. E. Hindi yan tutumba. Why are the names. SEC will not allow it. ONLY EXCEPTION: Non-stock corporation Where the trustees may be more than 15 Anecdote: DLC was instructed by the boss to make AOI of non-stock. Look at S92: only allows the TRUSTEES. How would they discover if Anti-Dummy law has been violated. not incorporators 24 November 2010 (4) Term of existence Investments remain with the corporation during its term. Therefore.g. With 20 incorporators! Pwede yan. HOWEVER. Ergo. Sir maganda yung Jollibee Trading and Merchandising Corporation. Is Lyceum a common word? Greek. Pero meron kasing isang Lyceum sa Northern Philippines University (plus two words na yun). Wala lang. There are prohibited words that cannot be used in a corporation or business name. Hence balance sheet. Therefore. Bakit kailangan reservation? Pwede po ba ito? Umuwi ka tas pagbalik mo naunahan ka na. it has the right to presume that such capital will remain with the corporation until the credit has been paid. Vested right so they cannot be deprived. total contribution of SH amounted to 2M. Hello PNB. You can even renew the reservation for a fee. not the entire amount of those contributions are intact at any given time because corporation will need money/funds in its commercial or business operations. There͛s also a law prohibiting the names appropriated by the UN as a regency. may nakabantay pala. nationality and residence required to appear in the articles? y Name is to identify who they are y Nationality (actually it should be citizenship) so it will be easy for SEC to regulate in enforcing nationalization laws. when that corporation goes into business. Pagkakuha mo pa lang ng certification. It is for this reason that the law requires to state the term for the existence of the corporation. E. Shempre mas mahal pag longer.Why? For the protection of public who may extend credit to the corporation. it will make use of the 2M as its initial capital. But why is the max 15? Kinapa-kapa na lang ito. What about RCBC? Rizal there is province. Maximum is 50 but extendible for another 50 years. acquire piece of land where the plant will be constructed. you must reserve it when available for a fee. It has costs eh. Nag-file Lyceum University to cancel registration LNPU on the ground of similar. We have already discussed the reason behind the minimum number of 5. Lyceum University in the Intramuros has been existing as corporation for many years. it will take the place of cash. Isasampal ko sayo. number of incorporators correspond with directors. cash will be gone pero mapapalitan ng ibang other assets. it will not be uncommon for you to see articles where there are 15 incorporators and yet only 5 members of the board. UNICEF. articles should show where they are residents so SEC can implement Corporation Code requirement of majority residency (6) Number of directors and trustees y Directors ʹ for stock corporation y Trustees ʹ for non-stock corporation If number of incorporators is 5. Anyone who extends credit to the corporation may be presumed to have considered the capital of the corporation. Wala pa yung batas prohibiting the use. there may be more incorporators than directors in a corporation and the reverse is also true: more directors than incorporators. It will give people a wrong notion that that Lyceum is a branch of LU in Intramuros. I don͛t know why they lost. When that initial capital has been used up. It͛s a protected name. 30 or 60 day reservation. owned by Laurel of Batangas. Term/word ͞national͟ cannot be part of business name of corporation that will engage in financing or banking. unless it is your name. At the time corporation was incorporated. E. Natalo ang LU. At any given time. Names of individuals. it should always be balanced. . Of course. may there be 15 directors at the board? Must the incorporators correspond to the number of directors? No requirement that number of incorporators should correspond to the number of directors. check niyo na lang. Even if you add 100 words to it. In order to ensure that you can use your name when the AOI is presented to the SEC. dead or alive. Pero kung magiincorporate ka tas term of existence is only 1 year. (5) Names. Parang may ganon. ͞Trust Fund Doctrine͟ Sino CPA dito? She will be the resource person for capital structure of corporation. Extensions have no limit. Jose Rizal University. There͛s also a law which prohibits the use of name of former presidents unless it͛s the family using the name. Is there minimum length of time for the term of corporation? No minimum.9 Lyceum as name of school.g. sira ang ulo mo non. nationality and residences of incorporators The incorporators in S10 cannot be less than 5 nor more than 15. UNESCO.g. Why 50 years? So that the SH may get liquidating dividends before he dies. The contributions therefore of the stockholders in the capital of the corporation are held by the corporation in trust for the benefit of laymen and creditors of corporation who have right to presume that such contributions will remain with the corporation until the dissolution of the corporation. Arbitrary. If they use the cash . Where is Trust Fund Doctrine in the code? S122 last paragraph Potential SH should know until when his investment will be tied up. experience has showed us that in 90% of the cases. That͛s not in the dictionary. constitutional requirements y Residences ʹ to know if majority of incorporators are residents of the country. GENERAL RULE: The limitation as to minimum and maximum apply to both directors/trustees and incorporators. Why? Because mislead public that this bank is government-owned and therefore is a solid bank. Deceptively or confusingly similar yan. put the template in the computer. But while only the incorporators are the signatories. DLC says kalokohan yun kasi assuming present lahat sila. It has to be stated in the article. advertising (7030) SEC has to know who the SH are. They must also sign the margins. Therefore. So that any value below that benchmark will be a scam. SEC will scrutinize every line. Pano pag umabsent yung isa. It will give us the picture of the financial status of corporation. it͛s just a bench mark. Kulong ang penalty dito. Assumption natin ito. Quick determination if corporation is making money or in the red. Treasurer͛s affidavit ʹ because corporation code requires that at least 25% of ACS be subscribed and at least of the total subscription be fully paid. Its purpose is to authenticate the page as the page originally forming the articles. When DLC was in the SEC. retail trade. there are already interim directors who shall continue and complete the organization of the corporation. total subscription is there found in the articles. Hindi pwede ang P250 sa isang page. Bakit tumaas? Because maybe investors want to subscribe to shares of stock of corporation. Why can͛t we just make a Word template? Express lane purpose is not only to make it convenient for applying corporation in drafting and making articles. Hindi natin sila pinapapirma baka di na mabasa ang articles sa dami ng pirma. most likely. law wants that upon the approval. That innovation won an award. They made the expresslane form and so they͛re sure walang illegal dun. nationalization law (educational corporation. This facility helped the economy through increased commercial transactions. Why affidavit? Subjects him to perjury May nadedemanda ba dito? Meron kasi nagrarandom check ang SEC. P20. How will SEC know how much is paid? Every original SH nakalagay dun ang amount subscribed and amount paid. Corporation has fixed the benchmark value for its shares of stocks. To facilitate examination by the SEC. In the meantime. Filing of the AOI and payment of fees ʹ ito na yung mga maraming kaduktong na documents After the AOI is done. That͛s why law requires treasurer to execute affidavit. But why do you always see odd-numbered? So that there͛ll be no tie. HOWEVER: In case of educational institution (non-stock corporation) may sinabi diyan na dapat multiples of 5. It may be bigger than value. Where will that come from? Contributions of the members. no such requirement oddnumber. It͛s the cooperative that prints the expresslane form. Supply and demand or net worth (assets less liabilities) net worth of share if divided by all shares. b. nationality and residences of incorporators who shall acts as persons or trustees until duly elected are qualified Baka mamaya naapprove yung AOI by the SEC eh di pa nakasched yung meeting for the election of directors. y ͞No par͟ no fixed value make it easier for corporation to raise money from the subscription in shares of stocks CK͛s question: Corporation cannot issue its shares of stock for a price/consideration less than par (S6) What about non-stock? It has no ACS but it has capital which it needs to operate. Pero pwede pa rin silang magkonchaba na pumirma na lang ulit to sign the falsified page. Isang datasheet na lang ang pipirmahan. Determination that value of share of stock is piso. pwedeng even. (8) Authorized capital New terms: y ͞Authorized capital stock͟ (ACS) ʹ maximum amount of capital corporation may raise from contributions (To be discussed in ͞Capital Structure of Corporation͟) y ͞Par Value͟ ʹ arbitrary face value given to a share of stock. Habang humahaba yan. We͛ll see how much is subscribed vis-à-vis ACS. Bayad daw pero hindi bayad. Para hindi na itype ang S15. Pero ayaw naming yan. attach other documents: a. Paminsan-minsan may nahuhuli sila. y SEC will be given info on WON the corporation has complied with 60-40 requirement like in ownership of land. If you were the one who made the articles. By the incorporators who signed the articles. the original subscribers will not contribute and will not allow their names to be included unless they have seen the articles. later the by-laws What should come with AOI? y Reservation for corporate name y Treasurer͛s affidavit y General information sheet . (7) Names.Notarial acknowledgment in S15. Hindi lang execution page (last page where the names are typewritten above which they should sign) ang pinipirmahan jan. They are called ͞interim directors͟ designated in the article till the regular directors shall have been elected and shall have qualified. nareduce into 3 days. tumatagal ang approval. SEC requires articles to be notarized (acknowledged before the notary public) . How will SEC know this? All the subscribers are listed in the articles and their respective subscriptions are listed opposite their names. If it͛s above the par value.000 a year. It͛s included in the express lane form. b. mass media). The law does not require all the original subscribers to sign the articles. Pero maraming Filipino ay sinungaling. walang sinabing bawal. threatened yan kasi wala na sila work. that will be a premium.10 Kailangan bang odd numbered yung members of the board? No. Expresslane Form was introduced when Monico Jacob was SEC commissioner. Not necessarily market value of share. General information sheet ʹ Form is available online. Expresslane form pa rin! 3. Why sign the margins? What do the marginal signatures prevent? Substitution. All those who paid membership dues must be paid therein. May typewriter pa ba kayo? Itago niyo yan dahil relic na yan. Stock corporation with 1 year term. It͛s not the only reason. Member pala si sir ng cooperative. it͛s on the red. tanggalin na rin yung expresslane form. Issuance by the SEC of the Certificate of Incorporation What documents will SEC ask you when you file? y Express lane: articles and by-laws y If not express lane: pwedeng AOI lang. From a time frame of 3 weeks to incorporate a simple corporation. You just fill it up with information and then sign. (See S108 1st par) Non-stock corporation must be multiples of 3 if they will adopt term of office for their trustees of 3 years. Or kung yun ang kailangan. Yung 25% madaling kunin kasi ¼.School approved by CHED or DepEd. Best person to ask is the SEC. the SEC will also require presentation of the consent given by other government agencies which regulate the business of the corporation whenever the law or rules and regulation applicable require consent of regulation agency before SEC may act on application for incorporation. Hospital approved by DOH. SEC will issue a certificate of incorporation. . cash-bond. Basis in corporation code S17. Anecdote: Law office from post-grad. Mandatory ʹ may either be: a. Kung ano lang kailangan. The rest will just be commitment for future requirements.You cannot incorporate a travel agency unless it is with the approval of DOT. Sir doesn͛t play golf because he͛s ultrasensitive to sunrays. Then it will be brought to examination by examiners. not the application itself. You have to be prepared. If minimum paid up is P5000. Why 25%? It͛s a commercial or business reality that at the start of business that that amount of money is not needed. American publication. 4. Other corporations fall under jurisdiction of other government agencies.Labor recruitment ʹ approval of POEA is needed.11 You should pay the following: y Filing fee ʹ 1/10 of 1% of ACS (P1000 for every million) y Legal research fee ʹ goes to the UP Law Center. Arbitrary number. you͛ll look like you don͛t know what you͛re doing. See Hall v Piccio and Municipalty of Malabang v Benito . Feel lang nila na reasonable yun.Security agency regulated by an agency in Crame. SEC will forward you to POEA to ask for approval if you go there without prior approval. Tatandaan ni SEC yun.Insurance corporation unless approved by Insurance Commission. SEC will approve the application for regulation. Golf everyday partner. 6 volumes lang naman. It will become counterproductive if fully subscribed. okay lang sana kung submitting. Those are found in special laws as well as rules and regulations promulgated by the SEC. and SEC has been satisfied that all requirements of law has been complied with and nothing in other documents is contrary to the code or any special law/rule or regulation. 26 November 2010 Grounds to reject an article: S17 Are the 4 grounds exclusive? No. you get official receipt. But that͛s bullshit because if you will look there is a P5000 reference in treasurer͛s affidavit (S14). . . . The rainmaker who looks for client. E. They͛ll check if documents are in compliance with requirements of law. Constrict the market for investors. Lesson: Always look at the line of business. Revised Securities Act and another one to promulgate rules and regulations in its exclusive jurisdiction to supervise corporation organized under the Code. Pag winithdraw mo at ibinalik mo. yun muna ang paid up. They will note that the AOI is withdrawn for changing. What does POEA require? Marami! Minimum ACS. Take note that in addition to those requirements. Gradual need yan. you must pay for the deficiency which is the amending fee now (Mai͛s question). . what is the minimum ACS a corporation may have? P5000.g. Hindi pwedeng additional lang na ACS. Ano gagawin mo ngayon? Baguhin yung AOI. Effective deterrent and discourage investors to open businesses. Is line of business important? Under the regulation of another government entity. there are other grounds for the rejection of the articles. The law does not require a corporation for all its SH to be fully subscribed. magbabayad ba ulit ng filing fee? Remedy of SEC: Withdraw the AOI not the application so that you will change/modify (and not amend kasi wala pang corporation). Pick up phone and start calling. 25% lang ng subscribed ang talagang kailangan. only 25%. Bank unless without approval by CB. Suppose the regulatory agency requires higher ACS and the one provided in the AOI is lower than the required. Unless you increase. look at the regulation of agency if that agency requires other things to be complied with like minimum ACS. So no more need to pay again. Then you get official receipt stamp. When all those approvals have been obtained and you have complied with all those additional requirements.Pawnshop regulated by CB Makati law firms usually have a checklist for additional requirements by government regulatory agencies for incorporation of certain businesses. There is no minimum ACS in Corporation Code (S13). the corporation is registered and has acquired corporate personality under S19. Organization After SEC has completed examination of articles and all accompanying documents. insurance companies etc because they are regulated by another government agency. From then on. . they keep it updated. yun lang ipepaid up so there͛ll be room for additional subscription later on without having to resort to amendment of articles. Total noncompliance ʹ Corporation will be either de facto or non-entity. last paragraph: Banks. hindi nag-iisip ang kliyenteng yun. SEC will not process your AOI. DEFECTIVE ATTEMPTS TO INCORPORATE In approving or disapproving the articles of incorporation applying for registration. Otherwise. What government agencies usually do is write to SEC and inform SEC that corporation engage should not be processed without our favorable recommendation. Pag ganon ang kliyente madaling magbayad. Requirements for incorporation are classified into two: 1. Research daw of the UP Law faculty y Miscellaneous fees When you pay. fully paid and fully subscribed ͞Purpose clause͟ in the AOI: There is a form book for that. Good golfer is a good lawyer. Mahirap kwentahin yung 30%. Enumeration in this paragraph is not exclusive. It will be different if problem is on the minimum ACS. The SEC is empowered under S143 of the Corporation Code. Masisira ang cash flow. Meron ka pang unissued stock na pwedeng iissue in the future. the SEC will examine the articles. Municipality was created already while the law creating it was still pending. . In the eyes of the law. therefore all the acts should be respected. Corporation that resulted will not be de jure. But there are some badges which somehow gives us a hint on whether or not a requirement/law is directory or mandatory. DLC finds the foundation of this decision as shaky. cases extend for years. A municipality in Mindanao was created under this new law. Directory ʹ noncompliance with this shall not affect the status of corporation when the SEC approves the articles. neither de factor nor de jure. pwede maging non-entity. BUT it enjoys all the rights. i. It is directory when the effect does not constitute a penalty. possesses al the powers of a de jure corporation. What happened in that case? During the time of Diosdado Macapagal and Carlos P. Corporation will remain a de jure corporation BUT how do we know whether a requirement is directory or mandatory? If you will look at Art. carving out territories from existing cities and municipalities to create new ones. Kapag total noncompliance. creation of cities and municipalities kasi nacreate these cities and municipalities without compliance with the requirements of the constitution. The case of Hall v Piccio and Municipality of Malabang v Benito is instructive. What requirements are mandatory and what are directory? Maybe we can safely assume that both those requirements are mandatory. Impossible to have de jure municipality of Malabang because the law itself creating the municipality has been declared unconstitutional. They can no longer turn the hands of time backward. What happened to the LGU now? It has entered into contracts now. then we can conclude that such law or requirement is mandatory because there is a sanction. SC cited with approval the cases decided in the US on de facto corporations. not even the CC tells us when a law is directory or mandatory. as if de facto pa rin cos of the operative fact. Who may attack/challenge the de jure existence of a corporation? It͛s stated in the law. The appointed officials who discharged their powers before law was unconstitutional are also de facto. Garcia. Several years thereafter SC rendered judgment declaring the creation of the municipality as unconstitutional. then the law or requirement is mandatory. Sabi ng court. Non-existent corporations. imposes no obligation. Fait accompli. (Must comply with these three requirements) How about corporations defectively organized not falling under that category because one of the 3 conditions for de facto existence was absent? What do we call them? They are non-entities. not all corporations defectively formed are de facto corporations. The first requirement for de facto corporation to exist is absent: valid law under which the corporation may be organized. several laws were passed by congress creating new municipalities. relied upon in latest SC case reversed on motion on recon. it has acquired properties and liabilities. a successful attack may be lodged before the proper tribunal. No one shall succeed to oust the corporation from its corporate existence because it is a de jure corporation. Where does the SolGen file the quo warranto action to oust a de facto corporation from its corporate existence? S20 it has to be filed with regular courts. What happens to the transactions? Respect them because the passage of the unconstitutional law and its implementation by the creation of municipality are operative facts which SC cannot close its eyes upon. SC says there can be no de facto corporation where they can be no de jure. What is the difference between de facto and de jure? y De jure corporation ʹ has all the powers of a corporation because it was properly organized y De facto corporation ʹ there is a defect in its corporation. SEC has no jurisdiction. It͛s a non-entity. nobody can successfully attack its de jure existence. SC used in the municipal corporation by analogy doctrines applicable to private corporation. who has the jurisdiction on that matter. enforceable? Are those liabilities still subsisting despite the declaration of unconstitutionality of law creating the municipality? SolGen says it͛s de facto corporation. or if the result or effect of non-compliance will inflict damage to the non-compliant party. 5 of CC (Acts executed against the provisions of mandatory or prohibitory laws shall be void. organized under a valid law who have colorable attempt to organize under that law and who 2.). What then is the difference between the two? The only difference is availability of a successful attack on its existence.12 b. 3. Let͛s see if under the RoC. Second ground. SEC may require him to comply even after certificate of incorporation has been issued to him. Malabang. the action is a quo warranto. If the result of noncompliance is penal in nature. pwede maging defacto. It creates no rights. But that doesn͛t mean lusot na. there must be user of corporate power in good faith. They have to be respected. Lastly. Ano lang ang de facto? Only those which were 1. Manuel Pelaez of Misamis challenged the validity of creation of new municipality on many grounds one of which is gerrymandering. A de facto corporation may be ousted from its corporate existence. y If the corporation is de jure. Declare non-entity pero walang effect. One of those badges the effect of non-compliance. It does not constitute punishment. There was no such valid law because it was declared unconstitutional. Naimplement na ang batas. Anyone who may question its legal existence will fail. y In the case of a de facto corporation. There is a penalty for non-compliance. Corporation will remain a de jure corporation In Municipality of Malabang v Benito. Substantial noncompliance ʹ no effect on the status of the corporation but SEC may require him to comply with that which has not been totally complied with. nangyari na. What kind of corporation is it now? Neither. it did not exist at all.e. except when the law itself authorizes their validity. When he files an action to oust a corporation form its corporate existence on the ground that it͛s not a de jure corporation. Non-compliance has no effect. had exercised corporate powers in good faith are de facto corporations. Problem with this: Municipality of Malabang v Benito. 2. If the law provides for a sanction for non-compliance with a law or a requirement. SEC will issue an order requiring newly incorporated corporation to comply albeit belatedly. What is the status of all those transactions? Are they void. the SolGen. They never became either a de jure or a de facto corporation. Di pwede scratch scratch rewind. But since you͛re in the Philippines. Remember there are 3 requirements for a de facto corporation to exist: 1. But remember the law requires the incorporators to be of legal age. Nakupo UP itey. They only need to file action/complaint to cancel/revoke the certificate of incorporation of that ͞corporation͟. When you discover that no corporation towards the end of the litigation. Problem left previous session: Wife filed falsification against husband. Kung nabisto niyo yung hindi nakita ng Atenista na hindi pala registered with the SEC. husband misrepresented in the documents the age of the children. Issue proclamation ng amnesty tas babawiin. take them. After operating successfully for around 5 years. third party entered into contract with them but in the name of the corporation. the 3P contracted with a corporation. ano ang gustong gawin. Bigger issue for us is the effect of such fraud committed by the husband in the incorporation of the family corporation. File an action against husband for falsification of public document i. Therefore. Eh kasali ka rin jan! Defense: Hindi ko po alam kung ano yung pinipirmahan ko! As to criminal aspect. what will happen to those private corporations during time it was not yet declared unconstitutional? They can͛t become de facto because ͞existence of valid law under which the corporation may be organized͟ is wanting. Albert v University Publishing Case you can use for this case. Articles were approved. not registered in SEC? S21. Motion for issuance of writ of execution isinama ni Sir at pumayag yung court. Pumasok ako may judgment na. Surely. when 3P had already parted with money. Pwede ba sabihin ngayon ng people he transacted with MTD on the ground that party-defendant have no legal personality because it does not exist as a corporation. That͛s still good law. misis and three children who are minors. Before enter with contract with corporation. maghabol kayo sa tambol ngayon. Failure to comply or substantially comply with this requirement will make the incorporation a defective corporation? What kind of defective corporation? The answer is no. Not correct. Neither is it de facto because no colorable compliance in good faith with requirement of the law. Husband controls the business. When you look at the contract. But the question is what is the effect on the status of the corporation that was issued a certificate of incorporation? not require a quo warranto case for that corporation to be enjoined from exercising the powers of the corporation. no de facto corporation will exists. 3. where the principal office is. While there is a valid law under which it was organized. for sure there is a crime committed. He falsified the document by representing that the 3 children were already of legal age. falsification was committed. Valid law under which the corporation may be organized 2. so what do we do instead? Reopen proceedings? You can͛t execute the judgment cos no property at all. there was no substantial compliance with a mandatory requirement of that law. There was no good faith. we check if they͛re registered in the SEC. lawyers do this: 1. Entity represented to be in existence by the people with whom he transacted. If not. In every scam. abscond na mga kausap niya. then amend the complaint to include those people who transacted in the name of the corporation. what do you do? Idedemanda pa rin but you include the people who transacted with you in the name of the corporation in the name of the corporation. CORPORATION BY ESTOPPEL Misnomer because it gives impression that created by estoppel of parties. File a case with the court against the corporation (kasi contract yung evidence niya). He represented falsely that three of incorporators were of age. rd 1 December 2010 Bear in mind ruling in Hall v Piccio: No colorable compliance with requirements for organizing a corporation until a certificate of corporation has been issued by the SEC. Student did not check and filed a case against the corporation right away. in fact there was fraud committed by husband in the registration of the corporation. When Sir supervised OLA students. Colorable compliance with that law in good faith 3.13 Supposed Corporation Code was declared unconstitutional after several years of existence. in my opinion is a mandatory requirement of the Corporation Code. What is the first thing you do when filing a case against corporation? Check the documents with the SEC. Sabi nung people they dealt with. Pano na the katakot-takot na contracts? PROBLEM: (Actual case) Spouses with three children: 7. The husband opened a business. malamang Atenean.e. no need for the SolGen to act on it. certificate of incorporation was issued. Nung idedemanda na. The corporation is a non-entity therefore it does . Any third party may file it. Sila rin ang original subscribers. Si Mister ay sumakabilang bahay. Proposing a contract that they were a corporation. how do we enforce that now kung wala ngang corporation and no property either? As practical/procedural matter. The resulting is not de jure because not substantial compliance. AOI. Away sila. Is the corporation de facto or de jure? Neither. Hindi parang abogado ni Pinoy. invoking absence to as defense to resist claim against them. Trusting these people. Illustration: Suppose 5 individuals represented themselves to a 3 party as a corporation. Pano kung hindi naicheck dahil hindi UP grad yung naunang abogado. there can be no colorable compliance with law authorizing organization of that corporation until SEC has issued certificate of incorporation. Revenge!!! Parang sa radio. Sedula lang naman hinihingi nung araw. perjury. iwan. if not falsification. Walang dineliver because of this failure to comply with the end of the bargain. till certificate of incorporation. It will simply estop the parties who held themselves as corporation from invoking the absence of the corporation as a defense to resist an action brought against them as a corporation. User of corporate powers in good faith In Hall v Piccio. It͛s high time for use to formalize this business so he went to SEC to obtain an expresslane form. they had a case like this. Para di disapprove ng SEC ang articles. May kulasisi. Natakot siguro the third party so nag-settle na lang. Sloppy work! On the job training ba ito? 2. You cannot create a corporation by estoppel. Notarized pa nga yan. because there͛s no colorable attempt in good faith to comply with the mandatory requirement. Corporate letter head and brochures. perhaps also a fake AOI or certificate of incorporation. That there be five incorporators who are all natural persons of legal age. Pag galit ang tao. the husband and the wife quarreled. no more Atenista so the UP grad files a case against him. Who are his incorporators? Sha. 10 and 12 years old. Pero kung nabisto mo nakafile na the case. Nagclick ang business. maghahanap si 3P ng idedemanda. all the latest filings insofar as that corporation is concerned. No corporation is created by estoppel. those parties who held themselves out as a corporation will be estopped from raising that as a defense. Naghiwalayan na! If you want to take care of children. Judgment rendered against corporation. election or constitution of its corporate officers. The Securities and Exchange Commission shall not accept for filing the bylaws or any amendment thereto of any bank. Meron na agad officers yan so they can comply right away. SEC cannot do anything if there͛s fraud. Notwithstanding the provisions of the preceding paragraph. there͛s constitution and statutes. How does a corporation organize? rd Pwede ring hindi sabay. in such case. Under law of partnership. Make the bylaws Bylaws of corporation is necessary for the internal organization of the corporation. Sec. officers and the board. date of which may be found in the articles OR bylaws. AOI requires applicant to name interim members of the board after the SEC has approved the articles and after it has issued certificate. Suppose complaint for revocation is successful on the ground that there was fraud in registration of corporation. Para silang de facto partners diyan in a general partnership. violation of any provision of the code is a ground for revocation of the registration of the corporation. that͛s also the capital punishment. incomplete sentence Para siyang dinidissolve. if at all to the extent of equity. banking institution. What is liability of persons transacted with corporation? No personal liability. in the Corporation Code. Though later on.Every corporation formed under this Code must. subject to the inspection of the stockholders or members during office hours. by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a certification that the by-laws are not inconsistent with this Code. no right to represent yourself to public as a corporation. Corporation is like a republic constitution is AOI and statutes is the bylaws. In natural persons. In all cases. what͛s the capital punishment? Punishment. what will be their liability? Limited on their promised contribution or assets of the corporation. insurance company. . building and loan association. What happens to the corporation now? Will it be dissolved? DLC͛s opinion lang naman: That will be considered as de facto partnership. merong revocation in S22 ͞deemed dissolved͟ 1. SH and another SH insofar as business transactions of corporation are concerned. Though yung illegitimate child. If you want to pursue. then dissolved na sha. had there been a corporation. not with the regular case. but the effect is just the same. in the political society. Papatayin/bibitayin. BUT what if de facto corporation. The by-laws shall be signed by the stockholders or members voting for them and shall be kept in the principal office of the corporation. They acted on behalf of a non-existent principal. what is the liability of de facto SH now? Same. unless accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law. adopt a code of by-laws for its government not inconsistent with this Code. A copy thereof. Bylaws provide for internal rules for relationship between board and SH. there will be cases (esp ultra vires acts) where the court has adopted the policy not to impose penalty if the corporation can still be enjoined from performing illegal acts. Tandaan this. . what will be liability of party. It will be ordered disbanded by the court. what are the requirements? S46. When an action is brought against non-existing corporation. the decision of the court resolved from continuing with its . BUT if the corporation is de facto. will the registration be revoked? Under PD 902-A S6. You will find this handy in practice. When to make the bylaws? Pwedeng kasama na sa AOI? When the bylaws are submitted together with the AOI. When does regular election happen? During annual SH meeting. What is the effect. Corporate na ako talaga from the start. within one (1) month after receipt of official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission. The corporation may be considered as microcosm of the society. shall be necessary. The action to revoke registration of corporation is still with the SEC by virtue of PD 902-A. Cause it does not lawfully exist. shall be filed with the Securities and Exchange Commission which shall be attached to the original articles of incorporation. the only difference is availability of successful attack against personality of corporation. Their liability is with all their present and future property. such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and Exchange Commission. duly certified to by a majority of the directors or trustees countersigned by the secretary of the corporation. (20a) ORGANIZATION OF THE CORPORATION 3 step: Internal (not international) organization of the corporation. 2. For the adoption of by-laws by the corporation the affirmative vote of the stockholders representing at least a majority of the outstanding capital stock. Adoption of by-laws. limited liability applies. 46. member of board and board. Bitay. Taken care of by assets of de facto corporation. Naeencourage ko kayong maging corporate lawyer kaya onti na lang ang nasa criminal field. we remove certificate of registration but you cannot continue using name of corporation. That͛s how we describe by analogy the relationship between articles and bylaws. No right to exist as a corporation. they are liability. Principle of agency. Dito sa corporation. The latter cannot go against the former. hindi naman pinapatay. or of at least a majority of the members in case of non-stock corporations. Joint and solidary as joint tortfeasors. when shall the corporation adopt the bylaws? S46 ʹ 30 days ͞within one month from receipt of official notice of the issuance of the certificate of corporation͟ What is the effect if no bylaws were filed in the SEC within or after the 1 month period? The corporation is now in violation of a provision of the code. Natural sila lang in their personal capacity. trust company. Principal represented to public is non-existent. cannot be. What is liability of individuals in corporation by estoppel? No limited liability because no corporation. That͛s written in S21 ͞liable as general partners͟ Until when will these interim members of directors serve? Until election of regular. Before ousted of corporate charter.14 When SolGen brings suit to oust it from corporate powers. together with the articles of incorporation. by-laws may be adopted and filed prior to incorporation. in such a case. educational institution or other special corporations governed by special laws. Equity capital of corporation. We don͛t say dissolve kasi that͛s used for de jure. pero 10 years na tumatakbo ang corporation then you file complaint is only now. Election First step. public utility. Pareho lang ang de jure and de facto. the bylaws will not be accepted unless you pay the fine. Every crime committed in its name is committed by people in their personal capacities. Any corporation that was organized and registered under Phil laws is a Filipino national. it͛s also property. Decided to buy piece of property. they submit bylaws. they issue show cause order addressed to corporation and its officers. Registered in the name of the corporation. liabilities of corporation/SH are not liabilities of the other o Because the corporation is a different person with a separate personality May enter into contracts May sue and be sued o When it sues. What are the effects of corporation having separate personality? Own properties. the corporate powers shall seize and shall be deemed dissolved͟ Is the dissolution of the corporation automatic upon the lapse of 2 years? Agbayani says yes. third paragraph: causes beyond the control of the corporation. Though no case yet of corporation whose registration has been revoked for failure to file a stock and transfer book. Pag 1 year na hindi nagfile.g. DLC says no. Corporations have nationality but not citizenship. Will it be effective right away? When will bylaws take effect? Upon approval of SEC of by laws. It comes in different sizes. If AOI was submitted without bylaws. S22: ͞failure to formally organize and commence the transaction of business within 2 years. If within 2 year period. maski by estoppel. Are SH co-owners of real property? Illustration: 5 individuals decided to form a corporation. if you look at Constitutional provisions on citizenships. If crime committed in name of corporation. it cannot but be obedient to the law. marami na. Stock and transfer book is submitted after certificate of incorporation has been issued by the SEC. Nalubog sa loansharks in the casino. bring to SEC. Daily fine. they should be denied the right to question the applicability of bylaws to them. Hindi pa ground yung failure within 30 days. Kuha the creditors with writ of execution. that͛s when they issue order to revoke. This is kalokohan for DLC. After that. Modern view: Sino papasok sa kulungan? Ikukulong natin yung AOI? The corporation will only be liable for a crime in case penalty is fine or fine/imprisonment. Garnish them then it may be sold at a public auction. the corporation has nothing to do with it. Dun muna us sa civil action for collection.15 Pag hindi nagsubmit ng bylaws sa SEC within 2 years. it was used to sell pirated DVDs. Default na lang sha kasi wala namang depensa dun. Judgment by default ordering Ron to pay loan he obtained + interest and cost of suit. can we use our former name again? Another requirement from the SEC not in the code: Stock and transfer book. Ganyan ang ginagawa sa SEC. Ron nalulong sa sugal. because cannot harbor/hatch a criminal intention. Revoked after 2 years. DP requires the corporation to prove that the delay was not due to its fault. dissolve na lang natin. It͛s a creature of the law. Wait. Sila yung members of the board. Hayaan na lang na mairevoke. Kailangan ng proceeding. is it entitled to moral damages? Only in one instance. only natural persons are given Philippine citizenship. Ergo. are the stock holders bound by the bylaws which they approve? There are 2 views. How to submit? Under S46. Hindi sila pwede magpaka-Jesus at irevive ala Lazarus. Kasi bumoto sila in that favor so maybe we can apply estoppel. o May a corporation commit a crime? E. If you don͛t submit. Classical view: No. Pero yung bylaws. The effect is SEC will penalize. CHAPTER IV: The Corporate Entity THEORY OF CORPORATE ENTITY. May the creditors levy on 1/5 of the property on the ground that it͛s his share of the property? Not allowed because the SH are not co-owners of specific property of the corporation. In one case: SH of Guanzon & Sons v Register of Deeds of Manila . Maglulumpasay na lang ba the creditors? What do they levy? The shares of stock. failed to formally organize and commence business͙ hereby ordered to show cause why your reg should not be revoked within 15 days from receipt of order͟ If no response to show cause. not the corporation. The loansharks filed action: estafa (bec checks bounced) and civil (to recover amount of promissory note). Incorporate na lang tayo ulit. Casino nang casino. as such. but what is the view of the Camposes? Even the SH are not bound by the bylaws before SEC͛s approval BECAUSE look at the wording of S46 ͞in all cases͟ they bylaws will only be effective upon approval by the SEC. They subscribed to the shares and paid on the shares. the bylaws has to be adopted by a majority vote of all SH entitled to vote. tens of thousands na. They say in the orders ͞Based on the record on SEC. let͛s just submit template bylaws together with the AOI then amend it later on. How about the corporation. different from the people/persons comprising it. Nakukuha yan sa National. that͛s the time that your registration will be revoked. with that property. with due respect.e. Ask your paralegal to submit it. corporation commenced business operation. Philosophy of criminal laws: Corporation cannot commit a crime. That͛s why para hindi na lang mapenalize. Pag ganun. What if not yet approved but already in operation? Bound na ba by bylaws the SHs? DLC͛s opinion: Since they approved it. if director of corporation authorized a crime to be committed in the name of corporation. Submission of bylaws is a step/requirement for the formal organization of the corporation. Kailangan approve that. Wala ngang physical existence so ang mga tao ang liable na nag-hatch and carry out ng criminal intention. Because there͛s a defense i. Does a corporation have a nationality/citizenship? No citizenship. Mali si Agbayani. when they see that you haven͛t filed anything. bylaws has to be submitted within one month. They bought a piece of land. ITS EFFECTS What is the theory of corporate entity? A corporation is a separate person. Own liabilities. Personality is separate and distinct from personalities of SH comprising the corporation. May be convicted and imposed penalty of crime. owned by corporation is not owned by SHs. that͛s the personal act of the director. besmirched reputation. Title therefore to property is in the name of the corporation. there͛s also penalty. So when X sues the corporation. to commit or perpetrate fraud. FIRST ASPECT ABCDE contracted with x Who must X sue? The funds were held by ABCDE. Pag after bankrupt. WestPhal has debt from Germania͛s principal SH i. In disregarding corporate entity. Tayo na may-ari niyan! They became co-owners of property after the dissolution. Assignment of an obligation requires consent of the debtor. Register: cannot be because you͛ll have to pay transfer tax. recovery becomes nil and illusory because the corporation didn͛t have money. to commit injustice. I͛m sure you͛ve read all of them. those properties are automatically owned by his heirs who become co-owners of the property. disregarding corporation is called ͞piercing corporation. So case was filed SC: Upon dissolution of corporation. Since the railroad is owned by the state.16 FACTS: Corporation was organized but after acquiring properties. Your authority will be State ex rel Attorney General v Standard Oil Co. Purchase price had remained unpaid = credit. The ownership was transmitted from corporation to the SH. Why doesn͛t Germania agree to this modus. di na pwede kasi in fraud of creditors. For Walmart. Only to find out that individual didn͛t have money anymore. They will not contribute any capital or fund. the separate personality of a corporation may be disregarded and only those comprising it and corporation held as one and the same. Hanapin ang mga assets of this corporation to sell and then pay the proceeds to the creditors. Vanderhort should have assigned its credit with Germania. nothing was with the corporation. Simply because all shares are owned by single individual does not justify disregarding separate personality of the corporation. SC: You cannot set-off. it must be shown that it͛s being used to commit something wrongful. 3 December 2010 DISREGARDING CORPORATE ENTITY Separate personality however may be used for wrongful purposes. Vanderhort not able to collect in full. Germania invoked equity. Rail transit company provides the locomotive (pulls the coaches). This is also allowed. After paying all liabilities of the corporation. It͛s available to all the creditors. every coach has a destination. In this case. The veil that separates the corporation from its SH is disregarded. Individual may simply approach 4 other individuals as nominees in the corporation. they executed deed of partition which was presented to register of deeds for presentation. SECOND ASPECT How about the reverse. resources were already transferred to a corporation. they offset ͞quits͟. heirs become co-owners of all properties in the estate. That͛s a simple way to explain this principle. it was dissolved. In such a sitch. Vanderhort and Germania are not one and the same. hindi pwede collect the entire thing. Ay no you still payment and we pay Vanderhort on our own. the people who represented as the corporation. the SH even assuming they became co-owners of the property.e. Used the analogy of succession of natural individuals. In such a case.g. Custom built for the requirements of the goods it transports e. Pag natanggap ni Gallagher yan. Inadvertence and negligence. a tax is due. but assignment of credit does not require consent of the debtor. It͛s called liquidating dividend. Budweiser. An act was enacted for that purpose. May we make the liability of the corporation. From that transmission. individual entered into contract with 3P in his personal and individual capacity. it has own coaches which it uses to ferry goods/merchandise to be sold in the different Walmart outlets. The contract was breached so the 3P sued the individual he contracted with. the same goes for railroads. those properties became co-owned by them because of transmission. when he dies. Asset of corporation receivable from Germania on account of raw materials bought on credit. It made a highway for the private vehicles. it͛s regulated by the state. mababawasan since he͛ll share with other creditors. It lays down the railways for use of operators of train systems. the liability of the SH? Can we make the SH liable for corporate liability? Yes. may the separate personality of the corporation be disregarded to make the corporation liable for an obligation incurred by a SH? That͛s the obverse side. in those instances which allow the disregarding of the corporate personality. In case that arrangement was resorted to by this individual precisely to hide his properties and prevent the 3P from recovering.g. be cancelled and new issued in the names of the coowners. estate tax. When decedent dies. Not mutual creditor and debtor of each other. Absent na naman si Gay haha: In case of corporation. They became co-owners because of transmission from death to heirs called succession. Kaya nga deed of partition. That͛s why there are so many rail transits in the States. Important cases under this topic: US v Milwaukee Refrigerator Transit A law was passed involving the creation of railroad system in the US for the use of railroad companies. will the separate personality of corporation be disregarded so as to consider the person owning all the shares and the corporation as one and the same? No.͟ . refrigerated containers. DLC: Katangahan ang nangyari here. Debtors and creditors of each other. Vanderhort. a real property titled in the name of the corporation remained. they͛ll simply lend their names so that 5 corporation be completed to organize a corporation. There are some or many cases reproduced by Camposes in their book. May a corporation be organized and all its stocks be owned by a single individual? Yes. WestPhal has no receivable from Vanderhort to set off its payable to Vanderhort. Bayad na us! After delivery of supplies. there were some outfits who had their own coaches e. Topless beaches in Spain. They were using the corporation to avail of limited liability. is it not the same? Kasi Gallagher will be able to collect in full what Germania owed to corporation. In order to divide. Long train.͟ in UK it͛s ͞lifting of corporate veil. i. you have not satisfied the requirements of compensation under CC. When it͛s disregarded the corporation as a separate entity vanishes and who will remain. That transmission is subject to transfer tax. the corporate veil will be pierced and that will allow x to run after ABCDE. what tax is due sa liquidating dividends? Gallagher v Germania Brewing FACTS: Germania sued by Gallagher (assignee in bankruptcy of Westphal Corporation) because one of his duties is to recover properties belonging to the bankrupt company. SH: What transfer tax eh we͛re co-owners already so no more transfer there. this is what͛s missing. It͛s the SH who incurred liability and we are making the corporation liable for the obligation of the SH.e. Register of deeds is therefore correct. that͛s allowed. In the US. These rail transits own coaches which they rent out/charter to users. pay Vanderhort will only be one of the creditors. For the separate personality of corporation to be disregarded. Same thing with natural persons. that when the notion of legal entity is used to defeat public convenience. Marbury v Madison. Not necessarily hundred percent.͟ Daming conditions diba. therefore it͛s being used for a wrongful purpose which is not allowed. same price so poor gas buyers and other oil products. When does monopoly or cartelization occur? When players in an industry agree to act in a particular manner. Other powers surrendered: foreign affairs. where all or majority of the SH comprising a corporation do an act which is designed to affect business and property of company and which through the control over selection͙ form of resolution of board͙ ultra vires and against public policy͙ done in individual capacity͙ concealing their purpose and object͙ disregarded as cor. When they join a federal form of government. protect fraud or defend crime. wants to disregard corporate personality so that acts of the SHs will be considered the acts of the corporation. The discount is given instead to the refrigerated transit company. the law will regard the corporation as an association of persons. ͞it therefore follows as we think from discussion we have given subject. Sino ba yung mga nagcacartel na yan? Oil companies involved here. They transferred the voting trust of their shares to the same voting trustee. Right to receive dividend will remain with original owner of the share. cartels because cartelization of certain industries will be detrimental to the consuming public. Attorney General v Standard Oil A case you must always remember. walang kinalaman ang corporations dun. therefore the discount is in reality a rebate given to brewing company in violation of Elvis (?) Act. transit company is prohibited from giving rebates to end users. Who decides? Court said that they are controlled by the same set of interests. Iba din ang variation dito ng application ng disregarding corporate personality. Oil industry is now cartelized cos companies fell in the hands of same individuals. He may donate. SH are free to deal with that. What is that (voting trusts)? SH surrenders legal title to a trustee so that trustee will exercise rights of a SH in the corporation except the right to dividends. sell. Same people are controlling stock interest. Second to the last par. all of them were sovereign states. they supply the oil. Voting trust where the trustee is also the trustee in several other oil companies.e brewing company which falls within the prohibited act under Elvin͛s Law. Sila na ang halos ang board jan. Other elements are just secondary. In the US. give it away for free. Refrigerated coaches for chartering by shippers. it is that the corporation will be looked upon as an entity. Legal owner goes to another which in this case is a trustee. Atty. SC of Ohio: In many of those cases that are reproduced. What he did is to give shares of stock to a voting trustee? You vote. he only wants to earn from corporation͛s equity. they have Anti-Trust Laws which are designed to curb monopolies. Gen. Di ba cartelization yun? So Atty. Brought cases against several oil companies to dissolve them. Dito sa case na ito kayo may mememoryahin: ͞There is in effect an identity of interests͙ used to perpetrate fraud͙ ͟ Hindi ko makita. the issue was are the corporations one and the same? This leaves us to another variation of the disregarding the corporate entity principle. shares of stock is property of SH. The SH in their personal capacities entered into voting trust agreements. concerted manner ang kanilang ginawa.17 Under this law. Corporation is a separate person. Here. SH is free to do whatever he wants with his own shares of stocks. Discount given to refrigerated company is a rebate to the shipper i. defense͙ Disregard natin ang separate personality because separate personality of corporation is being used to evade application of Anti-Trust law. May isang ingredient pa: that separate personality of corporation is being used for a wrongful/unlawful purpose. This is called ͞voting trust agreement͟ legal title is divorced from beneficial title which remain with original owner. The Phil sitch is a different problem altogether. only state law will apply. When they cartel. Not interested to get involved in the management of corporation. In that case. They make business decisions in unison. Ano lang ang napunta sa federal government jurisdiction? Regulation of interstate commerce. So they need to compete with each other freely in an open market. It͛s as if the corporation did it. they simply surrender a part of powers to federal government which may exercise only such powers surrendered by member states. SHs are free to deal with his property. Disregarding of corporate personality ba ito? Acts of SH are to be treated as acts of the corporation.͟ Pwedeng maraming corporations being controlled by a set of individuals. Gen. Regulation of commerce is not one of the powers surrendered by state to the federal government. just a majority entered into trust agreement. Standard Oil says: Corporation is a different person from its SH. Since the separate personalities of two corporations were being used to circumvent the Elkins Act. Within the state. Here. All those corporations may be disregarded. I get dividend. they supply it. pero ano ba ang important? In individual capacity for purpose of concealing real purpose and object which is illegal or unjust or contrary to morals or fraudulent. Dito. sino matitira? The association of individuals. When they are disregarded. The railroad cannot give the discount directly to the shipper. says violative of Anti-Trust Laws. May nagreklamo. why did they disregard the separate personalities? Because controlled by same set of interests. 13 colonies is 13 states. Not simply number allow control board will justify disregarding corporation͛s separate personality. Nasan yun dito? See Page 149 of Campos Vol. Pati payroll tiningnan. two corporations which have separate personalities were to be considered as one and the same. The control over several oil companies fell into hands of a voting trustee. Wala tayo magagawa kung kelan nila gusto taasan. ͞If any general rule can be laid down in the present state of authority. justify wrong. Refrigerated and brewing company is one and the same. So prices of product dictated not by the management of oil companies but by market forces. Sha ngayon ang magcocontrol ng several oil companies because the SH of these oil companies joined the trust agreement. dalawang corporation. Yun lagi ang ginagamit niya. The separate personalities were disregarded and they were treated as one and the same entity. disregard. Kabisahin ito: See page 155. Actions of SH are not acts of corporation. all of them are there. They͛re at the mercy of oil companies. puro state SC lang yan kasi that͛s how US Fed System is organized. Therefore. Their number allows them to control the board of the corporation. the SH of Standard Oil joined voting trusts. Masama ang purpose nila. Volume discount is given to the refrigerator transit company by the railroad. He͛s asking for extreme penalty for engaging in illegitimate purpose. 1. What did the beer manufacturer do? Brewing company now gets coaches from a refrigerator transit company. Laguna Transportation v SSS . Until sufficient reason to the contrary appears. Laguna Transportation was organized originally as a partnership. Niloloko niyo us! Transfer pricing mechanism. In this case. are they always treated as one and the same entity? No. There͛s a compulsory coverage there. not because there is only one owner. Yung mga trucks Dangwa. they have subsidiary liability. PARENT-SUBSIDIARY RELATIONSHIP When parent and subsidiary. Parking lot or admin building lang ang humahati jan. but now you͛re a corporation but that was less than a year before passage of law. it just so happened we intended to incorporate while the SSS is underway. gusto nila magsama. No dura lex sed lex in common law. Kung partnership kayo before. Dapitan. Laguna Trans: less than year pa lang kami so we are not covered mandatorily by this law. Invoked the defense of separate personality. Minimum number of employees for it to be certified. Iraq service vehicle: Hummer. We will not allow operator to make use of separate personality to evade liability to the victim of the accident. because to allow this corporation to invoke the separate personality of the corporation will defeat the applicability of the law which has for its purpose social justice. It͛s not needed to have wrongful intention but if the separate personality of the corporation will be allowed. SC says: Managed by the same interests. Corporations organized less than a year before the passage of law are not covered mandatorily by the law. So inallow na rin nila. Sell manufactured car to subsidiary at a lower price. Later on the partnership was converted into a corporation. then the purpose is clearly wrongful. So court looked for it. automatically treated as one and the same entity. Lahat ng properties ng operator inalis na and transferred to corporation. Tumaas then bumagsak. Hindi pa uso ang A/C sa motor vehicles. Otherwise. covered na by the SSS law. tax structure is different. Surplus of machines. He was a case study in business management. not proven that subsidiary is being used to commit something wrongful nor that they were under the control of same interest. That͛s how their buses look like (think Princess Diaries tram). Not enough but you have to show that treatment of separate personalities will result to something unlawful/unjust/fraudulent. The Phil which rd st is 3 world country has labor laws for 1 world country. Tax evasion naman. result to injustice to employees who want to form union to protect their interests. After the war. Tax bite is smaller. The principle is not in the Code but judge-made in the exercise of their equity jurisdiction. there are a lot of surplus war vehicles which is not needed anymore: jeeps and trucks. Labor laws are copied from the US. Same machine and technology are use to produce them. magaling mangopya. Hindi ba pwedeng sabihing avoidance yun? La Campana Coffee Factory v Kaisahan Coffee and gawgaw. Pag walang demand sa gawgaw. Kung walang ganung purpose. it will result to nonpayment of correct tax. show the separate personality of corporation will result to something unlawful/unjust/fraudulent/wrongful. . When manufacturer sells manufactured goods. there͛s an exemption. it͛s auto-contract. no more corporate personality fo the corporation. Gawgaw and coffee are separate corporation. he͛s liable to pay sales tax. Payroll of coffee and gewgaw people were processed by same admin people. the partnership is mandatorily covered. managed by the same people. Subsidiary controlled by same people controlling the manufacturing company. the SSS law was adopted by congress and became a law. If they are the same. Loss of money on the part of government. Different tax applies to subsequent sale which is lower. so the personality of the corporation is disregarded so that the partnership is considered as the employer of the new corporation. When driver held criminally liable. This brings us to another variation of application of disregarding corporate entity. Employees want to form a union. sira ang kaha and chassis. Less than a year after converted into corporation. Coffee or gewgaw alone cannot unionize. The decision for both were taken by same management people. They are called owner jeeps. Hindi na namin inabutan. why can͛t we avail? The intention may not be wrongful but the application may result to injustice. But in the compulsory coverage of employers. Subsidiary sold automobiles at higher price to consuming public. Trucks were turned into passenger buses. Nung same entity na sila. Palacio v Fely Transportation Nakasagasa the bus of one transit company. they cannot sell to themselves. Enterprising Filipinos turned them into jeepneys. If they͛re allowed to treat as separate corporations. Si Sarao naman yung jeepney. it will result to injustice. Parang hindi match yung conditions sa actual situations. Koppel v Yatco and Miguel v Collector Separate personality of subsidiary is being used to avoid payment of tax. Kinopya lang din naman nila yun sa SSS laws in the US. Ganyan sasakyan ko nung HS. No. Marcos authored and sponsored this bill in Congress. If the partnership was converted into a corporation for the purpose of evading or availing the exception. Ganun naman tayong Pinoy. Nung nanalo the victim. But together they can. nilipat na.18 The separate personality of corporation was disregarded in order to avoid circumvention of the SSS Law which is bago lang yan after the war. Yutivo v CTA In another case. no more property of the operator. the owner is subsidiary liable for the civil liability of the driver. Before. kape na lang. Lower price means lower tax. DLC comment: Is the separate personality of the corporation being invoked for a wrongful purpose? If it remained a partnership. Sale between manufacturer and subsidiary is not subject to manufacturer͛s tax but the sale to public. But you͛re already employer of these employees long before. BIR says maybe we should consider subsidiary to whom first sale was done as one and the same as parent manufacturer. Next: Promoter͛s contract. San Pablo and Laguna by the Potencianos. shall we respect those separate personalities in order to allow the corporation to avail of the exception? SC: Of course no. Issue: Shall we allow separate personality of corporation a personality separate from personality of the partnership and of the partners. Since they are transferable. Para kang tinatahip pag sumakay ka jan. What am I trying to tell you? Not because controlled by same interest will justify as treated as one and the same. since they are sued. Mahirap pagsamahin ang gawgaw at kape. is it bound by all the terms of the contract entered into by the promoter? No. E. may be enforced between corporation and parties but rd not to prejudice 3 parties. it has to give its consent. the third party becomes bound in the contract if it accepts the stipulation. the corporation to be formed. is the corporation liable under the contract? As a General Rule. Under corporation law principles. Contract adopted by the corporation will prejudice third parties who had no notice should ________.19 CHAPTER V: Promoterǯs Contracts Prior to Incorporation 6 December 2010 We have discussed before how promoter gets to enter a contract on behalf of corporation still to be incorporated. does not adopt the resolution accepting the contract BUT from its acts. stipulation in favor of a 3 party or stipulacion pour autri. If it doesn͛t. Therefore. it is not bound under the promoter͛s contract. Promoter did not disclose to the 3rd party that he is entering into this contract for the benefit of the corporation. We can sack you anytime. Rejection Suppose the corporation rejects the contract. in the documentation. y Implied ʹ board does not meet. then it can enforce the contract against 3P as if the 3P directly dealt with the corporation. For the principal to be bound by that agency. corporation may only be bound by its board of directors. Printer filed an action to recover what was given him in the contract.e. CORPORATE RIGHTS UNDER PROMOTERS͛ CONTRACTS Adoption When the corporation adopts the promoter͛s contract. After registration with the SEC. You will be paid this amount. it can be inferred that the corporation has accepted the contract. if the contract though binding on the corporation will prejudice 3rd parties who were not privies and who had no notice. Therefore. Rejection may be express or implied. he accepted and upon that acceptance he becomes bound under the contract. Clifton v Tomb When a corporation adopts a promoter͛s contract. When Oposa learned about stipulation in his favor. Implied adoption Corporation accepted benefits that flowed from the stipulation in the promoter͛s contract. the promoter specifically indicated in the document that he is entering into the bill for the benefit of the corporation in the process of incorporation. implementation of the contract should not be allowed to result to such prejudice. Later on after about six months. Promoter disclosed to the 3 party that he is entering on the contract on behalf of the corporation still in process of incorporation. Di lalabas ang pera kung di niyo pinirmahan. Siguro. McArthur v Tiles Printing Company Certain individuals wanted to set up a printing press. The board of directors of corporation did not approve to be bound by such contract. There͛s no resolution adopted by the board of the newly formed corporation adopting the promoter͛s contract. Corporation cannot be bound by secret stipulations between promoter and the third party. it should have not paid the salary of the printer. How may corporation accept/adopt the promoter͛s contract? The corporation may adopt the contract either expressly or impliedly. corporation was not yet in existence. the corporation is deemed to have adopted the promoter͛s contract. Promoter cannot claim that it was an agent and acting for the principal which is yet to be formed. At the time the contract was entered into by the promoter. The corporation will assume all the rights and obligations under the contract as if the 3P contracted directly with the corporation. the ͞adoption͟ of the corporation of such contract may be enjoined. In such a case. 2. From the act of the corporation in paying the salary of the printer. Cagayan Fishing Company v Sandiko When the corporation adopts a promoter͛s contract. no it is not liable under the contract of the promoter. y Express ʹ when the board meets and adopts a resolution rejecting the promoter͛s contract y Implied ʹ . That͛s the rule. Corporation said they were not bound by the promoter͛s contract. LIABILITY OF CORPORATION FOR PROMOTERS͛ CONTRACTS Is the corporation liable on the promoter͛s contract? Two scenarios may happen.g. the printer started performing duties with the newly formed corporation. it becomes bound nun pro tunc (now further). it may be enjoined from ͞enforcing or implementing͟ the contract. Even if the corporation has succeeded at registration. Organizer now even before the incorporation approached a printer. y Express ʹ board of directors of newly formed corporation meets and passes a resolution expressly and categorically adopting the contract entered into by the promoter. the corporation will only be bound by the terms that were disclosed to the corporation. rd 1. Same is true here. Para mapalipat yung printer. When it does to received benefits and advantage. What is the exception? Only bound if it adopts the contract. It cannot even be the principal of the promoter. binigyan niya ng malaking contract. Ba͛t niyo sinwelduhan?! From the fact that the corporation even though there͛s no form of resolution paid the monthly salary of the printer. E.G. Promoter͛s contract may be considered as stipulation in favor of a 3rd party i. And if it has already adopted the contract. the corporation cannot give its consent to such contract for the simple reason that it was still not yet in existence. Tasked to pirate skilled printers from other competitors. it͛s not bound. It retroacts. Corporation sees to enforce the contract. Hence. cannot later on allege that it͛s not bound when liability is enforced against the corporation flowing from the contract. we can infer that the corporation must have adopted the contract because if did not. SC said: Sira ba ulo niyo? Ano͛ng hindi inadopt eh pinasweldo niyo nga. What are the effects? When the corporation has successfully incorporated. board changed its mind and wanted to get out from the contract between promoter and printer. Why not? Because the corporation did not consent to be bound. is the corporation at rd all times bound in such a contract? If a 3 party not privy to such contract will be prejudiced by the implementation of the contract. In civil law rd especially oblicon. When it accepts the stipulation. Ron and Oliva enter into contract giving benefit to Oposa. kung di niyo alam kung san inapply yung pera. Adoption yung una diba. Agency is also a contract. Even on the assumption that it͛s not a contract of agency because common law principle. he is not liable personally. He will only be freed upon express/implied consent/stipulation to be freed from liability because the new corporation had already accepted the contract and the 3P has accepted the substitution. Meron ding compensation yung promoter. he becomes the principal. Argument: fiduciary duty of the promoters and board of directors in favor of the corporation. Old Dominion Copper Mining v Bigelow and Old Dominion Copper Mining v Lewison When the promoter is entitled to compensation. FIDUCIARY RELATIONSHIP BETWEEN CORPORATION AND PROMOTER What is the relationship between corporation and promoter? Fiduciary. Kaya lang. corporation can recover from him secret profits that he receives flowing from the promoter͛s contract. therefore. If he did not disclose for the benefit of the registration. he who transacts with 3P with an undisclosed principal. In case of subrogation of creditor. Even if the 3P consents to the substitution of the debtor. Walang gustong mag-masters dito. Maski estoppel. lahat ng nangopya sakin! Pasalubong sabay can I copy your notes?! EHEM EHEM EHEM. Substitution of the promoter by the corporation does not automatically free from his liability under the contract. may the contract be passed on to the corporation that succeeded an incorporation? It depends. we see that. Studying abroad is not more for the knowledge but more for the network. Otherwise. The right of the board to enter into contract with promoters may be abused. who is liable to the 3P for the rejection of the contract? It depends. In SG. You cannot make a secret. We have to protect our fees. may Oliva over the objection of Garcia assign nonetheless the credit to Oposa? If he gave security for the collection of PN and it was assigned over the objection. 2. They have conchaba the interim with promoter as one of them. It͛s enough deterrent of filing a case in court. when promoter is a well-known person tas biglang ipapasa sa unknown corporation of some mediocre people. the fiduciary promoter cannot earn a secret keeping from the contract. not property but shares of stocks. substitution of the promoter by the corporation. Most of the time. not enough that he disclosed the contract to before the benefit of the corporation in the process of registration. us lawyers. Dito lang mura ang lawyer. the security is discharged. Filipino expert. Shares of stocks? Nasa negotiation na yan between promoter and corporation. pwede mag-object si 3P if the promoter has obligation under the contract which is to be assumed by the corporation. What is the effect? If objected to by Garcia (ayoko magbayad kay Oposa). Emphasis on expert. there͛s no contract. He must expressly stipulate that in case corporation rejects OR fails to incorporate. he is personally liable to his contract with 3P. directors will be bound by their commitment. may be done without the consent of the debtor. Maybe I should revise my rates. promoter passes the contract to corporation. in case of non-disclosure that for the benefit of corporation still to be formed. the corporation receives benefit from such a promoter͛s contract. Here in promoter͛s K. Security is released. the promoter cannot choose his own interest over the interest of his corporation. Under the table with 3P then discovered.g. First thing a practicing lawyer should learn is how to bill a client. since he did not disclose that he is entering in behalf of the corporation still in the process of incorporation. Baka bigyan sha ng bankrupt na debtor. the corporation has rejected. There must be express stipulation that no liability whatsoever in case reject or fail to incorporate. We shall be getting fees we receive. The third party consents to substitution by the corporation and the 3P frees the promoter from the liability. Lahat ng nagrefer sakin. Ergo. After the contract has been adopted by the corporation and contract has already been transferred to the corporation. EHEM EHEM. then the promoter is rendered service and resorted to advantage in favor of corporation should be entitled to a compensation quantum meruit or else. Somehow when contract adopted by the corporation. Other SH may question the deal on the ground that grossly disadvantageous on the corporation. With whom do we enter an agreement? With the interim directors of the corporation. This is usually for the non-capital but part of the work force. E. maliwanag that the agent as a GR is entitled to a compensation for services rendered to the principal. with more reason that he becomes liable. We should offer a course on the art of billing not milking a client. the debtor cannot be substituted without the consent of the creditor. May natutunan ba kayo sa UP? When novation involves substitution of the debtor. For him to be not liable. Magiging substitution of debtor ito which allows the corporation to object. how may the compensation be paid? Cash? Of course. In the absence of stipulation freeing the promoter of liability. On what? If it will amount to a novation by substitution of debtor. Absent that. Drafting a promoter͛s contract. If the contract was entered into by the promoter on behalf of corporation still to be formed and after the incorporation. On what? 1. lawyers͛ fees are atrocious. Pero dahil walang contract as to how much. Agreement that they will be paid with shares of stocks. NOTES DAW OH. In such a scenario. Napapahiya ang sarili kong billing. the substitution will not free the promoter. that͛s unjust enrichment. promoter is liable in his personal capacity. it becomes a contract of the corporation nun pro tunc so parang nagkaron din ng agency. they manage the corporation at incorporation. Is the promoter entitled to compensation? Kung ito agency lang. PERSONAL LIABILITY OF PROMOTER ON PREINCORPORATION CONTRACTS In case contract is rejected. COMPENSATION OF PROMOTERS . For him to be freed: 1. promoter cannot acquire an advantage to the detriment of his corporation. As interim directors. we expect to receive not cash. kung biglang ipapalit yung corporation in lieu of promoter. Quantum meruit when agree board and promoter agree. compensation shall be fixed by the court. Applying the principle to promoter͛s contract. Apply by analogy agency. Kaya nga natin pinoromote because we want to be part. quantum meruit. so lumaki yung shares of stock as compensation for the promoter. 2.20 o o Corporation has failed to approve/accept the contract expressly or impliedly From its acts it can be inferred that the corporation has rejected the contract. does it also have the power to engage an attorney? Yes because that͛ incident to power conferred/authorized. 11 ͞essential or necessary to carry out its purpose/s as stated in the AOI͟ Then look at S45 Ultra vires acts of the corporation ʹ EXCEPT (two things) ͞Express͟ What is the difference from ͞conferred by the Code or by the AOI͟ and ͞authorized by law͟? Difference in different formula adopted by the Code.g. authorized i. who cares. unlike the case of natural person when capacity to act is presumed. AOI IMPLIED essential or necessary a. E. incident to existence THE ULTRA VIRES DOCTRINE For a corporation to exercise of its powers validly. As I have mentioned earlier. Therefore. ͞INCIDENT TO POWERS CONFERRED OR AUTHORIZED͟ y Power to sue implies power to engage a lawyer Power to raise capital power to enter contracts y Powers in S36 No. we ordered roast beef na pinakain ng pinya. what does it need? Bottle. S18. purpose clause authorized in the AOI is a source power. 1. . in AOI. If it falls neither. Dun galing yun sa waste product. the power it exercises must be expressed or implied.͟ it͛s essential and necessary to carry out the purposes of the corporation. S36. 38.g. corporation was organized for the purpose of producing Portland cement. conferred i. S44. When it does. special laws b. SMC manufactures beer. E. 20 express powers y S43 on dividend Conferred powers a. Life is a big trade off. the exercise of the 2. when the power is given by the Code. Can it enter into the business of making fertilizers? Ang kanyang purpose is manufacture beer. Purpose clause is a source of power because all incidients for the carrying out of the purpose is implied powers.g.21 CHAPTER VI: Corporate Powers It͛s nothing but the capacity to act of the corporation. Purpose of the corporation is to Portland cement. of course because waste product of beer making is sapal. It can also make animal feeds. Para tumaba ang baka. S43 (power to declare dividend) Implied S36 (11) S45 incident tot he exercise of powers so conferred Look at S2 of Corporation Code Then go to S36. by the code ii. kailangang idroga yan. ͞Implied͟ How different is ͞incident to existence͟ from ͞incident to powers authorized and conferred͟? When we say ͞incident.g. SEC approved the registration. S2 b. Chicken is healthy as long as you remove the skin. Discuss them one by one. in order for it to manufacture cement. You will have to justify and show that you have the power. it is directly conferred or granted by law to the corporation. After we went to the zipline na napakaikli. E. DOLE operated restaurants inside the plantation. Marbled with fat kaya masarap ang beef. it can makes its own and sell the excess to others. They also wanted to distribute excess electricity to other down line consumer. b. to ensure steady and cheap supply of electric power. Manufacture of bottles is incident to its existence. marami kang sakit! Mabubuhay ka mahaba. S20. Lahat ng kailangan niya para makapagmanufacture sha efficiently and cheaply.g. E. it needs electricity. Waste product nila yun eh. Lahat ng kailangan for that purpose to be carried out ay ibinagay ng batas unless business is illegal. miserable ka naman. They will be at the mercy of bottler makers. Dole Pineapple has the power of making wine and vinegar. SC said it͛s implied from the AOI of the cement manufacturing corporation.g. CONFERRED: Technically. Hindi sila naging mashadong consistent in the wording of the provisions. You can point your finger to the power. AUTHORIZED: as may be chosen. the cement corporation it applied for CPC with the PSC to operate an electric producer. S36 When it sues. May put it as powers as long as not inconsistent with powers given by law or any other law of the land. Where do we get the business? From the AOI. For the same product. If you can͛t. incident to the powers conferred or authorized GENERAL POWERS OF CORPORATION expressly authorized by law (S2) Express S36 (1-10) S45 powers conferred by code/AOI Powers incident to its existence (S2) ͞INCIDENT TO ITS EXISTENCE͟ Powers the corporation needs to exercise power for it to continue with its business. 7 power to enter contract of sale/exchange/lease contract/make donations y Power in S37. That͛s the trade off. pero yun ang masarap! Gusto mong masarapan. it will be held captive by the bottle producers. Beer gets stale. If it doesn͛t. E. MERALCO and electric cooperatives. Instead of buying from others. However. Kaya may Atlas Fertilizer. EXPRESS a. That happened in Teresa Electric v something else Oppositors said: You have no power to operate a power generating corporation because primary purpose is to manufacture Portland cement. Kaya nga may Union Glass. it does not exist. general grant ʹ S36. specific power ʹ specific sections in the code where the power is given e. kahit hindi nakalagay sa secondary purposes niya. look at no. How to you distribute the beer without a bottle? May SMC do business to produce bottles? Yes. Necessary for the business to continue operating. the same is not true as regards a corporation. Buhay ka nga. Existing operators will oppose. Pork is better than beef. Kung sino kakampi becomes the majority. Therefore. After the war. y DLC says that͛s wrong. setback sa corporation. BUT if it͛s not. When dela Rama has money. Napansin ng management na lulugo-lugo ang miners. you won͛t recover the cost of operations.22 power is ultra vires. Post office went after Acoje for payment of the absconding personnel͛s liability since postman is your accountability. trust companies. Hindi pwede i-ratify ang ultra vires act even if they meet. Corporation guaranteed his loan. Piruvano died inside the concentration camp. may penalty nga diba under S144.e. y y Camposes did not give categorical pronouncement as to their opinion. mawawalang ang saysay the requirement for us to specify one specific purpose in the AOI. Mali rin sha. investment houses. nalungkot sila. Hence. Owners were very happy with the way Pirovano managed the shipping company. it͛s an incidental power of the corporation. may it be ratified? Of course not. The contract is merely voidable. We will agree if you͛ll provide us with office and pay compensation of the postman. production is also down. E. Not lawyer but Harvard Economics graduate SCL. Let͛s take out their voting rights. Ultra vires our MOA! SC said that not ultra vires because intended to boost the morale of the miners. Lumaki shares ng Pirovano children. MS defaulted on those bonds. While the morale is down. Corporate dispute: Osmena needs to win but the Pirovano will not side with them so talo sila pati presidency is threatened. We don͛t want to pay because it͛s not within our power in AOI to operate a post office. They have insurable interest? Yes. Apartment given to widow who decided to stay in NY. Kaya nga sa Pirovano v de la Rama: FACTS: Kastila running de la Rama steamship company that plied Cebu and Manila. bayad. corporation͛s biggest SH is Oliva who does not have money. Nung umalis na sha. nakonsensha na yung mga anak ay nawalan na ng tatay at nawalan din ng provider. ͞Ultra vires doctrine. Hinuli sha ng Japanese at incarcerated in UST dahil nga foreigner sha. Libangan there is AM radio. So mukhang agree sila. Pag di nila nabayaran. They didn͛t notice na lumaki ang accountability ng personnel assigned with stamps and absconded. Dela Rama sister is his wife. Nung nandun si Susan. to carry out more efficiently and profitably of underwriting securities. e. Carlos (buyer of bond) sued PTC to enforce the guaranty given by trsut company. Everytime na may bumibili. We shall use A5 of NCC any act done in violation of a prohibitory/mandatory provision of law is void. Therefore. Dahil kaunti lang miners. It͛ void under A5. masaya ang mga minero dahil nakakakita ng maganda. it borrowed from the public. saying that in addition to the fact that it͛s an intra vires act. Pano ba sila naging SH to begin with? Issue ni Sergio Osmena Jr: Has the corporation power to give away its assets to people who are strangers to the corporation i. 1317 is the general provision. Only one way to do it to amount to ratification. One of them was my father in law incarcerated in UST and transferred to Muntinlupa. Sorry to say. You did it for your business so they͛ll sell like hot potato. Intention was actually to carry out the purpose of the corporation. Amend the entire AOI. ultra vires. to make bond issued by MS attractive. It floated bonds. that will be very very cumbersome so they have collateral business.g. corporation enters into a contract which is outside the powers of the corporation whether express or implied. damnified by the life of the person. They approached Phil Trust Company. no corporation under this code shall possess or exercise any corporate power. Contra contra na. Hahawak ng piko tas ambagal kumilos. The contract was even ratified when approved by SH the MOA when it was taken up in the SH meeting. marketed that when the bond is not sold. Lumaki doon si Susan Roces whose father is a physician in that mining. instead of asking SH to contribute some more to capital. Intra vires yan. Swing vote na sila kasi 6 sisters ang dela Rama nahati sa middle. but S45 does not tell us the effect when the exercise of power is ultra vires. Otherwise.g. ͞nagdalang habag͟ so what they did is to use the proceeds to buy shares of stock to give to the heirs so they͛ll have source of income in the form of dividends. Agbayani says unenforceable. PTC said not bound by the guaranty. Has the corporation power to guarantee loan of its SH? Carlos is intra vires because incident to carry out business of corporation. Why is voidable wrong? One of the characteristics of voidable contract is susceptibility of being ratified. kami magbabayad! Investors bought MS͛s bonds. PTC. it͛s implied. How they do that? Post office in the site. Insurance policy on the life of Pirovano. place a post office in the site. banks. they have recourse sa PTC. Son of former president. it͛s ultra vires. It does not fall under unenforceable contracts under the Code. Pag namatay tong si gaddam Pirovano. What is the status of that contract? There͛s a case there: Republic of the Philippines v Acoje Mining FACTS: Acoje mining is a mine in Zambales. What͛s the real issue in this obiter: What is the status of an ultra vires contract: void. Company paid the premium. filed a case in court to recover share of stocks from Pirovano on the ground that the transfer of shares of stocks is ultra vires. Kaya lang ang daldal ng Ponente: Nagdagdag pa sha. Easy to send and receive letters to and from their family members. That͛s how much they love the family. Ayaw ng salary deduction. Presented as an accomplishment: happy miner through post system. Is ultra vires doctrine mandatory? Yes. Insurance was taken because it͛s a pre-war insurance from a reputable company in NY. it͛s an implied power. not by merely voting in a SH meeting. But when you did it. 1403 and another that starts with 15. Guerilla yung tatay ko. They had a MOA. proceeds of insurance policy? They tried their luck. . Who handles marketing of bonds? Securities corporation/firms. give them line of communication with their family. assuming it was ultra vires. it͛s not one of our powers to guarantee debt of a 3P. Pwede nga makulong the officers responsible for execution of ultra vires act. at walang nakalagay sa powers of incorporation. Sergio Osmena. What is the effect when the exercise of power is ultra vires? In S45. Management went to post office (government entity) and requested post master general to set up station at the mine site. They are called underwriters or dealers who sell. You can͛t tell them that their salary shall depend on the depth of the digging. For those bonds to hindi na ipeddle. Management says to help boost the morale. They merely stated the ruling. not merely voidable. voidable.͟ If you can͛t justify the basis of the power. Sino dapat ang beneficiary? Corporation cos it͛ll be damnified. purpose is to carry out efficiently the corporation. The ultra vires act o f a corporation. assigned an admin personnel to man the post office. unenforceable? y Acoje says voidable. Suppose the guaranty was not in pursuance/not to carry out in the business of the corporation. May either be best effort (kung ano lang nabili) or firm commitment (considered sold). May sanction diba. they collected the proceeds of insurance policy. Pirovano are the swing vote. SC said: Tama wala sa express power niyo yan. Carlos v Mindoro Sugar FACTS: Mindoro Sugar is in need of additional capital for operation. Jr. We don͛t want the corporation to be managed by a single person. To the advantage of the business of the corporation. Not all investors should be allowed to mess with the business of the corporation. Kaya may minimum and maximum. contrary to principle of corporation. Corporation cannot act on its own because it has no physical existence. dictator of the corporation? a.23 SC said: Tama si Oiver Wendell Holmes. An UV act may not necessarily be criminal. Pwede ba yung republic pero dictator yung leader. sanctioned by S144. HOWEVER. If the further commission of the illegal acts may be enjoined. but ultra vires of the board. This gets elected during 6 years. dictatorship is more efficient. why not dictatorship? In many instances. but board has no power to do it on behalf of the corporation. 9: reasonable donations including xxx charitable and No. . The SHs are entitled to share in the profits earned by the corporation. there is a presumption that all acts of a corporation are regular. WHO EXERCISES CORPORATE POWERS The law has appointed an agent that will exercise the powers of the corporation. what does it provide? All powers of the corporation shall be exercised by the board. contrary to S23. Equivalent as to natural person is death sentence. for practical purposes. the reverse is true. maganda pagkakasulat. Tagaaaay. Why not choose just one person. but we don͛t want it to be managed by many many persons either. The corporation has a duty to prove its capacity. They don͛t want because that will be an invitation to fraud. If Pirovano shall happen now and there͛s no ͞aid any person͟ can we use any power expressly conferred to justify the making of the donation? ISSUE: May the corporation donate it shares of stock? San magfofall yan? Naawa ang SC sa children kaya hinanapan na lang ang AOI. when the power of corporation to enter is challenged. b. Reason behind this (during discussion on distinction between partnership and corporation): Habang dumadami ang partners. It͛s not necessarily illegal insofar as the corporation is concerned. 10: benefit of directors. control and management of corporation belongs to board. Juridical entity not having existence may only act through an agent. walang highlight ako lang ang ngbabasa. That will be illegal. This is a balancing of interests. they have to address issue of management to make the operation of the corporation efficient and effective. Smaller body called board of directors. trustees. it͛s necessarily illegal because contrary to S45. Bakit board. No presumption that corporation has the power to do a particular juridical act. The corporation has burden of proving that it has power. Since the corporation is designed to accommodate as many investors as possible. It may be a ground for the revocation of the registration of the corporation under S6 of the PD 902-A. in a case decided by SC. it held that the penalty of dissolution should not be imposed on an erring corporation if the illegal acts may be enjoined. Therefore when a corporation enters into a contract. Roman republic had a dictator. Bautista-Angelo (one of sir͛s favorite justices): Kahit hindi ako bilib sa decision. Eh they were aiding the children of former president. there͛s a presumption that the contract was entered into by the corporation in accordance with law. it͛s a ground for revocation of the corporation͛s registration with the SEC. Board of directors OR Trustees Control and management of corporation therefore belongs primarily to the board of directors. The corporation therefore may exercise its powers only through an agency. May AOI provide that in certain decisions. Itong libro na ito. what is the sanction insofar as the corporation is concerned? Corporation may be dissolved. It will make the provision illegal. To lend money or credit to and aid in any other manner to any person. S23 states the general principle of corporation law i. Money of other people is being risked in the business. nagiging cumbersome and messy the management of corporation.e. in case of corporation. Sino yang dinesignate ng batas to act on behalf of corporation? 8 December 2010 Unlike in the case of a natural person whose capacity to act is presumed and he who alleges that a certain person͛s incapacity has the burden of proving such incapacity. What is the consequence if the corporation has been performing ultra vires acts? In addition to the officers incurring criminal liability under S144. Patay ka diyan Carcar. then the court must enjoin instead of imposing ultimate penalty of dissolution. However. y If it͛s an exercise of management prerogative. CHAPTER VII: Control and Management of Corporation ALLOCATION OF POWERS AND CONTROL Control and management of a corporation is allocated in three levels. If it has been performing illegal acts under PD 602-A S6. The act is within powers of corporation. However. law is what the judge says it is. the challenger has no burden of proof. Look at S36 No. Take note that ultra vires doctrine should not be confused with an act ultra vires of the board. Expressly provided in S23: If you look there. Kawawa naman the Pirovano children!!! The AOI scrutinized to find something to justify the donation of proceeds converted into shares. in exchange for that privilege of becoming SH and receiving dividends. Republic means leader is chosen by people. Di na masarap ang sawsawan pag lahat sumawsaw. An act may be intra vires of corporation. We cannot deprive the board of its exclusive prerogative to manage the affairs of the corporation. if a group will decide on its operations on the principle that two heads are better than one. As far as corporation is concerned. board cannot be deprived of that prerogative. the SHs are the ones who shall decide? The answer depends on the nature of the decision. Management should be lodge in a smaller body. May the AOI provide otherwise? May it provide for the SH to exercise control and management in certain instances? No. If you read the provisions of the Code. you must have observed that there are corporate acts which require SH approval for validity. Maybe that͛s the reason why the code did not add the word ͞at least. it͛s as if they have not met. officers will exercise some leeway in implementing the decision. Requirements for a board of directors meeting How is a meeting of board of directors held? Look at S53. but it͛s not practical. it has to be adopted in a valid meeting.͟ Madaling gawan ng paraan para hindi sila magmeet. sufficient number of directors attending the meeting (i. Corporate officers and agents The second level in the allocation of control and management belongs to the OFFICERS of the corporation. when you say ͞management͟ it involves operation of the business of the corporation. every week the board shall meet. If they are unable to attend for some personal or justifiable reason. that͛s merely an aspiration. Dapat may resolution yung board to do a particular corporate act. every two months. corporate sec will call them up. That͛s why they need to put that opening exception. Mas hindi nagmimeet ang corporation. The housekeeping of the affairs of the corporation.e. How about the reverse. y y y y When is a decision management prerogative? Not stated in the law. habang nagmimeet sila. since the corporation cannot act without the approval of the SHs. 1. Stockholders Lastly. okay lang.͟ y If you read the work of the Campos spouses. REGULAR ʹ supposed to be held regularly. Consultation with surgeons. the SHs exercise control in the management of the corporation. So itatawag muna sa sekretarya kung nasan si boss bago pumunta sa pantry. pantry or CR.deliberation . Lalaki ba kita. It involves decision involving the relationship between the executive functions of the officers and the production functions of its employees. by the required number of directors. Regular and special meeting of directors. When is there a valid meeting? When there is a valid call to hold the meeting. mas okay.24 SH surrender rights to participate in day to day management of the corporation. there͛s an exception to the rule in S23. it will be valid.g. the more they give attention to problem of the corporation. BIR responsibility? If you must have noticed. When a decision has a bearing/affect the profitability of the corporation͛s operation or liability of the corporation. quorum) and lastly decision is arrived at after a deliberation (opportunity to deliberate) by the members of the board. every three months. Only the board may decide for a corporation. [2] by the required number of directors. utang. Only the code is the exception. Tas they͛ll be abroad. bibigyan ka trabaho. HOWEVER. May the bylaws provide for regular meetings more often than once a month? E. one month. may the bylaws provide for meetings less often than once a month? E. That͛s not always correct. The officers simply implement the decisions taken by the board. Kaya ka nasa elevator. Not also correct that the more time the board will meet for the corporation is more advantageous. a. In the implementation of the decisions of the board. The bylaws can provide for regular meetings less often than once a month. according to them.e. Babayaran sila every time they meet. Even assuming that it͛s indeed the provision of the code. Yung stock holders they meet every year S53 but the board ͞held monthly͟ not ͞at least. This discretion is somehow equated by writers in corporation law as participation in the management of the affairs of the corporation. eh di nawalan ng quorum.(venue is only required for SHs͛ meeting) .quorum . In those instances. In fact. Directors͛ meeting. lalong indecisive pag nag-usap. DLC͛s managing partner: Pag nakasalubong ka niya sa elevator. Purpose for the Camposes: While they meet. every 6 years. Where is that exception? ͞Unless otherwise provided͙͟ did you bother to look? Where is that exception in the Code? In the case of a close corporation where SH may directly manage the affairs of the close corporation. meeting with president of the republic. 4.g. Like a halohalo. 2-4 week. Therefore. lumalala ang takbo ng corporation. cos if they have been. what is the sanction if the board of directors will not meet at least once a month. There are two kinds of meeting. wala kang ginagawa. The idea behind the provision of the code in S53 is to require the board of directors to meet at least. This is called the ͞residual power of control͟ How does the board of directors (BOD) exercise corporate powers? Board of directors (acts as a body) Expressly ͻ in a valid meeting ͻ valid call ͻ quorum ͻ deliberation ͻ by the required number Impliedly A. Expressly ʹ adopt the performance of an act [1] in a valid meeting . Actually hindi naman sila nag-eexercise ng control and management prerogatives. if decision given to SH in the AOI is not a management decision or not management prerogative. therefore it͛ll be more to the advantage of the corporation if they meet at least once a month. the board meetings may provide to board meetings more often than once a month but not less often. That͛s the theory of corporations. like a siopao. Pwede ka bang magmeeting mag-isa mo? Kaya yung comment ng mga Campos spouses. 2. In a fixed interval of time i. y DLC: Not sure if they͛ve [Camposes] been corporate secretary or board member of corporations. the residual control belongs to the STOCKHOLDERS. But as a general statement.valid call . they must have realized the impracticability of requiring the board to meet at least once a month. For that resolution to be valid. that involves a management prerogative. Proposal for the corporation to act is submitted to the board for deliberation. 3. Unless the bylaws provide otherwise. there͛s the meeting which he wasn͛t given notice of. Pwede mo sabihin na depende kung sino ang president mo. ERGO. It͛s an invalid meeting. But in that case.the other four received it. Do not forget that a lawyer is representing an interest. E. know how to spouse the position of our clients. Gusto ko sila ibagsak sa constitutional law. it͛s the corporate secretary. place. depending on who your client is. Kaya nga UP grad. But he normally does not release a notice of meetings without directive from the president. Creation of an office providing funds therefor is essentially a legislative function. I will not implement your decision there because it͛s invalid meeting. ͞or as provided by the bylaws͟ BUT what does this modify: time or call? DLC: Wala na tayong maikaqualify sa call. Isa lang ang di nakatanggap .g. Who called 2. S53. BUT TAKE NOTE: It͛s not automatically invalid. this is one of the things that the SH were fighting about WON the meeting were a special meeting where a corporate act was adopted is valid on the ground that WON the special meeting was validly called. 3PM at the principal office of the business. there must be a valid call. They just appointed someone to preside and some corporate acts were adopted. morals. Just like this Truth Commission. Kahit may notice sha. without need of call͟? ͞A director/trustee may waive this requirement͟ May isang board member na hindi ininvite kasi makulit. I can talk you into it! Hello Barney. Do you still need call if the meeting is a regular meeting? Look at 3 paragraph. But since members don͛t see eye to eye with the president who had a different set of mind. WON talo sa botohan. What do you put in the notice? Bihira yung naglalagay ng time and place in which case you͛ll put it in the notice. Secretary is under the president. only president may call. they thought hindi lang nakarating. BUT if it͛s a regular meeting. no sweetheart corporate secretary. unless the waiver is contrary to law. ilalagay niyo yung conditions how the board may meet over the obstinate president. So what this phrase qualifies is as to who will call. it may be set aside when somebody questions it. Notice ʹ underline the word ͞must͟ rd 10 December 2010 . ayaw niya tumawag ng special meeting.͟ Pag walang sinabi si pres kay sweetheart. don͛t give out notice! Between the devil and the deep blue sea. meeting is invalid. the manner of calling and the one who will call. Is that decision a decision adopted by the board of directors? Tandaan niyo. You waived your right to complain. Even if only one director not given notice. Was the meeting valid? Were the corporate acts adopted therein valid acts? Kailangan ba ng call? Sa special maliwanag. When he loss. public policy. magpapadala pa ba si sweetheart? What if pres calls sweetheart. No president. :P KAYA LANG.͟ so let͛s go to ͞valid call͟ In case of special meeting. Whenever it is necessary. pampahaba lang. pero sa regular? American courts sabi valid. he now files a case to invalidate all transactions adopted in that meeting cos he was not given notice. You students. Speculative! Ayaw niyo marinig what I have to say. when you make bylaws. OR to be safe. May the bylaws provide for the manner of calling a special meeting other than by the president? Yes. There͛s presumption of regularity because of which every meeting that the board will hold is presumed to be conducted regularly. Pag gumawa kayo ng bylaws. will his case prosper to invalidate meeting which gave no notice to him? When you attended. Will absence of notice in just one invalidate the meeting? Of course.25 b. or prejudicial to a third person with a right recognized by law. alisin mo yan. do you need a call? Kaya nga regular because it͛s already written in the bylaws! Last Friday of the month. so tamang nag-dissent siya. if no notice is given. speculative. Can you waive something in the future? See A6 of CC. you waived your right to the notice. wag na nating invite that punyeta person kasi makulit lang. my students know that. Rights may be waived. Eh sinong magbibigay? By practice. he chose the devil. time. Pwede sabihin ng president. But there are also contrary cases saying you don͛t need the call. Bihira yung naglalagay ng time and place in which case you͛ll put it in the notice. Violation of the EPC. Directors want to decide on a particular transaction. ͞Sweetheart. What is the effect if no notice was given? Since notice is a requirement. But since regular meeting and quorum naman. Non-compliance with the requirement of the law for the holding of a valid meeting. Aaah. There are exceptions to the EPC. May director waive notice of meetings in the future? WON right to be notified of future meetings may be waived. Naintercept lang ng katulong. give them the alternative way. There are decisions which must be taken immediately because time is of the essence. Otherwise. Pero magaling ang intel niya at dumating sha sa meeting! Talo sha kasi they ganged up on him. itinuloy na lang. Does the ͞notice requirement͟ translate to call? Elements of a valid call 1. However. magpadala ka na notice for the regular meeting of the board. So the directors now. May majority of the members of the board meet called by one of the members? In that meeting. Nagdatingan majority of the directors arrived at the usual place where they meet for regular meeting. At least the devil is a warm body. The acts of the former president should be considered a class by themselves. It͛ll be impractical to redo and recall the meeting all over again. or good customs. He attended. Kung client mo yung president. So the president will call the secretary: ͞Sweetheart. Emergency. Nachura is a constitutional law professor. they deliberated on the proposal and unanimously approved the proposal. who calls for it? S53 says the president. That͛s a possibility. You had actual notice of the meeting. matatalo rin naman sha kasi mag-isa lang sha. Is the decision taken by that meeting valid. Can you put in the bylaws: ͞it shall be held first Friday. public order. Malayo pa yung SH meeting but the members of board want to decide now. It may call anytime. Essentially legislative because of the appropriation of fund which is beyond the powers of the executive. Kaya lang many of the intracorporate disputes that has reached the court. ERGO. it͛s not validly called. VALID CALL ͞Upon the call. you͛ll have to make that aspect clear. in that example I gave you. the meeting held without the call from the president is a ramp session. SPECIAL ʹ It shall be held at any time upon the call of president OR as provided in the bylaws. Lol. In the case of stock corporations. The time. Regular and special meetings of stockholders or members. pwede ba na yung at least one day be made longer. We call the minimum number sufficient for the board to transact business ͞quorum. duties and compensation of directors or trustees. there has to be a valid call insofar as special meeting of the board is concerned. 9. 4. the Secretaries and Exchange Commission. At this point of time. Whenever. The time and manner of calling and conducting regular or special meetings of the stockholders or members. . SH needs the notice to be written. unless the by-laws provide otherwise. (n) 2 1 Whether or not giving of notice may be dispensed with by the provision in the bylaws? Camposes: y Not giving of notice may not be dispensed with. for any cause. That͛s equity. meeting held in another venue will also be invalid. The penalties for violation of the by-laws. hindi kayo marunong! For a meeting to be valid. That at least one (1) week written notice shall be sent to all stockholders or members. time and place of the meeting must be sent to every director or trustee at least one (1) day prior to the scheduled meeting. May ͞must͟ jan. QUORUM How will this board be able to transact business? For the board to be considered acting as body. place and manner of calling and conducting regular or special meetings of the directors or trustees. Cf that with notice to SH. there is no person authorized to call a meeting. (21a) 3 . 3. It must be at the principal office of the corporation or at a place within the municipality where the principal office is located. may place and time of the meeting. Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines. (24. The manner of election or appointment and the term of office of all officers other than directors or trustees. . Notice of regular or special meetings stating the date. Ayaw lang kasi nila paattendin si Ron. If only one member of board in attendance. A director or trustee may waive this requirement. unless the by-laws provide otherwise. either expressly or impliedly. The qualifying phrase ͞unless otherwise provided by the by-laws. there has to be a valid call. 26) Sec. unless otherwise provided in the by-laws. 50. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs.g. That͛s a common law principle. unless otherwise provided by the by-laws. DAla namin pati kubyertos. giving of notices may not be done away with in the bylaws. Nung panahon namin. ano nawala sa number 2 na meron sa number 1? Place. officers and employees. That written notice of regular meetings shall be sent to all stockholders or members of record at least two (2) weeks prior to the meeting. if you are smart. 47. If venue of notice moved without prior notice to all members of board. The form for proxies of stockholders and members and the manner of voting them. and the articles of incorporation. The directors͛ meeting may be made anywhere. however. may issue an order to the petitioning stockholder or member directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. the manner of issuing stock certificates. Pati sa pagsipsip. kami kakain nung binili namin. at least two days. by any stockholder or member. on any date in April of every year as determined by the board of directors or trustees: Provided. . But look at S53. Is there an invalid call? Call should be done by president (unless otherwise provided by the bylaws) Where must board of directors meet? Can they meet outside the country? Yes. 2. For a meeting to be valid. Underline that. other special laws. Pag may ginugulangan. The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof. Kaya nga dapat sa notice. unless a different period is required by the by-laws. 8. there must be sufficient number of members in attendance. It may be longer or shorter but not dispensed with. this Code. ͞no notice need be sent͟? According to the Camposes while the period for the meeting of the notices may be shortened. Parang naglokohan lang sila. Must there be a call for the holding of a regular meeting? It would seem that a call is implied to be required because of the requirement of notice. y Waiver: in conjunction with A6 of CC. Underline the word ͞written͟ in S50.͟ what does it qualify? Sending of notice or period for the giving of the notice? Saan nag-aapply yung qualifier? How about the giving of notices? Pwede ba nakalagay jan no notice need be given? The notice must be sent at least one day prior to the scheduled meeting.͟ The word quorum in this context has already acquired a secondary meaning. at least one hour? Sec. But may waiver include notices for future meetings? May the bylaws that for the regular meetings of the board.Regular meetings of the board of directors or trustees of every corporation shall be held monthly. Notice of any meeting may be waived. upon petition of a stockholder or member on a showing of good cause therefor. a private corporation may provide in its by-laws for: 1. The notice when the place for the holding of the meeting was indicated cannot be moved without serving another notice. Notice may be waived. May the bylaws provide for periods shorter e. 5. Dun sa board in S53. Assuming that the phrase applies to that one day prior.Regular meetings of stockholders or members shall be held annually on a date fixed in the by-laws. walang requirement. or if not so fixed. Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the by-laws: Provided. expressly or impliedly. The bylaws should provide for the manner of calling of meetings. The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have been chosen one of their number as presiding officer. 53. The original meaning: number of those in actual attendance. you must have compared the provision of the code on notice for the SH͛s meeting in S501 and notice 2 requirement for meeting of board in S53 . Special meetings of the board of directors or trustees may be held at any time upon the call of the president or as provided in the by-laws.Subject to the provisions of the Constitution. Regular and special meetings of directors or trustees. The required quorum in meetings of stockholders or members and the manner of voting therein. 3 Look at S47.26 Bakit may cake? Hindi ko naman birthday. Contents of by-laws. The qualifications. kaya the notice must indicate the place. 7. right. 6. that lone member cannot be considered as acting as a body. and 10. may remedy. Sec. you can only waive a vested right. a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum͙ Can͛t be reduced below majority because the allowance is to increase to a simple majority. Logan Johnston v Louis Johnston If the walkout by the members was justified. except for the election of officers which shall require the vote of a majority of all the members of the board. It can transact business. may he vote by proxy? No. Pag may umalis. Or omit entirely. Quorum therefore is immutable. the directors of a corporation must formally organize by the election of a president. the Court may set aside what transpired in the meeting after the walkout. a majority of the number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate business. they͛ll defeat the corporate proposal calendared to be taken up in that meeting. there is quorum. UNLESS the issue of quorum was raise. In their charters. Not dependent on how many are holding office. Quoting S25: Unless the articles of incorporation or the by-laws provide for a greater majority. 2/3 of the board as fixed in the AOI. Same thing happens here in board of directors. Majority of number of directors as fixed in the articles. first item is always call to order and then followed by determination of quorum. they are government instrumentalities but they also have boards. It͛s constant. It͛s a fixed number. prohibited by S25. Suppose at the beginning of the meeting. Therefore. except that no one shall act as president and secretary or as president and treasurer at the same time. All corporate proposals will be held in Why is that? To allow directors to vote by proxy will be to violate a principle in corporation law. make sure someone will be left to raise the issue of non-quorum after the walkout. E. In computing the quorum. may remedy! Just convince the court in the exercise of its equity jurisdiction to give you relief. some members walked out. All he needs to do is absent himself from the meeting. for your continuing education. Di naman nila pwede attendan Sec. Majority of the number as fixed in the article. constitution also requires them to be quorum. and every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act. . there was a quorum. a law may be passed to provide that directors may attend and vote by proxies. To allow this will subvert the intentions of the SH. Pano kung 11 members? Smallest whole number greater than half. Unless the articles of incorporation or the by-laws provide for a greater majority. What is quorum in mahjong? Minsan magmamahjong tayo dito. GR: Conclusive that quorum until adjournment EXCEPTION: Para di maka-act yung board. Remedy to that: When speaker has determined that there͛s no quorum in the session. nakalagay na ex officio member the Chairman of Senate/House Committee on Education. Quorum will be a constant number. This is why in the agenda for a directors͛ meeting. for the congressmen to be able to transact business. SH voted for them on account of their personal qualifications. Simple majority ʹ 50% Qualified majority ʹ 60%. directors are chosen on the basis of their personal qualifications. By simply not attending. di aattend yung against. if it provides for a 10-member board and there are 2 vacancies because of death. hindi pwede under last paragraph of S25. HOWEVER. Corporate officers. The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of the corporation. Chairman OR his duly designated representative. may a director attend by proxy? Parang binyag. everybody must be present Hindi pwedeng ibagsak. Pag inopen yung meeting. With time.g. Bago kayo mag-walk out. only itaas. For an ordinary private corporation. How do we define a quorum? Majority is an inaccurate definition. In fact. Any two (2) or more positions may be held concurrently by the same person. May the bylaws provide for a quorum greater than majority? E. It͛s not affected by vacancies in board. the presumption of regularity applies. When there is attendance. May I dispense with the calling of attendance.dz lahat yun. presumed to subsist until the adjournment of the meeting.27 What is the quorum? Number in attendance. What is the quorum for the board to validly transact business? No quorum. Directors or trustees cannot attend or vote by proxy at board meetings. it has acquired a secondary meaning: now designated to mean the minimum number of those in attendance necessary for a body to transact business. 2/3 Absolute majority ʹunanimous. and such other officers as may be provided for in the by-laws. S254. Basta may gulangan. Unless questioned. unless the AOI is amended to reduce or increase the number. proceed with deliberation and proceed to adopt a corporate act in the meeting. a secretary who shall be a resident and citizen of the Philippines. the session will be suspended.g. Unless you raise the quorum issue. the presumption is quorum existing at the time the meeting was called to order subsisted until the meeting adjourned. Pwede bang ͞everybody should be present͟? What is the practical effect? Tyranny of minority. Can SH vote by proxy? Yes. 25. a treasurer who may or may not be a director. no one will be left to raise the issue of quorum. How about a director. It seems there͛s a quorum. Charters of several SUCs: They are not private corporations. Senator/Congressman member may attend meetings through/by representatives.Immediately after their election. nakalagay dun ngayon. Substitute somebody not elected by SH to _______ [perform the functions of a board member?]. Pag may minority eh kukwestiyunin yung quorum. reducing the remainders below quorum? What happens to the transactions adopted after the walkout? When quorum present at the beginning of meeting. but in the middle of the meeting. What is meant by majority? To say ͞½ plus 1͟ is not accurate. DzDirectors or trustees cannot attend or vote by proxy at board meetings. how many now actually hold office? What is the quorum? Anim pa rin. Not attending the corporate meeting is used to delay or defeat the passage of corporate proposal. In the HR. quorum. who shall be a director. 4 . Now go to the latter part of that paragraph. . What number of votes is necessary for corporate proposal to be adopted? Majority of those present provided there͛s quorum. 2 yung patay. HK. I have proposal here. What if scattered worldwide? Asked in SEC when DLC was still commissioner. They heckle the speaker and throw things to each other. Kasi nga may presumption of regularity. Approved by the board Majority of those present when there͛s quorum 2. One end will be seat of speaker. The speaker determines who won in the voting. the members of the board attending the meeting should be able to deliberate. Raising of hands ʹ speaker pa rin ang magdedetermine kung ano ang mas marami. y Illustrate: If number of members in the AOI is 10. The board did not deliberate. Aaaaaaye. In board meetings. How does the board do it? Taking of a vote.28 the abeyance. naasar sila sa College of Law. Minority will control the board. walang seatplan ang members of parliament. You will be surprised. pamukol ata. Rostrum which is a bookstand. You͛ll see that in Congress. Pag may naglagay niyan sa Scrabble. It͛s not a valid resolution because there͛s no deliberation. Di kayo makakarating ng 3rd year kung super bobo kayo. what is their remedy? Under Roberts. b. They have bleachers. Nakawig pag formal session. May Ron simply pass around a resolution to be signed by the other members? They already agreed on that. are there rules for the deliberation of the board? The board is free to adopt its rules of procedure. Voting may take all day esp when they explain their votes. Central part to the right and left. Gilbert Teodoro͛s mom does the same. Hindi nakalagay sa batas na bawal yun. Teller counts and tells the speaker! ͞Mr. si Ron and to each of the members. DELIBERATION For the meeting to be a valid meeting. There are two forms: a. Mas maliit kaysa sa atin. there are 5 members of the board. Teleconferencing facility: Guy in Tokyo can hear what the other members of the board will say. Sydney and PH. How do the board of directors vote? There are many manners of voting. they͛ll be sufficiently informed in considering how to cast his vote. Insert in the records. presiding officer does not. Those who are in favor. the other is the throne of the Queen where she stays when she addresses the house of commons. May they conduct a board meeting? Teleconferencing.͟ BUT if duda those who are in the nays. Hall divided into two sets. Viva voce ʹ voiced vote. Speaker has no gavel but batuta. pews in church. board has quorum on 6. Leather upholstery color green. S25. In the deliberation. Iba ibang formula oh. the requirement of meeting is satisfied. VOTING After the deliberation. Go to S44: approved by the board of directors: walang nakalagay na majority jan. 1. nasa Philippines. Kaya no qualification there in the law. we studied parliamentary procedure. parang kayo. ͞The Ayes have it. Siguro konting bobo lang kayo. If there͛s no such thing. Ang tingin ng mga mambabatas. Majority of the 8. the board has to dispose the pending matter. Nung araw ang aking computer ay 86kilohertz lang. Those who are not say Naaaaaaay. For every proposal. SEC issued that opinion. technology becomes obsolete faster than we can learn them. Concrete example: Today. Raised one after the other. US: Tokyo.͟ In college. Hindi mashadong impossibleng mangyari. Speaker I will tell!͟ If you don͛t believe that the count is accurate. There are only two universities in the Philippines. Pwede yan because the reason for them to meet is simply to deliberate.͟ Malakas lang sumigaw ang mga bumoto ng Aye. before the vote is announced. Ron is one of them. I will call Oliva. Maliwanag yan. Several deliberations but the board as a body never deliberated on his proposal. There are only two colleges in UP. Walang word na votation sa dictionary. Directors of corporation is scattered worldwide. Ron Garcia was able to talk to each and every member of the board. Division of house by peres (?) TELLERS! ʹ practice originated in the house of commons in England. assuming you͛ll be lawyers. So can this refer the ͞actually serving͟ without reference to the vacant seats in the board. walang ganyang word. members of the board may conduct meeting by teleconferencing. Tandaan this! Spoonfeed. 1. no businessmen in their right minds will adopt such kind of a provision making absolute majority as the quorum of the board. There are joint venture corporations. Okay sila pareho. E. Majority of numbers as fixed in the article ͞Majority of all the members of the board͟ if that͛s a different number as fixed in the AOI. AOI may provide for a quorum which is absolute majority. Go to S38: approved by majority vote of the board: Magkakaiba ba yan? Natural. Nobody dare heckle her. Kaya kapag student conference. Oxford Chem grad. Explain for audience (grand standing) OR for the record. As if saying they should all be present. Thatcher was PM when DLC was there. Makakareact sila freely sa sinasabi ng isa͛t isa. 2 lang diyan ang maliwanag. Same happens in England. Voting ha. Bylaws usually have ͞Roberts Rules of Procedures. They can meet anywhere diba. Dapat madinig nila arguments ng bawat isa. you can ask for a roll call vote. DI kailangan video. Baka nga may dalawa pa ang nakataas jan.g. Neheheehey. When does that happen? Namatay yung 2. For as long as there͛s opportunity to deliberate. College of Law and the rest. Look at S25 again. So 8. the proposal is adopted. What DLC does: ͞Is there any objection?͟ ͞Being none. ngayon gigahertz na. Eh sa corporation namin ganyan ginagawa. This brings us to certain ramifications/nuances of computations of numbers. To ensure no change happen without consent of all joint venturers. y Only one EXCEPTION to that rule: election of the officers which will require a majority of all the members of the board. Number as fixed in the articles. Atenista lang gumagamit niyan. number is 10. any member of a deliberative body may ask for a division of the house. as if they͛re all present in the same place. Yung ambagal mag-isip. That can be questioned and the person will succeed when brought to court. nirerequire na sila ay represented. later on in your practice. How many votes necessary to adopt a corporate act? 4 votes shall be necessary to approve or adopt a corporate act. Eh san ang venue ng meeting nila? Is that material? When is it material? Wala naman eh. Korean proceeding is sapakan. kailangan audio lang. 29 What did SEC say about this? There are only 2: a. By that time. ischedule natin yan. Hurting from such a defeat. he lost by less than 200 votes. Result of votation (I thought don͛t use this word?!): 5 in favor to confirm appointment of Dean Blanco. abstain na lang kayo. Abstention is by itself a vote. Ang tanong ngayon: Is abstention a vote? 7 January 2011 The ruling in ST Lopez v Ericta is in DLC͛s opinion. To enforce it as duty. Deanship became vacant and there were two contenders. In the new constitution that SC declared ratified. See 3 to the last paragraph in the other column. hindi nila tayo kayang ikulong!͟ ͞Ah hindi. 600 votes. TV interview. Whether negative or affirmative vote. It was decided by SC in one of the cases. Presidents will nominate. Ericta belong to Class 39 class of Marcos. Idea of Senator Manglapus. It will not be applied because with the political scene. All directors have the same voting rights. Pwede ba secret balloting like BOR? How do we characterize an abstention? A case reached the SC involving our University before Martial Law. If it did not attain that number. Acting dean or OIC. they came to a conclusion that they just abstained for delicadeza but was actually against. Libre excursion ng 7am kaya hindi nakaboto mga botante niya. that proposal is lost. Ninoy Aquino wanted to boycott the election. When it was deliberated and voted upon. either voted against or in favor. Lopez nominated Dean Blanco. Consequence and penalty for boycotting election under OEC is rd imprisonment. Suffrage is not only a right but also a duty. An abstention is by itself as a vote. Vicente Ericta. As fixed in the AOI b. I doubt ruling in Lopez will be sustained by court. According to the court after reading the deliberation. so the opposition was campaigning for boycott. A member of the board. when he became a constitutional commission delegate. Those who abstained commit that they will go along with the prevailing side. abstains simply because he doesn͛t want vote to be recorded as negative or affirmative. Let͛s not participate! COMELEC chair was Perez of Nueva Vizcaya. ST Lopez was the last to live there. the logic is applicable to a corporate board meeting. sabi ng opposition: Instead of boycott. It was not considered as a vote as can be gleaned from argument of Dean Consuelo Blanco. Manglapus inserted that. 3 voted against. Ninoy still in prison. 10 bus sa distrito niya. Not because they abstained. they go along with the prevailing sides. Position niya: When he ran as congressman. The court has no business interpreting how an abstention or the effect of an abstention. In the opposition.͟ So dahil mautak si Apo Leony. ST Lopez was at the time president of UP. I should have more votes! Can they say that director will cast more votes than another director. Their intention is to be bound by the prevailing side. Nothing in between. OEC provides for penalty if he does not register and vote. yan ang kanyang proposal. what͛s the required number of vote for a corporate act to be approved. Alumnus of this college. We should not give it an iota of credibility. Abstention cast by a director is a vote in itself. Consuelo Blanco and Reyes. It͛s a farce. Can he say that since I own the corporation. Should be considered that she was able to get majority of the members of the board? J. this phrase ͞majority of all the members of the board͟ must also refer to as fixed in the AOI. incorrect. the court could only see in black and white. Look at the records as to the intention of those who abstained. with 11 members. Chairman. Tama ba yung ginawang yun ng court?! Ang samang decision. Political aspect: Problem on how abstention should be interpreted. It was only during the first election after ML. Nomination and confirmation. Very bad! But this bad decision has a parallel milieu in the political scene. Is abstention a vote? Yes. You can all go to jail in 6 years. Makalintal for SC who became CJ during Martial Law (classmate din ni Marcos): Ah hindi naman. because there are also similar cases in the US. This happened during Martial Law years when Marcos called an election. Classmate of Aguido Agbayani. Court has no business characterizing an abstention. 3 abstained should be counted with me. Consuelo Blanco: I should have been proclaimed winner. BOR cannot elect somebody nominated by the president. In the light of that development in the political scene. Director can cast only one vote. Interview with COMELEC chair Velez who said that ͞It͛s okay because it͛s their right. Can we classify directors so that one class will have more votes than another class of directors? Not allowed under Phil law. This involved the election of Dean of College of Education. Majority of the board = approved by the board Suppose a director owns 50% of the outstanding capital stock of the corporation. If this problem comes up today. Court has no power to dictate how a director voted. Applying this to Salvador Lopez v Hon. what can you say sa boycott? Constitutional right but they can go to jail. Abstention is a vote in itself. Majority of those present when there͛s quorum Therefore. Hindi talaga kilala ang abstention dati. Blame Raul Manglapus. Batch 51. call notice in a valid meeting venue Board of directors acting as a body express implied by required number of votes quorum majority qualified majority Corporate decision . it͛s considered as a vote in itself. Was the case ahead of its time? No. San sha nakatira? Executive house. Nobody show up in the polls for the international media to see. 3 abstained What vote was necessary for him? 6 BOR: having failed to garner necessary votes. Continue next year! ͞Kung milyon milyon tayo. BOR will either approve or reject. Best is for people to boycott. appointment was not approved. How to do that: write abstain on your ballot. Simple lang ang test. Their number should therefore be counted in favor of the prevailing side. Salvador Lopez v Ericta. How is it done? Under S35. Later on. Whenever you read a provision. we follow a doctrine/principle ͞potesta delegata non potes delegare͟ power delegated may not be delegated to another. May the bylaws provide for an execom with 7 members. That͛s why SEC issued an opinion in 1981: All the members of the executive committee should be members of the board. Because S35 said not less than 3 members of the board. Where was that? The answer is in S35. Okay? Ano͛ng okay. Sino gagawa ng executive committee? May the board of directors by resolution adopt a creation of execom? Board cannot create an execom. mustering a quorum is always a problem. it͛s created in the AOI or bylaws. to be called the executive committee. It͛s allowed under S48. what are their rules? E. y DLC: Doesn͛t remember having discussed the difference in formula during the committee deliberation of the code.͟ Hindi pwede taasan/babaan. Hindi pwede casual meeting converted immediately to a corporate meeting. y Determining: majority of all the members of the board ͞as fixed in the articles͟ y Election: wala yung ͞as fixed in the articles͟ Are they the same or are they different? When framers of law use a different formula. Largely of nonmembers of the board. dapat niyo tatanungin.g. As a miniboard. it was intentional. Walang okay. If general rule is one of delegation. You can͛t have an executive committee with a number of members less than three. (?) S25: y y GENERAL RULE: They [board of directors] cannot delegate their powers. To address the quorum requirement. you should have seen the answer right away. GM. Board of directors may amend the bylaws by creating an execom. Pero pwede ba nakalagay sa Articles yan? Not allowed. May the AOI/bylaw provide for a vote requirement lesser or greater than simple majority as provided in S25? E. POEA admin not his batchmate. SH have elected board members on the basis of their personal qualifications. Why? Because there is only one exception to that rule. If they are allowed. How many votes when they vote to adopt a corporate proposal? How do they vote? One director is entitled to one vote. Dapat executive committee with three members who are members of the board. but NOT lesser. Not having been elected by SH as members of the board. Minimum number is three. Pwede 2/3 or ¾ but not reduced to less than simple majority. . Illustrate through a problem: Bylaws created an executive committee with 7 members. it has to be in the confines of S35. When they create it. Ano compromise? Allow a miniboard to be created. ͞In this corporation the vote of 2/3 of members present where there is a quorum. An executive committee is a mini-board. May the bylaws or articles provide that directors may attend or vote by proxy? Last paragraph says that they may not. Why? If you allow execom to have all its members as non-members of board. ͞unless AOI provides for a greater majority͙͟ May provide for a greater number of quorum. Why is it allowed? In a corporation with big number of members. Quorum may be increased to a greater number. members of execom cannot be members of board. Cannot delegate either since bawal din. executive committee will have smaller number. In another case which the member was removed.30 Zachary v Millin There͛s a problem in notice. corporation sec and treasurer. we are violating S23. General principle of corporation law prohibits reduction of quorum beneath simple majority. it is implied that AOI or bylaws cannot provide for a smaller number. Not okay because you can circumvent S23. Ano ginawa sa S35: allowed to delegate PROVIDED the delegate is an execom created by bylaws. Does it apply to private matters like corporation law? If you have read the Corporation Code which I required you to do. 15 total number of board members as fixed. There͛s only one exception: when the code (not AOI nor bylaws) provides otherwise. bylaws provide that executive committee has 7 members. Majority is 8. Is that prohibited? Simply because S25 provides that it can provide for a greater. Is it allowed? 7 members? Yes. It͛s provided in the same section. there͛s motive for S35. hindi yan transferable. it has underlying principles and assumptions which need not be put in law because general principle insofar as the particular area concerned. It was intentional because there͛s a difference. Pwede ba na 2 lang na members of the board ang executive committee? No. Allowing another entity to exercise power of the board. it has power to decide for the corporation as if it were the board of directors. The executive committee. This is the ONLY provision allowing the board to delegate its powers of management. Ayaw lang nila maging redundant ang wording ng S25. y SEC interpretation: There͛s no difference. of them only 3 are members of the board? Is that executive committee validly created. 3 of whom come from the members of the board. what is the mechanism? Since Corporation Code is common law in origin. It͛s a political law.g. Except ͞election of officer͟ I have called your attention earlier on the difference for formula required for election of officers and determining a quorum. board of directors may create it if the power to amend bylaws is given to the board. it was deemed a waiver. PERO hindi uubra na ang uupo sa executive committee ay hindi members of the board. Bylaws may create an EXECOM which may exercise the powers of the board but no less than three members of the execom should be members of the board. Who creates the bylaws? SH. Executive Committee May the board delegate powers of management? In political law. it will violate S23 which provides that the powers of board are exercised only by board of directors. Nothing written in S35 that maximum number (minimum is three). If we allow the AOI or bylaws to create an executive committee whose members are non-members of the board. greater quorum pero di babaan. with more reason excom does not have power. if the intention of law is to allow a number to be increased or decreased. What dividend may the executive committee declare? Three kinds of dividends: cash. By the corporation. Bat sila biglang nagkaron ng control? We have to be practical. full board may prevent excom from amending/repealing a particular corporate decision. What they sought to create was an executive committee although by a different name. whether enumerated or specified in the board. Excom cannot make papel here) Sir what if they pingpong? To prevent this from happening. because S25 provides for only one exception i. Hindi ko na itatanong yan sa exam. How does executive committee act? Majority of all its members. What powers may the excom exercise? S35 says: ͞on such specific matters within the competence of the board. The executive committee was composed by non-members of the board. On such specific matters within the competence of the board They may not grant excom a blanket authority. You can͛t change in the bylaws. may the excom repeal/reverse/modify the decision taken by the full board a week earlier? There are limitations. BUT delegation of the board of directors and bylaws must authorize the executive committee to make such declaration AGAIN: The executive committee may not have a member who is not a member of the board of directors. Remember the vote requirement and may it be modified in AOI and bylaws? No. So if you͛ll be the one doing the bylaws. and (5) a distribution of cash dividends to the shareholders. Meron silang elbow room. It͛s taken care of by the corporate officers. board of directors cannot delegate in general. It must be specific powers. Delegation by the board from time to time of specific powers specific modifies the powers. What if excom decides and then next month. Who gives? The creator of corporation through express legislation in S23. Board of directors cannot run day to day affairs of the corporation. --? Hindi rin pwede ang stock dividend (S43 ʹ must be approved by 2/3 of outstanding capital stock. Dapat maliwanag. In the implementation of this general direction. property y Cannot declare cash ʹ prohibited in S35 y Cannot declare stock ʹ prohibited in S43 (SH approval) y May declare property. They can float on their own weight. No vote requirement or quorum. the law should have provided. (2) the filing of vacancies in the board.g. majority of all members of the board). Nagkataon lang na tinawag na executive committee. Board lang pinag-uusapan natin. 2. (3) the amendment or repeal of by-laws or the adoption of new by-laws. Technically. Those are the details which should be provided in the bylaws creating the excom. Does the board exercise delegated power? Yes. ERGO. They have to spell that out expressly in the resolution. ginawa nilang 5. when you see the bylaws of a corporation that provides for a higher vote requirement for its board to approve a corporate act. how about the reverse. Underline the word ͞express͟ which by its express terms is not amendable or repealable. Favorite ko ito. entire board of directors meets? Can the latter amend/repeal the decision adopted by the excom? Also. the creation is invalid. what do you say? This provision of the bylaws is contrary to law. Not ͞in a meeting where there is a quorum͟ SEC ruling: as fixed in the bylaws. delegated power cannot be delegated to another. SEC will disapprove it as contrary to S35. ͞this corporate act cannot be repealed/amended by the excom. 3 votes are necessary to approve a corporate act. the powers do not belong to the board but to the corporation. Otherwise. Exceptions in S35: (1) approval of any action for which shareholders' approval is also required. S52 (SH meetings) unless otherwise provided͙ There͛s an implied prohibition since there͛s only one exception: When officers are elected (i. Yung members of excom who are all members of the board. feather weight. what do we apply? Apply by analogy all the rules applicable in the board. 1. in the case of quorum. After its creation. If they do not have power. officers are exercising certain degree of control in the management of the corporation. as may be delegated to it in the by-laws or on a majority vote of the board͟ therefore. Next level of control: Belongs to CORPORATE OFFICERS. One exam question in previous classes: The board of directors by unanimous vote created an executive committee for the purpose of making a study on whether or not an investment in another business is feasible. May naisip na akong mahirap na tanong. So kung 5 yung members.e. (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable. e. Otherwise.e. In the interpretation and implementation of policies adopted by the board.31 In the excom. hindi SH. Pangalan lang yung executive committee. the excom has power to amend or repeal it. Second rate like Noy͛s appointees. Majority of the number of members as fixed in the bylaws. Assuming wala. S20 (disposition of assets). Look at S35. provided in the AOI. specifically S25. What is their quorum now? Nothing mentioned in S35 as to how the excom shall meet.g. It͛s the function it was given in the resolution or bylaws. election of corporate officers. In the exercise of this discretion. Board of directors may only delegate within its competence. corporate officers are given enough discretion to do what is necessary to carry out the policy adopted by the court. there are two sources of powers. S42 (investment in another business/corporation). full board meets and adopted a corporate act. It͛s not the name that will determine WON it falls under S35. . Hindi naman sha magpeperform ng function ng board. Was the creation of the executive committee valid? Valid. What is the reason there͛s only one exception to the rule on vote requirement? Laging majority of quorum to approve a coprate act. Board cannot delegate its powers. it went into its business of making a study and came out with a report favorably indorsing the investment. Board will simply adopt a policy/general decision for the corporation to take. E. amendment/repeal of bylaws. Apply all provisions applicable to the board by analogy because the excom is a mini-board of directors. Only one exception. stock. Somehow we apply the political principle. Look at the powers granted it. corporate officers exercise limited latitude (not wide) of discretion. you should include additional provision in the AOI. What can͛t executive committee do? Fill up a vacancy in the board. it would be violation of S23 (corporate principle that only board of directors elected by SH may exercise powers of corporation). BUT if they make a body to be called a stirring committee (taga-stir lang yun) but the resolution actually allowed it to exercise powers of the board. How about the corporation͛s VP? Is he corporate officer? Depends on WON by laws classifies his office as corporate office. otherwise undue delegation of power. Last level of control: STOCKHOLDERS They exercise residual powers of control. Does he have term of office? Walang nakalagay sa batas. HOWEVER in Espino v PAL. So you have to check to whom sheriff serves it. TANDAAN THIS. The employee is contract of service. son of the former chief of staff of AFP. which can for the flimsiest of reasons may remove for any reason. Pag di yan nagmumura. Ke employee ke corporate officers. the board may remove the secretary.32 Who are the corporate officers? Even the SC is confused about this. If no reason given. decision penned by Bart Carale when he was NLRC chair. it͛s classified as corporate office. They are corporate officers by express provision of the law. Nobody in the SC at the time of those decisions were promulgated had a deeper understanding of the Corporation Law. Allow president to exercise powers of the board. serves at the pleasure of the board of directors. Leslie Espino. Corporate officers are also encountered in ͞service of summons. classifies the position as a corporate office.͟ Dapat responsible corporate officers to acquire jurisdiction on the person of the corporation. The relationship is a contract of lease of service. it͛s indefinite. then the board and corporation are bound. Leslie should be considered as wearing two hats at the same time: corporate officer and employee. rose from the ranks. If the VP is an employee. president is chairman of the board in the absence. Any dispute is within the exclusive jurisdiction of NLRC. otherwise he is a mere employee. apat lang ang nakamention. NLRC said: We have no jurisdiction us because it͛s not EER but corporate office his position. no EER. Case: PAL VP dismissed from his job by the management by reason of loss of confidence. secretary. It͛s not a contract of employment but lease of service which is found in the Civil Code. Naturally. but the bylaws may provide for a term. They can just make a rank and file employee a corporate officer. Code does not give security of tenure. HOWEVER. his tenure depends on the confidence the board reposes on him. it͛s an EER and labor contract. Make taga to your batoks. Next meeting. Who will remove? Board of directors. corporation can easily circumvent security of tenure provision of the constitutional. if position is classified in bylaws as corporate office. Bakit napunta sa president? Dinelegate lang kasi ng board of directors. board need not have reason to remove its corporate secretary since it is a position of confidence. Bylaws of the corporation may create as many offices and classify those offices as corporate officers. Dean Carale (magaling pala to): Hindi ganun ganun lang yun. Corporate secretary has been in the corporation for 5-10 years. Leslie Espino filed a case before NLRC EER is present. So those distinctions pronounced by the SC are all wrong. You can͛t let him do his work. Pag hindi corporate officer. In the affairs of the corporation. Is the EVP a corporate officer? Siguro naman. it becomes a contract. Turuan niyo yung sheriff pag corporation ang defendant kung kanino niya iseserve. they r&f will accept because that͛s promotion. Does not give a term of office. SH exercise 10 January 2011 Who are the corporate officers? Mentioned in the code. In what instances are the SH allowed to exercise this procedural powers of control. Appointment is subject to confirmation by the board. then it also has power to remove any of them. Where? If the bylaws or the AOI (if position is provided for there) as the case may be. he serves at the pleasure of the board. does not classify the position as a corporate office. What is he? Merely an employee or perhaps a contractor (lease of service). Beautiful qualification on exception to this rule. Nung pinabasa ko sa inyo ang Corporation Code. If the r&f does not accept office. may he file case with the NLRC for illegal dismissal? Read Espino case. without security of tenure. it has right to replace its secretary. treasurer and chairman of the board (somebody other than the president). Illegal dismissal ba yun? Must there be a ground for a corporate sec to be removed as such? Walang nakalagay sa corporation code because as corporate secretary. Power to appoint is also power to remove. Bakit sila may ganon? Natural because they͛re the ones who provided the corporation its capital. Senior or executive VP next to the president. When there is term. In the bylaws of PAL. if articles or bylaws as the case may be. Can they put grounds for corporate secretary to be removed from office? Yes. VP files illegal dismissal case with LA. it may also be secretary treasurer Term of office of officer? At the pleasure of the board Removed at what ground? Loss of confidence. sinasabi ko lang na bobo kayo. then it͛s not a corporate officer. the NLRC and SC. What about the EVP provided for in the bylaws? It depends. Lahat ng corporate officers are appointed by board of directors. Labor Code provisions do not apply. may be by the flimsiest ground . then the relationship is one of EER and the Labor Code applies. hindi sha yan. The president. law does not provide any ground. Corporate office only if clasisfed in the bylaws. he can be charged of insubordination. The moment board loses its confidence. Part owner daw kasi. May jurisdiction ba ng NLRC? What if corporate secretary removed? May he file illegal dismissal case? Who elects the corporate sec? The board of directors. Tandaan this! Why you need to remember this? Educate the judges. Contract of engagement is one that applies to him. He will serve at the pleasure of the board. Buti nga ako hindi ko kayo minumura. then the person occupying the position must be a corporate officer. They can no longer invoke the provision of code allowing the board and corporation to remove a corporate officer. When board loses confidence. Carale is born a teacher. Otherwise. Tinanggal by loss of confidence. Since board of directors is given power to appoint corporate officers. Suppose bylaws is silent. HOWEVER. Therefore. When board binds its hands for removal by providing grounds. can͛t act as a body. SH approval is not necessary. Can they put in bylaws ͞the annual SH meeting of SH of this corporation shall be held on the first Friday of month of Jan every year. Dito sa SH dapat written. isa lang dapat jan ang general annual SH meeting. date and venue so that no call is necessary? E. regular SH meeting can be done more than once a year. Notice iii. can only hold three standing SH? They can transfer the meeting provided it͛s within same city/municipality. Where is principal office? Whatever address is written on the AOI. What do you need for SH approval? 1.͟ Should there be notice. Who will make the utos? Can SH meet without notice? Therefore. only president through corporate secretary can send notice.g. Can they transfer their meeting kasi maliit lang ang principal office e. Pejorative for ͞no case͟ lawyer. He doesn͛t want to send a notice. Not March. They will be acting as a body. May bylaws provide for regular meetings more frequent than once a year? Yes. Regular ʹ happens at least once a year aka general annual SH meeting (S50) What͛s the recourse against president? Demanda him for breach of duty. If he doesn͛t. ͞The SH shall meet without need of call on the 1st Friday of January of every year at 3 PM afternoon at the principal office of the corporation. How many Metro Manila? 15 cities and 2 municipalities all in all. S16. hindi kailangan. Number 2: nawala na yung place. Must be any date in April. Lawyers are not afraid of cases. It may be legally possible or feasible BUT not practical. no call. Required number of votes Depending on provision of law i. although they do not know where? Under the law. Notice has to be written. they know when. Wag na sir. diba. Referendum (written assent) amendment of AOI. the president directs the calling of a meeting. You are not smart after all. SH approval is only needed when required by law. Special ʹ anytime deemed necessary or as provided in the bylaws. because under the general principle of corporation law. then 5 years din kayong walang meeting. unlike the board who can meet anywhere. What if there͛s a calamity. 2. . Somebody has to do it. 2/3 Why ͞in general͟? There are ͞special͟ amendments which can only be approved by SH in a meeting: y S18 increase or decrease of authorized capital stockʹ cannot be done by referendum y Shortening or lengthening of the corporate life (?) What may be done in referendum? Change in name S16 2 kinds of SH meeting 1. General rule ito. Maski dalawa or apat ang regular meetings of the board. Is there an implied prohibition? If by doing it. SH won͛t be able to meet. how are we supposed to meet? Who calls the meeting? Should there be a call for a regular meeting? A notice has to be sent. Look at S50: Suppose bylaws do not provide the date of annual SH meeting. they cannot act as a body. Only in your mind that you are smart. baka matalo kita. Who will say where the meeting is? May bylaws provide for time and venue? Look at S47. Can the bylaws say the time. no reason why it can͛t be allowed. Simple majority iii. December or February. Not any date. Time and manner of calling and conducting regular/special meeting: In the absence of provision on how regular meetings are called. If you cannot point to a provision of the law. Venue iv. The board will fix it. But the case in the Phil may last for 5 years. So if the word ͞written͟ has no underline.33 residual powers of control only in those instances expressly required by law. Although the best lawyers is no case lawyer. Even if QC the principal office. Majority ii. Kakasuhan mo pa sha. no express allowance and no express prohibition. Valid meeting What are requirements for this? i. Can officious ordinary SH send notice to other SH? No. Without a meeting. PROBLEM: President does not want to call a meeting. run afoul some corporation law principles or provisions of the code which DLC cannot find. Short but substantive arguments so the stenographer can catch it. they can have the meeting in Makati. Metro Manila shall be considered a city or municipality. They must meet at the principal office of the corporation. when shall it be held? Any date in April as determined by board of directors. Cannot act as body unless they meet.͟ Manner of calling din naman ang no need of call. the SH cannot meet anywhere. Quorum b. Dakila Castro best trial lawyer UP Law has produced. Why? Because that͛s the point of reference to the terms of office of the directors. How do SH give their consent to those instances where the law requires their consent? They have to give it as a body in a meeting. Who will send the notice then? Alangan naman the computer prints on its own and then send it to everyone. then pray for the calling of meeting by fixing the date thereof. There is one exception: in the case of amendment to the articles in general. Valid call ii. So pag di niyo kami nakikta sa court. you have a problem. 2 years na hindi pa tumatawag ng meeting yung president. Act as a body When they act as a body? a. Best lawyer are those whose clients have no cases in court as plaintiff or defendant. Without a meeting. because while there͛s no express provision allowing it. He instructs the secretary to send out the notice for the regular meeting. Pag wala nakalagay sa batas. Therefore. requiring SH approval for the validity of a corporate act. hindi ibig sabihin non hindi kami magaling! Magaling kami! Prof. Baka yun pa nga ang gusto ng president.g. Not so required for meetings of the board. cancel the certificate in name of old woman. Baka nakaw lang ito. That͛s all need to make him issue new. Only then we can use 4th paragraph. ISSUE: There was an issue before as to WON a dispute is an intracorporate dispute because if it is. Humingi muna kaw ng authorization/certification from stockholder of record i. But to make that iwas. Jurisdiction and Supervision na lang ang naiwan. manner of calling is provided in S28 in case secretary/president has refused to (instruct secretary) call meeting. ilagay na sa bylaws so no more need to file a petition with the SEC. Shempre hindi niyo binasa. Called his president boss who doesn͛t want to record. One of the owners/major SH was an old woman (spinster). Dinala na ata sa US. you should provide for an alternative manner in such an eventuality. ͞It [notice] may be waived expressly or impliedly by any SH. on the part of corporate secretary. Only ͞as may be necessary͟ NOTICE It should be written. Action to compel corporate officer to perform ministerial duty is within SEC͛s jurisdiction under 902-A. How? Hindi lang naman intracorporate dispute fall under SEC͛s juri. Yun ang nakalagay by law. IN case of removal. ͞In case of removal͙ A special meeting of the SH͙ must be called by secretary OR written demand͟ Remedy in case of removal. It only shows that there has to be a call. What should be seen there? Agenda? S47 No. Can you make bawas? Campos says you can because covered by qualification ͞unless otherwise provided in the bylaws͟. biglang may nagpunta sa corporate secretary showing deed of assignment (actually it was a certificate of stock duly indorsed at the back by the owner) signed by spinster. Pwede ba habaan yung two weeks? Yes. it can compel corporation officer to perform ministerial. Under the new law. Look at S50 4th paragraph. kami hindi. spinster owner certifying you as her atty in fact. SH not given notice may claim violation of DP. Abejo v Dela Cruz: The word ͞control͟ was removed in the new law in the Securities Regulation Code. Therefore. Pag wala lang president like namatay in an airplane crash. We cannot use that in all cases because remedy available only when ͞no person authorized to call a meeting. Applying the case of Abejo v De la Cruz. How will you apply it? Siguro hindi na mangyayari yun. Only RTC as commercial courts. BUT jurisprudence. How about in the case of meeting? In case AOI/bylaws indicate date of annual SH meeting. Punyetang president does not call a meeting. Only commercial courts. exclusive jurisdiction to settle it is with SEC. Not all disputes in corporation is intracorporate. It should involve [1] corporate matters and [2] application of corporation law principles in the settlement of dispute. new one issued to the assignee indicated at the back of certificate of stock. ayaw tumawag ng president? Or threatening not to call SH meeting on the date specified in the bylaws? Can you go to SEC? Is it a ministerial duty on part of president? If yes. To do away completely with sending of notices is violation of due process. They were deprived of proprietary right without DP which is unconstitutional. Third party now files a case with SEC to compel secretary to make the transfer (essentially comply with his requests as enumerated above) Corporate secretary: MTD on ground that SEC has no jurisdiction because not intracorporate.͟ When there͛s a person authorized to call is there BUT refused to call a meeting. When must it be given? At least 2 weeks prior to meeting. No one will call. Lagi nandito ang problema. The period may be shortened or extended PROVIDED notice is not absolutely done away with. Under the law. jurisdiction over corporate dispute transferred to regular courts. Find it out in practice. Kayo kaharap nung nagbayad. Para saan ba ang special meeting? Purpose must be reflected in the notice why the special meeting is being called. Transferred all her shares to corporation to third party presenting the deed of assignment.͟ Can the waiver be provided in bylaws? We waive notice for regular SH meetings? Camposes say: malikot utak mo. The answer is in interpretation. there has to be a call. not all RTC acquire jurisdiction over intracorporate dispute. It cannot be without agenda because the agenda should be the election of incoming members of the board. does SEC has jurisdiction to order Pres to call a meeting? Is it an intra-corporate dispute? Certainly it is. it͛s from the very beginning (Chapter 1). Government regulation of corporations. Corporate secretary to third party: Didn͛t allow because nawala daw ang certificate ni old woman.34 BUT in order to provide a remedy in case corporate officers charged with duty to call meeting have refused to call the meeting. They will release this decision: We decline to acquire jurisdiction over this dispute. But WON intracorporate is not easy to determine. File it before appropriate RTC. Complainant is not even a SH yet! SEC: We have jurisdiction! SC through Teehankee: SEC has jurisdiction over the dispute even if not intracorporate dispute. moment cert of stock presented duly indorsed at the back. Jurisdiction and CONTROL over all corporations organized under it. Transferee cannot find the old woman to get her authorization. FACTS: Telco (Pocketbell) was a family corporation owned by the Abejos. 2 only says ͞time and manner͟ and S50 ͞written notice must be sent͟ nothing said on what should be mentioned there. Pero sa special. Should they put the agenda? The law does not tell us what the contents are. Is the recording ministerial? Yes.e. attends the meeting). Isang araw. Matatalo akong president next election. Maski sa enforcement of ministerial duty. wala na rin sa amin. Pag ii-finile sa SEC: Ayaw na nila ng trabaho. Law cannot provide for all possibilities. So meron pa rin gamit yung WON intracorpo dispute: Just to determine which RTC may take juris. The courts have no jurisdiction over the dispute. Corporate secretary wants to verify it first. if the meeting is annual SH meeting. SPECIAL MEETINGS: Hindi nakalagay kung kailan. WAIVER in S50 applies to meetings which were held and for which a SH was not served a notice but he may waive at having been served notice either expressly or impliedly (i.e. By laws should have manner for calling a SH meeting in case president has refused to call meeting or there is no president to call the meeting. . Whenever a SH meeting is to be held. HOWEVER. What did he want? Record the deed of assignment/transfer/conveyance of shares. Hindi practical na ganun ang iprovide sa bylaws. Compare that with S28 provision. ͞unless different period͟ Pwede ba shorter? ͞At least͟ is relevant. Matter between SH and a corporate officer involving corporate matters. That͛s definition of ͞corporate dispute͟ in Viray v CA. Yun ang ginagawa dun. kailangan meron agenda. How do you interpret it? Possibilities not covered by law shall be settled by interpretation. Tyranny of minority. it͛s on the basis of the outstanding capital stock as defined in S137. There are two parties. Quorum is ¾ in attendance ang 2/3 and we can approve amendment of AOI BUT not meet because the quorum ¾. walang magreraise. there may be two classes of shares. unlike board meetings whose requirement is ͞majority of quorum͟ is enough. Is fixing the venue mandatory? Yes. Kung aalis kayong lahat to reduce the number of quorum. QUORUM S52: NB it͛s a new provision. All they have to do to defeat majority is to not attend. vote requirement to approve a corporate act. When they don͛t the meeting will not proceed. Kaya mali ang S52 and it has to be suppressed from the code. Can you increase then? Pwede increase the quorum to ¾ and cannot discuss amendment to AOI even if 2/3 present. Who attends the SH meeting? Can one person attend pero may quorum? Shares of stock. Can bylaws provide: ͞all shares must be represented before ͙͟ pwede ba yun? Absolute ito. those who left may question the validity of meeting may raise the validity later on IF deprived of right to speak in the meeting. always majority of OCS. Quorum should be on the basis of outstanding capital stocks. y They just meet to pass condolences to express demise on death of a director. 10% of OCS entitled to vote may be enough for quorum. hindi dapat kasama sa quorum. any incumbent member of the board may call the meeting to order and preside therein until SH have chosen one of them as the presiding officer. What if ganito ang nangyari: OUTSTANDING CAPITAL Stock 1. Nung dinagdag nila ito. Exam question: May AOI/bylaws of corporation reduce the number of quorums below simple majority? E. the quorum is presumed to subsist until the adjournment of the meeting UNLESS quorum was raised in the meeting. In the computation of the code in S52. For it to proceed. ͞OCS entitled to vote in the meeting͟ Our discussion on quorum applicable to board of directors is also applicable to SH meetings. pwede taasan? y Decrease: Pwede ba mag-approve ng corporate act? Wala rin naman sila maaapprove? Lahat ng corporate act the basis of vote requirement is OCS not quorum. then that single SH may attend and hold his own SH. Technically pwede yun pero para shang tanga.Chairman of the board. kahit umattend lahat ng voting. Sa madaling sabi. not refer to quorum but outstanding capital stock. may quorum pa rin. WON justified. Not majority of the quorum. Therefore. gumulo ang batas. provide that SH must vote personally? General principle of corporation law that SH may not be deprived of right to attend and vote at SH meetings by proxy. What͛s the principle? When a meeting had a quorum when it was convened. PERO sa SH meeting: All corporate acts requiring SH. 3. The SH is just a representative of the share. Yung mga walang corporate act necessary to implement it. What is usually written there? The corporate officer who is ranking next . Director cannot attend a directors͛ meeting by proxy. Proponents: Katangahan nila yun. Problema lang yun pag nag-iwan kayo ng isa. BUT a SH are given the right to attend by proxy. Sila pumili nun.g. What if president/presiding officer was absent. DLC͛s point: Nakakita na sha ng ganito. ¾ of the OCS. There are two views: 1.g How the meeting will proceed in case president/bylaw designated presiding officer is not present. Answer: Look at S52: ͞Unless otherwise provided in the code͟ pwede babaaan. Parang magaanak sa binyag. corporate secretary. maski pa may quorum. Any provision of bylaws depriving him of this right is violation of DP. since majority sila. SH are just mere representatives. there must be quorum. Stipulate: Whenever major decisions are to be approved.g. Under S47 No. Deprivation of property without DP. Voting and non-voting. Chairman of board? Yes. Bylaws said 100% represented. Ibang usapan ito.g. Used by joint venture corporation. Specifically allowed in S58. Body. Written in the conducting. y Not only that.35 Who presides at SH meeting? Under S54: it is the president May president as presiding officer given to another corporate officer e. . As if saying may karapatang to walk out if deprived of SH rights in that SH meeting. Who calls meeting to order? There must be a provision in the bylaws. Never on the basis of the quorum. they can meet but not approve anything.Why? Because it was not needed back then. There is a need to this provision so that all partners are given ample opportunity to protect their interest whenever major decision is to be taken. So far no one questioned pa rin. How to proxy? Saka na yan sa ͞Devices affecting corporate control͟ VOTE REQUIREMENT . if more than majority of shares is owned by single SH. 2 ͞conducting the meeting͟ e. Called to order na. All shares of stocks issued under binding subscription agreements. May the bylaws prohibit voting by proxies. Bat pa papa-attendin? Kaya nga mali eh! y Pag walang matter that SH will decide allowing non-voting shares to decide to vote. who will preside? Apply by analogy. 2. Expression of corporate support to a moral etc. 6040. wala pa ring quorum. Kailangan pa ring umattend ang mga non-voting eh hindi nga sila entitled to vote. all shares must be represented. Non-voting 500 shares 600 shares What is the quorum now? 301. y Kaya it͛s not in the old Corporation Law since it͛s useless for them to meet if no required number to approve the corporate act to be decided in the meeting. Logan v Louie Johnson exception: When the group of SH left because not allowed to speak during deliberation leaving those who remained below quorum. Maski 10% of quorum. SEC allowed. the vote requirement is always on the basis of OCS.Why? Because in a corporation. but nobody raised the question. Talo pa rin. if provided in bylaws. Voting 100 shares 2. y Increase: e. Let them suffer. . S52 is only correct if it is qualified. So mag-iwan ng isa to raise issue on the quorum. Ergo. He may distribute the number of votes a share is entitled to cast to some of the candidates. a share may elect five directors to fill up the post. NB Ang bumoboto sa director ay shares of stock. Two kinds of shares: voting and non-voting. Since malaki yung stake ng 70%. The position of the director to be filled up. they determine how it will be elected. If there are 5 directors to be elected. Or is the provision of the law mandatory? May naalagay ba jan sa S42 na ͞unless bylaw provides otherwise͟? Wala. Does this refer to voting and non-voting or just voting shares of stock? Only voting. If the date is not so fixed. Share is given a number of votes equivalent to a number of directors to be elected. Power to declare dividends. vote requirements computed using shares entitled to vote as the base. SH in the meeting.manner of electing directors. Hindi inobjectan ng SEC. the requirements for valid SH meeting should be complied with for that meeting validly elected members of board. Not discussed in Campos. how do they elect the directors? Pwede namang nakalagay yan sa bylaws. They can take off any implied reason to make the voting requirement mandatory. In order to protect 20. the election must be by ballot if requested by any SH or member. What can they provide in bylaws? S47: Required quorum and MANNER of voting. DLC has not seen any AOI or bylaws requiring voting less than majority. varying numbers but extremely a shareholder may cast all the votes his shares of stocks is entitled to to just one candidate. Can we make bawas to simple majority. Hanapan niyo ng justification. Hindi ko alam ano justification ng SEC for that.36 What is the vote requirement? Specified in the law that requires SH approval before a corporate act is valid and effective. Can he write just one name in those five positions? Called ͞cumulative voting͟ . every share of stock casts a vote for all the directors to be filled up. If there is no request. Tyranny of minority but that tyranny has been approved by the majority themselves upon approval of the extraordinary . Since regular annual SH meeting is to be held. It͛s COUNTING of votes. INSTANCES WHEN SH/MEMBERS͛ ACTION IS NECESSARY? In what instances is SH approval necessary? 1. If the bylaws are silent. The number of votes given to shares of stock may be given to a number of directors but he may also give his votes to just one candidate. ELECTION OF DIRECTORS Management of corporation is given by law exclusively to the board of directors but who chooses the members of board of directors? The power to elect members of the board is given to the SH only through election of members of board that SH participate in the management of corporation. But again cf page 50. where certain acts require greater voting requirement than what is provided for in the code. nakalagay naman jan. (Cf page 46: you can increase. When does the election of directors take place? During the annual SH meeting which in turn is fixed in the bylaws or AOI. S43 on declaration of stock dividend ʹ 2/3 of OCS which shall not include non-voting SH. OCS there refers only to voting as provided for in S6 last paragraph. Higher than 2/3 (which is 66%) for the protection of the partner whose interest is 30%. almost all. The reverse is difficult to justify. The quorum required for election of directors is majority of the outstanding capital stock entitled to vote. Carrying it to extreme: Bylaws may provide for unanimous or absolute majority for approval. Vote requirement is mandatory? Bylaws or AOI cannot provide higher or lower. No express prohibition so baka pwede irn. they required for a higher voting requirement in certain corporate acts. number of NVS should not be included in computation of quorum AND vote requirement. Look at S47 No. Therefore. or increase to ¾? Pang-thesis ito. How do they elect the directors? ͞Manner of voting͟ under S24. but not reduce. may unless otherwise provided? Wala rin. That͛s the existing interpretation. They manage the corporation by choosing who will anage the day-to-day affairs of the corporation. Bigger than provided for what is in the law: i. Wait. annual SH meeting shall be held on any date of april to be fixed by board of directors. Majority of the outstanding capital stock. lagi talo yung 30% kung 2/3 lang yung vote requirement. Why? Because it͛s not in S6 1-8 (where even the non-voting are given the right) memorize the enumeration in S6 (nonvoting are given the right to attend and vote). Because election is not one of those enumerated in S6 where non-voting are given the right to attend. It does not include voting requirement. Mahirap mag-elect ng viva voce or raising of hands. If it says 2/3 then so be it. Where to compute the vote requirement? Of course. May the AOI/bylaws reduce or increase the vote requirement? Illustration: S40 on disposition of assets requires 2/3 of OCS.g. AOI or bylaws cannot modify the vote requirement.e. A share of stock is entitled to cast 5 votes. That would be violative of principle that vote of majority is necessary for approval of corporate act. Wala ring qualification kasi nga mandatory. voting requirement. SH is just the representative of the shares he owns in the corporation. The owners of majority of the capital stock. if the nonvoting SH are not allowed to vote in a particular corporate act. They allowed the incorporation of the corporation. Increasing the voting requirement would be advantageous to all SH because every SH will be given importance in the adoption of corporate acts requiring SH͛s approval. DLC has seen AOI of a joint venture corporation. Where then can we put that [justify]? One of the venturers owns 70% of the OCS and the other JV owns 30% stake. E. increase/decrease of capital stocks. 7. So ano na ba talaga??) S38 for instance. majority and two thirds. Hindi ata. *Nokia tune Acoustic* S24 present either in person or representative. Reason in giving shareholders cumulative voting in choosing directors of corporation: 14 January 2011 WON the voting requirement may be changed in the bylaws: There is no clear prohibition in the Code. then it would seem that the voting requirement may be increased in the AOI or in the bylaws. Commissioners pointed to DLC for resolution. A 34 B 33 C 33 D 33. Cumulative voting is always the general rule.dz If GR is to allow to do away with. Wala namang masama. If all shareholders in the minority will cumulate all their votes to just one candidate. Members will exercise only when provided in the articles or bylaws. But they can always invoke it. Kung tatlo kayo may-ari. then it would appear that this is mandatory in case of a stock corporation. S56 DzVoting in case of joint ownership of stock. there͛s no need for S56. A won. Trustees of non-stock corporations must be members thereof. BUT on the contrary. A majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines. y DLC disagrees with all due respect. Hindi maiboto sarili pero pwede iboto ng mga kasama niya! . Mali ata? NON-STOCK: rule is absence of cumulative voting. Implied from the provision in the case of non-stock corporation as provided in S24 DzUnless otherwise provided in the articles of incorporation or in the by-laws. any one of the joint owners can vote said shares or appoint a proxy therefor. signed by all the co-owners. EXCEPTION: Law expressly authorizing the SH to cast a fraction of a vote.3 F 33. they need to come to agreement on how the SH will cast its vote. architect who designed Manila City Hall and post office and founded the school. Board of directors is 5. SH gives up his right to participate in the management of the corporation. . May a SH cast a fraction of a vote? Case of Mapua Institute of Technology where I went for HS. Therefore.dz 2 requirements under S23: 1.dz May the AOI or bylaws do away with cumulative voting? May it deprive SH of their right to cumulative voting? NO. ISSUE: WON a SH may cast a fraction of a vote in favor of a SH running for director? SEC: Purely legal issue. that lone candidate may win and take a seat in the board. Who controls in case of 5 members? Those who have 3 members. Bylaws may not deprive because it is for the protection of minority. there are minimum nd qualification for the member of the board.3 How implied prohibition? If the law allows a SH to cast a fraction. It is absurd for somebody who cannot attend at the meeting where directors are to be elected and then be elected himself. Co-owner will simply cast the fraction of his ownership as his vote. yet we allow him to manage the corporation by becoming a director. what do we have? Is there a provision in the code allowing SH to cast a fraction? None. being the parent material of the Corporation Code. DLC said: Follow the rule in the US. To increase chances of minority in getting representation in the board. Inherited by his 6 children. Can the minority waive it? Of course. too. there is a provision which impliedly prohibits a SH from casting a fraction of vote. If it͛s silent. GR rule in case of stock corporation does not apply to nonstock because of this exception in S24. That is my opinion which is the correct opinion. authorizing one or some of them or any other person to vote such share or shares: Provided. mere non-usage is waiver. Qualifications and Disqualifications of Directors Who may run for director? Under the law. UNLESS the pledgee/mortgagee given such right in writing which is recorded on the appropriate corporate books. Gonzalo Santos who was SEC commissioner said pwede because the law did not qualify WON share of stock is voting or non-voting. Authorization in S55 is nothing but a proxy. NB S55 when share of stock is pledged or mortgaged. But since doing away in cumulative voting is provided as an exception. He gave up right to vote and participate in election of directors. So what is the GR in case of stock corporation? Cumulative voting. That when the shares are owned in an "and/or" capacity by the holders thereof. cast a fraction of a vote. Nakalista as shareholder of the corporation. Kailangan isa lang boto niyo. As a GR: no cumulative voting. As well as in non-stock corporation. S23 2 par: DzEvery director must own at least one (1) share of the capital stock of the corporation of which he is a director.3 E 33. then cumulative voting is also always allowed in non-stock. It͛s mandatory. In the Philippines. Ni hindi nga siya notified to attend the meeting. who is entitled to attend for and vote on the shares? Of course. which share shall stand in his name on the books of the corporation. Can AOI do away with the cumulative voting? DLC says no coz for the protection of minority and only them can waive them. In case of preferred shareholder. US GENERAL RULE: A SH may not Suppose a SH owns 1 share of stock which is a preferred share/nonvoting? Is he entitled to run and be voted for in the election? y Prof. How? By not cumulating their votes in favor of a single candidate which they can do anytime. Owner of at least 1 share of stock Not just an owner but standing in his name on the books of the corporation. Who controls the board controls the corporation. That͛s why the law has to state what happens in case of non-stock. unless there is a written proxy . Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. members of corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate. So para maka-elect ng tatlo. Children split into two groups with let͛s say 100 share for all three.37 y y To help the minority elect at least one seat in the board. in order to vote the same. So one group has 100 and the other has 100. And also DEF won.In case of shares of stock owned jointly by two or more persons. then no need for this provision for non-stock corporation. You can͛t be mayor if you͛re not registered as a voter of the city/municipality where you seek to run. Same lang yan in case of LGU. group 1 divided his 300 votes into three team members. So we can remove that but they still included it. the consent of all the co-owners shall be necessary. Tomas Mapua. the pledgors/mortgagor because they remain the SH of record. They only get cumulative voting when expressly provided in the AOI or bylaws. e di tig-11/3 kayo. Only voting shares of stocks are entitled to run and be elected as director of the corporation. SEC will always allow them to run. What are those shares called? ͞Qualifying share͟ Aside from qualification. particularly in the prevention of fraud and abuses on the part of the controlling stockholders. Majority of directors are residents S23: it used the word ͞must͟. Bigla kang makakasingil ng malaki. If a minor cannot administer own affairs. All the other directors are just mere nominees. One share of stocks in G and O͛s names. that is allowed. no. or a violation of this Code committed within five ( 5) years prior to the date of his election or appointment. absurd if we allow him to administer the affairs of another. Yes. Pwede bang ͞mere nominee͟? I want to do my business as a corporation but I don͛t want business partners. Special laws prohibit foreigners from owning shares of stocks in corporation and from managing the affairs of the corporation. members. meron pa ba sha disqualification for 5 years? The prevailing ruling is that all rules and regulations promulgated by SEC implementing the Corporation Code are integral parts of the .g. IMPLIED ruling na hindi pwede because ͙ BUT if they are spouses. they could all run! What if 10 shares of stocks but all ten shares recorded in their names. Take it to the extreme: What if 10 sila owning it. Usually limited to disqualification of a person. Technically no. S47. If we allow the two of them will become directors but they only have one shares of stocks. All ten shares stand in names of two of them. can they run together at the same time? SEC has no categorical ruling yet. O and G decided to buy one share of stock. but only 6 years using ISL. ͞No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years. To qualify as directors: One share of stock standing in their name of each one of them in the corporate books. trustee or officer of any corporation. trustees or officers. No prohibition for minors. Hopia. SEC will allow them to. Mashado daw akong harsh. Kung pwede magdagdag. Violation of the corporation code committed within five (5) years prior to the date of his election or appointment What is the violation here? Conviction ito? Pwede bang hindi criminal but administrative violation of the code? Pwedeng administrative dahil conviction yan basta may penalty. miron. pwede magbawas? Can we say that it͛s not required to be owner of at least one share of stock? NO. BUT they have a ruling that implies that they cannot run. But no big deal. 2. can it be 80% foreigner. But that͛s administrative only. there must be one share standing in the name of nobody but the candidate. May AOI provide for additional qualification? Pwede diba. How to complete the number of directors is a function of the bylaws. Papasok yung lifting of corporate veil. In the absence of bylaw provisions. (n)dz Rule promulgated by SEC also carries penalty. Kung nadisqualify sha ngayon. none of them is a coowner of a specific property. how to fill up? SH in the meeting where they elected members of the board may decide through resolution how the disqualified director will be replaced. and to promulgate rules and regulations reasonably necessary to enable it to perform its duties hereunder. covered pa rin sha. Bihira nakakaalam ng argument na yun. It is what is imposable penalty. If you don͛t have stake is a meddler. Constitution provisions: Aliens can͛t own land if not 60-40. shall qualify as a director. BUT May he run and be voted for as director? Nakalagay ba sa batas na dapat of age. I will make pakiusap to my girlfriend and the three other people. What if the board. If you look at 2 kinds of violations here: 1. This is mandatory because the law does not want a meddler to run the affairs of the corporation. inherited shares of stock in SMC when he was 6 yo. hindi naman diba? According to SEC. Who will take over? Depend on the bylaws of corporation. Suppose he was convicted of an administrative charge for violation of rules/regulation promulgated by SEC? Kasama ba yun? Is the rule/regulation promulgated by SEC part of the Corporation Code? Let͛s look at S143 DzThe Securities and Exchange Commission shall have the power and authority to implement the provisions of this Code. A corporation may be owned in reality by one person.͟ Kung sumobra ang director na residente sa mga nanalo. We can say there that who is the next qualified among the candidates will take the seat. TAKE NOTE: Consider later on in fixing liability of one corporation. Management of mass media: 100% Filipino 2. E. stake in the corporation.38 May a minor be a SH of the corporation? Natural pwede. You four will be my nominees. We have to follow those. In Tagalog. Criminal conviction for an offense or crime punished by another law. Civil law principle: Until dissolved. register the certificate in both our names.g. panggulo ka lang. who will be disqualified? Non-resident garnering lowest number of votes. there are also disqualifications for directors are provided in S27. May an alien be a director? There is no prohibition in the code as a general rule for an alien to run for director. y DLC͛s opinion (which is the correct opinion) nobody is qualified to run. Not one of them has a share standing in his name. IF punished by lifetime imprisonment. HOW? They have commonality of interest especially when shares of stocks are conjugal. To have nominees in organizing a corporation is not prohibited by law. Who between them may run as director? Oliva? Garcia? Both at the same time? y Camposes have no answer. Management of telecom: 70% Filipino ang management. Mas mali! It is owned by the conjugal partnership which is a separate patrimony. Because it used the word punishable. directors. Foreign interest in the corporation is just equal to the management in the corporation. But since they don͛t trust each other. Minor is disqualified from running as director of the corporation. E. Sa teks. Walang bawal dun. Law requires person to have genuine interest. Padidisqualify natin yang punyetang yan. It must be a criminal case. OR we can just have election again for the one director. It must be registered to nobody but his name. 20% Filipino: bawal under anti-dummy law. NB What is important or material in this conviction is not penalty actually imposed by court but the penalty imposable. None of them has a share of stock registered in his name. ako lang nagdidiscuss. 2. SC said it͛s valid exercise of corporate power. Even if they haven͛t served for one whole year. Just trying to help you find GR. A is entitled to 6. Unlike in the case of trustees non-stock corporation in case of S92. Unless a different term is expressly allowed. shall. The meeting was reset to the last Saturday of May. no quorum was mustered on the meeting. Only those in the nomination. 3 groups in Corporation X y Group A: 60% shares of stocks y Group B: 30% shares of stocks y Group C: 10% shares of stocks o Percentage of holding entitled to vote. Qualification in S47 No. Director natural person. and subsequent elections of trustees comprising one-third (1/3) of the board of trustees shall be held annually and trustees so elected shall have a term of three (3) yearsdz You won͛t find any other provision in the Code giving the director a longer term. One year from when? Last Saturday of May when they were elected? No. But when you look at S23.39 corporation code. so classify themselves that the term of office of one-third (1/3) of their number shall expire every year. DLC has not seen AOI provided for a term longer than 1 year. 3. This can be gleaned from S92. That rule is not specified in the code but that͛s how it should be interpreted. B 3 and C 1. B 3 and C 1. may they choose directors from among themselves? E. What is to be done in that meeting to elect the members of the board? Kasi nga 1 year ang term. Hindi pwede ilagay sa group A kayo kayo lang. partnership (although allowed to own) may now run/voted for as director. they may add disqualifications. At the end of the day. Gokongwei got disqualified. 1. This usually happens in a JVA. A nominates 6. In the meantime. and then all SH belonging to group will meet and elect from among themselves? This is not pwede. The question here is: May the AOI/bylaws of corporation provide for a term of directors longer than 1 year? No prohibition kasi if͙ Remember discussion on holding of annual SH meeting which is supposed to be held every year kaya nga annual. SMC adopted a bylaw provision disqualifying a SH from being elected as director if that SH has a controlling interest in another corporation engaged in competing business. Not aware of any SEC ruling on the subject matter. Can they add disqualification in the AOI or bylaws? In Gokongwei v SEC: the court held that yes. same thing is achieved but the board of directors are still elected at large. the term of trustees should be 3 years sa S92. only counted from the last Saturday of January. Unfortunately. 17 January 2011 In S24 members of board. The terms of office of incumbent directors shall expire on that day. the day their term is supposed to commence. In the Philippines. 1 year with a provision for holdover. Dismemberment of corporation is bawal. as soon as organized. Manner of voting Qualification Disqualification unless sa S23. Is this 1-year term of office mandatory or not? Bakit parang hindi important ang terms of office longer than 1 year? Hold-over provision in S23. May not attend by proxy. Unless nominated by nominating committee. when the AOI of a non-stock corporation is silent as to term of director. incumbent members of board will hold-over. Illustrate through example: General annual SH meeting is fixed in the articles on the last Saturday of January of every year. the meeting cannot proceed to elect incoming. See Tax2 bluebook for lowbatt parts S10 incorporator may be natural person. How to accomplish this set-up without violating the law? Nomination process. Pwede namang maghold ng annual SH meeting but they won͛t elect director until the second year if the term is two years. Should be held. Incoming members were elected and they will have a term of one year. They held the meeting on that day. The director͛s term of office commences from the date the annual SH meeting is supposed to be held. All directors must be elected AT LARGE by all the SH of outstanding capital stocks in an SH meeting. In a corporation where there are distinct interests. 1 year from when? When do we count the 1 year? Date the directors are supposed to be elected. Some writers believe that the 1 year term is mandatory. Any violation of those rules and regulations is considered a violation of the Code. That͛s why if you look at S47. Can they say that for 10 board of directors. If they fail to elect incoming directors because of lack of quorum. The term is three years UNLESS AOI/bylaws provide otherwise. Kaya lang may S23. elected by SH with voting rights May the AOI and bylaws provide for shares without voting rights and yet give those preffered shares without voting rights the right to cast a vote to elect the directors? Bear the question in mind til we reach classification of shares. Since there͛s no quorum. They shall have term of 3 years. magbabago ang general annual SH meeting natin to complete May electee͛s term. di pwede tumakbo. bawal yan. Term of Office of Directors of Corporation What is the term of office of a director? If you look at S24: who shall hold office for one (1) year until their successors are elected and qualified. proposal is to make a federal state. If we don͛t reckon from Last Saturday of Jan. For some reason. Hence. trustees din naman yan diba? S23 ʹ Dzboard of directors or trustees to be elected from among the holders of stocksdz - S92 ʹ ͞the board of trustees of non-stock corporations. 5 includes a negative qualification which is a disqualification. which may be more than fifteen (15) in number as may be fixed in their articles of incorporation or by-laws. finally quorum was made.g. the incumbent members will continue til the corporation succeeds at electing their successors It would seem there is no express provision for a corporation to provide for a term longer than 1 year. That meeting has to be postponed to a later date. We shall discuss that problem later on when we reach non-stock. May the AOI provide for a term longer than 1 year? Pwede ba 2 years ang term of office of directors in your corporation? Walang nakalagay na . Removal ʹ Director may be removed from office . Dapat may agenda. Death/incapacity of a member 4. The director must be removed by a vote of 2/3 of the OCS in a meeting called for the purpose. May problem din tayo jan because S47 also applies to trustees.Why? Because the power of removal belongs to those who have the power to elect. but by virtue of amendment. Sir knows his Tariff Code. Production outfit. Regular meeting may be more than once a year 2. Expiration of the term ʹ while it creates vacancy. The Swiss guy she was dealing with in Switzerland came over to the Philippines. Parang soap opera. Kaya hindi rin maliwanag. To remove a director. Eh yung trustees pwedeng iba ang term. ISSUE: Were replacements validly elected? HELD: The court said NO. Upon approval of amendment by SEC. She set up a business of producing fashion jewelry and accessories. Naisip niya na to make the product different.͟ it is mandatory that the notice of meeting shall have an agenda. 7: DzThe names. let͛s turn it direct selling. Therefore. it would seem that the term of 1 year is mandatory. make me an industrial partner instead. there is a general rule that SH are the ones who have the right to remove a director.͟ In the meeting that was held. who couldn͛t marry her because the guy was married. all the positions of the board were declared vacant. Since the law requires the meeting to be ͞called for the purpose of removing a director. Only in her store and authorized distributors. Malaki ang company. She organized the corporation with 6 SH and directors. 2 requirements of DP for removal 4.dz walang sinabing term of office. Vacancies in the Board When is there vacancy in the board? There are many causes of vacancy: 1. if wala. The meeting has to be called for the purpose. Wala sa S6. not attended any meeting for a long time. because removal of director is not one of those instances where non-voting SH are required to attend. hindi sa bylaws? Look at S14 No. Reorganization of board/corporation may happen without necessarily removing a director. REGULAR meeting: What do you think? If term of office is mandatory at one year and also the regular meeting is mandatory at one year. 3 or 5 (S108 re: educational corporation). Bylaws may not provide for term of office. Tubog lang. Sabi ko sa inyo. The first one is resignation of a member of the board. Bakit pa natin tatanggalin eh expire na rin ang term niya? What are the implications of this provision? 1. Why? Because it would seem that the one year is mandatory. supposed to start from the date the annual SH meeting is supposed to be held.40 No. FACTS: Secretary sent out notices to SH of corporation with a written agendum. The flimsiest of ground may be used to remove a director. Pekeng jewelry. it allows the occupant to continue because of S23 holdover provision 3. y Express: if the director has categorically tendered a resignation to the board of directors y Implied: the director has abandoned the office.dz by SH. duties and compensation of directors or trustees. A director may be removed for whatever ground. the notice must specifically provide that the notice of meeting was to remove the meeting. No. Since the members of the board were elected . Walang nakalagay dun na term of office of directors. Single but (chismis!) a mother. We can imply it from S47. After resolution was approved. Her boyfriend. Hindi talaga implied because S47 also has trustees. nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with this Code. Power to elect carries with it the power to remove 2. Resignation may be express OR implied. 5. Inassume na mandatory yung 1 year. increased to 7. it must without doubt provide that the purpose of meeting is to remove a director. 5:DzThe qualifications. Only ͞officers other than͙͟ meaning bylaws may not provide for term of directors. Dapat may meeting and meeting duly called for a purpose of removing a director. GR: Only the SH may remove a director. Hindi tunay. That͛s considered abandonment and it is implied resignation 2. 2/3 of outstanding capital stock (OCS) Does it include non-voting SH? Of course not. No.dz bylaws may not provide for term of office of the directors. Creating of additional seats ʹ before 5. 1-8. 7:DzThe manner of election or appointment and the term of office of all officers other than directors or trustees. The couple was approached by a former beauty queen. Bylaws yan. REMOVAL OF DIRECTORS May the board of directors expel a director? May bylaws provide that director may be expelled by the board for reasons enumerated in the bylaw? Take note that those grounds in the bylaws have been approved by the SH. Purpose of the meeting: to ͞reorganize the board and the corporation.Governed by S28. For the notice to be valid. His senior partner had a case where a wealthy couple engaged in the construction business which does not get contracts domestically but in the Middle East. meeting is not valid. You won͛t find it in the department stores. only voting SH have the right to attend and vote to remove a director. She designs and then designs executed abroad. 6: DzThe number of directors or trustees. because notice was defective. 2 seats are vacant and have to be filled 5. From S47. Due process requirement in S28 is the vote requirement. . On what ground may a director be removed? S28 does not provide for a ground.dz walang nakalagay na term of office. how about the AOI? May the AOI provide since dun naman talaga nakalagay ang term. father of her child. PERO it would seem there͛s no express or implied prohibition. Director may have a term of more than 1 year. which shall not be less than five (5) nor more than fifteen (15). officers and employees. In fact may kaso yan. Non sequitur yang dalawang yan. they proceeded to elect the replacements. May be a regular or special meeting. I haven͛t seen AOI which provide for a term longer than 1 year. What did the Camposes say? Wala silang sinabi re: longer than 1 year term of office. S28 does not provide for a cause. boyfriend. not the miniority directors referred to in S23. hindi rin naman mananalo ng seat. They want to expand but beauty queen didn͛t have capital anymore so beauty queen asked the couple to invest in their business. Swiss. While the law allows director to be removed without a cause. secretary. So president of corporation. Not because cumulate but because majority voted for them. the notice given by the corporate counsel my senior partner was defective. Dinemanda sila nung tatlo for damages. a director may not be removed by referendum. So they want to invest. Arrangement: in order to give control to this couple. in irrevocable proxies. Only BQ. kailangan may meeting. unless minority director [3] Shares of stocks given in proxies by the Swiss and Nepalese cannot be used against them. diba? DzA special meeting of the stockholders or members of a corporation for the purpose of removal of directors or trustees. That removal without cause may not be used to deprive minority stockholders or members of the right of representation to which they may be entitled under Section 24 of this Code.dz Swiss and Nepalese: You cannot do that! You defend yourself in the meeting! Senior Partner: Sent notice to all SH of this corporation for purpose of reorganizing board and corporation. BF. eh wala kang magagawa pag binigay sayo. EXCEPTION: Coupled with an interest that the SPA may be used against the principal who may not revoke it. BF. y y y purpose of removing them. Why? Kaya nga irrevocable proxy? Ano ba yun? As a GR: A special power of atty is revocable at will of the principal. so that he may attend and defend himself. Resulting set-up: husband of construction couple became president of corporation. the SH waived their right to remove a director without a cause. In such case. Together. Yung 15% na yun. precisely to be usable against principal himself. Therefore. these two son of a gun owned only 15% of the OCS standing in their names. elected a new set of directors. Principal cannot object because coupled with an interest. At first. They came to a point that construction couple said he will call a SH meeting to remove you. how many shares? 51% of the shares. nagsettle. accusation swapping. Removal was void. sell 30% absolute of outstanding capital stock. Dahil sales si Nepalese. Nakita argument ko. Beauty queen not selling out she only wants investment. may SH remove a director without cause? Walang nakalagay sa batas. Nepalese was secretary and the Swiss etc were directors. to declare election void because there was no proper notice. If you don͛t give notice that the purpose is to remove him. DLC [1] Yes. HOWEVER. general manager and construction couple. In order to accommodate them as partners. DLC came in. ibinigay pa as irrevocable proxy. CHI: Pwede bang catch-all ground? In S28: which you should memorize by heart. Look at S28. DLC attached the communication between the 2 directors and president. After two or 3 years. It͛s not in the formal notice but in the exchange of letters between rpesident and directors involved [2] WRONG. Maliwanag na nakalagay yung mga kasalanan nila. election of new officer is also void. on the written demand of a majority of the members entitled to vote. They cannot say that they were not notified. must be called by the secretary on order of the president or on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock. resolution declaring all positions vacant. they conducted an audit. Wife of construction is treasurer. construction husband wrote a letter to the two confronting them with the anomalies they uncovered and asking them to explain.dz GR: Law does not provide for cause EXCEPT: Minority director elected under S24 who may only be removed for a valid cause. if it be a non-stock corporation. If they weren͛t voted by majority. GROUNDS: [1] Defective notice because failed to specifically state that the purpose of meeting was to remove a director/s [2] Swiss and Nepalese were minority of directors who cannot be removed without a cause. they will not win a seat. or. therefore. What is my humble opinion which is the correct opinion? When the bylaws provide for causes to remove a director. wife of Nepalese and cousin of beauty queen (General Manager of Store). a portion na yun. Pinag-aralan nila the business and very profitable. That was a notice and a written notice at that. while the formal notice was defective.41 Direct sellers stumbled upon Nepalese with business experience in the US. bf is vice chair. that is allowed. 3 members did not attend: Nepalese and wife and Swiss did not attend. Milking the corporation by hiding true cost of materials and inventories. 21% will come from their shares. Kalaban ko si law office of my future wife against the valedictorian of our batch. may the bylaws provide cause to remove director? If BL provide grounds providing cause. Ayan kaso mo na yan sabi ng senior partner. DzProvided. ISSUE: Why does the law require that the notice specify that the purpose of the meeting was the removal of the director? It͛s Part of DP in order to give the director to be removed to defend himself. Even if they cumulate their votes. When control transferred to construction couple. Therefore. is that coupled with an interest? Yes! Hindi naman sila papasok dun kung wala yun. there was in fact notice given for the holding of the meeting and it was for the . Kaya nga irrevocable. they organized a corporation: Beauty queen. corporation was reorganized. A cause provided for in the bylaws. After declaring vacant. chairman of board. That͛s purpose of making SPA irrevocable. beauty queen. nagdwindle the income. Nepalese. business was very very profitable. [3] Yes. Exchange of communication. Swiss and construction couple. Settlement: Buy out! Not every minority is protected in S28. pati yun nadaya na rin. DLC: Hindi mo nabasa yung kasong yun noh? In the meeting which DLC͛s senior partner attended. Swiss and Nepalese thought they were losing out on competitors because of limited design. Eh sino ba yun? Cumulative voting. a director may only be removed for a cause. Construction couple used our own shares to remove us! Intracorporate dispute so filed with the SEC. But conditioned upon control of the operation of corporation. Found out that corporation was losing money because Swiss and Nepalese were defrauding the corporation. Who will call the meeting? Maliwanag naman. Irrevocable proxy given by SH in favor of construction couple. 6 directors: BQ. After implementation. So 51% yung mag-asawa. He became organizer of direct selling operation. or any of them. Nepalese. So ayaw magsend ng notices. DzNotice of the time and place of such meeting. the evidence was not enough to convince the SH to vote for the removal of the director concerned? They passed a resolution to create a fact finding committee and for that FFC to remove a director the moment it was established that the director committed the acts complained of. QUESTION: Does the board still has quorum? May the board fill up the vacancy occasioned by the death of one of the directors? NO. Let them bring this to the court. the decision is with the board. the board cannot elect/fill up vacancy even if board still constitutes a quorum? Pwede ba yun? To elect a member of the board is not a function of the board but of the SH. a director dies (on March 7). vacancy is created. Condition of what? FFC establishing the guilt of the director. Walang quorum. or if there is no secretary. What if despite the writtend demand from majoiryt of SH. nakapagsalita na ang director to be removed. In some corporations. 7 failed to muster a quorum so the meeting was postponed to June 7. walang holdover. If at all. Ano ang remedy? Pwede magpapirma ng demand yung interested SH to other SH and when majority of OCS has signed the written demand. saying ͞The director hereby charged with misbehavior is considered removed if the FFC will find for his culpability. Elements of due process were not complied in these cases.͟ Ang bumoto run ay more than 2/3. ͞Doctrine of non-interference͟ SH cannot interfere in the functions of board in the management of affairs of the corporation. must be given by publication or by written notice prescribed in this Code. When the term has expired on Feb 7. That was removal subject to a condition. . Hold-over lang yun.g. GR: A vacancy in the board may be filled up by the board if it still constitutes a quorum EXCEPTION: If vacancy is because of removal. So incumbent trustees just rigodon. President doesn͛t want to call meeting because he wll be removed. How to fill up vacancy? Filling up of vacancy is in S29. the board is given power for practical reasons. Kailangan depensahan ang sarili niya. May smart ba dito? As I mentioned earlier. But may it choose not to fill up the gap? Not under obligation. the call for the meeting may be addressed directly to the stockholders or members by any stockholder or member of the corporation signing the demand. May the bylaws provide or authorize the board to remove a member? AOI says: ͞The board by a unanimous vote of all the members present in a meeting where there is a quorum. kasi di ba yung secretary may hawak nun. hinid pa rin nagcall si Sec ng meeting? DzShould the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice. It͛s the determination of the SH and not determination of committee. that͛s what they do. come Feb. Kami na lang magpapalit kasi may quorum pa kami. Functioning directors were appointed by the board. Although they still have quorum. Sufficiency of evidence should be factored in the vote of SH. Sige na. Defense of director charged should be part of consideration of the vote. It was raised to me when I was SEC commissioner. I will not release subpoena na lang. valid meeting duly called for the purpose 2. creation of new seats (kailangan SH lang yan). Annual SH meeting is Feb 7. as well as of the intention to propose such removal. OR baka magkaron ng problem: S29 says Dzmay be may be filled by the vote of at least a majority of the remaining directors or trusteesdz Underline ͞may͟ Scenario: Board still constitutes quorum after a member resigns. they will have to stop operating dahil walang board.͟ Pwede yan? May the SH delegate the power to remove a director to the board of directors or to any other committee? E.42 This provision foresees the possibility of secretary being loyal to the director being removed who may be the president. Sila ngayon nagdidikta kung sino papalit sayo. Alternative way to call a meeting in order not to frustate the right of SH to remove the director. they cannot fill up because the cause of vacancy is not the death BUT the expiration of term. pero pwede na sila palitan kasi nga vacant. May AOI/BL of corporation provide or deprive the board of this power? ͞In this corporation. Lalo na non-stock non-profit. Kailangan bumoto 2/3 to remove him. but in that meeting. May choose not to fill. Pag bumoto ang SH. Ini-schedule nila pag may resign. How many directors are to be elected? 7. Sabi ko bawal yan. Pwede yun? O kaya bumoto na SH. their term has not expired. there are two requirements for DP 1. thent he Secretary has no choice but to call it. Contrary to principles of corporation law. If may choose to fill up. Kawawa naman Club Filipino.dz Bakit publication? Kasi hindi nila alam kung sino yun mga SH na papadalhan ng notice eh. Dahil bumoboto na without evidence. From Feb 7 ʹ June 7. 2011. the SH were called to a meeting for the purpose of removing a director. [2] Invalid din. Why not? Because the cause of vacancy is not death. maraming mababaldang company. kaso sabi nung commissioners and other. may expel a member. hindi nila alam yung mga yun. ang tatanggal sa kanya ay ang committee. hindi 2/3 vote. Board may choose to fill up.dz When director is removed. all incumbent became incumbent elected by board to fill up vacancy at the time term have expired. Pag dinelegate mo yan sa committee. But may the AOI deprive the board of this power? What is your take on this? S23: SH cannot deprive the board of its management prerogative. Nung bumoto sila. it͛s already vacant. To fill up the vacancy. is that a management function? To elect a member is a power of the SH. Pwede ba yun? Any volunteer. choose to call special meeting for election? Kaya nga may. They shall discuss it in meeting. because violation of DP requirement. expiration of term Illustration: Club Filipino in GH assuming it͛s a stock corporation. not to fill up or call a special SH meeting to elect the replacement director. you are correct BUT for practical purposes. 2/3 vote of the OCS ISSUES: [1] May SH delegate the power to remove to the board or the committee? No. the term of office is 1year. walang umaattend jan. and just wait for the annual meeting. Bakit? Birthday ko yan!!! HOWEVER. May the board instead of filling up vacancy. Ibinigay lang sa board yan for expediency in S29. Court cannot remove me. Merger or consolidation of the corporation with another corporation or other corporations. y DLC does not quite agree.non-resident B . Administrative filed with the Court. Argue that the particular change is fundamental because it has an effect on the consideration that moved a SH invest in the equity of the corporation. Next meeting: Fundamental changes. How about in the case of disqualification in the middle of term? E. RESIDENCE REQUIREMENT: During time of incorporation. Increase or decrease of capital stock. hindi na. ARGUMENT AGAINST THIS: Code provides only for loss of all shares. If I were nonresident during election. pwede madisqualify ng SEC yung director. Sale. y Camposes: Because of S31 and S34. Problem is when they are already sitting as in scenario 1 tas A biglang naging non-resident. Is it [residency] continuing requirement? No. Who shall take his place? Depende kung sino sinabi ng bylaws. the SH shall decide how the vacancy shall decide. there are no other changes which require the SH approval. What͛s your remedy here? If director committed violation of Code or he was disqualified but SH elected him nonetheless. exchange. Any SH may file an action to question the qualification of the director. Para dalawa lang ang non-resident.That͛s why you have to memorize S65 We shall discuss them one by one. 2.resident C . is still not enumerated in the law.resident D . But if you follow the logic that the director should continue to possess the qualification under S23. Court has no business removing a director upon the petition of just one. Amendment of the articles of incorporation. t he petition is a quo warranto. only the stockholders. SH can even ratify by 2/3. when he ceases to posses. they satisfied it. 5 Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code. Do we disqualify E? Problem of implementation ito. SEC now says: Remedy of receivership Acts of an erring director may be ratified by the SH. Baka naman isa lang ang nagcocomplain. no such approval is necessary. Adoption and amendment of by-laws. If GR is loss of qualification or disqualification will be automatic. may that proxy run for director? No. but after. 3. creating or increasing bonded indebtedness. Pagod na si Sir. Disqualification during the term Following the rule that director should possess all qualification and none of disqualify throughout the term. Not the quo warranto in PubOff (filed by a person claiming a right to the position) but administrative QW. Kung wala. Pataasan ng ihi. Mali ito noon.non-resident So they are in compliance with the requirements of the law. Yung No. You can argue that way. Campbell v Leow͛s Inc: Important din pero di na maalala ni Sir If a SH appointed a proxy to attend the SH meeting. hindi ako ang madidisqualify. A . 5. that͛s why the exception: loss of a qualified share. 1 director was counted as a resident. then no need to provide loss of shares. Sir reading from Campos:͟Directly remove from doing fraudulent acts͙͟ Instead of SH removing a director. then he should also cease. What are those fundamental changes? Law enumerates those changes in S6 1-8. . we͛ll have a problem of disqualification. Why single out shares of stocks. order the removal of the director. Unless the law requires SH approval for the validity or effectivity of a corporate act. the holders of such shares shall nevertheless be entitled to vote on the following matters: 1.non-resident F . mortgage. A says You can͛t disqualify me coz I was the highest. but not for the other qualifications and disqualify. FUNDAMENTAL CHANGES Change introduced in the corporation is one that affects the underlying consideration why a SH decided to invest in the equity of the corporation. Loses share in the corporation. You don͛t need a majority of total number of votes (that͛s not how the election of board happens) plurality lang yan.resident C .non-resident E . When it comes to residency. Kaya hindi nilagay sa code kasi mahirap desisyonan. he filed a case.g. While changes which are fundamental require to be approved by the SH. lease. upon petition of SH. 4. the GR is the supervening loss of qualification will not affect position as director. then disqualification that supervenes during term shall prevail.resident B . Outside those enumerated in the law. his share does not stand in his name in the books of the corporation. 19 January 2011 Next type of corporate acts that require SH approval 3. pledge or other disposition of all or substantially all of the corporate property.resident D .43 May the SH to whom the power belongs in the first place deprive the board of the power to fill up the vacancy given them in S29? Baka lumabas sa exam yan. That͛s the same vote requirement for removal of director. So kung nagkaganito na: A .non-resident E . Ilagay na lang sa bylaws. Angeles v Santos: Important case. Don͛t impose will of one SH on the 2/3 of the SH the will of one of them. The qualification should be a continuing qualification. Incurring. not only the losign candidate. director gets convicted by offense punishable by imprisonment of 6 years. Law has enumerated what those fundamental changes are. Changes which are not fundamental do not require SH approval. 6. the only exception is loss of ALL shares of stocks. essence of S23.resident Who do we disqualify here? D. No matter how we argue that argument will be useless because that change no matter however fundamental it may be. kasama sa disqualification in S47. So the GR is supervening disqualify does not affect. Court cannot. Was the AOI validly amended? No. Also true for No. they are also included in the counting of quorum. Kasama sa consideration that supported the contract of subscription. a. Kaya tinatanong. Deviation b. If not (maski isang director absent). and 8. Kung lahat ay dapat magbigay ng consent. This is also done through amendment of articles. they are allowed to get out of the contract. implied yan. No. Majority vote of board b. because proposal not done by the board. 7. In this case. in some instances. y SEC ayaw tanggapin. Requirement under S16. Corporation will be held hostage by a share of stock. one of the SH rose to speak. the vote necessary to approve a particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting rights. Return their investment in the corporation. Except as provided in the immediately preceding paragraph. It can be increased or decreased. the articles must be amended. The corporation may do any or all of those changes in its AOI. SH may ratify an amendment proposed by the board in a referendum. They should be considered to have conducted simultaneously a meeting and approve the proposal to amend the articles. the contract cannot be novated unless consented to by all the parties. lahat din ng directors present. If we can draw an analogy where the constitution of our republic may be amended. From one municipality to another. they may be present but the vote is not unanimous. In civil law. 6? Of course. Especially so when the present line of business is no longer profitable. provided all the stockholders or members of the corporation are present or duly represented at the meeting. May it be changed through amendment of AOI? Yes. why only 2/3. because amendment of AOI is one of those enumerated in S6 where non-voting are given right to attend and vote. Dissolution of the corporation. There always need to be board resolution. 89a. Where will the proposal come from? Only from the board. At leat 2/3 of the OCS Only in S16 is the phrase ͞written assent͟ present. Number of directors may be increased from what is existing to a bigger number. It may even change line of business. Ratification in a plebiscite called and held for the purpose. if within the powers or authority of the corporation. is the amendment of the AOI valid? Pag present lahat. No meeting will be called. Trust fund doctrine embodied in S122 last par: trust fund doctrine DzExcept by decrease of capital stock and as otherwise allowed by this Code. (77a. Present naman lahat ng directors and they didn͛t object. Eh pano yung nakalagay sa S51 last paragraph: DzAll proceedings had and any business transacted at any meeting of the stockholders or members.44 AMENDMENT OF THE ARTICLES OF INCORPORATION AOI may be amended during the lifetime of the corporation. Amendments in general. (24 and 2 5)dz Look at S14: The first item that appears there is name of corporation. 7? Also cannot be changed No. it may choose to go to another line of business. Since kasama sila sa bilang (vote requirement). The process of changing them is AOI. It has to be approved by 2/3 of the OCS. Insertion/addition c. What do we mean by ͞written assent͟? It means voting by referendum. In order to do so. Principal office may also be changed. All other matters in the AOI may be changed. It may shorten or extend its term. You go to court. From the present line. y y In the annual SH meeting which was duly convened. Fait accompli (an accomplished fact No. None of the directors voted against and then imply that the board held a meeting simultaneously with the SH and approved the proposal of the AOI. hindi mag-aapply ang provision na ito. no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. You will find that phrase only in S16. Approved and ratified by 2/3 vote of the OCS Kung lahat ay present/represented and no one objected. Mounted the mic and proceeded to propose an amendment to AOI. then it may be considered act of the board. There are three types of amendments a. What is the general principle here? The investment of a SH in the shares of stock will remain with the corporation until the dissolution of the corporation. 4. To change it will technically amount to a novation to that original contract of subscription. Two step process: proposal and then ratification. Apply this by analogy. 2/3 vote include the non-voting SH? Yes. 8? We can change the amount of authorized capital stock. Amendment of the Articles is governed by S16. Aha. It gives the procedure for changing articles to be amended. validly held because there was a quorum. 5 may be amended? No way. shall be valid even if the meeting be improperly held or called. y DLC: Eh diba board resolution may be express or implied. All SH who were emotionally charged agreed to amend that in meeting. DLC tried to make an argument in favor of validity of that kind of Standard Oil v Atty General: No formal resolution but the number of SH in that meeting will make adoption of that corporate act a mere formality. y Proposal ʹ valid proposal by congress sitting as a constituent assembly. 1 6a)dz Investment of corporate funds in another corporation or business in accordance with this Code. . No meeting will be held for that amendment to be ratified. SEC will only allow if all shares of stocks are all represented AND the amendment was approved unanimously. why not unanimous? Not practical. It will be counterproductive. the same is the process. SH approval is necessary because a fundamental change is considered to affect a consideration that supported the contract entered into with the corporation in subscribing to shares of stock. May the purpose of the corporation be changed/amended? Yes. No. constitutional assembly or people͛s initiative y Assuming that the proposal to amend the constitutional has been validly submitted. What about those who voted against the fundamental change? Since they did not give their consent. Substitution All those types of changes are covered. y Limit the argument. If it was. Someone vehemently opposed the change in name. How does SEC approve the amendment? We have to submit S16 par 2 documents. if you have a contract/deal with a foreign investor. Para maitanong ko sa exam. It͛s not available to all amendments of the articles. how to invoke the S16? Isampal sa client. DzSuch articles. lease. What are the examples of changes/amendments that will fall under S81? Extending or shortening of corporate term. Learn the art of billing your client. Why not? Because that amendment does not involve any of the effects enumerated in S81 No. Magkano ang magagastos. pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Code. Thick book and codal. for an investor to recover investment. ALL CAPS. Certification is self-serving. a certification that the delay was not attributable to corporation. AMENDMENT y If we͛re removing something from existing text? Bold the letters.Applicable specifically to appraisal right. Choosing thick. and 3.dz - Why? In S81 . Meron kasing defense ang SEC. After 6 months. Father of Cong. When you convince the examiner that everything is lawful. Not acted on your amendment more than 6 months after date of filing.dz Underline the phrase Dzin accordance with the provisions of this Codedz contain all provisions required by law to be set out in the articles of incorporation. 8 1 . Mahirap makita yung first two. To illustrate: Suppose the AOI is amended to change the name of the corporation. bold. Instances of appraisal right. and underline. Without that approval. 1. Pocket veto by president of the bill by simply refusing it to sign into law. nasa SEC pa. then {brackets}. Ang tagal na. of S16. require number of years for pre-payment. {deleted} y If substitution? Underline and bold the deleted word. Remedy by the 1973: signed it into law within anti-pocket provision of 1973 constitution carried over to 1986 constitutional. Simpleng simple ang laman niyan pero grabe ang laman niyan. intercalated provisions in the existing AOI? We type the additional words in ALL CAPS. S16: Dzwithout prejudice to the appraisal right of dissenting stockholders in accordance with the provisions of this Code. {deleted} SUBSTITUTE For the SEC to compare the original and amended version. DzThe original and amended articles together shall . we also attach the original. How do we underscore? y If we inserted or added provisions. bold. They are indicated as deleted.45 Remember everything I make ngakngak here and you͛ll be excellent corporate lawyers. cannot take effect even as among the SH. No amendment will take effect even as among SH of the corporation until the amendments were approved by the SEC. To indicate that those words were added through the amendment. There͛s antipocket rejection.dz this is called the ͞Certificate of amendment of the AOI͟ y Have it signed by all the board members y Notarized (otherwise. There͛s also the security paper with SEC seal signed by commissioner. May ganon din dito. hindi makakaangal ng mataas na singil. DzThe amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation. 2. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares. as amended shall be indicated by underscoring the change or changes made. Kaya puro makakapal libro ko sa opisina. AOI although approved. Show you an example LATER. In case of sale.dz DzSec. This is called failure of an enrolled bill to become a law because the president refused to. SEC will not accept) y Pay filing fee. Is he entitled to appraisal right? Of course not. Then following it is substitute wording. He voted against the change in name. Rufus Rodriguez taught me my first lesson. 6 months for a ͞cause not attributable to corporation. Certification that you have filed the amendment with the SEC. Where is approval printed? On the certificate of filing of amended articles. Madali lang makita.Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances: 1. Corporation will be rendered incapable of continuing to engage in the business S20 (?) When does an amendment take effect? Last par of S16 is the controlling provision. and legal research fee (which goes to Bocobo) SEC shall examine: WON those amendments are in accordance with law. they will approve it. but the remaining life of existing article is short for repayment. In case of merger or consolidation.͟ The last paragraph will not apply and the amendment will not take effect. Bili kagad ng makapal na libro sa bookstore. Malaki singil to interpret that paragraph. Depend on what kind of book you will use. mortgage. Mahirap yang last paragraph na yan. What are the exceptions for this general rule? Balikan ng investments is called ͞Appraisal right͟ Is appraisal right available to a dissenter to a proposal to amend the articles? It depends. Ayaw tanggapin ng SEC. exchange. or the vote or written assent of at least two-thirds (2/3) of the members if it be a non-stock corporation. Singil ka ngayon. . OR of authorizing preferences in any respect superior to those of outstanding shares of any class. Take out two books. Pocketed the bill. Ask my students who are in corporate practice. When does it become effective? Upon approval by the SEC. and a copy thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact that said amendment or amendments have been duly approved by the required vote of the stockholders or members. Subukan niyong mag-apply ng ganong certificate. transfer. OR of extending or shortening the term of corporate existence. What if SEC sits on the papers? Same problem experience under the 1935C. then 6 month automatic approval provision will not apply. shall be submitted to the Securities and Exchange Commission. pag ginawa nila yun eh di inapprove na nila. and underline. You have to approve the extension of the term. Pag ako yung abogado ng kabila. (n)dz Dun lang sa mga amendments na yun may appraisal right ang dissenting SH. NB Under that last par. wag tanggapin. When does it constitute ͞sale of all or substantially all of the assets͟? There is a definition for this. There has to be an admission by SEC. underline. 4. Kung gusto mo ng combative agad. Is appraisal right available? No. Next corporate act requiring SH approval is S40: SALE OR OTHER DISPOSITION OF ASSETS In the amendment of AOI. complaint. No procedure under the law to claim it. not the bylaws. or contrary to government rules and regulations. Public official has to act on application.46 Next meeting: move to the next fundamental change6. follow-up lang. does it apply to amendment? Definitely it applies to incorporation where a corporation is sought to be incorporated and that incorporation falls under the jurisdiction of another government agency. including its goodwilldz Suppose the corporation will mortgage all of its assets in favor of a bank in obtaining a loan to finance its aggressive expansion project. That the purpose or purposes of the corporation are patently unconstitutional. Adoption and amendment of by-laws. transaction within a certain period of time. why waste time going to Court. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein. Nakalusot sa examiner.e. but only the code. If they won͛t be able to use it. It has to expand its capacity because management decided to invade a foreign market. Not only that. Last Par S17. The automatic effectivity clause is not really helpful. mortgage. Once approved. exchange. Assuming that the automatic effectivity clause in 16 is applicable. 2.g. Kaya nga sabi ng 17 ay ͞or amendment. How about in sale of all or substantially all of the assets? It requires SH approval because it must be a fundamental change. Why is an amendment of the AOI a fundamental change? When the SH invested in the equity of the corporation. Such protection will be achieved better if AOI will provide for a higher vote requirement but never for a lower vote requirement. tuloy-tuloy ang review nila. Wala ito sa original draft na aming pinag-aralan. In order to supply the new market. it has increase/expand its 6 Other fundamental changes in S6 (where NVSH can vote) Sale. fault not attributable to corporation but to SEC. The point is. immoral. exchange. Not the AOI. it has to obtain favorable recommendation. We may ask for injunction or prohibition with a prayer of PI and TRO. e. there͛s only one exception to the requirement i. OR a special law. Object to the approval of amendment because it is illegal. it can be presumed that the AOI was one of the considerations that supported his decision to invest. the Code. If we take the opening qualification to apply to all those requirements for the approval of amendments. Mahirap yan. Ultimate remedy: complaint. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been complied with as required by existing laws or the Constitution. i. On what grounds may the SEC reject the amendments? S17: 1. You may invalidate it for being illegal. creating or increasing bonded indebtedness. lease. 3. Some writers are of the view that the articles of a corporation may provide for a greater voting requirement but not for a less number of votes. Hindi basta-basta yang paragraph na yan. It will not be that easy to amend the articles. Merger or consolidation of the corporation with another corporation or other corporations. when does the amendment take effect? From the time the 6 month period has lapsed? No. Why not? 21 January 2011 May the AOI increase or decrease the voting requirement for approval of amendments thereto? May it [AOI] provide that only a mere majority will be enough to approve an amendment to the AOI? Look at the opening sentence of S16.e. Will that provision apply to an amendment of the articles? Yes. Protection was given through an increased vote requirement. while SEC is reviewing it. Investment of corporate funds in another corporation or business in accordance with this Code. Padala ng sulat sa boss ng examiner. How do you question the amendment? In relation to a particular transaction implementing the amendment. since the reason for higher vote requirement is protection of minority. S16 does not allow the AOI/bylaws to modify any of the requirements for the approval of an amendment. Republic act on code of conduct. Less than what is provided for in S16. Why? The reason why the law fixed the voting requirement to 2/3 is to protect the minority against oppression of the majority. pledge or other disposition of all or substantially all of the corporate property. pledge or otherwise dispose of all or substantially all of its property and assets.͟ Malay ba ng SEC kung prejudicial yan sa public. retroact from date of filing? Kalokohan. Only the government agency tasked to regulate the business of the corporation will be able to determine. mortgage. and Dissolution of the corporation . Mahihilot naman yan. Sana from the date of expiration of 6 month period. This practitioner is combative. Not easy for mere majority to oppress the minority by amending the minority. automatic effectivity clause in the last paragraph or express rejection of SEC? That͛s the problem here. Which one will prevail. Wag complaint. Remedy: Immediate remedy available to SH. Be very diplomatic. file-an mo na ng kaso. You can prevent the corporation from entering into that contract in pursuance of the amendment on the ground that such amendment is illegal. Why? NB Sale and disposition is defined to include any encumbrance. lease. sumulat ka na sa Commission. That the Treasurer's Affidavit concerning the amount of capital stock subscribed and/or paid if false. Presumption of regularity. Incurring. there is a presumption that the amendment is valid. illegal. So according to these writers. director of legal. What will prevent SEC from rejecting the amendments despite lapse of 6 months. Where is it provided? In S40 Dzsell. why is an amendment of the AOI a fundamental change? It requires SH approval because it͛s a fundamental change. Increase or decrease of capital stock. lease. Maybe that͛s substantially all of the assets. E. When I came back from post-graduate studies. Sell the project to ayala land. Lending facility extended by WB to industries which will stimulate growth in the country side. A corporation was organized for the purpose of real estate development. perceived expertise in international economic transactions. If the sale is substantially all of the assets. katabi ka namin dito sa Nuvali. land where the structure is to be constructed. if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business. Proceeds used for the conduct of the remaining business. Magbenta ng inventory niya. The loan package/window gave the borrower a grace period. I͛m sure it͛s clear to everyone that such disposition covers all of its assets. If not regular course of business. This what the exception ͞if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business. even the office ballpen is nakasangla. I am sure. In the meeting where I suggested it. lease. the mortgage is a mortgage covering substantially all of the properties. at least 2/3 of the OCS must be present.͟ Sa Sta. all the SH are to be notified. they won͛t be able to approve. In order to expand. Any corporation is selling all of its assets.47 production capacity. Rosa. Otherwise. voting and non-voting alike. Reynolds want to expand its operation. but the effect of the default of such mortgage. without the authorization by the stockholders or members. exchange. Unless nd you fall in the 2 section. It͛s not the act of constituting the mortgage. Eh ako yung nagdocument ng P2B loan. For sale or disposition to be valid. Par 2: DzA sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. They have to expand their production capabilities. Many reasons for insolvency: Gumanda yung plastics and PVCs. relocate plant outside Metro Manila. Reynolds wanted to avail of a window opened by World Bank for countryside development. Note that the project is only asset that XYZ has. How do we know if the mortgage covers substantially all of its assets? Will the corporation be rendered incapable of continuing business operation by such mortgage? Mortgagor remains possessor of the properties. Lahat ng trabaho ng lawyer nasa yo. One of the conditions of WB window was for the loan to be fully secured or collateralized. What is the difference between pledge and mortgage? There͛s a presumption that you know that. Landbank. for that meeting to approve the sale or disposition. AAC was the client of my law office. but there is an exception: Par 4 of S40: DzNothing in this section is intended to restrict the power of any corporation. the foreclosure will deprive the corporation of property and when deprivation will render the corporation incapable. At that time they needed 2B to finance the expansion. Later on. to sell. under S81 No. ultimo notary. The moment he does that. we shall develop your lot. relending from WB.͟ NO sir. In its decision. Does the 2/3 vote include the non-voting SH? One of the instances enumerated in S6. you need approval from S40. Syndicate of banks was organized. This corporation used up all its available capital in buying tracks of land. Australia na yan. stock and barrel all its beer breweries all over the country.dz Capital (AAC) to be the syndicate manager. after subdividing. Reynolds has become bankrupt. Sir. Di ka makakasingil kung di ka patient. Here comes Ayala Land saying ͞Oy. it will also require SH approval. will it require SH approval? No. Will it require SH approval? As a GR. build structure. SMC will sell lock. What is substantially all? S40. Yung nabibili niyo dito na Reynolds ngayon. mortgage. aside from breweries there are other properties.͟ The P2B loan package was approved. first exception to S40. you won͛t be able to sell beer which is your primary purpose: to engage in the business of manufacturing beer. International finance construction. umabot. Pwede yun. They hired/invited All Asia .dz definition of ͞substantially all͟ Madaling intindihin ito when it comes to sale. such mortgage is covered by S40. But DLC said include everything in their inventory as security. Citibank etc will address one portion. demand for aluminum will increase and want to invade Malaysian markets. Single borrower credit limit. Kami na mag-develop niyan. because the sale is in the regular course of business. Sale of inventory is part of regular and ordinary course of business and therefore. If the default will result in corporation not being able to continue with its business. to obtain the loan where all assets are given as security. it needed money to acquire equipment. ͞Attorney. if the same is necessary in the usual and regular course of business of said corporation OR 2. No single bank at that time can lend the P2B kasi marami restrictions. PNB naman lumapit sakin. May gestation yan dapat. I was called again by the members of the syndicate of banks which ultimately obtained the biggest exposure in the package. personnel and vehicle. 2. When you sell everything. The plant in Dasma was set-up and became operational. How do we know whether a mortgage of some of the properties falls under S40 that will require SH approval? A mortgage or pledge is covered because when corporation defaults and later the mortgagee forecloses. Other assets like shares of stocks. Mortgagee takes possession only when mortgagor defaults on the mortgage. Nag-recompute sila. it will not. Minalas lahat ng involved sa Reynolds.g. not require SH. We have to rehabilitate AAC. pledge or otherwise dispose of any of its property and assets 1. what remains of his assets? Yung lupa na lang. we want you to liquidate Reynolds. I joined the medium sized law firm. Corporation will mortgage LITERALLY all its assets. parcels of lands͙ The problem here is mortgage. When the entire project is sold to Ayala Land. Maganda ang ofer ng Ayala Land. to avail of this countryside development window of WB. In that meeting. di na dito yari yan. all his assets are S40. Ergo in the meeting. yes because he will sell everything. does it require SH approval? Yes. this corporation buys tracks of land like Ayala Land for instance then develops that track of land by subdividing land by providing for roads and site development and sells the lots to buyers. That͛s good business to sell everything in stock. Terms of conditions meeting is scrutinized line by line. Lahat ibebenta. Reynolds doesn͛t have that much collateral to give. it must be approved by majority of board and 2/3 of the OCS. is he entitled to appraisal right? Yes. Maganda ang business pag nabebenta niya lahat. A SH who dissented from this decision. After liquidation by DLC. that will require SH approval because that is encumbrance of all assets of the corporation. Same is true when you are engaged in the manufacture of beer. I was asked. sabi ngayon ni XYZ we will sell all our lots. suppose corporation mortgages some of its properties. walang ititira. Reynolds was able to draw all of the P2B. other SH had they heard him would have changed their minds. then we can͛t not put it in S40. Is there a provision in S40. To undo what has been approved requires SH approval. Change of line of business means amendment of the AOI. abandon such sale. dun lang nakalagay niyan. they only sell the assets. naglagay sila sa S40. otherwise it͛s not called for the purpose. Wala rin sa S42 (investment in another corporation) Board of directors cannot withdraw from amendment without SH approval. Just one share of stock but if only you heard the anomaly behind that. Iisang share lang hawak niya. non-voting pa. Since sa kanya yun. If that͛s not the case. sa kanya na rin lahat ng assets. Ayaw na nila ibenta. Magkaiba kung shares of stocks ang ibebenta. proceeds of the sale which he may use to engage in another business. Naicash na niya yung value ng film lib and good will. Remedies: Does sale and disposition of assets require SEC approval like amendments? S40 doesn͛t say so. GOOD WILL How do we value a corporation͛s good will? Corporation has separate personality. S40 only gets assets. I will object to approval of this transaction. BUT when the corporation is a registered corporation. DLC has a client engaged in the business of pre-need. They still have the equipment and personnel kasi gagawa pa ng pelikula. there was a movie producer na gustong magIPO (initial public offering) Movie Production Corporation (MPC) transferred assets to a holding company. How do you sell the corporation? All the shares of stock of corporation will be sold to the buyer. subject to the rights of third parties under any contract relating thereto. That͛s the only purpose. why do you need the provision in S40. That͛s in S40 Par 3: DzAfter such authorization or approval by the stockholders or members. Reason behind the law ceases. S40 general rule: Change in the line of business. mortgage. Eh wala na ang pre-need ngayon. Point is goodwill is an asset. Lock. registered status. Until then. Nothing but a harassment suit e. Board may withdraw without that. that can be demonstrated in court e.g. What is the implication? If the GR is no need for SH approval for the board to disengage from the approved corporate act. Therefore. not entitled to moral damages because corporation has no feelings that may be wounded. I did not attend because not aware that that was the matter to be taken up in the meetng. Balik tayo sa S16 (amendment of AOI). All those other voters would have voted against him. When he does that. It can be done on a single stock meeting. bato sa buhangin). No registered status (not covered by the rule) your remedy is to go to court as an intracorporate dispute. they will have to report it because it͛s a material change which has to be reported to the SEC. Wala sa S16 pero meron sa S40.48 After the SH have approved the sale. That might not invalidate because futile exercise. Good will. it is an asset. NB There͛s a difference between sale of assets and sale of corporation. They still have assets e. but that͛s not in point. Is that a valid argument for MTD? Not. Walang ganun sa S16. What if the SH doesn͛t think it͛s under the exceptions to S40? Court has to resolve that intracorporate dispute under Securities and Regulation Code. Pero magkano ang value niyan? DLC as SEC commissioner. That is not covered by S40. only three SH and the person has only 1 share of stocks. it͛s in the corporate governance. 24 January 2011 Before we leave S40: Dissenting SH is entitled to appraisal right because of S81. do you need SH approval again para di matuloy yung sale? Ano say niyo. pledge or other disposition of property and assets. out sha sa picture. ayaw na iamend. E. SH will remain as SH. DLC has no objection if you encash the film lib. Maliwanag yung nakalagay na ͞meeting duly called for the purpose͟ what does this mean? Dapat nakalagay sa agenda. What the buyer gets is the shareholdership or ownership of the shares of the corporation. Hindi comics ang Corporation Code. As a GR. Film library (contains previously produced films e.g. then the corporation is entitled to moral damages. But how do you value the good will? What is the value of the film lib? DLC will approve provided convinced as to value of film lib and goodwill. Every afternoon. Ligaya ang itawag mo sa akin. Since that͛s not the GR. The sale or disposition may be approved by referendum? No. Rules and Regulations promulgated by the SEC. Where the board changes his mind and decided not to push through with sale. nagbago ulit isip ng board. Kaya lang natin dinidisregard ang voting and meeting. Pero meron shang reputation. former SH will be out of the corporation. the board of directors or trustees may. If that reputation is damaged. Even under the law. Intact ang kay FPJ. MPC has the shares and then unload sa public.g. The problem is valuation of that asset. stock and barrel. Hindi lahat pwede good corporate lawyer. We will discuss that more in detail when we reach corporate combinations. Wait wait. exchange. tatlo lang ang SH.dz Good will is classified by law as an asset. Ang ibinebenta dun ay shares. Is there a similar provision? Later on. Does it have value? Yes. in its discretion. Do they need SH approval? We compare S40 and S16. nevertheless. A SH may question the validity of the approval. A new set of SH will come in.g. P20M ang arkila dun. without further action or approval by the stockholders or members. Maski isa lang yun. you have to be very very very observant. it will not change the outcome of vote. the law ceases.g. Same capital structure and SH. lease. What are the assets transferred? 1. Precisely that is his protection. a sale that has been approved by 2/3 of the SH. Hindi assets. FPJ͛s film lib. If that͛s the general rule. 2. nagbago yung isip ng board. The name of MPC ay tatangggalin ang pangalan tas ano kapalit ng assets? Shares of stocks of the holding company IPO can be used as a tool to defraud the public. May he file a case to question the act? May the corporate secretary say that it͛s a harassment suit? He is non-voting and even if he attended. There͛s a similar provision in the appraisal right. it will not be justified to disregard his complaint simply because his number will not change outcome of voting. Suppose one of the SH did not receive a notice or the notice was defective because not stated in the agenda that the purpose is to approve the sale of all/substantially all. INVESTMENT IN ANOTHER BUSINESS OR CORPORATION . Corporation will remain essential the same. Magkaiba yan. Counter the move of the son of a gun. or by at least two thirds (2/3) of the members in the case of non-stock corporations. BUT the power to improve the yield on excess corporate funds in an ordinary investment instrument is an exercise of a primary Ultra vires acts of corporations. do you need SH approval? Remember that a bank deposit is a loan to the bank. That will be intravires. then corporation cannot enter into this transaction. That any dissenting stockholder shall have appraisal right as provided in this Code: Provided. is the investment in pursuance of a primary purpose or secondary? If former. does it require SH approval? Of course not. Assuming it is intra vires. yes you need SH approval. in [shares of stock of] another corporation i. (corporation now using the funds for secondary purpose). perhaps? No. .No corporation under this Code shall possess or exercise any corporate powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. Example: Bumili ng shares of stocks.ii. requires approval of 2/3 of OCS. Pag ultra vires. outside the implied purposes or powers. Only that! Pag secondary purpose. then that must be a valid investment. Not necessarily to carry out the purpose but simply to improve yield of excess funds. take or grant. lease. subject to the limitations prescribed by law and the Constitution.dz Kasama ba jan ang dealing with securities for the sake of The corporation in pursuance of a primary purpose. SH must first amend the articles. it does not require SH approval because if other than allowed by AOI. it requires SH approval. Corporation invested its excess corporate funds in buying securities issued by Ma-Ao Sugar Corporation. After amendment. May kaso yan. doon muna nila dapat ifocus ang resources ng corporation for the primary purpose. SH cannot ratify an ultra vires act. however. secondary or implied purposes of the corporation. Nonetheless. then ratify the investment. Is that investment valid? Look at S36. by engaging in business i.Subject to the provisions of this Code.i. at a stockholder's or member's meeting duly called for the purpose. primary ʹ intra vires ii. In a. the corporation may [1] engage in business OR [2] invest Investment of corporate funds a. What is covered by S42? Only those investments in pursuance of a secondary purpose. DzTo purchase. Where does S42 apply then? What investment requires SH approval to be valid? Engage its funds in another business or another corporation. it͛s not in pursuance of a primary purpose but only of a secondary purpose. valid because ratified by 2/3 of OCS. Written notice of the proposed investment and the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. in pursuance of a primary purpose ʹ intra vires (within corporate powers) ii. is intra vires. Why? Ang alam ng SH. (17 1/2a)dz If corporation will engage in a business or invest funds in another corporation for another purpose. mortgage and otherwise deal with such real and personal property. For the investment to be valid. if investment for the sake of investment ratified by 2/3 of the OCS. DLC opinion: To increase the yield of the excess funds of the corporation by investing the excess in instruments generally considered as ordinary investment is covered by the implied powers. other purpose ʹ ultra vires If engage of business itself in pursuance of a primary purpose: such investment is within its corporate powers If the corporation will engage in business for a purpose other than primary/what is allowed in the AOI: then that will be ultra vires Since investment of funds for a purpose other than what is allowed in the AOI is ultra vires. Implication: Whenever corporation will make investment. . 2/3 votes under S42. A secondary purpose is another line of business. hold. does it require SH approval? Which one requires SH approval to be effective? To engage in pursuance of a primary purpose. a private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock. Whenever the corporation will invest excess funds in those instruments. Primary purpose nga yun. receive. see S42. under S45: corporation cannot invest funds for a purpose other than those authorized in AOI because that will be ultra vires. If latter. no requirement of SH approval.49 We move on to S42: Investment in another corporation for business or any other purpose DzPower to invest corporate funds in another corporation or business or for any other purpose. including securities and bonds of other corporations. and not require SH approval. Such investment does not require SH approval. but the shares of stock of the corporation is a business not covered by the primary. That where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation. that͛s why the bank pays you interest for the money? Do you need SH approval? In Dela Rama. Whenever corporation will engage in a business in pursuance of a secondary purpose. or served personally: Provided. Does not require. improving the excess funds. pledge. Court said: Assuming that investment is just for the sake of investment and outside the purposes of corporation. sell. See S457 If a. it will be ultra vires. First we determine is WON investment is ultra vires or intra vires. SH cannot ratify. as the transaction of the lawful business of the corporation may reasonably and necessarily require. Powers of a corporation. the approval of the stockholders or members shall not be necessary. Dela Rama v Ma-Ao: It͛s wrong. convey. Dela Rama v Ma-ao Sugar Central FACTS: Magulo ito. Ma-Ao implication: Maski yan ay outside the primary/secondary purposes. (n) 7 . DLC says: Mali yun. But is investment of corporate funds in securities a power of the corporation? It͛s just an investment for improving the yield for the excess funds of the corporation. or another purpose ʹ ultra vires b. Allow only in pursuance for secondary purpose with the consent of the SH. BUT if you invest in the shares of stock of another corporation. a special kind albeit. by increasing from 10 to 20. Although possible if there are 2 kinds of shares: voting and non-voting. Want the corporation to disable. does it include the nonvoting SH? Yes.͟ but ͞purpose other than primary. 5 of S6. But if participate in business. Rights will not be affected unless 2/3 vote have been mustered to effect change in the corporation. Don͛t require us to change what is in the original AOI. including even nonvoting SH. That͛s what you really do. Amendment of the AOI? Yes. then why is it separate enumeration in S6? Amendment of AOI is No. 7 in the items) therefore. In practice. 5 is increase/decrease of ACS. What the court is saying: When the purpose is for the sake of investment. therefore amount to amendment of the AOI. sale. It won͛t fall under S42. No. Is the dissenting SH entitled to appraisal right? You see in the table of contents. Even a simple savings accounts deposit is risky especially if it͛s a rural bank owned by Legacy. Is dissenting SH entitled to appraisal right? S81 does not include it. 10 M nakalagay sa article.g. it͛s not covered by the primary purpose under S42. of the 10M capital stock. it͛s just for the sake of investment. When you reduce that. amendment. how much ACS is at the time of incorporation. submit the investment approval by the SH applying S42. investment. but why do you have a separate rule for increase/decrease of ACS? y Camposes said: Definitely. it will be subscribed by the following: how much subscription of the original articles. treated specially/specifically/differently in S38. then dissenting SH is entitled to appraisal right in S81? Is the increase/decrease of authorized CS an amendment of the AOI? Increase/decrease of ACS: a. y DLC as the SEC commissioner encountered a difficulty (not really difficulty. therefore it is valid only if approved by 2/3 of OCS. More on this later. it will require you to come up with AOI with the incorporated amendment. the law considers it as a special kind of amendment. absorbing all the other combining corporation. If simply to invest. 8 article then says. ͞where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of incorporation. government bonds. because no. to participate in the business of the other corporation. PROVIDED it͛s just for the sake of investment. the intention is for the sake of investment OR to participate/engage in the business. If amendment. Pero malabo yun. valid if approved by 2/3. engage in business. the approval of the stockholders or members shall not be necessary. Is it not amendment of the AOI? It͛s where you put the authorized CS (No. kaya nga hiniwalay yan. whether the purpose of the corporation we are investing in is in pursuance of primary/secondary/ultra vires. If we change the original amount of ACS. y CONSOLIDATION: 2 or more corporation will combine. You can increase. To make it more difficult. appraisal right. The vote requirement was made higher than simple majority for the protection of the SH specially the minority. but there is another term): If you will increase ACS.50 purpose. While it is such. What we do now to be safe whenever a corporation will invest for the sake of investment in the securities of another corporation. b. No SH approval is necessary. Gay͛s question: What if investment for the sake of investment eventually gave you control of the other corporation? It͛s not the investment that will make it ultra vires. 1. it will necessarily include 7th article. not primary or secondary. Stability is the reason. 7. but no reduce. can we not consider that as amendment of AOI? If it were. Why is that the arrangement? Is the dissenting SH in the decrease/increase entitled to appraisal right? NO. Hindi ͞in pursuance of secondary. 9th article says how much each paid for the subscription. Does it have the effect under S81 No. approved by majority vote of the board and approved and ratify of 2/3 of OCS. Naging compromise na lang yung Dela Rama.͟ Pwede siguro ganitong conclusion: An investment for the sake of investment that is for a purpose other than primary falls under S42. INCREASE AND DECREASE OF CAPITAL STOCK In S38: For it to be valid. When the investment requires a SH approval. 1 S81. not for the sake of investment. but the purpose of the corporation. not because of S81 but of S42. It͛s also in pursuance of a primary purpose. And it is not given to a dissenting SH in S38. to change the ACS written in the AOI is to change the AOI. merger. Board of directors does not ask for approval whenever they impose bonds in time deposits. Deprived the minority of property without DP. You may increase but not reduce to what is provided in the code. it must be approved by majority vote of the board and approved and ratify of 2/3 of OCS Non-voting SH? Yes.͟ An investment for the sake of investment is not reasonably necessary to carry out the purpose of the corporation. but all of them will constitute a new corporation. that͛s ultra vires that cannot be ratified. Because it is not one of those provided for in S81. We simply file a certificate of increase to be attached on top of the original AOi to indicate an increase in the ACS. Pano na yung 8th article? Di na sila magtutugma yung 8th and 7th. Original of the 7th article will not conflict wth the original of the 8th. none of the constituent corporations will survive. Minority have no reason to complain because that͛s more advantageous to them. 2/3 vote requirement for both numbers 3 and 7. lawmakers th . it͛s included in S6. Purpose of the other corporation becomes immaterial (?). Mawawala na yung original article. E. Not in pursuance of a secondary purpose. it͛s violation of DP. and it has the effect in No. Why is there need for separate enumeration? S16 is a rule on amendment. majority can͛t complain because they allowed for that. y For it to be effective. No. Since you want to increase ACS. Can you increase the 2/3 vote requirement (say ¾) or reduce (say ½)? Discussion on amendments applies. Minority has the right to expect that their level of control in the corporation will remain the same. Papalitan pa ba yung 7th eh fait accompli na yun. May the vote requirement be increased? Same discussion as above. It is ultra vires and cannot be ratified. MERGER AND CONSOLIDATION MERGER: 2 or more corporation will combine: one of them will become the surviving corporation. It͛s an implied power to improve the yield of excess funds. Who will determine what is riskier than ordinary? Power to invest in the securities of another corporation is in pursuance of a secondary purpose. BUT Yes. we follow Dela Rama v Ma-Ao Sugar Central. Taasan. 1? No. law requires the corporation to hold on to the capital stock for the benefit of creditors until the corporation is dissolved. Why? Because the corporation is holding that investment in trust for the benefit of all the creditors of the corporation. even if we treat increase as amendment of AOI it does not have effect in S81 No. may demand a return of his investment in the equity of corporation before the dissolution of the corporation. PLDT issues preferred shares to service subscribers. DLC says that will change. it may take the form of a mere change in the existing or a total revision? In the latter case. If they don͛t give their consent. that his level of control will remain the same. in reality there is no restriction. Law does not consider it so fundamental to give dissenting SH appraisal right but fundamental to require SH approval for effectivity. Kaya lang. If you see something wth a ͞qualified right of preemption. no change in rights of SH resulting from increase of SH. Whenever the corporation will increase ACS. For the change to be effective. Mas marami ang preferred shares than common voting shares. are all SH of record (voting and nonvoting) entitled to preempt those voting shares? Authorities say that since S39 does not qualify. because it͛s not one of those instances enumerated in S81 giving a SH appraisal right. then appraisal right is not available because not in S81. is he entitled to an appraisal right? AS general rule. is that an effect? Does that effect have prejudicial effect on NVSH? None. madidilute yung mga nonvoting SH. therefore parties to the contract have to give their consent. no. extending/shortening the term of the corporation. Majority vote of the board + 2/3 vote of the OCS Does it include non-voting shareholders? Yes. 2 Appraisal right given to dissenting SH? No. Creditors who may have extended credit to the corporation upon their reliance on the existence of the capital contributed by the SH. But really the GR here is the first part. SH approval is necessary because change is fundamental. Why is there no appraisal right in increase/decrease of ACS and amendment of bylaws? Are they not to be considered so fundamental? Obviously. create in favor of shares of stock/class of shares not enjoyed by existing SH. In the first place. Because of S39 preemptive right. It does not restrict rights of existing SH.51 treated the increase/decrease a special kind of amendment which does not require actual amendment of what was written in the original amendment. This is the exception to the trust fund doctrine: investment of a SH in the equity of the corporation cannot be returned to the investor/SH EXCEPT in case of dissolution OR in decrease of authorized capital stock (S122 last paragraph) 2nd instance is only added. 1: if there are two kinds of shares in the corporation. Suppose corporation has two classes of shares. that͛s adoption of new bylaws governed by S48. either ako gumawa or kinopya ng ibang abogado ang ginawa ko sa mga corporation na hawak ko. They are only given opportunity. There are exceptions: One of this is exercise of appraisal right. those shares of stock are subject to preemptive right to maintain level of control in the corporation. When he is entitled to such. Baguhin na lang tas lagyan ng parenthesis (as amended) If the increase/decrease is treated not as an amendment. That͛s why that͛s how the topics are arranged in the Campos book. Consent is obtained through vote in a meeting called for the purpose. y DLC says this wll fall under S81 no. those shares are entitled to be preempted by existing SH in proportion to their respective shareholdings. because voting shares won͛t preempt the non-voting shares. Neither S46 nor 48 give a dissenting SH appraisal right. If voting preempt to the nonvoting share. Neither does S38 provide appraisal right to dissenting SH. they are not given appraisal right. The increase/decrease of ACS does not have the effect of No. Repeal APPRAISAL RIGHT What is appraisal right? Right given to a SH to demand a return of his investment in the equity of corporation before the dissolution of the corporation. DLC has expressed a view earlier that is a possibility might have the effect in S81 No. Don͛t tie up fortunes of corporation to fortunes of the SH. REPEAL OF BYLAWS Look at S48 Adoption ʹ S46 You only need majority of the OCS. Dati rati they don͛t vote. inilalagay ni sir that non-voting shareholders are not entitled to preempt voting shares. If voting shares preempt non-voting. but voting when it comes to S6 instances 1-8. alam nilang hindi sila boboto. 1. AMENDMENT. if there are two classes of shares. What if he does not have money to buy? We can͛t guarantee the share to him. they can get out of the corporation by exercising the appraisal right. Hence. voting and non-voting. 1 S81. the corporation will issue voting shares as a result of an amendment of AOI. 1 in which case a dissenting SH. While preferred shares are non-voting when it comes to election of directors. the amount of shares that corporation is required to offer for subscription. Since they have that. we cannot use tthat to let the corporation or other SH suffer the consequences. . y DLC-drafted AOI: As a consequence. For the protection of these creditors. Dilution in the voting shares of the before the amendment. But DLC thinks indirect prejudice ito. Go back to preemptive right when we reach capital structure of the corporation. ADOPTION. However if we treat increase/decrease as an amendment of the AOI. Assuming they get diluted. Purpose of preemptive right is to maintain the levels of control amongs SH in the corporation. Do you need vote by the directors? Amendment But in amendment. hindi nagbago mga karapatan. while fundamental in the sense that SH approval is necessary and NV shares are given right to vote. but because of this increase. If not able to seize because of personal restrictions. Why not have that effect? There is what you call SH preemptive right under S39. then we can͛t prevent non-voting from voting. they will suddenly have voting shares. under S6 No. will that fall under S81? No. AS GR. it amounts to novation of the original contract of subscription. Dilute non-voting insofar as fundamental changes are concerned.͟ to be issued or disposed by the corporation. shall have appraisal right. Whenever shares of stock are to be issued. DLC as member of interim BP: privilege to join assembly of legal luminaries.52 When is he entitled to appraisal right? When he dissented from a corporate decision that requires SH approval for validity AND the law gives the dissenting SH the right of appraisal. Hindi naman appraisal right yan. When is a SH a dissenting SH? If SH abstained from the corporate decisions. not even a lawyer. What͛s my anwer: ͞Ano ba gusto niyo?͟ Kagatin niyo nga lang kung gusto niyo paalisin. Nanalo bigla. construe exception strictly. may he exercise appraisal right? No. DLC as the presiding officer announced the result. which are not delinquent shall have all the rights of SH. Shareholders are just representatives of the shares. Tolentino: You have nothing to lose. Tolentino has a distinct voice. In relation to appraisal right. Irrevocable proxy cannot object to that because of pactum commissorium. Corporation may purchase its own shares of stock. Caram provision of the 1935 Constitution which you do not know obviously. Corporate decision gives to him appraisal right May the AOI increase the instances where appraisal right is available? No. Dante Alighieri in Divine Comedy said the hottest place in hell in time of ___ in neutrality. Definitely the proxy cannot exercise the appraisal right because he is not a stockholder. may the AOI decrease the number of instances where appraisal right is available? Not also because the right of appraisal is a property right. SH failed to submit written demand within reglementary period from the date vote was taken. Allow na natin. ANG GALING NUNG MAMA. in the meeting where the corporate proposal was submitted. If there is a dispute. then there is a mechanism on how the dispute shall be resolved. It shall be determined and appraised by 3 disinterested person. because under S72. it͛s the shares of stock that are voting. Voted against 2. not a dissenter but abstainer. Before the voting. UP graduate tayo diba. Delegate in 1935 constitution. What͛s the effect? Waiver of the appraisal right. Only affirmative votes may move for reconsideration. My suspicion was confirmed. Before submitted for ratification. one of which is to exercise appraisal right in case of dissent. But S81 says that ͞voting is presumed to have happened in that meeting͟ from voting in favor to voting against. Corporation asked DLC (corporate secretary and legal counsel). may junior sha na mukhang Syrian din with balbas but with Ilonggo accent. Suppose there͛s a SH who just bought shares of stock from stock market. may relation yung kwentong yun. they provided in the 1935 a provision which made him instantly a Filipino citizen. DLC has a case involving appraisal right. making a written demand on the corporation within 30 days after which vote was taken for payment of fair value of his shares. You don͛t have to answer them now. issue on his citizenship because parents were Syrian. Secretary general. doesn͛t want to make a stand. Hihinto lahat ng tao sa corridor. In order to accommodate him. he can get out of the corporation although in reality he is not against in collusion with the board of directors. Binili namin yan under S41. Sr.S82 says who is a dissenter. fair value may be determined later. Makapal ang balbas nun. the SH will accept the corporation will offer to pay for the shares. Dissenting SH submitted his written demand to exercise his appraisal right more than 30 days after the vote was taken. Buti na lang magaling yung presiding officer. If that is allowed. Batas lang yan. What͛s important is you demand the fair value of shares. Member of interim BP. Dissenter is the proxy. He should have casted a vote against. If not in the law. This is arbitration. . Nowhere in the law is the right allowed to be denied a SH in the AOI. Suppose the dissenting SH is not yet fully paid. sakin pa? Purchase of shares of stock under S41. Can he demand the appraisal right for the 50 shares which voted against? What is the issue here? Is he a real dissenter? What do you think is a special reason to compel him to do that. Tumayo ulit. But submitted written demand more than 30 days after the vote was taken. Bakit niyo binayaran ng appraisal right yan. As such. Parang tumataya lang sa lotto. How about the reverse. may he exercise his appraisal right insofar as 50% dissenting shares are concerned? Does it have to be all or nothing? Remember what we have said that in a SH meeting. Voted against the corporate action. An hour because of the flaws. neither here nor there. Change my vote into in favor of the measure. May a share of stock which is not yet fully paid exercise appraisal right? Of course. How is the right exercised? By demanding. Selling your shares back to the corporation when you are exercising appraisal right. 28 January 2011 The issue in appraisal is how much the fair value of the share is. Kala niyo nagyayabang lang ako. mga illiterate talaga kayo. . If there is no dispute as to value. Do we give him his appraisal right? Favor your client. See S82. Kung ayaw niyo ibalik. Requirements for exercise of appraisal right: 1. we may invoke S82. Suppose Oliva owns 100 shares of stock of the corporation. Does he need to have an amount as fair value of the shares? Not really because it͛s possible you don͛t know yet how much the corporation will offer you for the shares. What͛s the difference between purchase and appraisal right? No class on Wednesday. You͛re just a young man. no question that SH dissented in the corporate decision. Sen. not prejudiced insofar as the 50 he voted against. You can͛t remove the property right given by law. Interpolation and debate. because it͛s just an exception to the GR which is trust fund doctrine. change the vote into affirmative in favor of the measure. maybe in the exam. Therefore. Fermin Caram. Sen. So all his shares are dissenting. Can he vote 50 in favor and 50 against? He wants to be on top of the fence. How was my vote recorded? Dissented. Remember the irrevocable proxy case of the jewelry. Di pwede abstain or absent. Mananalo ba sha. may a SH who voted in favor change his vote to avail of appraisal right? y First issue: If he can change is vote. subscribed shares not fully paid. he is entitled to appraisal right. Change the scenario: Voted everything against. more than 2 months. Want him out or stay. Marami pa shang kakaining bigas. Debating with Sen. spoke against the measure. you may not add. up to when may he change it? In that meeting? After the meeting? Pwede ba magbago at all para maka-avail appraisal right? Obviously the code is silent. I move for a reconsideration. it will be submitted to arbitration BUT S82 didn͛t say how long the arbitration should last for the appraisers to come up with an award. During the time dispute is with appraisers. How do we know that the corporation has already abandoned the corporate decision the dissenting SH voted against? Ganon katagal niya hinid iimplement for the SH to say that he corporation had already abandoned. But they will only be paid when the corporation realizes URE in the future. When do you get an award? In case of dispute in the valuation and the dispute is resolved by a committee of appraiser. Look at the ͞must the corporation wait for the implementation of project before the dissenting SH is paid?͟ it͛s in S8. if the nonpayment of the corporation is without legal basis. There is URE. Or in the last paragraph of S83: if the dissenting SH is not paid the value of shares within 30 days after the award (voting and dividend rights are immediately restored). such demand for payment is withdrawn with the consent of the corporation. Hindi lang babayaran pero mag-aaccrue. the moment I demand my appraisal right. or if the Securities and Exchange Commission determines that such stockholder is not entitled to the appraisal right. Magkakaron din ng accrual yun. What if it was not referred because no dispute. Suppose the reason is failure to pay because there is no URE. Yet. Unfair to the dissenting SH! BUT look at S84.͟ That word ͞award͟ has an antecedent in S82. his status as a stockholder shall thereupon be restored. Then we shall deduct from the proceeds the amount of the balance on the subscription. when the corporation ABANDONS the corporate action OR 2. he must be paid. Tagal nun bago sha mabayaran. will he get the dividends? y Counterargument: How can there be dividends when there are no URE? y Counterargument again: Pero marami kasing dividend declaration e. last sentence. the dissenting SH will have to wait til the corporation has URE in its books. PROBLEM: In case of a dispute. There͛s an instance in S84 where the status of the SH is restored because his right as dissenting SH terminates. rights are still suspended. Then that͛s when you get restored to all your rights as SH. he must be paid within 30 days. mandatory dividend declaration. including voting and dividend rights. his rights are suspended. How? Intracorporate dispute. Fixed period there is 30 and 60 = 90. BUT no mention how long the appraiser. PROBLEM: If there is a dispute in 60 day negotiation. the shares will become treasury shares under S9. but after 30 days. ay wala na kami URE. Why do we deduct the subscription balance? It will be used to fully pay the shares so that in the books of the corporation. however. In the meantime. all those dividends will accrue. however. KAYA LANG.53 How is that valued? Value the share as if the share is fully paid. It can only come from unrestricted retained earnings. Pag dumating ang URE. payment to the dissenting SH cannot come from capital. if corporation has no URE. Even if you say another 30 days. Can he withdraw as dissenting SH (since di naman ako mababayaran)? S84. If. are suspended. The withdrawing SH and corporation cannot agree on the fair value. his rights should be restored. Hindi. Then til the corporation has URE. In 2nd par of S82. the dissenting shares are fully paid. We͛re not sure if we͛re pushing through with the action anyway. In those 120 days. if they don͛t agree within that time period. Even in those shares where corporation has no URE. hindi pa makadecide. the corporation has purchased the said shares. The effect of the demand will only terminate: 1. DLC: For as long as the SH is not paid. After paying the balance. you͛re abandoning the decision to which I dissented so restore me. we have agreed on the fair value of the shares. Until when must the dissenting SH wait? If he is not getting paid. otherwise. you can͛t be paid yet.͟ Pwede ba yun? Sandali muna ha kasi baka hindi namin ituloy. so what is the award? PROBLEM: ____. I don͛t get paid. reason why he demanded FV of his shares. vote in the election. In S82. It has to go to court. What is the effect whenever a dissenting SH chooses to exercise appraisal right? S83: from the time of demand for payment. corporation still has 30 days to pay. The decision of the committee of appraisers is the award referred to in S83. BUT WAIT. he should be restored to his rights. 30 days from the time he demanded to be paid. As yet. Pag after 120 days. SH may compel the corporation to pay the agreed valuation. No demand for payment under this Title may be withdrawn unless the corporation consents thereto. here. or if the proposed corporate action is abandoned or rescinded by the corporation or disapproved by the Securities and Exchange Commission where such approval is necessary. all rights accruing to the dissenting shares. The only right SH has when he opts to exercise appraisal right is the right to be paid the fair value of his shares. you should restore me to my rights. Whether agree or award. there͛s no award cos there͛s no dispute either. Isn͛t that unfair to the dissenting SH who didn͛t want to remain from the corporation after he dissented from major policy decision. SH rights are suspended. I am no longer entitled to attend meetings. S83 provides two instances where the suspension of the rights is lifted. Therefore. Kaya paborito ko yang appraisal right. Will he be restored to his rights as a SH? DLC says inadvertence na lang ang ginamit jan ang award. then the right of said stockholder to be paid the fair value of his shares shall cease. Three months later. Ano malabo jan? Latter part of S84: have the right to all dividends declared before abandonment of act OR before disapproval of the act by the SEC. Entitled ba sha dun? Kala niyo madali yan ha. the word used here is ͞after the award. Until then. if within a period of 60 days the date the corporate action is approved. Di naman pala sha mababayaran cos the corporation has no URE. eh di 120 days. Is it automatically paid? Is it necessary for the corporation to implement first the project before the dissenting SH is paid? May the corporation say ͞We won͛t pay you yet ha. BUT the moment they agree. . the dissenting SH is not entitled to be paid. Do we apply the 30 days in S83? Okay lang na sabhin na hindi pa iimpelement. OR maybe we should instrument award to include as acceptance/agreement of the parties as to the fair value of shares. and all dividend distributions which would have accrued on his shares shall be paid to him. QUESTION: May a dissenting SH compel the corporation to pay the fair value as agreed upon or as awarded by committee of appraisers? Yes. ͙ They are given 60 days to negotiate.g. he may say. he is not paid but rights are also suspended. the dissenting SH is not entitled to be paid. After the award is made. and if it does. a dissenting stockholder shall submit the certificates of stock representing his shares to the corporation for notation thereon that such shares are dissenting shares. I will have to cancel the dissenting status so you lose the appraisal right. is that already implementation or must SH wait til deed of sale has been signed and executed. Transferee has burden of knowing/investigating the status of the share not yet certificated that he was buying. If not fully paid. Corporate sec says: once it is transferred. y What do you transfer to the transferee now? The interest in the subscription contract plus the deed of assignment. That was the idea behind S86. In the meantime that he is waiting for the corporation to have URE. S85 is self-explanatory. That͛s in S64: No certificate of stock shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares). y BUT does he have a certificate? No. Under S86. the subscription price allowed him to pay the subscription price on installment. When all the ingredients for him to be paid concur. at the option of the corporation. the dissenting shares may be transferred. sale/dsipostion of all e. BUT I want them to remain as dissenting shares so I can exercise appraisal rights later when the corporation has realized URE later. the corporation has a right to demand that the shares be surrendered and for the dissenting SH to accept payment and be released from the corporation. kapag hindi pa fully paid ang shares. has been paid. nakikita niyo dapat ang problema. he transferred his shares to another person but the transferor disclosed that it͛s a dissenting share. when the certificate is issued because the subscription is fully paid. Malikot ang utak. Kaya kung smart kayo. are they entitled to exercise appraisal right? Of course. until when? Yes. What does it mean? Requirement of S86 only applies when applicable/proper. kaibigan ko kasi. transfer of the shares and for the SH/successor in interest to accept the fair value as agreed upon or as awarded by committee of appraisers. there is no more impediment to transfer it to the corporation and become a treasury shares under Sec. While the corporation and the SH have agreed as to the fair value. he has no protection (since no certificate yet). Look at S86 closely. can the status of share as dissenting share be carried over? I will not answer this question and reserve it for the exam. nothing to sell. Why does the law require he shares to be submitted for annotation that those shares are dissenting? So that any transferee would be informed that the shares being offered to him for transfer. he cannot have certificate. 9.g. y Can he sell it to another person? Of course. (35) If shares of stock are not yet fully paid. y When he paid the 50%. Sa exam na ninyo sasagutin ito. y Can you put the shares of stock in the transferor͛s name? No. Justice Bernabe. y How do we transfer the name to the corporation? We deduct the balance to make it fully paid. y Can we put your name in the stock and transfer book? Of course. S72. if it͛s dissenting. Marerestore naman sha. Hindi yan madali. Therefore. Magaling yung examiner. EARLIER PROBLEM: You wanted to retain the dissenting status of the share being transferred. Because declaration of stock dividend is not . If you look at S86 (this has been the subject of bar exam question). (n) A dissenting SH is not yet paid. His failure to do so shall. sale or whatever are dissenting shares. Annotated on the certificate is the status of the share as a dissenting share. it started negotiation with a buyer. Look at S63 last paragraph: No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. and all dividend distributions which would have accrued on such shares shall be paid to the transferee. What if the shares are not yet fully paid? He cannot have certificate of stocks. when he demands the fair value of the shares. One thing is sure. terminate his rights under this Title. purpose of annotation: to alert the public that the corporation has a right to demand the surrender of the shares. you can͛t comply because you don͛t have anything to surrender. The moment the corporation gets URE. But as far as the corporation is concerned. E. y ERGO. dissented on the decision to invest in another corporation. because he has unpaid claims. Hindi na kailangan dalhin sa SEC yan. can dissenting SH say ͞bayaran na me͟ Does his right to be paid subsist. *Missed something here* Rights will be restored if within 30 days from agreement as to value. approved by the 2/3 vote of the OCS under S43. the transfer is valid. Caveat emptor. he has an interest a proprietary interest over those shares of stocks. if any is due. for as long as the corporation has not abandoned the corporation decision dissented to. the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall have all the rights of a regular stockholder. In case of not yet fully paid shares of stocks. Pinagtalunan yan ng husto. he cannot transfer shares of stocks which are not yet fully paid. If you are not yet fully paid. saying I want you to transfer the shares in my name. the corporation failed to pay. the annotation must also be removed. Who between the two is correct? Nothing there saying about the carry over. If shares represented by the certificates bearing such notation are transferred. The transferee bought and went to corporate secretary. But as between the parties. Natural. The ultimate question: Once transferred. Apply in proper case i. you cannot change the name. Voting SH only. SH is not entitled to payment until there are URE. Magulo rin yan. Transferee insists on the carry-over of retaining the right. is he already a shareholder? Of course. Look at S86: OTHER INSTANCES REQUIRING SH ACTION *Instances and not insurance Declaration of stock dividend For a declaration to be effective. you will get the fair value which has been agreed upon already. BUT it doesn͛t mean that a share of stock not yet fully may not exercise appraisal right simply because nothing to surrender yet and cannot comply with S86. and the certificates consequently canceled. When do we consider a corporation as having implemented? Not necessarily mabebenta kagad. He has the onus of discovering the status of the share. his rights as the dissenting SH will subsist. can he transfer his shares to another? Look at S86: Within ten (10) days after demanding payment for his shares.g.e. Until fully paid. once cancelled. If you don͛t have the certificate. Pag nagkaroon ng URE in the future. the prejudice which the public is supposed to suffer if a member of the general public becomes a transferee of a dissenting share is not obtaining under the circumstances. how can you comply with requirement of S86? True. then he may demand payment from the corporation. he can͛t even be issued with a certificate until there͛s balance.54 What is the period of time should lapse without the corporation having implemented the corporate act? ANOTHER ISSUE: When is the corporation considered to have implemented the act? E.g. in that situation. But that is allowed when the AOI or BL so provide. Directors cannot attend and vote by proxy at board meetings. He who has the majority of the members of the board has control of the corporation. it shall be valid only for the meeting for which it is intended. That is the SH right that is given to the proxy. The exams are given by external examiners. but I will be sending over my oldest son to represent me and my shares. Why not? Magkaiba kasi yun. Concepcion. That general rule is implied from a provision of the Corporation Code in nonstock corporations in 2nd par of S89: DzUnless otherwise provided in the articles of incorporation or the by-laws. Discipline we want you to get. The SH is the person entitled to do an act but the SH will request another to do the act on his behalf. Ang GR nga dito ay they can͛t vote by proxies. Why not? Is the dissenting SH entitled to appraisal right? Why not? Whenever you see numbers. later on find out that some of those included by the Camposes are not really devises affecting control. Proxy device Proxy is a common law term. the equivalent of agent is proxy. BUT SH may attend and vote by proxy in SH meetings. That͛s Article 4 or 5 of the FC. The authorization is given to the proxy to vote on the shares of the principal. What functions may the principal who is the SH request the proxy to perform? What does he give to the proxy? In Corporation Law. But the exception is allowed only in case of non-stock corporation. We will learn that when we reach ͞Classification of Shares͟ As a rule. Kaya lang kung isipin niyo. settled in the New CC. if he will employ successfully one of the many control devises. If a SH is also a director of the corporation. all the powers of the corporation are exercised in the board of directors. In a common law. May they change it in the AOI? You will be able to answer the question only when you know the reason behind the vote requirement. even the members. the members may be deprived of the right to vote by proxy. What are those devises affecting control? The Camposes enumerated 9. I can͛t send you a written proxy coz without time. This is an exercise of a proprietary right and to deprive the SH of this right is deprivation of property without due process. irrelevant na ang proxy. well done. he who controls the board. ͞Nagmamadali na ako. Framers of FC resolved the issue by prohibiting in the Philippines marriages by proxy. not really used for civil law. Vote at SH meetings. SH cannot be deprived of their right to vote by proxy. the SH is the principal. ͞Mr. The relationship is agency. diba? Kung karapatang bumoto natatanggal sa share. The proxy therefore is an agent. Leaving for abroad in a . may he appoint a proxy in case the director is not able to attend a director͛s meeting? No. Is it possible for him to control the corporation? Yes. you will be able to answer the question. a member may vote by proxy in accordance with the provisions of this Code. because the proxy will perform a task on behalf of the SH. why not the smaller right to attend and vote by proxy? Which is a bigger right: vote or to be represented and vote through a representative? Pag tinanggalan mo nga ng boto.͟ So what he did is to call up by phone the corposec and said ͞I won͛t be able to attend the SH meeting. 31 January 2011 Fixing the consideration for no-par shares Fixing the compensation of directors We͛ll go back to this when we reach ͞Duties͟ DEVISES AFFECTING CONTROL As we have discussed before. the professors only teach. (n)dz Management contracts Why need SH approval? What vote is necessary? Majority of the board and majority of the OCS. no classroom but the students only report to the chamber of the professor. Laging paper ni Sir ang unang binibigay. May the AOI deny SH the right to attend and vote by proxy? No. Pwede ba ang marriage by proxy. Suppose a SH owns only a share of stock in the corporation.55 one of the instances enumerated in S6 where even non-voting stocks are given the right to vote. you ask if you can change by increasing or decreasing the required number. is that allowed under Philippine Law. If you know the reason. y Second question: Why don͛t we include the non-voting SH? More on this later. No similar provision in case of stock corporation. the rules enshrined in CC on agency will also apply. In Oxford. signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. So the proxy͛s equivalent in Civil Law is agent. Fixing the consideration for no-par shares. (n)dz 1. So that must an exception to the GR. No proxy shall be valid and effective for a period longer than five (5) years at any one time. y First question: Why the need for 2/3 approval in this case when SH approval is not required when the corporation will declare cash dividend? Wala. Next meeting.͟ In University of London. Unless otherwise provided in the proxy. Therefore. For what purpose is the proxy appointed? To vote the share. controls the corporation. the corporation may deprive the share of voting rights. Deal with them one by one. Therefore. A proxy is an agent. How does a SH appoint his proxy? See S58: DzProxies shall in writing. the SH simply gives the proxy the authority to cast votes at SH meetings. Get the reason behind the law. It was settled in the Family Code but not Suppose the SH can͛t attend the meeting. How does one obtain control of the board? By installing a majority of the members of the board. I can͛t make a written proxy anymore. Except for ninong and ninangs in binyag. In case of non-stock corporation. Why majority and why 2/3 in declaration of stock dividend? Can the vote requirement be increased? Include the NVS? No. Proxy cannot appoint a substitute because the Code requires signed by the SH. The word proxy is used in two senses: [1] may refer to the person OR [2] may refer to the document. BUT there will be a problem when both of them showed up? Or lang kasi ang nakalagay. Who may be appointed as a proxy? Are the qualifications for a proxy? The law does not tell us who may be appointed proxy. proxy got sick. All acts of the substitute appointed against the prohibition of the principal shall be void. May the proxy appoint a substitute? Look at provisions of CC on Agency. ͞Only SH of record may be appointed as proxies͟ Pwede ba yun? I don͛t care to answer this question. Gastos yun kasi dalawa ang papameryendahin sa meeting. can he sign a proxy in the alternative? E. There will be no problem if only one of them showed up in the SH meeting. Boss will kill me if his shares of stocks don͛t get voted. The issue is when the unwritten proxy allowed to cast votes he is supposed to represent. It only authorizes the corporation to impose requirements as to the form of proxies (the document. Form for proxies: Can the BL say that the proxy may be verbal? May the BL by authority of No. Art 1892 CC: The agent may appoint a substitute if the principal has not prohibited him from doing so. Be that as it . on the day of the meeting. Can you disregard the votes upon the instance of another SH. not the person). Oliva cannot make it. Otherwise. May several SH appoint just one proxy? Of course. the secretary allowed the son to represent the shares of the father and counted the votes of the son that he cast for the shares of the father. Eh di nakapirma na ng proxy ang SH with the name of the proxy in it. e. If a SH has several shares of stock in the corporation. may the corporation impose qualification as to who may be appointed proxies? E. So may the losing candidate ask for the removal of the votes cast by the absentee SH because the son was not duly authorized to attend/represent those shares for lack of written proxy? Can the votes cast by the son in order to change the outcome of the election? Pwede ba yun? What are the issues involved in the problem? Mandatory provision of S58 that the proxy must be in writing? There͛s no question that when the corposec refuses to honor a proxy which is not in writing. if nobody will complain. No written proxy produced upon demand. but he shall be responsible for the acts of the substitute: (1) When he was not given the power to appoint one. If you don͛t allow that. if he appoints an agent. Important is that you know there͛s such an issue. Can he appoint 10 proxies. What power may the proxy perform on behalf of the SH? Let͛s look at S58.56 few minutes. If Mr. one for each share of stocks? Or can he appoint for half the shares. he shall be liable for all the acts of the substitute. it would be so easy to cheat the elections. WON the requirement is mandatory? According to the SEC. it only says ͞form for proxies͟ Nothing is said about qualification of proxies. Naalala ko lang tong meeting na to.͟ Kilala ni corposec si oldest son. he cannot appoint more than one proxy for the share? Problem there with respect to venue and each share of stock is represented by three proxies. Oliva or Oposa. Buti sana kung magkakandungan sila. where is your proxy?͟ The word proxy there refers to the document signed by the SH appointing him as a proxy.g. then the unwritten proxy. and attend the meeting for the remaining half? Remember the fashion jewelry case. but without designating the person. 10 shares. What they allow is SUCCESSIVE. If proxy appoints a substitute. yes UNLESS he is expressly prohibited by the principal. Can the proxy appoint his substitute? No.g. Sino ngayon ang papabotohin? That͛s why in BL of corporations. However.g. Yun nga ang control device dun. (2) When he was given such power. May the corporation in the BL impose that restriction that a SH may appoint one proxy for one share. Natural may natalo after the election. how will that share be voted if the three cannot agree? Apply by analogy provision on S55 on voting by shares of stocks jointly owned who must agree. they cannot vote. He is attending as a person/proxy representing Garcia the SH. The person appointed by the SH should have a proxy where his name is written and signed by the SH. Can it say that there is a qualification for the person of a proxy? If you will look at S47. in an opinion issued a long time ago. shall remain a valid exercise. E. Corporate Secretary now says: ͞Ok. who signs? The proxy? Then that would not be in compliance with the requirement in S58. The losing party wondered how come the SH was able to vote when he was abroad.g. It͛s now okay as to form since the SH has his signature there. Another problem is when the three proxies for one share of stock. and the person appointed was notoriously incompetent or insolvent. proxy cannot be a control device. What if the SH already foresee that the proxy might get sick. they don͛t usually allow in the alternative. otherwise. ͞Vote͟ lang ang sinabi. BL may only add requirements for a valid proxy but it may not do away with the minimum requirement of validity in S58 that it has to be in writing. BUT when somebody complains. Can a minor be appointed as proxy? How many proxies may a SH appoint? Can he appoint 2 proxies to represent him for a share of stock? One share of stocks but appoint two proxies. Oposa is appointed. hindi uubra kasi mandatory. BUT may the BL provide that the SH may appoint as proxy only another SH? So that makes a qualification: An outsider may not attend and vote at SH meeting as a proxy. E. Is there anything said in S58? Mukhang wala no. 4 S47 do away with the written requirement in S58? SEC has already answered this in the negative. The BL therefore may prescribe additional requirements for the proxy to be valid. BUT look at S47. Contents of bylaws: DzThe form for proxies of stockholders and members and the manner of voting themdz may. The term proxy used here is the first context. then Mr.g. S47 does not expressly authorize a corporation to impose qualifications of the proxy. May an agent appoint a substitute? As a GR. However. Should it be notarized? S58 does not require that it is notarized. that corporate secretary would be well within his rights. In the meeting. Oliva is attending as a proxy saying ͞I am Garcia͛s proxy͟. SH has no cause of action when denied. SH attend but a big part of their shares are irrevocable proxy to another SH. when allowed. Cut off is called the ͞closing date͟ which is usually fixed two months/month before the scheduled SH meeting. I am admonishing the court. Yung associate ko pwede. Kung magiging abogado kayo. Since we are also governed by the provisions of the CC. 20% is only 1 seat.57 Can you give the proxy rights other than voting in the proxy document? Yes. Interview for NY Stock Exchange in Wall Street. Assuming it͛s allowed to specify in the proxy document how the proxy will vote the shares. Walang proxy na naniningil ng bayad UNLESS the SH approached a somebody whom he trusts. that does not apply even if provided in the CC. Called to the World Bank in Washington DC kaso wala nang pamasahe. agency is presumed to be a compensation. It has to be filed before the scheduled meeting.͟ Is that allowed? Like in any contract of agency. the election outcome will be altered.g. Walang gusto mag-litigation. Yes. May the SH specify in the proxy how his proxy will vote e. They can also use proxies there. Same is true with proxies. Especially if you are a lawyer. Yet. before called to order. The making of a corrupt public official. The law requires the proxy to be filed with the Corporate Secretary. before I specialized. y Other corporate acts requiring SH approval? Of course. Not a SH of record. the BL provides for a cut-off date. But S58 only gives voting powers to the proxy. he will be able to control the board of directors. Nasa courtroom. tie. Albay to attend a meeting on your behalf. sisingilin mo pa. Res inter alios acta. In reality. gloves. Or you specify who the proxy will vote for in the election of board of directors. Hindi ka rin pwede sa pipitsuging hotel. The filing of the proxy with the Secretary is just for the purpose of monitoring. Knowing who will attend and who will not. you sue the corporate secretary bakit niya pinayagan. Filing of proxy with secretary does not make him privy to the proxy. That͛s how proxy becomes a control device. Makipag-espadahan ka sa lawyer of the other party. Kung babaguhin natin yung boto ni proxy. Nakuha niya 80% of OCS. kaunti lang hawak ng controlling interest. What kind of vote? y Election of directors? Of course. 17% lang yun. Demanda niya for damages but not burahan or palitan ng boto. May metro ako sa opisina. Tas time charges. E. Maghahanap kayo ng idedemanda niyo! Hindi pwede niyong sabihin wala na kayong magagawa. Group of Danding Cojuangco owns only 17% of SMC. corporation or other SH to the instructions given by SH though may be written in the proxy. as long he can obtain enough number of proxies. Masarap ang buhay ng abogado. baka nga ako pa dapat mong bayaran hayup ka. no one pays a proxy in corporation. Bat ko ibibigay sayo tas magbabayad pa ako. Since nominees niya lahat yan. BUT in some big corporations. I will object. Hindi nila pwedeng sabihin ididiscount yung lunch mo. overcoat. How does a proxy become a controlling device? If a SH though owning just one share succeeds at obtaining proxies from enough number of shares. this son of a gun Oliva voted for different candidates. Oh. a proxy may submit a proxy document. that͛s why control device. Taga-La Union goes to Legaspi. I admonished the judge. tapos na yabang time. Are you Atty. The remedy available to the SH are remedies in case of breach of contract of agency. May the SH go to the corporation and request the corporation to recount the votes by removing the votes cast by Oliva in favor of Garcia and credit them in favor of Oposa? When the secretary obeys that request. Baka pinabili lang ng suka. parang sinabi mo na rin na kontrolado niya ang botohan sa board of directors. I͛m just trying to inspire you. Pagyayabang time na naman no. ͞I give my proxy to Oliva to attend and vote my shares in the SH meeting to be held on Sat. the principal has power to define the scope of agent͛s authority. Corporate secretary cannot do that because the other SH of the corporation were not privies to the contract of agency between SH and Oliva. May an intermeddler who is not a SH of the corporation control the corporation through proxy device? Yes. Same is true with PLDT. No. Coat. Umaandar ang kanyang metro. Can you represent me in SG? OF COURSE. Pwede naman pagsama-samahin yan in one document. Kung hindi ako umuwi. y Kung ako yung SH na nanalo. because he͛s only a proxy. He shall vote against the proposal to amend the AOI. he might be able to elect himself and the other members constituting majority to the board of directors. I went through all those. So other SH would know who are the SH of record issued proxies at a certain time. Because if you are interested to get my proxy. he must own at least one voting share of stock. Airfare na hindi pwedeng hindi business class. Mananalo bigla si Oposa. BUT it does not by anyway bind the sec. ako hindi. Pa-impress ka kunwari. May he sit in the board of directors? Nope. Ano pakialam ko sa contract and authority niyo. Natural gagastusan kita. Wala namang bawal. Is the proxy entitled to compensation? Under the GR on agency. E di boto ang pinag-uusapan natin. Technically. I͛m regretting I have inspired so many students. Even non-voting shares are entitled to appoint proxies in those meetings where they are given the right to attend and vote. Before you embark on corporate practice. The purpose of that requirement is fairness and fair play so that the other SH would know who among the SH are to be proxied. eh magkakacontrol ka nga sa corporation. hindi niyo ako teacher. . Ay punyeta ka. they control the board. mananalo yung manok. In fact. Concepcion? OMG you are just a kid! NY bar treaty with the Phil has expired. Humanap sha kung pano makakakuha ng at least one voting share of stock that will be recorded in his name in the books of the corporation. The court takes your admonition. If you were the SH/principal͛s lawyers. Who will prevail? It depends who you are lawyering for! Honestly (actually legally) can that be done? The answer is no. In practice. Who will attend by proxies and not by proxies. Per diem. they are able to control the majority of the board. but because the proxies they control. For him to qualify as director. but because of the proxies they have. Kawawa naman kayo. many corporations are controlled through this proxy device. The remedy of the SH for breach of contract by the agent is for him to sue the agent for damages if such was suffered by the principal. in violation of the instruction given by the SH. you go through all gamut of areas of law practice. bat mo binoto si Garcia di ba sabi ko si Oposa. then we can assume that CC applies in those situations where the Corporation Code do not provide.g. Petition lawyers. Corporate practice is not the glorified area of legal practice. Bill you for every minute you talk to me on the phone! Pinakain ka na sa EDSA Shang. Yung dapat pinaboboto ni boss ay natalo. Kung 5 members are board. Will that action prosper? DLC thinks no. He must be compensated for his time. Malamig. intended for that meeting where the proxy may attend immediately following the execution of that proxy. So what do they do now? Can you put in the proxy document ͞This proxy shall be valid for a period of 5 years commencing Jan 1. Intracorporate yan so regular courts have jurisdiction. For specialization na yan. In fact. But if a sufficient number was removed and no quorum. The proxy is given to the representative of the corporation who is a natural person. no exception.g. Baka bigla na lang magtransfer ng mga shares dahil nabili na. Pwede naman. hindi sinabi kung 5 years ang binigay but did not say which corporate acts he may attend and vote. para magka-incentive kayo na mag-post grad outside the Philippines. not to a juridical entity. 5 years lang din ang maximum sana. Right no longer arises from a contract but from a legal requirement that the proxy must be executed by the SH. they just remove the votes. You just remove the votes. what is his remedy? Can they ask for the postponement of the elections? Questionable signatures for instance. kailangan ng TRO. Punyeta. So if you want to make your proxy vote in all those corporate acts. UNLESS the proxy clearly provides otherwise. proxy may represent me as my proxy͟? Why not. ͞For all meetings I am absent. Nagbago lang bigla ang isip. he is the king maker of the board. Suppose the proxy is silent as to what the proxy may do. It͛s the SH and proxy͛s business. unless specified in the proxy. Hindi predictable kung sino sino lalapitan mo at boboto. How do we know which meeting the proxy was intended for? Rule is that when the proxy is silent. Therefore. Ordinary corporations are usually just families. When Garcia goes to corposec to record the transfer. on proxy solicitation and validation. Otherwise. In US there͛s no 5 year limitation. May a corporation appoint a corporation as a proxy? No. He always elects the controlling number of the board of directors. Usually. Remedy: paattendin si Oliva at gunpoint. Gay͛s question: What if the proxy is a forgery? Give the Secretary time to authenticate the proxy. Only SH of record as of that date are entitled to attend and vote and the proxies have to be filed on or before the closing date. For fair play. CorpoSec will decline to record because the books are already closed. If not altering. You object.͟ y Is automatic renewal clause in the proxy allowed? Usually. The proxy may only be used at the meeting the proxy was intended for. How may the shareholder revoke the proxy given to the proxy? What do we apply? General principles of agency which states that an agency is 2. intended for the meeting that will be held immediately after the execution of the proxy. If the SH violates the agreement with the proxy. sale or disposition of all/substantially all assets. Corporate secretary should follow the SH. Isang meeting lang. BUT what is the legally correct rule? NB Corporation has no privity of contract regarding the proxy. Compare S58 and S59 on voting trust. . that͛s the function of the voting trust. meeting on April. HOWEVER. y DLC not sure if there͛s a special Phil rule. Pwede yan tawag tawag lang yan. Usually that happens when the SH appears in the meeting for which he earlier appointed a proxy. but every renewal must not be longer than 5 years. Doctrines adopted in the States may be used. Who does he prefer now? SH! It͛s where he has privity of contract. In case of proxies. hindi na rin pwede kasi nga sarado na for transfer and proxy. In pari materiae yan. In the closing date only SH of record as of that date are entitled to attend and vote at the meeting. you must put it in the proxy document. What is the rule? What are the meetings he may attend in case he͛s given proxy good for 5 years? In American practice.g. revocable at the will of the principal unless coupled with an interest. Makacomply ba ang Corporate Secretary? Irrevocable yung proxy eh. problema nila yun. not with the proxy. ako na aattend. especially in case of revocation. If you were the corporate secretary who will you allow to attend? Depende kung sino ang kliyente mo. Is that allowed under the law? DLC has not seen any jurisprudence in Phil law. WON valid interest coupled with agency / irrevocable is not the business of the corporate secretary.58 Why is there such a time? So the solicitors of proxies have time to approach other SH for proxy solicitation letters. NB The provisions of the CC on Agency will apply. can the other SH ask for the proxies͛ disqualification? It has to be in the BL imposing qualification on the person of the proxy (it will be disapproved by a SEC). So if you are given 8 years. 2005. it͛s valid only for the five years. Doms: Conditional appointment of proxy? E. Mai: What if one of the proxies by an SH is from a competing corporation. - For how long/how many meetings may proxy vote the shares? S58 says valid only for meeting for which it is intended. NOT amendment of AOI. Year in year out. Nakuha niya lahat. May that proxy be renewed or extended? Yes. so I will just get proxy. In case an SH contests the proxy of another SH. Corporate secretary cannot take directions from an outsider. they look if the outcome will change. There͛s no such exception in S58. Usually naman open to the public ang mga SH meeting. Jan 30 then only SH of record are entitled to vote and attend. Iba ang treatment pag registered with the SEC (publicly traded). Goes to the secretary. some corporate BL have procedure and time for validation of proxies in case of registered companies. used only for that meeting. E. king maker lang ako palagi but can͛t be king! Sawa na ako maging king maker! Can you make me king of the corporation? Can he become director or president of the corporation although no share of stock of the corporation? Yes. So now the SH of record is still Oliva. 31. the proxy may attend and vote only at the election of directors. Di ko na ituturo yan sa inyo. He is the king maker of the corporation. Voting Trust Oliva has no SH. Not applicable to ordinary corporation. automatic renewal clause in irrevocable proxies because coupled with interest which subsist longer than five years. Jan 25 transfer for him to vote only at Feb 2. no saysay his security device. dumating na ba proxy ko? Burahin mo na. there must be quorum. 2000 ending Dec. Pwede ba marami? Yes. Magdemandahan sila somewhere else. Follow the directive of SH of record. they close the books. At all meetings where election. To be more accurate. approval of investment in another business/corporation. marerevoke ang proxy. However it is automatically renewed for another period of five years. there͛s an EXCEPTION when the voting trust is required as a condition for obtaining a loan payable beyond the 5-year voting trust agreement. He was able to get proxy from the matron SH. UNLESS the proxy provides otherwise. they give you voting trust. y Implied results from the acts/intentions of the parties without having expressly agreed to create a trust. 1442 The principles of the general law of trusts. Not Notary Public dahil may acknowledgment certificate na yan. walang ͞OTHER͟ Rights. a certified copy of such agreement shall be filed with SEC and the corporation. specify the terms and conditions. Nakalagay yan sa Campos. In both common law and civil law. The person who creates the trust is the trustor/settlor. the Code of Commerce. y Basahin ulit ang corporation code from S1 to last and tell me what are those other rights that a SH may give to a VT. certified copy filed with the Corporation and the SEC. Beneficial ownership is retained by the SH. I can make you president even without share of stock. insofar as they are not in conflict with this Code. has the SEC power to disapprove or to disallow the VTA? Is the filing with the SEC ministerial? May the SEC reject the VTA? Nowhere in S59 is approval of the SEC a condition for the effectivity of the VTA. But he͛s not merely an agent. there are two components of ownership. having legal title over the shares. Pag nasagutan niyo yan. These VTA may become a means to commit that crime so you need to file it with the SEC. y What will make the contract unenforceable? Not being notarized or not being filed with the SEC? Hindi naman tatanggapin ng SEC kung hindi notarized. is he qualified to run for director? YES. Reform introduced by the new corporation code. It says with the corporation AND the SEC. Wala silang sinulat kasi. we divorce the ownership of the shares. Hindi mashadong pinagtutuunan ng pansin. legal title is given to a trustee. and has been filed with the corporation and with the SEC. Baka naman yung RTC which has jurisdiction over the commission of the notary public? Mashadong farfetched yan to include the court here. For a VT to be effective and enforceable. Why? To allow a voting trustee who is holding legal title not in his own right but as trustee to qualify for director. What are those other rights that may be given to a trustee? GR The VTA is the law between the parties. General. The original owner separated legal title giving to a trustee and he retained the beneficial title. When a VTA is executed. Pahinging CC. Give one to other and then another to another. Pero mashadong kaunti yung provisions. In trust. whatever right a SH may be entitled to we shall go there later. In the US. Who will certify the copy of the VTA? Not the SH nor the trustee dahil nakapirma na sila dun. Why? Because any other SH who may become interested to be a trustor in favor of the same trustee may join the VTA. there is a title devoted to trusts.59 For a fee. What is voting trust? In civil law. In voting trust. Art. In fact. A trust is a special relationship between the trustor and the trustee on the one hand and between the trustee and the beneficiary and between the trustor and beneficiary on the other hand. Pag sinabing voting trustee having the legal title. the shares of stock will be transferred in his name as trustee. Owns the property and divorces the components into two: legal title and beneficial ownership. a trustee in a voting trust agreement though holding title to the share of stock was not allowed to run. yun ang ating susundin. you will be disappointed. Exercise of appraisal right. Trustor may be the beneficiary. That was one of the areas of controversy settled by the new corporation code. the cestui que trust/beneficiary. be voted for or sit as a director. notarized. it has to be open with the public so that there͛s transparency. what are the requirements? In writing. But that͛s not the case. it͛s violative of the anti-trust laws. There are two primary types of trust: express and implied. y Express ay talagang pinagkasunduan. Gives the title to another party called the trustee who shall hold the property for the benefit of a 3rd party. If you will look at our CC. Any other SH may transfer his share to the same trustee upon y S58 only says voting. What is the purpose of filing with the corporation and with the SEC? Filing with the corporation y to notify the corporation that legal title over shares of SH had already been transferred to a voting trustee in accordance with a voting trust agreement y to notify other SH of the corporation of the existence of such VTA. there are three interests. The trustee therefore. Naked or legal title and beneficial title. we can divorce those to components. imposibleng bumagsak kayo sa Corp. As trustee. Under the old. S59 seeks to regulate the creation of VT because it might violate the provision of RPC on illegal combinations in restraint of trade. Ihohomework ko sa inyo yan. PHOEBE CORAZON!!! What is the relationship between trustee and SH in a VTA? Trust is the juridical relationship where___ at common law. So in a voting trust. holds legal title for the benefit of the beneficiary who is also the trustor. NB that a VTA may lend itself to the creation of combinations in restraint of trade. Must own at least one share of stock in his own right. it͛s a common . like what happened in the Standard Oil v Atty. Legal title goes to the voting trustee while the beneficial title is retained by the SH. But it really is the filing with the SEC and corporation that will make the contract effective and enforceable. Title V of the NCC and it has a (n) because it wasn͛t there in the old CC. Under S59. monopolies. So who will certify? If the provision said that a certified copy filed with SEC. Tinanggal yan under the new code. unless illegal. Document/agreement that will implement the separation of two components of ownership: ͞voting trust agreement͟ (hereinafter. There are nitty-gritties which have to be complied with by the trustee and by the SH for the validity and enforceability of a VT. it͛s the corposec who will certify upon his receipt and then transmit to the SEC. It didn͛t say ͞when approved by the SEC͟ like in the bylaws which shall be effective only when approved by the bylaws. Instead of proxy by the matrons. 2 February 2011 HAPPY BIRTHDAY. We don͛t have that law but we have a crude precursor in our RPC which is illegal combination in restraint of trade. Kung ano yung nakalagay sa voting trust. a trust relationship is a special kind of agency where the trustee is an agent. it͛s always coupled with an interest in favor of the trustee. the Rules of Court and special laws are hereby adopted. To DLC͛s mind. VTA) What rights are given to the trustee and what rights are retained by the beneficial owner? What does S59 say? Dzconferring upon a trustee or trustees the right to vote and other rightsdz law institution. If you have read the annotations of Philippine civil law writers on trusts. SGV. It hasn͛t become an issue but lawyers do that already. even if 3 years. is it still valid til the fifth year? Answer depends on intention of the parties which may be embodied in the contract. Walang maximum limit. what͛s his evidence that he has beneficial ownership? Voting trustee shall issue voting trust certificate. Not even the BIR can compile all those. The law does not require the performance of an impossible act. Last paragraph of S63 applies only to absolute transfers.60 the same condition stated in the VTA and thereupon be bound by the provisions of same agreement. Isa lang na institution ang complete niya. Name of the SH has to be cancelled in the books. punyeta ka bat mo binebenta to? What about the SH who created the voting trust agreement. SH may still create voting trust. We go back to the purpose of filing. If you will go to corporate practice. in case of VT specifically required as a condition in a loan agreement. Para lang mabulgar sa publiko. the VT should also be gone. tatanggapin niya lang yun. The law requires that new certificate has to indicate that the certificate is in the name of trustee as a trustee. y What if SEC examiner thinks it͛s illegal combination in restraint of trade. Some security arrangements not allowed for certain transactions. But since he couldn͛t comply with requirements of S59. What if the SH transfer the shares to a bankrupt party. Voting trust certificate shall be transferrable is same manner and effect as certificate of stock. Muntik ko na maging project yan when Liwayway Chato was Commissioner of BIR. BIR also has its own opinions. Kung hindi nila iwiwithdraw. hindi kayo makakaiwas sa mga areas and practice na ito. ERGO if the contract involves obligation other than loan. pero pag nag-extend ng 5 years at nabayaran na ang full loan. does he have power to reject? DLC͛s opinion: since the law does not give power to reject it. Filing with the SEC y not only to notify the SEC about the existence of the document (VTA) but to make available to the public the VTA for public scrutiny so that if the VTA creates an illegal combination. Also the rulings and opinions of Monetary Board. therefore VTA may be valid beyond 5 years. may transfer his beneficial ownership to anybody. So fourth year pa lang. it also has provision on renewal AND there͛s an exception which allows the agreement to live longer than 5 years. Magic words here are ͞specifically required͟ and ͞condition͟ without which or sine qua non condition for the loan extension. How is transfer of legal title in favor of the trustee effected? Surrender the certificate of stock of the shares covered by the VTA. DLC: Who provides it? The bank. Here in VT. Can it be 20 years? Mukhang pwede. Suppose the share of stock is not yet fully paid. The life of a proxy is valid only for five years. In which case the VT will be for a period longer than 5 years but will automatically expire upon full payment of the loan. Kayo na bahala kung maghahabla kayo. Bakit ganon? So that the SH/beneficial owner. Share shall be recorded as having been transferred to the trustee. BUT if not yet fully paid and not yet certificated. which is the most important opinion in this class: Whether right or wrong. tapos na. 10 years loan but on the fourth year. Pero hindi ko na itatanong kasi dinidiscuss ko na. But there is also S72: Holders of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder. Since that͛s the case. Collateral niya yung kanyang shares of stocks. So you need four volumes of manual from CB. Collide ngayon ang 72 and right to make a voting trust agreement in S59. the provision on surrender of certificate will only apply if the share is already FULLY PAID and is certificated. The problem in law is only in loan agreement. the certificate has to be cancelled and new one issued in favor of trustee.e. What͛s the issue now? May a SH whose shares are not yet fully paid create a voting trust? Naitanong ko na sa exam dati yan. What are obligations other than loan? Equipment payable on installment is not loan. then the provision on surrender of shares will not apply. the entire balance was prepaid. height of sir͛s Tax . What about last par of S63? Non-transferrable eh itatransfer mo sa pangalan ng trustee? DLC: transfer in S63 refers only to an absolute transfer aka transfer of absolute ownership. I have pointed out to you the 5 yr limit on the life of a voting trust when we discussed proxies. you put this in your bluebook. HOWEVER. Mapupurnanda ang claimants of the corporation. You look at the provision of CB. Why is transfer of shares in the books of the corporation when the corporation has an unpaid claim on the share prohibit in the first place? Mawawalan ng habol ang corporation sa transferee. But what they usually do is write to the parties informing them of the finding that the agreement is violative of the illegal combination provision of the RPC. Loan is payable in 20 years. automatically disappear the VT. precisely to avoid having to pay the balance of the subscription. Why surrender? Kasi tinatangal niya yung title sa pangalan nya. hindi magapply yung extension of period beyond 5 years. You go back to S63: No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. Mere transfer lang. How about the voting trust. baka ibenta niya. Our issue then during discussion of proxies was the ͞automatic renewal͟ provisions on proxies. How about in case of prepayment. Baka kung pangalan ng lang ng trustee. SEC will file the necessary proceeding kung kinakailangan. Walang sinabi si Campos dito. Sale and then unpaid balance? What if it͛s just rent? Natanong na rin sa exam yan. you should have spotted a problem. no certificate of stock yet. Mahirap itong last part na ito no! The assumption of last part of sentence is that the loan payable longer than 5 years. RJ raises the issue of revolving credit line. Even if not fully paid. Trustee ka lang pala. SEC will forward the VTA with its reports of findings to the prosecutor͛s office. Kung talagang tied up lang ang VT in the repayment of the loan. there is also a five year limitation on the life of a VTA. therefore. If you are smart. More on this later. BUT if the examiner is convinced. and cannot transfer unfully paid shares in the books? DLC opinion. Ako magchecheck eh! Saka na kayo mag-isip ng ibang sagot. that will be discovered and proper remedy may be instituted. So that the public dealing with certificite would know that the trustee has the shares in his name not in his own right but as a trustee. For the same reason in the case of appraisal right. Revolving credit line is a loan. Who executes the VTA? SH who is accommodated by the bank. i. Maski ano kasalanan niya. Talagang tutok sila jan. So kinacraft ang VTA to include the grounds for trustee͛s removal. Kung ano man yun. When those grounds are enumerated. Yun ang binabayaran sa lawyer. What can he confer? 1. you will be amused that the room is very wide to escape coverage of law. the solution is easy. You must be very creative. As a GR. Usually para hindi humaba ang VTA. it will remain a VTA if the features of the VTA are intended to be created between them. Case in the Campos book: No matter what the parties call the contract. Can they ask for the invalidation of the VTA simply because trustee having a sufficient number of shares to dominate the board has transferred his right to VTA to a competitor? Sa totoo lang. ngayon king of the corporation na. Gamit na gamit yang dalawang yan. Kung hindi kayo naliliwanagan. In the books of corporation. ͞Trustee may be removed under the general principles of trust. death and removal. it has to comply with the filing requirement with the corporation and with the SEC. does he have the right to do it as legal title owner? In case the VTA provides for the conferment. Right of inspection Unless so conferred. nakikiusap pa kami sa SGV. 2. does he have right to inspect? Meron din. hindi rin effective. Sa ngayon. hindi rin payag na basta tanggalan ng kanyang right under the VTA. magagawa niya yun instead of VTA . compile. Otherwise (i. isusurrender ang mga certificate.61 practice. the trustee may be removed.͟ Ganito usually ang nakalagay.e. There are provisions in the CC on how the contract of agency shall be terminated. no filing because it͛s not called VTA). There͛s another one. Si Oliva nilokoloko lang ang matronang SH naibigay tuloy ang mga voting trust. Last. how about the beneficial owner. Miron lang nung una. your next problem is how to attack a VTA? If you are not party to the VTA. you will just be a complainant/witness. ͞Any other SH may transfer his share to the same trustee͟ Nakita nung SH on file yung VTA and he thought it was nice so he wants in. Kasi inauthorize mo sha. there͛s a catch-all in the ground. The name of the trustee is recorded in books as owner of the legal title to the share. 2nd to the last par was inserted to prevent technicalities that may arise when a dispute arises between the trustee and the beneficiary. hindi nawawala yun. Consider the proxy as an ordinary contract of agency. do you have standing to sue and question the validity of the TA? y y Kung krimen yan. RJ͛s question: Can the bylaws provide for the rights which can be given through VTA? No. In the old Corporation Law. So the drafting of VTA. may standing ka. Baka lang kasi maitanong ko sa exam. punyeta ka mahirap kang kausap!͟ Kung pwede pala magrefuse. pwede tanggalin. What about in VTA? Ayaw na natin sa pagmumukha ng trustee. 4. bat pa ilalagay ang provision na ito. Relationship between trustee and SH-trustor is fiduciary character. 1442. In practice. How do we replace him? The contract is the law between or among the parties. hahanapin na lang kasi ayaw nating humaba ang kontrata. Unless expressly renewed. Why does this provision exist? What is the implication of the insertion of this provision in this paragraph? Does this mean the trustee cannot refuse another SH also interested to join? The trustee. Since 20 years ago. how is he changed when he dies? Or may he resign? May we even remove him at will? In proxy. Suppose the VTA is silent as to the following matters? Apply Art. 3. The moment the benefiricary trustor loses his confidence in the trustee. Continuing project that will do nothing but compile BIR regulations. It͛s a contract therefore consensual. merong MOA which shall recite all the intentions. pano yung beneficial title holder? Pang-exam na lang siguro ito. You have to sit down with two sides to find out what their intentions are in creating the VTA. When the trustee and beneficiary fights. all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period.How can original SH recover his shares? In the absence of the 2nd to the last par. Appraisal right This must also be expressly conferred to the trustee in the VTA. what does he surrender. voting trustee is not allowed to run for director because of the deleted phrase ͞in his own right͟ Reason for suppression: Give the voting trustee legal right to run for director. because he holds legal title in the share. can he run as president and director of the corporation? Yes. and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed canceled and new certificates of stock shall be reissued in the name of the transferors. if the competitor bought shares of stock. Wala daw silang pera. Pag nag-appraisal right yung trustee. shares are listed in the name of trustee. Kaya nagiging control device. sorry na lang. This is internal between the trustee and the beneficiaries. Eh wala ring pera si DLC. The shares of stock have been cancelled in name of SH. For that relationship of VT to be effective. One of trust. VTA is just an implementation so that when the VTA becomes subject of dispute. that͛s restriction of freedom to contract. he͛ll need to go to court. In practice. But usually. If a crime was committed in the creation of the VTA. Therefore. The trust agreement therefore may provide for instances or grounds for the removal of a trustee. May the trustee and the other trustors/SH who created the VTA refuse? ͞Ayaw namin sayo. yung homework niyo. pinag-aaralan yan. only law can restrict rights of SH in dealing with their shares. May also provide for the manner to replace a trustee. Lagi kang may standing. . how to return the shares of stock in the name of beneficiary the original SH. But if it͛s not crime and the VTA is not filed with SEC and the trustee voted in a SH meeting. Can we say that do not count the vote of the trurstee because not filed with SEC? SEC Opinion: Yes. It may also provide for the scope of authority of the trustee. Yung trustee. BUT this is not a uniltateral agreement so the trustee agrees because he gets benefit out of his giving legal title over the shares. General principles of trust apply. the trustee cannot be removed except for those grounds. Complainant ka lang jan. Maski ano itawag nila jan. Pero ang sinasabi natin. May magaling at may naggagaling-galingan lang. Preemptive right is also one. What are those other rights that may be given to a trustee in a voting trust agreement? These other rights must be conferred. Kaya meron na ngayon nun. Hindi yan bastabasta kinukuha sa form book. always refer to the MOA which tells in minute detail what the expectations and intentions of the parties were at the time VTA was entered into. because every SH has right to invoke S59. It also provides the replacement procedure in case of resignation. BUT There͛s a problem here. walang ibang ginawa kung collect. Pagawa na lang natin sa Law Center. with annex and index. Ayaw pumirma ni trustee at lumipad to US and there died. pwede. court will uphold the validity of the agreement. Entered into by the corporation with another entity for the latter to manage the business of the corporation. there usually are SH agreement wherein it is spelled out who will elect who. To do so. hindi invalidated ang contract. MANAGEMENT CONTRACT I also don͛t know how it becomes a control device. Innominate contracts are valid as between parties even if has no name. Tapos na ang proposal pag bumoto ang isang miniority. The corporation and other SH were not privies to the SH agreement Oliva entered into with group of SH. But before the meeting. AFTER the casting. It can be done by specific performance BEFORE the breach is committed. Tayo lang ang may voting shares. I do. you need control. For as long as nothing in SH agreement is contrary to law. devices affecting control. Even before we classify shares. Kinakabahan ako! What is the effect when requirement under the law is not complied with? Unless law specifically says invalid. CUMULATIVE VOTING For DLC. Marami di nakakaintindi nito. minority becomes powerful. Camposes meant at the time that corporation control was not yet in issue. gamit na gamit yang SH agreement especially when the project is a joint-venture. You don͛t invalidate the VTA. BUT it is double-bladed. Pag JV. This is available to everybody. Siguro. But actually. The court will order not the SH but the corporate secretary to cast the votes of the SH in accordance with the agreement. Ringling v Ringling: They can enforce by specific performance. As a rule. it will prejudice third parties who were not privies to the agreement. they disqualified by bylaw provision for the running of director the people representing interests in competition with the corporation. That͛s also the restriction on transfer of shares. In power na tayo. Tender offer to be discussed in detail when we reach Securities.62 which is cheaper. Only us will be able to run the affairs of the corporation. how many will sit in the board. You can only amend AOI to classify shares if you already have control of the corporation. Disqualify the enemies para us lang nakaupo. POOLING or VOTING AGREEMENT (Stockholders͛ Agreement) See page 80 of Magic Notes. only three devices affecting control: Proxy. mamili na lang sha. presupposes control. FOUNDER͛S SHARES Only device to keep controlling interest in power. let͛s change the AOI and classify the shares. Yan naman ang device to keep power to themselves. Manner of casting votes in election of director. RESTRICTIONS ON TRANSFERS OF SHARES Restrictions are in the AOI so we amend the AOI. there are SH who have bad intentions. SH can sell to anybody. To DLC͛s mind therefore. PRESCRIBING QUALIFICATION OF DIRECTORS. but make a bylaw provision disqualifying for director if representing interest in competition with the business of the corporation. What contracts must be notarized? Donation of immovable (must be notarized) DLC: Wala kayong natutunan. can they compel by specific performance the undertaking to vote for a single slate? Can the court compel the SH to honor his agreement and cast his votes in accordance thereto? Kung hindi sumunod si Oliva. we can͛t do that. But it presupposes control of an interest in the group of a corporation that will hand over management to the third party. not . do kita. Also the same pag quorum requirement is high. even if competitor. Bec it will simply give minority interest the chance to elect at least one director. You do. But devices to keep controlling interest in power. Pano magiging control yun eh one director lang yun. Pwede rin sabihin na it͛s just a device to keep controlling interest in power. So nagpaclassify na ng shares. Kung may pera. para di tayo mapalitan. CLASSIFICATION OF SHARES Not also a control device. All they have to do is not attend the meeting. 4 February 2011 3. icocontempt ba sha? Nakacast na ang vote niya eh! There͛s a case. VTA and SHA Mr. What is the remedy now? They can͛t have specific performance. we need control of the corporation in the first place. Pelaez: Should SHA be in writing? As GR: Contract need not be in writing to be enforceable and valid. it͛s not really a device affecting control. In practice. Issue only non-voting shares. EXCEPTIONS: Require compliance with for its validity and enforceable. classification of shares may be considered as a device for the controlling interest to hold on to power. It should now be rescission plus damages. Ang sama ng dating. Do mo ko. UNUSUAL VOTING AND QUORUM REQUIREMENTS same thing. It may become a device to keep controlling interste in power on a case to case basis. Pag mataas mashado. BUT Gokongwei v SEC in case of SMC. I thought it was unlawful so I abstained. y Underline: ͞patently unlawful act͟ What does that mean? I͛m sure you know what the word patently means. Therefore. Pero kakaunti naman yun. . damages have to be proven in court. eh pano magbibigay ng order ang corporation which is without physical existence? Many things in law are just make believe. Pag wala kang ginawa to protect the corporation͛s interest. Eh sir. How about S144? It͛s penalized under the Corporation Code. if he lets that be. Para mo na ring sinabing walang kaduda-duda na illegal yung act.000. This is patently unlawful. Nakikita sa mukha. A corporation may also be criminally liable and in case pronounced guilty. A breach of duty in S31 may be penalized by imprisonment. He who alleges to have suffered damages must prove the injury and the extent of the injury. be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided. if you will look at S31. it depends if the unlawful act is criminal. hindi mashadong gamit itong duties of directors. Sir. you are considered to have assented to a patently unlawful act. further. dapat irepeal ang S144. Why? Because it͛s not enough that there͛s doubt. they do have duties. Are you absolved of the breach of duty? I even voted against! Will that absolve you? There͛s a body of AmJur that because of duty of diligence. If there͛s doubt that it͛s illegal. Hindi pwedeng nakaprogram ang corporation dahil puro lawful lang orders nun. I cannot recall any case for criminal liability for a mere breach of duty. Otherwise.00) pesos OR by imprisonment for not less than 30 days but not more than 5 years. that illegal act is not the act of the corporation. Not penalized by any other law. When do we say that a director has breached his duty of obedience? Nakalagay sa S31. not because of a private interest but because of public concern. Liable din yung director not under S31 BUT under the law making the act criminal. Of course. The director therefore must obey only the orders of his corporation. Duty of obedience: Dzwho willfully and knowingly vote for or assent to patently unlawful acts of the corporationdz Duty of diligence: Dzwho are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporationdz Duty of loyalty: Dzattempts to acquire or acquires. he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporationdz It says there ͞vote for͟. bihirang kaso itong S31. For breach of duty. In the Philippines. In fact. The corporation is programmed not to give an unlawful order. Sabi ni Salonga. not really breach of duty. the same may. has a fiduciary relationship with principal who is the corporation.63 CHAPTER VIII: Duties of Directors and Controlling Stockholders DUTIES OF DIRECTORS Duties of directors are in S31. You have to be diligent to ensure that though there is a doubt. Cannot give any order that is contrary to law because the corporation is a creature of the law. he shall be considered to have assented to that unlawful act.g. director͛s duty to question a patently unlawful act does not end upon casting of vote against it. This is not arguably illegal. Matapos sabihin sayo yung duda. sino na papasok sa kulungan? This is the new school of thought. Violations of any of the provisions of this Code or its amendments not otherwise specifically penalized therein shall be punished by a fine of not less than one thousand (P1. as to which equity imposes a disability upon him to deal in his own behalf. the director will incur the criminal liability. y Underline ͞willfully͟ ͞knowingly͟ and then encircle yung AND. trustee or officer of the corporation responsible for said violation: Provided. Magulo pa yun. it cannot harbor. nag-abstain nga po ako. It͛s far from the intention of the framers of the code. you need to get legal opinion so you have kakampi. after notice and hearing. mas malakas ang position that it͛s lawful. it must be fined and it can pay the fine. he is in breach of duty. nag-import ng shabu. cannot implement an act which is contrary to law. It͛s not the intention there. there is a corresponding liability. BESIDES. Every crime committed in its name is committed by person representing himself as acting on behalf of the corporation. If you did not do it. That such dissolution shall not preclude the institution of appropriate action against the director. Otherwise. hatch. any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence. sasabit din kayo. Every order of the corporation must be a lawful order. Pag napatunayan na importation was done in the name of corporation. In case a director is in breach of his duty. Why are there such requirements? Framers of law know that there are acts which are arguably lawful. May duda. The director is an agent. Suppose the act is illegal but not criminal. ERGO. Director has duty of diligence. if an act which is illegal was committed in the name fo the corporation. Therefore. papasok naman yan sa negligence. Program na yun. What does patent mean? Maliwanag pa sa sikat ng araw na unlawful yung act. If the violation is committed by a corporation. in violation of his duty. you are still in breach of duty. what͛s the consequence whenever a director breaches a duty? It only says ͞shall be liable jointly and severally for all damages resulting therefrom͟ That͛s the only effect under S31 resulting from his breach of duty. he will fall under ͞assenting͟ to.000. since it cannot go to jail.00) pesos but not more than ten thousand (P10. Baka siguro. He has to do more than casting a vote to resist it. in the discretion of the court. or both. E. If it is and it is imputed as act of director. DUTY OF OBEDIENCE Every director should pay his master. Magkasabay. do we sue the corporation for criminal liability? Naconvict. Hindi lang dapat OR. The corporation is programmed under the law to give nothing but an order consistent with law. That nothing in this section shall be construed to repeal the other causes for dissolution of a corporation provided in this Code. DLC͛s opinion (which is the correct opinion) hindi ganon ang intention of S144. BUT if the illegal act is criminal act. The violations of the code are violations of acts required to be done under the law. Mas okay yung classical theory that a corporation cannot commit a crime. what is the effect? May kulong ba if in breach of duty? Is there criminal liability? I want to direct your attention to S144. Hindi sinabi sa section but impliedly. Since corporation is a creature of the law. Whose act is it? Act of the director. The duty of the director does not end in his casting a vote against it. If a director willfully and knowingly vote for or assent to a patently unlawful act. The other. The erring director is hereby ordered to indemnify the corporation that amount. may malaking pag-asa na kikita. they already added something here.͟ That was a controversy in US before. You can͛t sue for breach of duty for taking a risk because it͛s a business decision. the bigger the profits. Sha ang tatamaan pag lahat ito ay sumunod lang sa kanya and the decision given to nominees was grossly negligent/bad faith. Running a business for profit always entails taking of risks. They͛re not automatically declared as dividends. Can the director say ͞Okay. That͛s wrong. Tama ang decision nila. there are two lines of cases. It͛s allowed in common law because common law courts have equity jurisdiction. but since I͛m SH. The court has no business substituting its judgment for the business judgment taken by the board. The second line of cases that is the correct one. Pwede ba sha kumuha? DLC opinion: Yes. The director pays but deducted his share. That case is a landmark case in US corporation law. A SH therefore who suffered damage from a breach of duty is entitled to recover his damages from the erring director. They don͛t see the market condition. may a SH sue to recover damages on the ground that director erred in deciding a business call? No. When you pay damages. The bigger the risks. The problem is how the SH will enforce his damages against the director. Nung ginagawa nila ang decision na yan. not entitled to reduce the amount pertaining to him as SH. not only risk of their own but all the other SH as well. take calculated and reasonable risks. Writers would say: Yes. These nominees. Those damages paid to the corporation. Until declaration of dividends. Running the business belongs to the board. Here in the Phil. Suppose the corporation was able to prove damages. the courts can become the managers of the business. The controlling interest has a duty. Sana kung pera mo lang mawawala pag nalugi. That͛s the general principle of corporation law. I pay P50M. there͛s collateral damage to SH. Can SH say. So the conservative investors eh mashadong conservative din ang kita. hindi dapat ganun. Taking of a risk may be considered simple negligence. That͛s our GR. One they allowed the director. And also ͞or bad faith͟ Why not simple negligence? Baka wala nang magdirector ng company. Kaya kayo nagka-dividend dahil nagbayad ako. BUT while the directors are given the authority to take risks in running the affairs/business of the corporation. y What words should you underline? ͞gross negligence͟ it can͛t be simple negligence. he must show that the director breached his duty to the corporation and the damage suffered by SH or third party was a mere collateral damage resulting from the breach of duty. its SH and other person. There͛s one exception: case of Strong v Rapide. Kung malulugi or kikita ng malaki. At the time the decision was being taken. hindi maliwanag na malulugi. what͛s that? All decisions in the board are taken by the board. In US. There͛s a human relations side. May problema tayo jan. But for him to be entitled to damages. data. SH cannot make pakialam. Tangay down the drain even the money of other SH. The moment na pumatok ang risks na tinake nila. EXCEPT when there are special facts. Director will now pay P15M because the judgment became final and executory. These three duties are owed by the directors to the corporation and not to the SH. We follow the principle that directors owe these three duties to the corporation NOT to the SH. A director cannot be held liable for making a business judgment. director was not allowed. ganun din ang boto nila. pwede na. later on nalugi. Pero may mga risk-takers din. Ganito dapat! May the SH sue a director to recover the damages on behalf of the corporation for taking a wrong decision? What͛s the GR here? Not needed that every decision of the director is right. This is the ͞special facts doctrine.͟ WON facts are special enough to warrant an exception is address to the sound discretion of judge. you can͛t collect anything. However. as a consequence of breach of duty on the part of an erring director. Kanino mapupunta yung P50M? Sa corporation because it͛s the corporation which claimed the damages. is the erring director entitled to get his share? Sakin galing yan. Dapat director should breach his own duty to the corporation. Because you are entitled only to the dividend. What is his personality to complain if the duty is owed to the corporation? DLC says: S31 is the basis of his personality to sue for damages. Oo nga. natural kung ano idikta ng principal. . when the dividends are declared. They don͛t have forward judgment. They should have due diligence. join the dispute in the US. Hindi pwedeng wala yang kasong yan. Judges are always looking back. alam na nilang malulugi sila. that͛s what you call ͞business judgment rule͟ Wait. Otherwise. Pero okay na kasi sa kanila yun. Don͛t allow deduct from damages he is ordered to return his dividend. dahil yan sa decision nila. it͛s very common to have a very rich investor who will invest in shares of stock of the corporation and then elect his nominees in the board. translate yun to bigger profits for the corporation. a SH may suffer collateral damage. DUTY OF DILIGENCE Guilty of gross negligence or bad faith in directing the affairs of the corporation Called ͞bonus pater familias͟ good father of a family. In the Philippines. when he breached. DLC͛s opinion: we should not meddle. you can͛t deduct because it͛s not dividend. Our principle here is that director and SH is not entitled to anything from the corporation except for dividends. I will deduct what I should get as a SH. Latest pronouncement of SC: nakaattend ng MCLE ko ang researchers nila. Pag nagbasa kayo ng corporation law written by American courts. Court says: the corporation was able to prove damages in the amount of P15M. may kasalanan ka kasi. Then that SH is entitled to damages under S31. What are the exceptions? When they are grossly negligent OR in bad faith. What͛s the doctrine? Exception to that rule that the directors owe those three duties not to the SH. Walang forfeiture of dividend as penalty under S31. mali ang decision niyo.64 Kaninong damage? Who is injured? Suffered by the corporation. are they available for distribution as dividends? Assuming they are. Bad faith yun. In case of S31. the directors should not be reckless in taking risks. Kaya lang nasabing mali kasi nalugi na. That͛s the only instance where they can be in breach of duty. Directors are charged with responsibility to direct the operation and affairs of the corporation. This is a Philippine case that reached the US SC. etc. Always vote in favor prevailing party. Student ko yun. Kung malaking-malaki na potential liability mo. attend meetings and if it can be shown that it is his failure to be so informed that he cast the vote that resulted to the loss of corporation. Isampal niyo yung batas. It͛s not always like that. guilty of disloyalty. the ballot boxes do not look the same anymore. Nagdudunung-dunungan. Baka in the future. Tumatawa ka. Read the code again. When will a director be dealing with himself. masama nasa isip mo. Tuwang tuwa si Garcia na self-dealing si Oliva. Is a director prohibited from contracting with his corporation? No. Pyramid scam corporation. they can be sued in their personal capacity? Of course. Suppose Oliva is not a nominee of anybody. It is only definition of one: investment contract. Self dealing director Dealing with himself. Look at each and every section what those conflict situations are. When I was SEC Commissioner. Papatawag kayo tas hindi maniniwala. the lights went off. parang ikaw. He wanted to become a director so he ran. Humingi na rin ng SURETY who shall pay it and will make habol your client. Yes sir. That͛s the general principle: conflict situation: The Corporation Code however. In the US. Corporate secretary na wala kayong minutes na nakapirma sila lahat. Yun nga lang. Conflict between interest of the corporation. Obsolete naman bigla. Gagawa ka na lang rin lang ng kasalanan. HOWEVER. It happens when a director proposes a contract with his corporation. Di mainitindihan kahit ipaliwanag mo. wag ka papayag na indemnity agreement lang. Kala nila kasi mga hari sila dun. Dalawang alumni na batch 80 na nakakulong ngayon dahil corporate secretary sila. pipirma ka. INGAT KAYO JAN. Pumayag ka lang kung merong INDEMNITY AGREEMENT. When you become lawyers. Kabisado namin ang Consti. kayo ang boss ko! Senators don͛t realize that when you are there investigating. Because of this reality. How the duty is breached? There are requirements. Duty to inform himself of matters important to the running of the corporation. Bought his own shares of stock but his shares are not enough to make himself a director. the contract of a director with his corporation under S32 is voidable. Ayaw maniwala sa opinion na tama. he is liable for breach of duty. Protect your career. Wala niyan dito. may problema sha. The corporation code enumerates certain instances where conflict of interest is present. bat ka nangahas kung walang kakayahan mamalakad ng corporation. Wag mashado malakas ang loob. When they lighted the candles. she͛s our promoter. In short. Identify the situations which present conflict of interest between interest of corporation and that of the directors. wala akong kinain kundi mura. In fact. director tapos liable for damages worth P20M. Akala nila hindi ka maglalakas loob sumabak. The director must be loyal to his master the corporation. But in the board. that͛s a rare situation. Secretary certificate in a meeting that was did not take place. Director ka. Prof. 9 February 2011 HAPPY BIRTHDAY. You can be personally liable. When will this happen. it has none. Carino brutal. magdischarge ng functions of director. the client shall be the one liable for it. Ayaw mag-budge. Yang paper minutes na yan. Perfecto Fernandez. They want to define ͞securities͟ itong dating chairman ng senate committee nakabasa ng kaso na may definition ng security tas inadapt niya. The interest is in conflict with corporation. firms will ask you to sit in board of corporation as nominees of important clients. Not the definition of security. NEVER ASPIRE TO BE A DIRECTOR. never dream. Patay na yung Senador na yun. he chooses his personal interest over that of the corporation. Wala ka naman palang intention na mag-aral. If you do so and corporation suffered damages bec of negligence in not performing diligently. he should read reports. Under oath. yes sir. interest and that of the corporation. It does not necessarily follow that a director unduly takes advantage of his corporation whenever he enters into a contract. The corporation suffers from such breach of duty. he must be loyal to his corporation. Pero iniwan niya yung mali niya sa batas. Swing vote. Corporate secretary. minimize the profit to help the corporation realize bigger profit from the project. Whatever damages awarded against me for a decision which was requested by the client. gawa ka ng back-up. Sanidad was COMELEC Chair. Kala nila alam nila lahat. To be loyal. Bastard. Pag nailista niyo lahat ng conflict situations. CK͛s campaign: If we͛re a corporation. the code does not prohibit the director from contracting with his corporation. That͛s GR: Whenever a director enters into contract with a corporation. FRANCES YANI!!! S31 gives us the duty. Hahahahahahahaha During Sir͛s time.65 Yes. the director must always choose interest of corporation over all other interest. Contract corporation to give the corporation to give it maximum advantage. papapirmahin ng resolution adopting a corporate resolution. Parang Noynoy yan. 1. mawawala yung account. hindi ata nakinig sakin. naipanalo with the help of votes given by other SH. he is disloyal. Sign everyone else. his contract is voidable. Pinatawag ako as an expert. You bastard KBL. imposibleng bumagsak kayo. What comes to mind when you hear the word dealing? ͞Deal͟ parang contract no. Wala naman ganung qualification. Nung teacher ko sha. Diniktahan ka lang ng client. there͛s a liability. Nominee ka lang jan. Why is this self-dealing? Why is there a conflict of interest? There is a conflict of interest because a director who proposes a contract has a DUTY OF LOYALTY Like in first duty of obedience. ipamumukha sa kanila na public servants. But this is not always the case. Papirmahin niyo yan. Bastard. he͛s always absent. While they were canvassing the votes. Pati tender offer di rin nila alam. Iisa-isahin niyo yan. di mo kasalanan. Wala pa nga yung breach of duty. obedience to his master. Walk-out ako. Lakas ng loob tumakbo eh hindi marunong bumasa at sumulat. 1973. But they have recourse. Naging nominee. Some directors take advantage of his corporation by proposing contracts which are disadvantageous to the corporation and unduly advantageous only to the director. If he doesn͛t. you are liable for damages. they can sue their principal. for there to be disloyalty. Bagsak presyo. gives us the conflict situations. Dahil 4:20 na. gagawin na lang nating homework yan. dapat may conflict situation. Ingat din. Gross negligence. Otherwise. the director is liable for damages. Let us discuss them one by one. Si Oliva. third party and the interest of director opposite to interest of the corporation. When is he disloyal? A director is guilty of disloyalty when confronted with his own . A director acquires a personal or pecuniary interest. We have discussed last meeting that whenever a director chooses his interest over that corporation. lalo pang pinalabo ng ͞circumstances. through his contract. the contract is not valid. He advanced his own interest to the prejudice of his own corporation. Nasisindak lang tayo sa halaga. what is the prescriptive period? To enforce = 10 years. the vote taken by them is presumed to have been done properly and regularly. So we enter into a contract today dully approved by the board. vote of such director or trustee was not necessary for the approval of the contract. Sayang naman ang ginagasto niyo ditto kung hindi kayo magkakakaso. the contract is valid. Yun ang retirement pay ng president of Ayala Corporation. President of corporation in Makati after serving Ayala Corporation for 15-20 years. Board member can complain. How is the voidable contract set aside? There are two remedies for this. opposed by one of the members. ratifiacation shall not be effective. otherwise. . Anytime. the majority is not achieved. Did we include him in the number of the quorum. the contract becomes valid if three conditions are obtaining under the circumstances. it can be set aside. NOT voidable. More so. Balae pa man din ni Sir Labitag yun. because ratification of a contract by a self-dealing director is not one of those instances enumerated in S6 giving NV SH the right to vote. Pag yung 1 2 3 na yun present lahat. misrepresentation then vote taken in meeting where self-dealing contract was ratified may be set aside. it should be written in the agenda. Remedies within the corporation (aka ͞intracorporate remedy͟) ʹ a SH may perhaps file a complaint with the board to complain about the contract with another director that is disadvantageous to the corporation. confronted with such complaint and withdraw from the contract. the director will be choosing his interest over that of his corporation. the director is only one of the members of the board. If you look at first paragraph of S32: ͞voidable at option of such corporation͟ ergo. Under S32. Fraud was committed. What if the board does not like to set aside the contract? The SH himself may have the right to bring the matter outside of the corporation through an intracorporate dispute filed with the regular courts. the contract is valid. magkano yung tinanggap ni Angie? 50M. a contract by self-dealing director cannot be ratified if it͛s not fair and reasonable under the circumstances. Against this presumption. May pabaon at welcome. Since there͛s fraud. Setting aside the contract is necessary for the contract to lose force. itatago lang talaga nila. there͛s presumption of validity to action adopted by the board in the meeting. Vote taken in the meeting where the contract is ratified. OR It may be ratified. Second requirement: without his vote. the contract is voidable. 3. Does it mean that the contract is invalid/void? Of course not. what is it called? Autocontract. You can contract with the devil but cannot contract with yourself. yung ating chief of staff. Pano yun kung bumoto rin sha? Sometimes contracts have duration longer than one year. Dapat hindi niya gugulangan his corporation. the cause of action belongs to the corporation. Since the contract is voidable. High time to think about general͛s compensation. but if his presence in the board meeting is necessary for the meeting to have a quorum. Present both 1 and 2 but it͛s not fair and reasonable under the circumstance? No. When one of those three is absent. Kailangan opposition tayo palagi. How is the contract ratified? It may be ratified by the vote of SH representing at least 2/3 of the OCS in a meeting called for the purpose. pinapaset-aside pa natin. Does the 2/3 voting requirement included NVS? No. It͛s very subjective. c. a. Who decides for the corporation to set aside the voidable contract? The board of directors.͟ What may be fair under this circumstance may be very unfair under another. How do we ratify? Since voidable. may itself be set aside? Niratify na ng mga SH. There reason why it͛s there para may trabaho ang abogado. contract is fair and reasonable under the circumstances First requirement: There͛s not much issue there. Eh nakaupo rin din yung self-dealing director. More on this when we reach derivative suits. Since it is voidable. Dapat merong underline yung ͞called for the purpose͟ when you call for the meeting. But in a corporation. a. Kung hindi tayo naka-object. When a man contracts with himself. Ayan. There is a temptation for him to vote in favor of his contract. does it have a prescriptive period to question contract or set it aside? Do we apply CC provisions on prescription? Kasi kapag written contract. For the contract to cease being enforced. iba na composition of the board. hindi tayo masaya dito. it can be ratified. majority would not have been reached. if he voted in favor of his contract and his vote was the vote that garnered the required number for the contract to be approved. What is difficult here is third requirement: Malabo na nga yung fair. then he is disloyal. Why? Vote will only be effective if there is full disclosure of director͛s adverse interest. self-dealing na sha. mejo delikado na sha. If all three are present/obtaining under the circumstances. Why? Because there͛s presumption of regularity. The contract is still voidable. Next year. It may be set aside. Board may change its mind. Otherwise. Why self-dealing? Because the director is part of the board that approves the contract. Let͛s make it legal. Every time the board takes a vote. ayan may kaso kayo diyan. Hindi niya sinabi lahat ng totoo. Therefore. Malabo pa yung reasonable. Suppose ang wala eh yung No. Is that contract valid? No. they may question it since the contract is a continuing contract. e di hindi rin valid yung contract. If we remove his vote. what is the effect of the contract being voidable? a. Pag pinagbobotohan ang contract niya. It may be set aside but it cannot be ratified. The presence of the director of the self-dealing director in the board meeting was not necessary to constitute a quorum b. there͛s where we shall complain under S32. There is a conflict. magkano tinatanggap. 40M. But if he does. If we did and removing him reduces it to non-quorum.66 pecuniary interest flowing from such contract and if that interest is disadvantageous to a corporation. b. Presume that the contract is valid. 8 . Because he͛s not supposed to derive any profit from his interest in the NSC. For purposes of determining whether S33 applies. .In the absence of any provision in the by-laws fixing their compensation. an interlocking director should have an interest exceeding 20% of the OCS. Invalidated means annulling it. When is it reasonable? Cover the expense to the director in attending a SH meeting. That corporation is the one that proposes contract with his corporation. NEDA opinion said that 40% of the OCS in constitution is limited to voting shares. One of the issues is how to compute the 40%. In no case shall the total yearly compensation of directors. Pera din naman nila yung minamanage nila. Those are the two grounds to set aside the contract. Only director. Includes all shares. Gagatasan nila yung non-stock. Dun sha titiba. the directors shall not receive any compensation. What is the cost for the director in attending the meeting? Compensation of directors. he shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are concerned. they are covered by S33. There is now a pending case on SC with PLDT issue on WON exceeds 40% equity of foreigners. voting and non-voting. In the 20%. Silverio Tan (valedictorian of UP Law 1982) on why 40% nationality requirement should include even NVS. It will only apply when it is the corporation where director has substantial interest is the one proposing the contract to the corporation where he has nominal interest. will S33 apply? By parity of reasoning. He has to ride a plane to attend a meeting. It won͛t be invalidated. a contract between two or more corporations having interlocking directors shall not be invalidated on that ground aloneǥ What are the grounds? Fraud and disadvantage. But here in S33. That any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders' meeting. as such directors. Not all SH can participate in the management of the affairs of the corporation. Iba na ang wording ng S33. Except in cases of fraud. his interest is nominal. All outstanding. President may be given compensation. no such provision on ratification. The question is since the contract may be avoided if fraudulent. parehong nominal interest. Therefore. It cannot be substantial. There is danger in this director of corporation taking undue advantage of non-stock corporation where he sits as trustee. S33 will not 3. not say set aside. Because S6 only pertains to voting. Only determining if interest is substantial. S33 defines substantial interest. E. instead of himself proposing contract to his corporation. Directors are entitled to a reasonable per diem. What is per diem? Per day. Since only them participate in the management. apply. Hindi pwedeng walang remedy. Mararatify ba yun? y DLC opinion: Yes. y DLC opinion: S33 will also apply. If the other way around. as such directors. except for reasonable per diems: Provided. Will S33 apply right away? No. If the interlocking director has substantial interest in one corporation and nominal in the other. ͞20% of the OCS͟ ʹ does it include the NVS? Hindi ito botohan ha. For purposes of applying the nationality requirement in the constitution for ownership of private land. when the interests of interlocking director in both corporations are nominal. 2. Directors of first are also directors of 2nd.67 Suppose the director. Reasonable allowance for expenses.dz NB it͛s not the contract that is subject to the requirements but the DIRECTOR. may the contract be ratified? Walang nakalagay about ratification in S33. Therefore the 40% max requirement/60% minimum requirement refers only to voting requirement. do we compute that on the basis of shares including the NVS? Magulo ulit ang SC decisions jan. dun malaki ang profit na makukuha. Dun kasi sa S32. Here it͛s not botohan. What if both NSC with interlocking trustees contracting with each other. therefore. S33 will not apply either. however. not fair and reasonable under circ. NSC where he is trustee proposes contract to stock corporation where he is interlocking director? Hindi rin kasi nga nominal lang sha sa NSC. Include PLDT͛s NVS? Yang nominal and substantial also has issue. not as a director but as president. president must always be a director. the interest of trustee is ALWAYS nominal. his interest in the NSC must always be nominal. Which is substantial and nominal since non-stock corporation has no OCS? DLC opinion: in case of non-stock corporation. there͛s a provision on ratification. Interlocking directors Contract with corporation with interlocking directors. uses another corporation where he has an interest. and provided the contract is fair and reasonable under the circumstances. S33 will not apply. Kung ang nagpopropose is corporation where interest of director is substantial. because S33. Suppose director is trustee in non-stock corporation (NSC) which will contract with a stock corporation where he has a substantial interest? Will S33 apply? If you look at that S33. What if reverse. When these two corporations enter into contract with each other. it did not say director OR TRUSTEE.g. Why? Privileged na nga sila. S137 defines what OCS is. Why compensate them for managing their own investment? What are the exceptions? S30 8 Can a SH who is not director be president? NO. Less than that. Fixing compensation of directors and officers GR: They͛re not entitled to compensation as a director. is that covered by S32? No. Unfairness of the contract to the corporation. For same parity of reasoning. the requirements for validity in S32 or the requirements for ratification in S32 should also apply to interlocking directors in S33. substantial in one and nominal in the other. Meron lang provision jan Dzif the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal. In case of stock corporation proposing contract to a non-stock corporation and there is an interlocking director or trustee. exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year. give it on an ad hoc basis depending if the financial performance is good. what law to be used? It͛s not the CC. Stealing of business opportunity The 2 par of S31 gives us another conflict of interest situation. So you always look at the AOI. he should have been in his law office working on clients͛ requirements for P5. Shouldn͛t you also pay for his time? If he didn͛t attend in the board meeting. When does a director steal a business opportunity? A director may only steal business opportunity if the opportunity belongs to the corporation. Excursion lang! Spends 5 hours looking at the financial giving expert opinion on business matters. if lawyers lawyer for a lawyer. 11 February 2011 QUESTION: What is the prescriptive period for recovering the profits? Case of action given by law. the prescriptive period is provided for in RPC for felonies defined and penalized therein. Pag ako. Ninakaw niya nga yung business opportunity pero nalugi naman sha. amend the bylaws to institutionalize the compensation OR b. While the directors are not entitled to a compensation for services rendered to the corporation.What am I telling you? The per diem allowance. There are other ways in which the corporation may find its funding: it may enter into a JVA. Compensation need not be monthly salary. How did this become a conflict of interest? The director may be tempted to manipulate the financial statements in such a way to reflect an increased profit so that his 10% will also increase. Unlike doctors who don͛t charge professional fee when their patient is another lawyer. His classmate͛s dad who was also an alumnus of the college decided to just put up his own corporation and find his own funds for the opportunity. Pero buti na lang di ako napunta dun kundi nasama ako sa imbestigashon. In SanMig Corporation. Enforcement of a criminal liability. then use 5 years. 5. So far.000/hr. He may not steal what the corporation does not have. the director of the board is entitled to get should be reasonable taking into consideration not only cost of the director but also cost of the corporation. We took our lady classmates to motel.68 a. In another case in the Campos book: A member of the board was accused of having stolen the corporation͛s business opportunity. Accommodation. Gumamit sha ng insider info pero nalugi rin. Fare. SH want to give compensation. triple na nun. issue additional shares or it may even borrow money. you should know what a motel looks like. the SH may give their directors compensation. Maliit lang yun. One hour of his time is a fortune. Tuwang tuwa sila. LOWBAT. any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence. In case cause of action given by law. Ticket or cost of your transportation. More so if he concealed the business opportunity. How do the SH give this compensation to their directors? They may: a. DLC applies provision of the CC. they charge double. Hindi niyo nabasa dahil illiterate kayo. business. Pang-associate lang yun. Di pwede na mamulubi ang corporation mabayaran lang ang director. Case by his classmate who hails from a rich Cebuano family engaged in real estate He must account for all the profits S31 liable jointly and severally for all damages. Novel . Year-end bonus may also qualify as such. the per diem of director attending is hundreds of thousands. We had a field trip with mirrors all over. becomes privy to info not available to SH in general. When you͛re a lawyer. From the Spanish word pasahe. b. Suppose criminal act is defined and penalized in special law which does not provide for prescriptive period to enforce a criminal liability. c. as to which equity imposes a disability upon him to deal in his own behalf. Talagang tuwang tuwa sila sa directors nila dahil ang laki ng kita.Passage to India. Glass showers. Everything was recorded in the minutes. San sha maghohotel? Sa Sogo. When a director. trustee or officer attempts to acquire or acquires. Hindi tuloy nakasingil si Sir. mas malaki! Dapat kinuha ko na lang yung MWSS. New York Supreme Court ruled that the director cannot be the judge on a corporation͛s financial capability to take on the business. DLC has just handled one case involving this provision. Since Corporation Code does not provide. Director interposed as a defense the fact that his corporation could not have entered into the business opportunity for financial incapacity. A director is an insider because of his position. PEZA in Mactan Island during Marcos͛ time. If you attend MWSS. Do we pay him what he͛s supposed to earn per hour? Gusto man natin pero wala pera ang corporation. SH want to give them rewards. . Ang laki ng dividends. Octopus. When does an opportunity belong to the corporation? When the corporation may lawfully engaged in the business under AOI. Therefore. Tumabo ng husto yung negosyo kaya kinuwestiyon ng mga kapatid yung corporation. He may want to make the SH believe that business is doing well so that they will give him his rewards. as a courtesy to his classmate. Blessing in disguise. Dapat daw kasali rin sila dahil it was a business opportunity stolen from the corporation. nd Use of insider information 4. not provide prescriptive period. it can no longer be considered as stolen business opportunity. Tiklop yung kabilang side. Yayain niyo na mga classmates niyo na dalhin kayo dun. Pamasahe na hindi masahe. he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation. Since lugi. Pero palalagpasin na lang ba natin yun? . The family corporation not interested in the proposition because they didn͛t have cash and not willing to liquidate their assets for cash. DLC (as the best lawyer) wrote to the siblings͛ Cebuano lawyer using the minutes as proof that the classmate͛s dad offered it to the corporation͛s board of directors beforehand but had been rejected. in violation of his duty. ano kalimutan na lang yan? Yan na ang karma niya. A different law is use when the cause of action is a liability arising from crime. They also don͛t want capital call. Let͛s say Washington Sycip is in your board. The court held that the director stole the business opportunity from the corporation and therefore he must refund the profits realized therefrom. When is the director guilty of stealing? When he engages in the business himself without offering it first to the corporation. Yung mga kliyente akala nila abogado rin sila. Pero totoo naman kasi yun. He has to be given justice. is ALWAYS a breach of duty Lagyan natin ng ePass ang UP. nalugi na. Bagsak yung presyo. buy out niyo na lang kami kesa magdemandahan tayo at mag-ubusan ng resources at tayo lang naman .s ratify my pagnanakaw of corporate business opportunity. all he will do in case of issue is to ratify. If you look at an American textbook in corporation law. Di pwede na lahat ng kasalanan ay papatawarin. masama ang loob. If 3 party like a SH for instance is one damnified by rd wrongful use of insider info. Punyeta kayo. they can enforce this duty of the controlling interest. pwede shang kasuhan nung 3 party for damages. director shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation.US SC: A classic example of a proof to the dictum pronounced by Oliver Wendell Holmes. ang lakas ng loob magnakaw ng corporate business opportunity. DLC͛s mind: Whenever a director uses an insider information for his pecuniary benefit. Pejorative kapag sinabihan kang Hudyo. Portia wants to exact a pound of flesh. Property naman natin yan. they would have profited from it a lot. Kung babae ang pinag-aawayan. But the bylaws may be provided as ground. . Lumabas yung payment for property. Agents did not disclose to SH they approached that they were offering to buy for the president. Although in the US. Kaya ginawa rin ng judges ang duty of the controlling interest. may the corporation still recover damages from the director who lost money seizing the business opportunity for himself? y DLC opinion: Yes. that͛s begging the question. Find yourself a new lawyer. General principle of common law: When somebody is wronged. Wear and tear of roads and crowding. Hindi ako nanalo pero at least may argumetno naman ako. But as to minority SH. had the corporation been given opportunity to operate the business. basta you use it for your pecuniary benefit. When corporation provides ground for removal of director without a ground. BUT in reality. hindi sha magaling mag-business. PERO inilagay rin yan ng Campos sa using inside information. The Camposes are harping on the additional wording of S31 (damages resulting therefrom suffered by the corporation. Transacting general public includes many special laws PD 902-A. mas medaling lutasin. If you look at the law as too exacting not to allow a breach to passed unpunished. mahirap lutasin. Kung walang bumili. entitle it to claim damages under the first par of S31. Isa sa tinamaan jan ay vast tract of land owned by corporation.Philippines SC: You cannot run after director for breach of duty because the duty is owed by the directors in favor of the corporation. Bargain store sa east coast US.69 Yung S31 first par. SH who got tired of waiting. they call that doctrine as ͞special facts doctrine͟ exception to the rule that duties of the directors are owed to the corporation and not to SH. That should be considered enough punishment for the director. Gonuts. Read Strong v Rapide. there are contrary opinions supported by cases. not in favor of the SH. discovered na niloko sila ng President. President bought almost all the outstanding shares. Strong learned in the course of her investigation. In favor of the minority interest AND the general public. Negotiation took place between corporation. Mas magaling pa sayo. Mrs. itong theft of corporate business opportunity ay napapatawad by 2/3 vote. Yung mga Hudyo went down in history as usurers. In inside information. No ground provided in the Corporation Code. These violations of duties may be ground for removal. 2nd par. Natapos na yung fad for the product. as represented by president and the government as to the just compensation. Pag ayaw sumunod sakin. but rd rd there͛s damage to 3 party. Opinion lang naman ni Sir. pag inofferan mo na bibilhin yung shares of stocks. If you apply S31. Directors don͛t owe SH any duty. the injured party shall not be left without a remedy. Concealed from the SH that he͛s the one buying. regardless of WON injury is suffered by the corporation. Since that͛s the case. Basement price. Damage to the corporation is already rd immaterial. Nakarma na. time to part ways. ͞Pwede yan͟ Iaccommodate kita pero ako pa rin ang masusunod. pwede natin lagyan ng toll. 3 party can recover his damages applying st 1 par of S31. DUTY OF CONTROLLING INTERESTS As I have mentioned before in relation to S34. ibebenta na. . After some sleuthing. Insider information is a breach of duty in favor of the corporation. Kaya nga nalugi. that erring director is liable. then he shall be liable. law is what the judge says it is. In breach of duty ka na. Naghinala sha. he is already in breach of duty. During the time malakas yung product. President employed people offering to buy shares of stocks of SH. Let. SC taking pity on the poor widow SH created an exception to that doctrine: When there are special facts which will impose on the director the duty observe good faith in favor of the SH. ruthless. HOWEVER. If you look at the way Camposes presented that case: every use of insider info by a director for his own pecuniary benefit. sino kukuha? Yung president na lang. okay lang. its stockholders or members and other persons. Pwede nga ba ang catch-all ground? DLC: If you are lawyer for the corporation. Ano pag-aawayan na hindi pagkakasunduan. Train your clients to wait for you. Duty to observe good faith in running the affairs of the corporation. Collection po ng Lego. Walang damage sa corporation. Action against president for breach of duty. There͛ll only be liability if the insider info prejudiced the corporation. later on pag nakita ko students ko in Makati. dahil hindi pwedeng palampasin na lang yung kasalanan niya. you provide a catch all ground as if there are no grounds. What the minority usually does which is not happy the way the controlling interest has been running the show is to sell out. this corporate problem is pera pera lang ang pinagaawayan dito. Ano ba ang mga fad ngayon? Zagu. Teka sandali lang. Itong president who͛s already aware of the events. That͛s still very unsettled. FACTS: Americans agrarian unrest in Southern Luzon decided to expropriate vast tracts of friar lands for distribution to qualified farmer. Can bylaws include this as grounds for removal from office? Of course. would have earned money. its stockholders or members and other persons). we don͛t need special facts doctrine. Parang Phylin͛s (?) basement. huli na sha kagad dun. Eh di yung may control ng 2/3 of the OCS entitled to vote. ang purpose is not revenue but reduce noise and air pollution in the campus. you are already in breach of duty. heartless. Whenever there͛s breach of duty and that breach of duty damage the corporation. Yung GM niyo ay biglang bumili ng Expedition. Government. If the paid up capital of corporation is more than P50. Bibili ng one share of stock esp if traded in stock exchange. That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation OR of any other corporation. Alam natin yun dahil tayo yung nagrereklamo. trustee. Fishing expedition. Actually.000. It is now enshrined in the code. Record of all business trans 2. That͛s the GR. Stock transfer book What about detailed records of expenditures like receipts? Not available in general. And Ron does not know who Snufflelafagus is. Is it necessary to file case for insider info under S31? Kailangan bang kasuhan muna for damages yung SH for there to be improper use? S74 does not require that SH be first sued for improper . then BIR then again SEC. director or SH of a corporation who refuses to allow any SH the right of inspection shall be liable for damages and criminal offense under S144. Limited only to violations specifically penalized as a crime by the particular provisions of the code. bangko (window dressed). There are people who use this right to harass the corporation. Kumbaga sa gagamba. dahil ba Valentines? Walang mga roses ang mga girls. may nawala sa S144. Ganun ang interpretation natin jan in light of S74. certified under oath by the treasurer. in accordance with the provisions of this Code. These are the defenses of the corporation against SH who wants to exercise the right to inspect. the Corporation Code gives them a tool or instrument to discover abuses. Malaki ata kita ng directors pero wala tayong dividend. What will be inspected? The books or records of the corporation may be inspected. BUT that is on the assumption that the SH have become aware of the abuses committed by the members of the board. The corporation shall furnish the most recent financial statement which shall include a balance sheet and a profit or loss statement showing in reasonable detail its assets and liabilities and the results of its operations. Buy one share in the open market and then demand inspection of corporate books and records. Ihaharass niya ngayon yung corporation. That if such refusal is made pursuant to a resolution or order of the board of directors or trustees. Make public what he discovered in his inspection. BUT this refusal to allow inspection without a valid reason is punishable as a crime under S144. San kami mauuna? Receiving province sa SEC. Walang nakalagay sa S31 na punishable ang violation of duty under S144. May a corporation refuse the right of inspection to a SH? GR: No. So medyo maingat tayo diyan. No Case. SH are also entitled to a financial statement upon request of a SH. That is the right of inspection. shall be liable to such director. Kung ang mga board of directors ay biglang naglipatan ng residence sa Forbes Park and being driven around in Mercedes Benz limousine. in case of abuses of the board. then all the directors guilty of breach will be liable under S31. Por dios. Some lawyers who are not graduates of UP. y Lahat lahat ba ng libro? Only those books which are required by law to be kept by the corporation. BUT later on when you subpoena the documents supporting the books/records of transactions. SH. trustees. shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided. the remedy amenable to SH is removal. and in addition. That͛s not true na sa away lang tayo kikita. CARMENCITA!!! CHAPTER IX: Right of Inspection The theory of corporation law requires SH to surrender the power of management to the board of directors.70 ang kikita. stockholder or member of the corporation to examine and copy excerpts from its records or minutes. San niya kaya kinuha yung pera pambili non? Most likely mag-iinvestigate ang mga SH. further. Sila yung sulsol. MA. BUT that͛s enough simply because the directors have displayed. In practice. There are instances when inspection may be refused. stockholder or member for damages. These records of business transaction shall be open to inspection by an SH at reasonable place and time. May the corporation validly refuse inspection from the SH? Yes. magtatanong yung mga SH. hindi ka batikan. Hindi magaling na abogado. How will the SH discover the abuses? In the Phil. the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided. it has to be certified by an independent CPA. Remember our discussion on S31. a corporation has to come up with an annual financial statement. REASON: Allow SH the opportunity to examine the financial status of a corporation to discover for themselves how the board has been running the affairs of the corporation. may demand copies but at his expense. Minutes of SH meetings 3. But that financial statement must be the same financial statement corporation must file in BIR. wives (pinakamaliit yun). y What are these books? 1. Right of every SH to inspect. It should not have been worded to include every violation of the code. there͛s written what is penalized as a crime in S144. Mahirap maging accountant sa India. 14 February 2011 HAPPY BIRTHDAY. Nagbabakasakaling may makitang anomalous. Pejorative. Abogado na hindi magaling ay Atty. kailangan na yan. Coffee delivery girl makes a scene. por santo. Minutes of board meetings 4. Or to verify charges of abuses. they are the ones who abet people who fight out in court. Dun sila kasi kumikita. Sila nagsasabong. or was not acting in good faith or for a legitimate purpose in making his demand. board will use (tunay). Ito yun. In order to allow SH to protect interest in the corporation. And in case those abuses amounted to breach of duty. Less than that. SEC and other government agencies which will regulate the business. PSE (if traded in securities market). Hindi tatanggapin nang hindi nakakatatak sa SEC or BIR. WON a breach by a director of duty is criminally punishable under S144? Somewhere in the code. Maraming absent. Kaya lang naging very general ang wording ng code. Insofar as ͞improperly use of records of OUR corporation͟ the corporation officers know of the improper. we͛re not supposed to do that. SH have no right to interfere in the manner the board of directors is running the affairs of corporation. they keep five books. Any officer. He may send them letter asking to set aside a questionable deed or maybe blackmail the directors. Reading from 3rd par: Any officer or agent of the corporation who shall refuse to allow any director. In the Philippines. financial officer or comptroller. ANG HUGE NG GAGAMBA NI SIR. madaling makita yan. If this will happen in India. Long story short. The improper use therefore is a determination of the corporation.71 use. I haven͛t signed a deed of assignment. If you are a businessman. DLC said that his client cannot refuse the demand. Bayaran niyo yung caddie. Naisangla or pending litigation yung share. per diem. Kailangan lang. What constitutes improper use? Should there be damages resulting to corporation? In US. The installments paid and unpaid from which subscription has been made. The use is improper if it has a potential effect of damaging the corporation whether the damage is good will. Pag kinuwestiyon yan ng SH whose right to inspect was refused. Is this certificate genuine? Maybe we bought this in Recto. DLC wrote letter to corporate secretary copy furnished SEC demanding the inspection of books of corporation. I still attend board meeting. That service is provided for by stock and transfer agents. it will become intra-corporate dispute? Pwede bang SEC na lang since ministerial yan? DLC used to have a client. If there was indeed. what you are preventing here is to make him succeed in using the corporation. and not just cash. DLC: Oh ayan may roses na kayo and then Ron gets pimped to this really hot chick who cracked some lame joke about Tekken. corporation has reasonable grounds to expect that many people will come to verify. there will now be intracorporate dispute. Pero check na. he only gets his dividends. Younger brother elusive on the queries of the elder brother. Verifiers of shares of stock go there. DLC is counsel for the younger brother. bigla na lang nakareceive ng telephone call si client from corporate secretary. Nakaattend daw ata ng lecture ni Sir. Corporation has to prove that there was indeed improper use. SEC has absolute supervision. I want to know if they implemented this buy out scheme. control and ___ over all Harana by barong clad Oliva and his braderz. The initial determination of WON the past use of information was improper will fall on officers of the corporation. Willing to sell out but not satisfied with this compensation. How do we pressure them? Maraming paraan jan. Idedeposit ko ba? Sure. All rules and regulations applicable to STA except payment of license fee are applicable to a corporation which does the function. Kung ayaw niya ok lang but the corporation doing the function is subject to all rules promulgated by SEC applicable to STA. Pinapapanalo yung byenan niya sa golf at mahjong. Potential damage is enough.͟ Corporations no longer usually do. then corporation is justified in refusing the requested inspection. . They hold the books of the corp. the STA to engage in the business has to be duly licensed by the SEC. Ergo. nag-away. reputation or business. the decision making is accelerated. STOCK AND TRANSFER BOOK The corporation is also required to keep the STOCK AND TRANSFER BOOK (STB) which contains the names of all the SH of the corporation alphabetically arranged. That's an activity which can be given to another entity. We call that entity the ͞stock and transfer agent. So increasingly businessmen see the cost effectiveness of a paperless transaction The STB function may be done away without when it gives the function to another entity. WON there was improper use before by the SH shall fall within the determination by the officers of the corporation. the elder one wondered how much their parents left behind. I will do that service for the corp for a fee. kaya pwede na ibawal. Client was president of company. Some corporation keeps photos of SH pero bihira ata yun. When a carrot is dangling in front of the horse. Settlement na lang. Difficult to handle hard copies. In another case handled by DLC. I attend. STA will be servicing 10-15 corporations and that's the only business activity that the entity will engage in. In case improper use is disputed by SH. Kasi kung noon. verifier will be registering the deed of assignment and perhaps request cancellation and issuance of the new one. If wala before. So pupunta yung potential buyer of the share sa corporation and look at the STB. The STB shall be kept in ͙ When a stock is getting sold. siblings fight over the corporation organized by their parents. Ang daming trabaho non. Allowed to remain as a subsidiary. next time around. Why??? I͛m not investor here because of Marcos. If they have OCS. Replaced by Marcos incumbent politicians. Management of the hard copies. former politician. I married his daughter. The basis of prohibition for refusal of subsequent use is the propensity or dangerous tendency to use info against the corporation. Kailangan ba bigyan ng sulat/complaint about the improper use? No such requirement either. Carcar͛s hotness level meter plummeted. there is a business opportunity in that. QUESTIONS: I don͛t want to agree in this case. Kaya magastos magkeep ng hard copies. Good thing his improper use did not produce damage. Written demand indicated the time date of the inspection. SEC has rules on registration of transfer shares primarily those rules are applicable to STA but because of BP 268 (amendment to the corporation code which is BP 68). Employ people who will find and retrieve. buyer will most likely inquire about the status of the share of stock being sold. Sumulat yung abogado demanding inspection. Increasingly a business transaction is towards paperless transaction. I got paid in kind. andaming nakapila. Under 902-A. but as investor in equity of the corporation. So to make the cost of corporation smaller and for it to be profitable to stock and transfer agent. Offer the service to other corp. When the mother died later on. New group of investors will come in and intend to buy you out. May check na nung nag-usap sila kay sir. court will order to allow inspection of books. Tatanga lang yun. In time we will require lot of space to keep all those hard copies. This is just partial payment. After the transaction has pushed through. Intermission number: CK͛s flower delivery from Snufflelopfagus. It͛s the younger one who runs the show in the Phil. I won͛t pay in cash. actual damage is not necessary. Do you have a ground? No. The older one is always in the US so when he gets back. May history na. If too many transactions. nasa kanila rin yung cert of stocks of the corporation. Became president of local subsidiary of international airline company. All kinds of injuries are included in improper use. When Marcos was deposed an new group of powerful businessmen became dominant. Older brother hired the valedictorian of sir͛s class. The challenge shall be in courts as an intracorporate dispute. When is it legitimate? When the corporation has initial privilege of determining WON the purpose is legitimate or illegitimate. Ginagawa akong director. Hindi ko lang alam kung may aasahan ako kay Oliva. Pagdating ng araw ng inspection. Kasalanan ba namin yun? Nabwisit na yung classmate ko so he considered the failure of the corporation to allow inspection as intentional so he filed a case with the court to compel inspection of the books. I͛m very very sorry. Voting trust agreement. The legitimate purpose. What if shares are pledged? Wala ring nakalagay sa S55 In case of pledged or mortgaged shares in stock corporations. What are the remedies of SH when the right is refused? Sampahan ng kaso as intracorporate dispute for mandamus. Sir came up with a Solomonic settlement. When the transfer although not recorded is known and recognized by the corporation. May sakit? Baka lang may sakit yung tayong yun. justifiable. Cannot allow because the company will have a ͞planning seminar͟ on that day. there͛s another one. To compel a corporate officer to perform a MINISTERIAL or LEGAL duty is compelled by ͞ADMINISTRATIVE MANDAMUS͟ in reality equivalent to specific performance of a duty which is in the nature of a contract. Public official lang daw ang subject of mandamus. that SH has the right to demand inspection. OR he may file a criminal case under S144. Younger bro said wala tayong grounds. 2.͟ There͛s a case. One of the effects is for the corporate secretary to perform his ministerial duty. The reason is reasonable and justifiable. sarado kasi may bomb threat sa kabila. Yun pala. EXCEPTIONS: 1. moral. Balasubas pala talaga. Ending: They were able to settle the case. How about the proxy in case of proxy agreement? Let͛s assume that coupled with an interest so proxy was properly captioned as irrevocable proxy. Pero kung dahilan niya is something which will be contrary to good customs. Abejo v Dela Cruz. pano bubuksan yung filing cabinet? We have to postpone. Voting trust and beneficiary has the right to exercise. and it was not a transfer. If you were my student. Kung absent sha. You older brother pay. 60-40 split. Kinordon yung buong area. Is this right available to not fully paid shares? Yes. okay lang yan. Because ͞actual knowledge is equivalent to registration. Does he have the right of inspection? NO. Di nabayaran si sir. What is legitimate? Yun bang legitimate is the same as legal? Of course not. Hindi ko na ididisclose para makakasingil ako. CORPORATE RECORDS Something about the financial statement. Is allowed to inspect the books of the corporation. How about transferee of the SH of record? Until the transfer is recorded in the books. public policy. Not recorded by the corporation recognized the transfer. What is reasonable management fee? Unquantifiables. Kaya lang. You cannot refuse. 10% is 200 M. Charge your management fee. Sulat sha.72 Remember this: Improper use of records or info obtained through the exercise of inspection. the transfer is not binding against the corporation. Why it is very important but since it has to be disucessed side by side with capital structure. Hanggang ngayon di pa fully paid. The transferee although not recorded by the books. Obviously not a corporate law practice. BUT there are exceptions to this rule created by courts in the exercise of their equity urisidciton. Against the requesting SH may be challenged. Express provision of S59. When sir was at the SEC. not covered by S74. Who holds the records btw? The employee. Criminal case 3. The corporation therefore shall be well within his right to refuse inspection when the requesting party is not a SH of record. Nothing said in the law (S74). When something is legitimate. REMEDIES recap: 1. Specific performance 2. You cannot refuse that otherwise that͛s a criminal offense. old lawyer appeared and filed mandamus to compel secretary to allow inspection. 10% difference is the management fee. unless the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded on the appropriate corporate books. On the third round. Not SH of record. You are entitled to that if you manage the corporation. 2 billion property. Makakarma din yan. we were just nominees. Unless SH has been declared delinquent. hindi pwedeng iallow. atty fee is 20M. Who may exercise the right? A SH of record. Business judgment has a value. From any other means. Sa totoo lang wala shang shares of stocks. later na lang yan. BUT almost all my projects were given by my former students. your consultation with me is free. may sakit nga. the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders. Umappear sila. Covenant with past students. Damages . My brother is the prodigal son and indorsed in blank to my mother. g. or where the directors in BF in deciding not to sue. kamag-anak ng president yung 3 party na isusue or they received kickbacks. Ano gagawin niya? To set aside the contract. what he did was: Petitioner or complainant is the SH on behalf of the corporation. The director who is being sued by the SH. Therefore the cause of action is against a third party. SH discovered many anomalous transactions entered into by the board. since it is a derivative suit. there͛s an EXCEPTION: When the decision of the board rd not to sue was taken in bad faith. Always implead the board of directors and the third party (if any) so that the board will not intervene because they are already demandado. 16 February 2011 If you read the book written by some authors. is he entitled to reimbursement of his costs? Of course. BUT if the board has refused to file the action. This is judge made remedy for a SH who feels defrauded by the board of directors. No need to file a motion to intervene. Then you discovered it and decided to file. Somebody filing a case not in behalf of real party in interest has no standing in court. When the cause of action belongs to corporation. when the court grants that. e. Corporation said wait lang he is praying for the annulment of the contract. Unless an equitable basis for intervention be shown.dz But the GR there is the decision to sue or not to sue belongs to the board. hired a lawyer to represent. Of course not. who will do that for the corporation? It͛s the board right? Inaprubahan nga yung transaction. this principle does not apply. In rules of CivPro. . What is the best practice on this? In sir͛s handled cases. Entitled to reimbursement? Hindi. In case there͛s an equitable basis or there is justification or the SH will suffer injury. is he entitled to use corporate funds to defend himself in the suit brought by the SH? We will answer that later. May the corporation intervene? Eh diba sha nga yung plaintiff na nilagay ni SH. The SH filed a case. I am not surprised why the Rules of Court on DS were drafted in the manner it was drafted. Since those contracts were not fair and reasonable under the circumstances. it is derived from. Breach of duty then damages. BUT of course. If director is in breach of duty. how will they do that when they are not impleaded? Not included in the rule.73 CHAPTER X: Derivative Suits After EXERCISING right of inspection. prosecuting the case against director or third party. The COA of the SH is a derivative of the COA of the corporation. one of this is the rules on derivative suit (DS). whenever a complaint is filed in court. and the SH may not interfere with that management prerogative. how do we caption the case? This is a procedural complication. thereby awarding damages who will received the damages awarded by the court in the case? Not the SH because he is not the owner of the COA. some of them wrote that derivative suit is only available only against directors or shares of directors. the board 5 years ago the transaction happened. because we follow the requirements/conditions that wil qualify a SH to bring a DS. maapektuhan ang operations of the corporation. ilagagay dun yung ͞on behalf of the corporation͟ VS. so that the records won͛t be bungled when the directors intervene on behalf of the corporation.g. Maglulumpasay na lang ba ang SH? Hindi. Natalo sha sa kaso. Can he put the plaintiff: Corporation as represented by the SH against the director/third party. Campos spouses said in page 823 DzA corporationǯs right to sue is correlative to its right not to sue. then a SH may bring the action on behalf of the corporation against the director. therefore to annul it in court. What are the requirements for the SH to bring and maintain a derivative suit? has to decide. Are all SH of record allowed to bring a DS on behalf of the corporation? GR: NO. third party and XYS corporation tas ilagay mo dun panagalan nila isa isa. filing fees in court. sha naman yung naging injured. then only the board of directors as a general rule will have the authority to bring the action in court. Wala ito sa code. Whatever damages are awarded will be given to the real party in interest? And who is that? The corporation. then nung napatunayan yung injury. The cause of action of SH is derived from cause of action of the corporation. It is derivative because cause of action does not belong to SH but to the corporation. that decision is management prerogative. an individual SH has no more right to challenge by a derivative suit against a third party. the real party in interest is the corporation. Kala nila yung derivative suit is available only to directors or officers. Prayer to set aside the K entered into by the board with me. NB Why is it called derivative? When you say derivative. Not included in the interim rules of ____. Now the directors who want to resist the SH͛s DS. if he wins that case for the corporation. he must be a SH not only at the time the DS brought in court BUT also at the time the act complained of occurred. The contract is a self-dealing contract. they will most likely not set aside that if the same board composes it now. this contract must be set aside because source of burden on resources of the corporation. Mali yung premise so mali rin yung rules. Those are equitable grounds to allow a SH to file a DS on behalf of the corporation. When a derivative suit is filed in court. The action to annul the K belongs to corporation. If the board has decided not to sue a third party in order to claim damages for breach of contract or to enforce by specific performance an obligation of third party under the K. Requirements relating to Derivative Suits 1. Hindi ba harassment yan? For a SH to file a DS. Kaya nga sha nag-file kasi may injury. then contract with the director has to be annulled. E. When the court is convinced of the validity of the claim and ruled in favor of the SH. In order to clarify in the very caption of the case that he is bringing the case not in personal capacity but as SH in a derivative suit. it has to be filed on behalf of the real party in interest. The director made sumbong to the corporation upon knowledge. corporation was not impleaded. The SH spent for the action. They will answer not on behalf of the corporation but as member of the board. Homework dahil pagod na si Sir: Read the comments of Camposes on derivative suits and there͛s a passage here. SH at the time the act complained of occurred. He can file action to annul the contract through a derivative suit. If that is against the director in his personal capacity. SH or officer. they are entitled to reimbursement because directors should be given the right to defend their position at the expense of the corporation. how will it become a summary proceeding.Why? Because they refused to commence a proceeding against a director or third party. fair reasonable under circumstances. hindi sila entitled to reimbursement. Atenista gumagawa niyan ngayon. can you complain on behalf of the corporation? No. . DLC says: If the derivative suit is intra-corporate. 2. Wala ring mangyayari. filing of complaint for legal separation/declaration of nullity of marriage/voidable marriage.74 If you were SH before but you transferred your shares of stocks now. doing it not for the benefit of themselves but the corporation. Pag-isipan pa natin. we are suing that third party because board of directors has refused to bring the action on behalf of the corporation. It͛s not a derivative suit which is at the same time an intracorporate dispute. hindi pwedeng walang remedy. May nagcomment: They taught us in ALS. hindi na business judgment? That͛s a business call. and so the damage is felt. they will defend the validity of the K. In case of DS. intracorporate dispute resolution. Then reads from Pages 823-824: DzSince the idea of derivative suitǥdz Another angle. suppose the DS is brought against erring director. Di ko lang maalala ngayon. That͛s the board͛s decision. There are exceptions i. DzIn case of derivative suitsǥ all cases falling under these rules shall be decided in a summary proceeding. RJ: Can a holder of voting trust institute a DS? DLC: What is the GR in CivPro? What a person can do in person. EXCEPTION: Where intracorporate remedies is a useless exercise because it will entail delay. Therefore. Why exhaustion? The SH must give the corporation through its board of directors a chance to redeem itself. Pag director ang idedemanda. I was never invited.e. DLC thinks that settlement may be had as to the amount of damages the corporation is entitled under the circumstances. Because the decision was taken not on their own behalf but the decision was taken on behalf AND for the benefit of the corporation. Wag na nating idemanda. Page 824: DzDerivative suits must now be filed with the SEC instead of the regular courts. disloyalty [2] self-dealing contracts Is ratification not the SH? Yes. kasi ayaw nila magsampa ng kaso. When there is prejudice or wrong done to SH. Most likely yun ang pagtatalunan natin eh. but since the members of the board are also parties. BUT IF it͛s not a board decision that͛s involved? When do you have a board decision? [1] ratification of contracts.g. . Kaya nga lagi defendant ang board of directors jan. they also need to participate in the approval of the compromise entered into. But if there is a third party involved. okay na summary proceeding. unless they involve third persons. you lost all your shares so no personality at all. we always include the board of directors as defendant. the members are now defendants. remember. corporation should be made a party in a derivative suit. Exhaustion of intra-corporate remedies What could those cases be where we sue the third party to recover damages for the corporation which will not mean involvement of the corporation in the case? Parang wala no. When SC made the intra-corporate dispute resolution. considered an injured party. malaki pa mawawala satin jan. EXCEPTION: Although not SH at the time occurred. Researchers from UP Law are not educating the justices. DLC opinion: When the basis of the complaint is personal to a director or to a third party who does not involve the directors to defend their position or what they did. If that is an intra-corporate dispute. But who calls the meeting for ratification and then submit the contract for ratification? It͛s the board of directors. Nakatie up yun. the interim rules on intracorporate dispute resolution will not apply. b. So if they defend the position not to sue the third party or action to annul self-dealing contract of a director. Your trustee there becomes an agent. things which cannot be done through an agent e. either as plaintiff or defendantǥdz y DLC: bat ko sha gagawing defendant? Eh sha nga yung pinanggalingan ng cause of action? When a DS is filed in court and intracorporate remedies were not exhausted. Because it is not intra-corporate.dz DLC: Hindi na totoo yan. So if it͛s the third party we are suing. Mai: May the SH enter into settlement with the board of directors? DLC: What is the ultimate purpose for bringing the suit? SH͛s ultimate purpose in bringing the suit is͙ siopaoooooooo. kaya lang nagkaCOA ang SH. Those complaints have to be filed by the party himself. If the ultimate goal of the SH is to recover the damages to the corporation. he may do through an agent. Effects of the act complained of are continuing. BUT if derivative suit against third party. Ratify unless illegal Page 822 DzAccording to prevailing view. When is it intra-corporate? When the derivative suit is filed against a director. DLC: ano bang book gamit niyo dun? Hindi si Campos no? They don͛t know the qualification of the rule. that͛s the only time when the rules apply. not against a third party. derivative suit is necessarily intra-corporate because it may only be brought against director. because the act that happened in the past is continuing or has continuing impact. may the VTA give the trustee the right to file a DS? Is that one of the rights? Why not. Meron bang pagbabawal sa rules for it to be done through an agent. Page 822: DzOne of the significant issuesǥdz DLC͛s ͞humble͟ opinion: The belief/view of Camposes should be qualified. No cause of action for failure to meet condition precedent. They will resist the action brought by SH and try to convince the court that the refusal is justified. Removal is part of the intracorporate remedies. A director. A compromise agreement may be entered into between the SH and the third party. the legal title is given to a trustee. Rights adjudicated by the court not according in the procedure he is entitled under ordinary CivPro rules. They therefore has right to use corporate funds to defend a board decision. that͛s a ground to dismiss the complaint. Inauthorize na nya.dz May nagtanong na student ko. Sir reading from Campos: a. Jurisdiction of SEC over intracorporate dispute transferred to regular courts by Securities and Regulations Code. maliwanag pa sa sikat ng araw na yan ay hindi business judgment. the decision to sue or not to sue is a business judgment. There͛s SPA. When they win. is it not unfair when the derivative suit is filed against a third party. One of the things that must be prepared for registration is the AOI. In economics. nationalities and residences of the original subscribers.. Pwede... CHAPTER XI: Financing the Corporation. That͛s the smallest unit into which the totality of interest in the corporation is divided..... They can meet again.. such fact must be stated.. basag ang ulo ni Oliva. Trivia lang yun ha. (P... but just prove that you are minority and being prejudiced intentionally and wrongfully by the controlling interest. the relationship is not necessarily fiduciary. Later from income generated from the business of the corporation (aka ͞profits͟) Discuss them one by one. But if wala.. The capital received by the corporation from investment of SH is called ͞capital stocks͟ it is the capital received by the corporation in exchange for its shares of stocks.. what are the factors of production? Capital... the par value of each. S14 has added another word to the term ͞authorized͟ since kanina capital stock lang... In the irrevocable proxy. Capital raised from shares of stocks.. Therefore.. Oposa: What if voting trust is coupled with interest so trustee refuses to file the DS? DLC: Violation by the trustee of his duty in favor of his beneficiaries. Those are assets of the corporation..... Holmes v Camp. S14 No.....͟ 2. Assign monetary values so that the totality of corporation͛s resources is expressed in terms of money Where will the money of the corporation come from? 1.. the unit of ownership is called a share of stock.. the number of shares into which it is divided... 8 says: DzIf it be a stock corporation..dz Yun kasing ownership of corporation.. divided into . does not exist in common law.. (P.. the former is paramount because relationship is fiduciary... and the amount subscribed and paid by each on his subscription. VTA is different from irrevocable proxy... Owner of the gansa. 3... There are three words in that term. Bound himself in a collective action.. But here... if required to file derivative suit and refuse. Accident..... In simpler terms.. The civil law concept damnum absque injuria. the names. Local government... The first step there is promotion. and if some or all of the shares are without par value. everything which has value owned by the corporation is capital. WE WILL PROCEED TO BOOK 2 ON FRIDAY..... Ngayon may authorized na. shares with the par value of . This may come from lenders..... may the SH of a subsidiary bring an action on behalf of the mother corporation? May kaso yan.. Funds given by accommodation to the corporation. Lumilipad yung gansa sa langit..... When do you say that it͛s volume or part 2? Bunch of illiterates. Contribution of the SH/Investment of the SH in the corporation... This is called ͞equity... ... and in case the share are par value shares..... 1.. The general principle at common law is that an injured party should not be left without a remedy. invoke here the duty of the controlling interest. Donations 4.. Anything of value which the corporation owns is capital.. I͛m sure you know what capital is. What are shares of stocks? You still remember our discussion on steps in organizing a corporation. Possibility of the proxy using the proxy against the interest of the owner.. it must have resources to use in the business. 7 says: DzSEV ENTH: That the authorized capital stock of the corporation is . a private corporation is organized engaged in business..... Authorized capital stock..) PESOS in lawful money of the Philippines...... Between benefit of beneficiary and coupled interest of the trustee... There cannot be an injustice committed and then helpless. TAPOS NA ANG BOOK 1. For it to engage in business...... One of the items that must be contained therein is the authorized capital stock of the corporation.. Though in a way meron.dz S15 No. Pero dito sa corporation law.75 18 February 2011 Abby: Can the beneficiary file DS if his trustee does not want to? DLC: All they have to do is authorize if not in the trust document. Hindi yun volume 2..) Pesos per share.. You go to Sections 14 and 15... What did you do to the flowers? Do this in light of duties of controlling SH. labor and entrepreneurship.... it͛s not only agency but trust arrangement for the benefit of the beneficiary.. OR enjoin the continuation of the act because of the injury the minority will suffer... nalaglag.. then registration.. continuation lang.. Tingnan mo kung may acknowledgment... Part 2 lang yun. all the resources that the corporation requires are expressed in terms of money. hindi kasi kayo nagbabasa. that͛s disloyalty and disobedience which is a ground for terminating the powers of trustee. it is now the resource the corporation received in exchange for its shares of stocks.. So all you have to do is get out of the trust relationships.......... EQUITY Totality of the resources which the corporation has is called capital. How about a subsidiary. the amount of its authorized capital stock in lawful money of the Philippines... The problem is not insurmountable. Problem here is in a trust arrangement where there are many trustees... CK: Is the ratifying SH estopped from filing a DH when it later on became injurious? DLC: You look so happy. Capital Structure SOURCES OF FINANCING As a backgrounder... How will you claim your entitlement to the duty? You don͛t need DS.. no need to be intentional. di pwede na ikaw lang ang magdedecision.... so fulfilled.. land.. preface.. Pag dinagdag ang capital stock...... Pero hindi ganon ang ginawa nila so in terms of money.000 Pero di ba ACS nya lang ay P100. nakabili na ng lupa. Number of shares lang ang ACS.000 = P29. What are the sources available to corporation? Utang: borrowing money entails some cost.970.000 nila ibebenta yan. That͛s S15. Mali kasi yung ͞authorized capital stocks͟ expressed in money. Hindi iiissue yan at par. collateral registration requirements etc To reduce on the cost of money expense. you will get the net worth of the corporation.000 ang paid up).000. ibebenta nila yan P80. So kung P100. But later on. The ACS should be in terms of number of shares. Purpose of ACS is to limit the capital the corporation may raise from its shares of stock. by simply taking the values of all those assets.000 lang yun. TA (total assets) 50M TL (total liabilities) 10M Net worth 40M Divide the 40M into 500 shares dahil sila lang naman ang maghahati-hati kung magliliquidate ngayon ang corporation.000 divided into 1000 shares with a par value of P100 each OCS P50. when the corporation was already in business. Raised through issuance of shares of stocks.000 Paid up P25. we can easily estimate the book value of every share of stock. P80. Hindi ba nahihibang sila kung book value niyan ay P80.e.000 500 shares 300 shares more 30. ACS P100. Hanggang diyan lang ang pwede mo ibenta. Di ba naexceed na niya yan? Define ACS: maximum amount of capital which corporation may raise from its shares of stocks. The corporation will issue shares of stocks at a premium. at incorporation the shares of stock shall be paid P1 by the original subscriber.000 yan. lalaki sa ACS yung capital na naraise from shares. Bakit authorized? Because the law puts a ceiling on the amount of money a corporation may raise from the issuance of its shares. pero iexpress na lang natin sa pera. that͛s how they explain it but that͛s not accurate either. We need additional money. Then after 5 years. it will not be material because the limit is number of shares. The excess is additional paid in or surplus capital.000 divided into 1000 shares with a par value of P100 each OCS P50. Pwede bang lumaki pa yung capital ng corporation than the authorized capital of stocks. interest. 40M ang net worth but cash on hand is P5M because P35M is tied up with inventory and fixed assets. If you read the books.e. when the business picks up and becomes successful. What is the accountant solution now? The premium (definition: any consideration in excess of par). Should all those subscribed be fully paid? Only 25% of the subscribed is required to be paid. This is what is done when all shares of stocks are no par shares. with factory.000 P30M LESS 30.025. Ngayon authorized na. beyond this authorized amount.000 Paid up (aka ͞Legal capital͟) 500 shares Issued na yung P50. 40M/500 shares = basta 8 yan. if you divided the net worth on all the OCS. ACS written in the AOI P100. No matter how much money a corporation is able to raise.000. ACS P100. Therefore.000 ACS to be fully paid? Only 25% of the ACS must be subscribed. Paid up is always limited to P100. So what now is the correct formula for expressing ACS? It should be in terms of number of shares.000 Additional paid in P25.000 divided into 1000 shares with a par value of P100 each. Shempre. E. Not included in the paid up. All consideration received by the corporation from the issuance of shares in excess of par (i. Ilan na lang ang unissued shares? 500 shares. The resulting value is the book value of the share. Pag natanggap nila yug premium. the value of share in market will go up. Because the shares of stock may be issued for varying amounts of considerations. P50M na. the board may say to just sell additional shares of stocks from the 500 unissued shres ACS P100. the corporation cannot raise from the issuance of its shares. Kung at P100. The corporation needed P20M more in order to buy bigger site elsewhere to put up a new factory. is the corporation required that the entire P100. deducting all the liabilities. the share of stock shall be issued at par.76 Bakit resource? Pwede naman kasi hindi pwede pera ibayad. Eh di bawal.000 . ACS na lang tawagin yan sa practice.000 divided into 1000 shares with a par value of P100 each OCS P50. Usually ganyan yung statement of what the ACS of a corporation is.g. premium) are considered as additional paid in.000 Increase our capacity some more.000 (P25. PERO yung capital stock i.000 Unissued 500 shares 300 shares more 30M Magkano ibebenta ang 300 shares na yan? At par at P100 per share? P30. At incorporation. Nung nabook value. Everything will go in the books as assets. pwedeng at incorporation only 500 shares (50% ang subscribed) at the P50. If the par value is P1. How much capital will the corporation now have with each share of stock? P30. Therefore. corporation will not issue additional shares for a price at par.000.000/500 shares. looking at the total assets. hindi problem ang exceeding ang monetary value. the amount of money raised from issuance of shares cannot go beyond the authorized. P30M kagad ang mareraise nilang funds.000 book value or even bigger since the corporation is now profitable. At incorporation.000 Paid up P25. Pwede ba yun? That͛s called ͞capital call͟ that is an assessment. S6 Par 3 Kalokohan yan: Corporation will issue additional shares of stocks because it needs additional funds. Nagpapadagdag ng bayad ang corporation. They will agree how much of the ACS they will issue among the original subscribers. What the law requires is the totality of the paid up must not be less than 25% of the subscribed shares. issuance of shares of stock at incorporation. Not required that all shares must be 25% paid up. Bibilhin ko for you. Pwede namang hindi bigyan ng value. Ang tataas ay ang OCS and PAID UP. Some fully paid. What are par and no par shares? The shares of stocks into which the stocks of the corporation is divided may be par or no par. DLC opinion: The ACS should be in terms of number of shares. they are allowed to issue shares of stocks which are no par. Why did we put unit in interest in the corporation? To facilitate transfer. some shares can be par and some no par. At incorporation. Duty of diligence. Pero pwede naman wala. BUT there is a requirement when no par share is issued. ERGO. Liable for the difference. does it require SH approval? NO. S38 applies only to the increase or decrease of the AUTHORIZED capital stock. Unang nagprejudice jan ang corporation. they need additional fund to tide them over. if the existing SH holding/owning par shares have unpaid balance in their subscription. e. while some just paid 5% or 10%. What difference does it make kung meron at walang par value? If walang par value. sila din magkakasundo dun. In most cases. How does the corporation issue shares of stock? In the incorporation. But since wala ako kakampi dati. y CHI: So ano consequence pag hindi nagbayad yung par shares converted into no par shares? Buy out the SH? If corporation reclassifies no par into par. business is so bad. Par value is the amount/monetary value chosen by the corporation to denominate the value of a share of stock. Then kung ilan ang subscription ng bawat isang original subscriber. can those be issued [by installment?]? Technically no. When the second situation is obtaining.77 The accountants do this in order to make the PAID UP tally with the ACS. the corporation must express capital stock in money. nahihirapan daw sila. the moment they reclassify. BUT if corporation issues additional shares of stock. Whenever additional shares from unissued shares are issued. problem pa ng corporation how your share will be treated. Kung gusto mo ng P5. wala bang working board so the issuance of shares to the original subscribers is actually a contract/agreement among the original subscribers of the corporation. Madedeclara pang delinquent yung shares of stocks niya. How about after incorporation when new shares of stocks are to be issued? Who decides on that? Look at S38. They can either classify the unissued shares into two. Lahat ng accountants ayaw ng shares of stocks para madali i-book. is there maximum amount of consideration for it to be issued? No. BUT the no par share. all SH are entitled to subscribe to pro rata number of shares issued. But can͛t do so because no one wants to buy share at P100. Sir kapag mag-iissue ng additional shares of stock from the unissued stocks. it When a no par share is issued. How about issued shares. What͛s paradoxical about it? The corporation is supposed to raise money from issuance of its shares. They can even increase the ACS. Technically pwede but that͛s not done now BECAUSE their preemptive right (stock rights) will be rendered useless. There is now the minimum amount of par value. does the law require that each and every subscription must be paid 25%? No. BUT the SEC has issued a regulation. Pero bawal na yun ngayon. wala. If wala shang pambayad. BUT if we only issue unissued stock from the existing ACS. it cannot be issued by the corporation for a consideration less than par. SH approval is not necessary. It is not assessable. They are classified in the AOI. Why does it need additional funds? Business is so good. then the ACS must be expressed in number of shares. They must first make shares in the AOI classified as no par shares. P5! Yung mga mining companies dati 5 centavos. they will file the AOI with the SEC. ano ang tataas? ACS? NO kasi hindi dumami ang shares of stocks. is there minimum value that the corporation for the par shares? If you look at the Code. BUT that must be clearly stated in the AOI. Solution: to give corporation more leeway in raising fund in leeway. Not in terms of money but in terms of number of shares. A par share cannot be issued at less than consideration. they need to expand. What does ͞non-assessable͟ mean? Additional amounts cannot be assessed as due on that share of stock. Di pwede ibenta ng P80 without violating the law. the ACS must be in the AOI. Yet when all the shares are no par shares. not necessarily each subscription is 25% paid up. dagdagan tayo P100. Corporation now said. Pag shares of stocks kasi. Pano kung di ka makapag-bayad. That͛s one difference. . Hindi pwede hulugan ang no par share. Pari passu Is there maximum par value? Wala rin. Every SH must pay an additional amount of consideration for their investment. Second difference: When a share of stock is a par share. that͛s how the ACS is written in the AOI. BUT if it͛s capital call. Minimum amount? P5. The corporation issues shares of stock at incorporation. board cannot authorize the issuance of no par shares. It cannot be issued for a consideration less than P5. As to the distrubiotn of shares issued at incorporation. Pwede bang may par at may no par? Yes. Where is par used? Golf. the difference must be immediately. If AOI does not provide no par shares. Masusubasta pa yan. at least 25% of the ACS must be subscribed and at least 25% of the subscribed must be paid. it is deemed fully paid. Garcia and Oliva subscribed 100 shares each. kinulang tayo pera. BUT if all shares of stocks are no par. Pag par shares lahat yan. is considered fully paid. Pano nila nakukuha yang value na yan? Wala. pwede niya itransfer yung kanyang stock right. No par shares existing then issue par shares lower than book value? That͛s called watered shares of stocks ang tawag jan. Remember: They can͛t make no par shares by mere resolution of board. Question: Yung subscription. walang magpautang dahil may financial problem.g. capricho lang talaga yan. Kung yun ngang P5 ibigay mo sa batang namamalimos ibabato pa sayo eh. Bebenta ko not for cash but for shares of stocks. Whenever shares of stocks are to be preempted? Kailangan ba par value yung bayad? Kung magkano iissue yung shares of stocks.g. if they can͛t preempt on unissued shares of stocks. this will only happen whent hecreditor is not willing to settle the debt unless shares of stock. PLDT. 10% of the OCS is for the public. This will only happen when the debt is big. What if walang pera yung isang SH so he didn͛t exercise preemptive right? What do you do to the preemptive right? This is why you have to spell this out in the AOI that you will draft for your corporation. Classification of shares. e. Ano ang magandang shares? SMC. BUT this is not true anymore. voting and non-voting S7 founder͛s shares of stock S8 redeemable . shempre mura lang since magbabayad pa ng subscription yung seller. You should have noticed that when we encountered S6. Can we preempt that? Natural hindi. 1/3 and 1/3. Stock right has value if the issue is hot. Who of you wants to preempt? Ang nagtaas ng kamay ay walo lang! yung dalawa ayaw na magdagdag ng investment. magkikick-in ang preemptive right. SO THEREFORE. when can they preempt? Only when AOI is amended to increase the ACS. What will happen there is like this: 100 shares to be issued with 10 SH. Exceptions to S39 a. Tatanungin ngayon sila. It does not recognize interest over the additional issuance. SH of record are entitled to exercise preemptive right on ALL issues and disposition of shares WON the shares are part of the unissued ACS. What is the difference between a CLASS and a SERIES? You encountered the different types of shares named in the code: S6 Preferred. isang stock dividend. Jollibee is mixed. in the AOI it has to be clear how the preemptive right is exercise. Only the 8 will get from the 100 since the interest is not recognized in the additional issuance. That͛s S39. They are not issued but disposed. When is it denied? There are issuances which cannot be the subject of preemptive right. Good business b. we will also be able to raise money and pay creditor. Treasury shares are disposed because they are property of the corporation. OR they can give your right to another SH for a right of first refusal. Kung yung creditor willing to accept cash as payment and they are willing to preempt all shares of stocks that will be issued for payment to creditors. are the SH entitled to preemptive right? y SC said NO because it has been offered to you at incorporation. Isang cash. sayang ang oras. in exchange for property needed for corporate purposes o E. Pag mabili ang shares of stocks e. before issuance. Pag pinreempt natin yun. Share pertaining to the SH. y DLC: THAT is wrong. Shares of stocks to be issued in compliance with law. Whenever corporation will dispose treasury shares. So under the current law. BDO. are SH entitled to preemptive shares? Yes. You have stock right but does not want. You were offered the entire 100% so nag-waive na kayo jan. FIRST METHOD: Does not recognize a right of the SH to the additional shares. FACTS: corporation registered with SEC with ACS P100K divided into 1000 shares of P100 par value each. What is the purpose? In order to maintain the levels of control in the corporation. The same level should be maintained. your share is available for corporation͛s disposal. Lumaki ang holding ni DLC dahil declare nang declare. ganun din when stockholders will preempt. look at S39 ͞issuance OR disposition͟ underline disposition. You don͛t offer all shares at incorporation. the amount required to support the ACS are subject to preemptive right. We are engaged in the business of insurance. Is the preemptive right. Cases decided by the SC during the regime of old corporation law. c. Under the old case. So the board of directors adopted resolution to pay owner of the lot. why insist that the shares of stocks go to creditor when the SH preempt. Sila lang ang entitled magpreempt sa 100 sahres. Pag babagsak ang market. 21 February 2011 SHARES OF STOCKS. Only 50% subscribed. When treasury shares are issued. When does it become hot? a. Will authorize the issuance of additional shares from the unissued stock. KINDS There are two classes of shares. Shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock. Nagtitira kayo talaga jan. When shares of stock are issued. may the SH be deprived? Yes. PROBLEMATIC: in payment of a previously contracted debt o When debtor-corporation has big amount of debt and the creditor is willing to give a big discount provided it is paid in shares of stock. Napabayaan ko na ang aking portfolio. Battle for control ʹ stock rights are bought Corporation will ask the SH.78 Sino lang mag-aauthorize niyan? Only the board. You can sell that. What is preemptive right? The right of existing SH to subscribe to the pro rata number of shares to their respective holdings of SH everytime the corporation issues or disposes shares of stocks. Jollibee. Stock market. Later the corporation through board of directors decided to issue additional shares from the unissued stock. Each one owning 10 shares.g. Such right is called ͞stock right͟ May stock right sha na 10 shares.g. Who will get the stock right? When you say no. THEREFORE. we will never be able to comply with it b. Corporation needed badly the vacant lot to its factory so that the flow of our operations is continuous. ¼.g. requiring minimum stock ownership by the public o E. 10 SH. SECOND METHOD (which DLC thinks is fairer): Recognizes a right fo the SH in the additional issuance. 50% thereof paid. in close quotes: because treasury shares are not reissued but remain as issued shares of stocks although not outstanding. kanino mapupunta? There are two methods of computation AND this has to be spelled out in the AOI. Such level will only be maintained if all the SH will subscribed in the additional shares of stocks to be issued. In the issuance of the unissued stock. 1 SH doesn͛t want to subscribe to additional shares to exercise preemptive right. Jollibee. Kung may dividend. Preemptive right. privileges and/or restrictions. For there to be classification in shares. Only the articles may classify shares. all of them shall be entitled to a dividend. the board is authorized to make a mixture. Transferability b. VOTING RIGHTS A class may be deprived of voting rights. If the corporation is dissolved and something is left in the assets of the corporation. all the rights of a SH. BUT we cannot discount the force of the argument given by the Camposes in their book. In short. Very very rare na walang bumabagsak. Rights b. then all the losses will be shared by all the common SH. Walang bumabagsak sa class ko na masama ang loob dahil alam nila kung bakit sila bumagsak. Kasi terms and conditions of preferred shares of stocks OR any series thereof. the first who will be given is this class. It simply allows the board to create SERIES. We can do that. Board may use in creating a class. No voting right th c. They cannot create class by mere board resolution. What is stated in the 2 par is not authority for the board to create. it has to be done in the AOI. it does not say that the lassification of shares must be done through the AOI. terms and conditions na lang ang iissue ng board. DLC disagrees with the Camposes. The class must be created in the AOI. If the corporation becomes bankrupt. What are these? a. It is the class of shares which the corporation must have to begin with. The corporation however is allowed to classify its shares into different classes or series. GENERAL RULE: The classification of the shares must be done in the AOI. RESTRICTION a. For the corporation to create a class. It͛s written in the book. DLC disagrees with the Camposes. What͛s merely written there is the difference for making classes of shares must be stated in the AOI. If there is no one to entitled to be paid ahead of the others because all of them are common shares of stocks. Kasi nga diba common. run and be voted for as directors. Only the terms and conditions e. This is the rule being followed by the SEC. What is the difference between a CLASS and a SERIES? Let͛s first talk about a class. not the RPR anymore. Why are the shares of stocks allowed to be deprived of voting rights? Because they received a privilege in exchange for the voting right. If they are just the same with respect to rights and features. multiples of 5.e. there͛s distinction there. pakita niyo sakin. in S6 which is a new provision.dz Common shares is the class of shares that enjoys all the rights of SH and exposed to all the risks of the corporation͛s business. San sila hindi bumoboto? Election of directors. How can you classify shares without the SH intervention? BUT PERSONALLY. At liquidation after all liabilities are paid. this class will be paid first. there must be a difference between the totality of the rights or restrictions that make them different.79 S9 treasury shares Is there a section for common shares? Pag meron. Ownership i. What must be stated in the AOI is the right/privilege/restriction which makes one class different from another. They will not allow it if the classification of shares is not authorized in the AOI. then all of them shall be entitled to share. These led the Camposes to conclude that first sentence of the first paragraph taken with the 2nd par. Look at its first par: Dzprovided further that there shall always be a class/series of shares which have COMPLETE VOTING RIGHTS. They enjoy all the rights of a SH and they are exposed to all the risks of the business. Definitely. they cannot be voted for either. There are preferred shares already. all other classes won͛t have anything. Pag meron kayong nakita. Although this argument had never been used before. pay in full or installment. board may classify shares of stocks and provide terms and conditions from what were enumerated in the AOI. the shares are nonetheless allowed to vote in instances enumerated in S6. There is already classification in the AOI. More on this later. That͛s the rule that SEC observes. may additional points kayo. There are three bases for making distinctions. So unless there is a classification of shares. the other doesn͛t. Privileges c. What are common shares? You have to know S6 by heart. the other class will not have dividend this year b. HOWEVER. Voting right. At least have working knowledge on what makes one a class different from another. How does a corporation make a class of shares? For shares of stocks to belong to a class. What are changes that will become the basis for making a class of shares apart from another class? That͛s written in S6. AOI may say something like this: ͞Board of directors is hereby authorized to classify shares of stocks of the corporation with the ff rights.͟ Since there͛s authority given to board to make a classification. DLC not aware of any section in the code which mentions common shares. Restrictions One may have a right/privilege/restriction not enjoyed by/imposed on the other. When you issue preferred shares of stocks. only relatives within 4 civil degree of consanguinity are qualified to be SH in this corporation. ERGO. One class has it. If walang matira. The AOI may authorize the board. find a mix of RPR. If all earnings consumed by this class. Preference to dividends when corporation has earnings available for distribution as dividends. nd . the difference will just be in name and not in substance. Certain classes of shares may be deprived of preemptive right PRIVILEGE a. RIGHTS as a basis of distinction or classification. All of them are entitled to vote. What is included here? a. all the shares which the corporation has are all common shares. Board of directors cannot by mere resolution create a class of shares. but surely when a class is non-voting. b. something must set these shares apart from the rest.g. Those three will become the bases for classifying share. ͞The board of directors where authorized in the AOI͙͟ Camposes said that the board of directors by resolution may create a class of shares provided that the right/privilege/restriction that will be given/imposed on these class of shares to be created in the board: [1] stated in the articles [2] authorized in the AOI to create the class In other words. Sila lang ang tatakbo as directors. that should be mandatory to redeem the shares of stocks. They get a preference. In an ordinary purchase. Is that not violation of the rule that only preferred shares may be deprived of voting right? After the 5 year period is over. How is purchase of a common share of stock in S41 different from redemption in S8? Corporation for legitimate purpose its own share of stock. But since that is a privilege given to the class. Return the investment coming from paid up capital. Mandatory redemption ʹ under T&C of the shares of issuance. When corporation purchases it own shares of stock. the capital of the corporation remains intact. corporation is not returning the investment of the SH. a. No problem even if just 50%. Therefore. Can we do that? NOOOO. Can the AOI say something like this: ͞Corporation has two classes of shares: preferred and common. On the contrary. Fourth also have preference not enoyed by other. By laws only for Class A. Pwede ba in a corporation. we split the corporate acts requiring SH approval among these four classes of shares. So technically. If corporation failed to declare dividend in three consecutive years. You can be voting and preferred at the same time and you are a class. E. the founders͛ shares would deprive the common shares their voting right. Because at all times. Is there something wrong with that? What difference does it make when the corporation buys back an ordinary common shares of stock which it is empowered under S41 (buy back shares of stock for legitimate purpose anytime provided there͛s URE)? What͛s the difference between redeemable and preferred? Redeemable enjoys a privilege i. we will just pay you the fair value of the shares using the URE. Since they have a privilege. although there are restrictions. But since you have 50% utang. but the preferred has no privilege but just restriction without any preference/privilege given. in the books it is fully paid. Preference at liquidation Can we not give them privilege but deny voting rights? Di pwede.80 What is this privilege? Privilege not enjoyed by the common shares. there are only two kinds of shares: common and preferred.e. preferred cast 2 votes. Another class only for investment. Pwede ba na preferred and voting at the same time? Is it necessary for preferred to be non-voting? Does it follow that when a share is preferred. You cannot say that the corp has two classes. That is a privilege not enjoyed by the common shares. You have a preference without any restriction. Since redeemable shares are given a privilege/preference. What are the privilege received? Quid pro quo situations a. All shares now become common shares. Something sets you apart from other shares.dz We cannot classify it as preferred but no preference. it loses exclusive right to vote.͟ Is this allowed? Not allowed in the Code. It͛s not the name that classifies it as preferred. Pag bumili ka ng shares of stock ng corporation. you cannot receive your investment until corporation is dissolved. Can preferred be deprived of just one vote? Pwede nga tanggalin ng lahat. When corporation purchases its own share of stock. the corporation may only use URE i. Di pwede walang common at lahat ay preferred. Walang napeprejudice na creditor or third party. Hatiin din ang voting right. Kailangan may common. So when the period of redemption REDEEMABLE SHARES What if we classify redeemable. Then you deprive the other SH of their voting right. common gets 1 vote. all the voting rights shifted to preferred shares until dividend is declared in which case voting right goes back to common shares. it͛s privilege is to get back the investment before the dissolution of the corporation. they may now be deprived of voting rights. So all in all. This is what the phrase ͞unless otherwise provided in the Code͟ Founders shares therefore are preferred shares. Who is your common shareholders in this case? Founders will become the class of shares which enjoys all the rights of a share. Pag binili ng corporation yan. the AOI must create the class. It may use equity to buy the shares. they have privilege in return. Corporation said that you already have conflict of interest by engaging in business competing. all the common shares deprived of voting rights during the 5 year period. Preferred right which became common. EXCEPTION here is redeemable shares. In short. Kailangan code lang ang exception. The balance credited to corporation to make shares fully paid. sila lang ang boboto.. What makes a class of shares redeemeable? When the AOI allows it to be returned/bought back by the corporation when redemption time comes. pag dumating yung araw of redemption. Pwedeng during the 5 year period. There must be something to justify the restriction. Capital remains intact because they are only allowed to use URE. This is invalid and SEC will not allow this. If corporation has no dividends in three consecutive years. Who will redeem? Of course the corporation.g shares of stock subscribed by Oliva is just half paid. hindi pwede bibilhin without becoming fully paid in the books. REDEMPTION is exemption to trust fund doctrine. . there must be a class of shares enjoying all the rights of the SH. Can it be that everybody is voting except that common shares have double votes than preferred? Wala pa nakita si Sir pero technically pwede. redeemable shares are actually preferred shares. Redemption are of different types. Is this allowed? That you cannot be deprived a vote means cannot be deprived of a fraction thereof also. All preferred holders cast one vote. There seems to be a problem with S7 founders͛ shares. it has to be non-voting? NO. what more kalahati. I will only pay the excess. maski walang tubo/lugi yung corporation but the period of redemption has arrived. In redemption. not to be covered by the GR that the investment of a SH of a corporation will stay with the corporation until the corporation is dissolved. The law says that Dzno share may be deprived except those classified and issued as preferred OR redeemeable. Amendment only for Class B. we shall just buy you out.e tubo. Preference as to dividends b. unless you are preferred. we divide the shares into 4 classes of shares? One enjoys this preference not enjoyed by another. The third will enjoy another preference. but not deprived of voting rights. Preferred have no voting rights but entitled to dividend preference. So when corporation purchases it. what he is returning is the earnings. common shares 2 vote. no preference? Can it be non-voting? Yes. Redeemable shares is preferred. But during the 5yr period. Is that allowed? Yes. whether common or preferred. may it be reissued as a redeemable share? After redemption. they don͛t have voting rights. will they go back to the unissued stock? No. because it will amount to transferring the funds from left pocket to right. Eh issued na pala. fully paid the corporation reacquires it by purchase under S41. SH cannot compel the corporation to redeem. BUT if used equity in redeeming the shares because there͛s no URE but the date of redemption arrive so it just used the equity. Every classification of the shares done through the AOI in the original or through an amendment thereof. Hindi lang sinabi sa Code ang special treatment. This is now called ͞hybrid redeemable share͟ share din but another class. Redemption retires the share of stock and the corporation must amend the AOI to reflect the resulting reduction in its ACS. 2. they retire. SH cannot be compelled if they are the holder of the option. it became a treasury share which may be dipsoed of later. What if the corporation is luge. Revert to the unissued stock? DLC advice to clients: If you issue a redeemable shares. So hindi talaga madali ang redeemable shares. There͛s a provision allowing shares to be disposed of. Do treasury shares have dividends? Wala rin. Treasury shares shall have no voting rights as long as in the treasury. they will become treasury shares. Please redeem my share. they lose the character of redeemable shares and become common shares. 5 years arrive and so the corporation paid Oliva the value of his share. When it is reacquired. Because someone has bought it. Redemption may be at the option of the corporation OR the SH. If those shares redeemed by the corporation are authorized in the AOI to be reissued. So DLC subscribes to the view that classification has to be amended and pass through the SEC. Issued share b. The option may belong to the SH or corporation. When the redeemable shares are redeemed and become treasury shares or revert to unissued stock (depend on the source of redemption). redemption is not cash. redeemable share may become a treasury share in certain circumstances. Redeemed na yung redeemable. That͛s what the SEC ruling says ha. But the AOI has provision allowing the corporation to be reissued. that preferred share becomes treasury. it is still redeemable or common na? Dapat maliwanag na nakalagay rin yan na maliwag sa AOI. who will require it to set up the sinking fund. wala na kayong share of stock dahil naubos na ang common. ͞Shares of stocks which have been issued͙͟ Sir may sinabing redemption o. Malayo ang kinalalagyan nun. S9 gives only three conditions for it to become a treasury share a. Redeemable shall be issued and redeemed after 5 years from issuance. Corporation may say that they will not redeem. There are other classes which you may create in the AOI. Is treasury share a class of share? No. This is why SEC regulates a lot for the protection of the investing public. Maliwanag naman sa code yan. TREASURY SHARE: Look at S9. what to use to pay him? For this reason that SEC will not allow corporation to classify shares into mandatory redeemable share without requiring the corporation to set up a sinking fund. When it is reissued. Therefore. ergo shares must go back to the corporation. When it does and allowed to be reissued. Pwede ilabas ulit at ibenta sa isang SH. Na-reacquire lang ng corporation. Oliva owns common share fully paid. Gay: Will the rules on redeemable shares apply to convertible shares? Remember: Treasury shares are issued shares. Now. two things may happen: 1. it͛s a condition of the share. Reissued is mejo mali for DLC. Since mandatory redeemable share. he goes to corporation I am asking for payment. When fully paid and then reacquired. When shares are in the treasury. may boto ba yung treasury shares during SH meeting? Nope. Subsequently reacquired d. what becomes of it? Treasury share. BUT the SEC requires a fourth condition: under its AOI. For cash or another type of share. AOI says: Shares of stock of this corporation is divided into common and redeemable. . it͛s not a class of share. Otherwise. what happens to the share? Go back to the corporation as an unissued redeemable share. Bumalik sa corporation yung redeemable. Becomes a treasury share when there͛s provision for the ͞reissuance͟. How will it become treasury share? Hindi nga bayad in the books of the corporation since binalik ko yung bayad. Hindi natin ibinalik. This is also called ͞share conversion͟ When the AOI have this feature (redeemable shares converted to common shares at the option of the SH) have at all times a number of common shares enough to cover the shares that will be converted into common shares. It may be preferred treasury share or common treasury share. While in the treasury. corporation is declaring dividends to itself. b. If the share is preferred. draft the mechanic of redemption so you can address when it will become treasury/revert to unissued stock when there is a provision in the AOI allowing the shares to be reissued or disposed. Why is there such additional condition? Let͛s go back to redeemable share. the corporation cannot say no. Fully paid for c. the treasury shares may be disposed of again. S57.81 comes. can I resell it? This requires us to go to the concept of treasury share. they do not become treasury shares. if it does not become a treasury share but there͛s provision in the AOI allowing to reissue it. But S57 only talks c. how will it become a treasury share (binalik yung payment). corporation owns the shares. Not mandatory. Suppose redeemable share is redeemed by the corporation. Corporation has two classes: common and redeemable. Wala yan sa kahit anong librong babasahin niyo. treasury fund. corporation reacquired under S41. Mahaba ang pinagdaanan ko jan. If those shares will be given dividends. then those shares to be disposed of again are treasury shares. you need sinking fund so that you have money to pay redemption price which may be fixed or variable when redemption time comes. Convertible is redeemable. Being a treasury share is a condition. Pagdating ng conversion time. Is the share of stock a treasury share? What does SEC say? It depends. equity is not touched. Corporation used URE in redeeming the shares. If mandatory. When it does that. Yes. one becomes a SH by subscribing to the shares of stocks of the corporation. What do we do during liquidation? All assets of the corporation are gathered together and then liquidated i. Are treasury shares outstanding? No. Preferred shares always par value. What is the definition of OCS? Total shares of stock issued under binding subscription agreements EXCEPT treasury shares. Pag may natira. Look at S137. Pag-aralan niyo na lang yan coz it will depend on the agreement. or liquidates becomes term has expired. that is the word. Lagi sila may premium that͛s what happens now. Natural alam natin magkano pera. in the books of corporation. E. ISSUANCE of shares is different from DISPOSITION. Some writers believe that is automatic. may it be sold at price less than par? Yes. On the 4th biglang may windfall. that dividend will be considered a debt. What are preferences given to preferred shares? a. Not enough that valid subscription contract has been sealed between corporation and SH. the board declared dividend to the SH. When it disposes the SH. Every time there͛s amount of money available for distribution. Preferred kami. Others become a subscriber of the corporation after the corporation has been registered with the SEC. The moment it͛s fully paid and the corporation reacquired. Preference upon liquidation Happens when corporation goes bankrupt. That͛s why di sila kasali sa hatian ng dividend because they͛re not outstanding. no such distinction shall be recognized. So be it. Pag nauubos nila yung surplus. Hindi gago ang preferred. naubos yung amount available for distribution as dividend. They are issued BUT not outstanding. (5 par. Malaki bayad. b. Corporation reacquired shares of stocks. You can make your own mix/combo of all those types to come up with a different type of preference as to dividends. Since the preferred enjoy 10%. More on this when we reach subscription contracts. Kung merong URE. To Cumulative or noncumulative. Ang dami dami pera. Otherwise the corporation will not declare if the common will not receive anything. Alam natin mapupunta sa . They are the original subscribers. 10% lang ang preference. 28 February 2011 HAPPY BIRTHDAY MEECHUH! How does one become a SH? One becomes a SH in two different points in time 1. Kahit participating pa rin. When realized in the books. Favorite ko tong part na ito.82 about voting rights. wala na makukuha ang common SH. th Shares shall be considered as ordinary commons shares. Just the premium of 10% pero 3 years kaming nagtitiis. What S6 prohibits is the ISSUANCE of share less than par. they are postincorporation SH. Some SH may be given priority in the liquidating surplus used first to return investment of the preferred SH. The common will no longer receive anything. they are not. they will be paid first 10% of the par. DLC opinion: Share will only be issued when the corporation has allowed the share covered by the subscription to exercise the rights of SH. 2. Mandatory natin gagawin yan or else di kami mag-iinvest. ISSUANCE When is a share of stock issued? Share of stock is different from certificate.e. Additional requirement. Additional paid in will only be booked at the initial issuance. Cumulative: Corporation cannot declare dividends when no URE. Board of directors will fix that. Lagi silang may premium. that is theoretical but that never happens in real life. Acquiring issued shares of the corporation Whether post or pre-incorporation. QUESTION: What if not yet fully paid? Okay lang. una babayaran sila cumulative dividend para hindi lugi ang preferred. Naisip yan ng preferred kaya may naisip silang mandatory. You have to think of problems. Suppose we have URE for this year. Plus premium pa yan. Of course. that͛s the liquidating surplus. That will be distributed among the SH as liquidating dividend. Ay hindi participating kami! Ibibigay muna yung 10% nila tas kasali rin sila sa avilabe. Preference as to dividends preferred. your life will revolve here. pag alam nating kulang. If no URE for a particular year. When does a person become a SH? Next meeting on Wednesday. Bawal under S6 na no par yan. privilege or the right appears in the AOI and in the certificate of stock. 3 years nang walang URE. convert to cash so readily distributable. preferred will be given 10% of preferred shares of par value. In practice. a. Ito talagang chapter na ito. Later the corporation needed money but this time. Kawawa naman us preferred we have no dividends. still entitled to participate. hindi lang par. Hindi na nga kami nagpaparticipate sa management. RULE: UNLESS the restriction. Maliit yan. Preferred SH is not a creditor insofar as his preference is concerned? No. Subscribing to the shares of stocks b. He cannot offset. Issuance of certificate is different from issuance of share of stock. DLC entertains possibility of some supervening event that prevent subscriber to exercise the right of a SH. since the corporation cannot declare dividend if no URE. ganito pa kaliit makukuha namin. They are supposed to be paid every year at least their preference. still as SH just entitled to preference in the corporation. shares are fully paid.g. kailangan nakalagay sa AOI yung classification RPR and also in the certificate of stock. Hanggang consideration. Pag nag-issue ng certificate of stock must appear also in the certificate of stock. the value of shares of stock has gone down below par. Hindi kasi bobo ang preferred. The SH who are originally incorporating the corporation. Itong volume 2 na ito. therefore the shares are treasury shares. pay all the debts/liabilities. preference of 10%. Reklamo naman ang preferred. Preferred are always participating. Suppose the corporation reacquire the shares of stock for a higher amount than par? Purchase can only come from URE not the capital stock (aka paid up). 110% ang dividend nila. Even before the corporation has been incorporated. bakit pa magdedecalare. Subscription. Then after liquidating. the subsequent disposition is no longer paid in but treat it as property. See S43: declare dividends from URE on the basis of the outstanding shares held by them. Whatever is the balance. nabayaran kami 10% lang tas yung mga punyetang common. S6) Para maging iba yan. When is issuance of share done? Deemed issued. How much is that? Kaya lang nung binayaran sila ng P10. In the definition of OCS. notwithstanding the fact that the parties refer to it as a purchase or some other contract. Caption of the contract is deed of sale. Lahat ng nahihipo. To recover the balance.dz What was the word used here? Issued and not ͞disposed͟ Where is the ͞disposed͟ provision? S9: DzSuch shares may again be disposed of for a reasonable price fixed by the board of directors. Remedy available when the balance has become delinquent. Of course. He did not subscribe. This shows when you are UP grad or not. Garcia under the valid subscription contract for which Ron paid the full amount. How did he become a SH.g. What law governs the deed of assignment of a right? Sales diba? Bakit ganon ang caption. in the post-incorporation scenario. Para mas maganda. the contract is one of sale. it may be sold at less than par if that is fair value of share. When does one become a subscriber? Subscription is defined in S60. pag naalala ko. S ubscription contract. . there is a subscription contract. As to the price of disposition May an UNISSUED SHARE which has par value be sold at price less than par? No May a TREASURY SHARE be sold at price less than par? Yes. The transferee. ͞Stocks shall not be issued for a consideration less than the par or issued price thereof. kaya nga binebenta. deed of assignment. The contract now is SALE. Share of stocks therefore standing in the books in the name of Ron are fully paid. IMHO) Acquisition of the shares of stock in the secondary market. SH Preincorporation subscription (primary acquisition) original subscribers subscription subscription Postincorporation acquisition of issued shares (secondary acquisition) sale conveyance/tr ansfer donation ORIGINAL SUBSCRIBERS. those TS are still issued shares. (n) The prohibition in S62 applies only to issuance. Because a TS is property of the corporation. We have discussed who these are in the formation of corporation. So the TS are not subscription contracts anymore. Why not deed of sale? Kasi ang subject of sale is tangible goods. Hindi nakabayad on the balance. Wag na lang conveyance. SUBSCRIPTION OF ORIGINAL SUBSCRIBERS Wala pa yung corporation at shares of stocks. Kaya important malaman WON the shares were acquired through a contract of subscription. The magic word there is ͞unissued͟ When is a share unissued or issued? What difference does it make? Is there a difference? The moment a share of stock has been acquired by a subscriber and a subscriber was allowed to exercise the rights of a SH. one becomes a SH by either by subscribing to the shares of stocks OR by acquiring issued shares of the corporation. The corporation was able to do that because at the time it had URE in its books. That is what we call transfer. BUT if you will look at CC provisions. because of some conflict of interest problems. What happens to those shares of Ron which were purchased by the corporation? They become treasury shares under S9. later on when the corporation is in need of additional capital. Therefore. Later on. the caption is ASSIGNMENT. Pwede sila ibenta ng hurnalan (on installment basis). How can there be shares of stock when the corporation has not yet been registered with SEC? But committed to shares of stock when the corporation is registered with the SEC? Can they withdraw from the subscription? Under S60: GR is they cannot. the person must subscribe to the shares of stock of the corporation. natransfer. a SH owning shares of stock transfers his shares to another either by sale or donation or by inheritance. TS are excluded. hindi sale. Pag intangible right ang subject. one of the remedies available to corporation to recover the balance is DELINQUENCY SALE under S68. may the corporation recover through delinquency? No. because they are not unissued shares but issued shares but not outstanding. Is a deed of assignment a deed of sale? Yes. BUT while TS are not outstanding. Hence. In case of subscription contract and the balance has not been paid and the shares have become delinquent. Nakuha niya kasi. Ron sold all his shares back to the corporation. the corporation issued shares of stocks to Mr. ACQUISITION OF ISSUED SHARES E. Pag di nahihipo. there͛s a lot of difference between the two.dz 2. does he become a SH? Of course. when those TS are released for ownership again. nagsubscribe na sila. 1. the corporation under S41 purchased all the shares of Ron.83 become a SH. sinasayang lang natin ang laway natin ditto. These treasury shares (TS) when there is an election of directors. . it is allowed in S9. What do we call the contract when the TS are to be acquired by third party from the corporation? Subscription contract? No. rules on sale will apply to contract so it͛s also a sale. may the corporation dispose the TS? Yes. that is S137. Just to provide you with an example. Delinquency sale is applicable only to delinquent shares covered by a subscription contract. The corporation has been existing for 10 years. (Mas maganda yung conveyance. What difference does it make when you subscription and deed of assignment of TS? Kung wala pinagkaiba yan. When the shares have been disposed of because they are TS. So whenever there is a binding contract for the acquisition of the unissued shares of stocks. the shares are deemed issued. deed of assignment. Para lang makita nating hindi nahihipo ang ibinenta. do we include in the computation of the OCS to determine the number of quorum? No. applies only to subscription contracts.Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed shall be deemed a subscription within the meaning of this Title. So how do you collect ͞acquired shares͟? Later on there will be more distinctions. What word is important/material in S60 that you must underline? Garsha says ͞issued͟ eh wala namang issued dun. They are not outstanding. How? By acquiring issued shares of stocks through a deed of conveyance. 84 NATURE OF SUBSCRIPTION CONTRACT What is the nature of subscription contract? There must be at least 2 parties, you can please yourself but you cannot contract with yourself. Who are the parties in a contract of subscription? The corporation and the subscriber. Corporation commits to issue in favor of subscriber a certain number of stocks in exchange for consideration. Post incorporation subscription, can the subscriber withdraw from the subscription? Wala pa sa pera ginagastos na to make money. May darating na pera si Oposa from lola. Paid the downpayment but then lola͛s money did not arrive. I won͛t give P1M to this kumag. What will Oposa pay for the balance on his subscription when the money didn͛t come? Can he go back to the corporation and say that he wants to withdraw. That remedy is not in the law. If you look at the law, the remedy is for a corporation to collect the balance on the subscription. But there is nothing in the law which gives a subscriber a remedy if he wants to revoke/rescind from his subscription. Ang meron lang withdrawal allowed in the code is on pre-incorporation subscription. For post-incorporation subscription. Let͛s analyze the reasons. Inconsistent contrary principles of contract. Walang ground to revoke in the CC. Even if you apply ordinary rules of contract, he does not have any remedy. The remedy will be in favor of the corporation in case he defaults for whatever reason, the contract will have to collect on the balance. May a corporation be a subscriber to shares of stocks? Yes. May a minor be a subscriber to shares of stocks? Yes, however the minor may not run for a director. There͛s already an SEC ruling to that effect. Because the minor who cannot administer own state of affairs, should not be given right to administer state affairs of another entity. To do so would be absurd. Pre-incorporation subscription In the case of pre-incorporation subscription, who are the corporation that͛s party to subscription contract eh wala pa nga sila diba? In reality, there͛s a contract among all the original subscribers. They contract among themselves. Kasunduan natin to ha, join together to form a corporation, walang iwanan dito. Contract among themselves. But since this is a contract, they are bound by it. This is strengthened by S61 which provides that a pre-incorporation subscriber cannot withdraw from his contract without the consent of all the other subscribers. A subscription for shares of stock of a corporation still to be formed shall be irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers consent to the revocation, OR unless the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission. 6 months. BUT suppose, after 6 months lapsed, corporation still hasn͛t been registered, can he withdraw without consent of all the others? Yes. Exception to the exception: AOI has already been submitted to the SEC. Kung naisubmit na, but one of the subscribers wants to withdraw, and his withdrawal was allowed with the consent of all the other subscribers? Yes. Kung gusto ng ibang subscribers, they can͛t do anything. This provision is for the benefit of the nascent corporation and other original subscribers because if we allow him to withdraw and his withdrawal will result to reduction of required amount of subscription and paid-up capital, then the registration of the corporation will be frustrated. Sandali muna, nandun na eh. For their benefit, the law disallows withdrawal from the subscription when the AOI have already been submitted to the SEC. PERO kung pumapagayag naman lahat, why not. E.g. my mother is sick, I need my money na. We won͛t be affected since even if we return, we still have the minimum requirements. 25% subscribed and 25% paid up. All they͛ll have to do is withdraw AOI from the SEC, say ͞may babaguhin lang po kami saglit!͟ at ibabalik naman ng SEC yan. Buburahin the name of the withdrawing subscriber then return it again to SEC. Prohibition since it͛s benefit for the other original subscribers, they may waive it. In fact, nag-meeting kunwari yung mga original subscribers, pag pinawalan natin sha, we will fall below 25%, they can always do that. Prohibition therefore in S61 when the articles have already been submitted to the SEC is not absolute. By authority of Prof. Conception. What if the subscription contract allows withdrawal on the condition that someone will take over/substitute? Yes. No public policy violated therein. Post-incorporation subscription 85 CHAPTER XII: Consideration FORM OF CONSIDERATION What consideration is sufficient? What consideration is allowed for the issuance of a share? Look at S62. 1. 2. Actual cash paid to the corporation; Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued; Labor performed for or services actually rendered to the corporation; Previously incurred indebtedness of the corporation; Amounts transferred from unrestricted retained earnings to stated capital; and Outstanding shares exchanged for stocks in the event of reclassification or conversion. Issuance of a share may be subject to the suspensive condition stipulated in the subscription contract. What is prohbitied is when corporation allowed Oposa to exercise the rights of a SH pending encashment or payment of the PN. Yun ang bawal. When he is allowed to exercise the rights of SH, the shares are issued. You put his name in the stock and transfer book. Binigyan mo sha ng dividend na pinambayad niya sa PN niya sa corporation. Ginisa sa sariling mantika = sauté in your own fat. Announcers of TV and radio. ͞Ang bagyo ay itinatayang (with accent on the first syllable). Bet is a forecast. Walang tagalog equivalent ang forecast. Nearest analogous word we can think of is bet. It͛s somewhere there in the Pacific. Baughin na rin ang accent ng Pangalawang Pangulo. Ano na͛ng kaganapan jan? Pangyayari т kaganapan. Kaganapan ng isang babae. There is a difference between the ͞issuance of a share͟ ͞issuance of a certificate͟ and ͞perfection of a contract of subscription.͟ A contract of subscription is valid for as long as all the elements of a valid contract are present. BUT simply because it was validly entered into does not mean that the shares of stocks are automatically issued. It is only issued when the corporation receives the cash in exchange of the PN. Same is true with check. If check paid as consideration, the subscription contract is perfectly valid. But until the cash proceeds of check are received by the corporation, the shares are not yet issued. Kayan nga S62 says ͞shall not be issued͟ if you read Dean CSV͛s annotation to this S62, mashadong complicated his explanation. Accountant rin kasi sha. Since the contract of subscription was perfectly valid, we can enforce by specific performance the obligation of subscriber under the contract i.e. to pay the amount represented by the PN on the day stipulated in the PN. SUPPOSE the subscription contract was for a consideration payable on installment (teardrops, paiyakan ang bayad). Is that allowed? May contracts of subscription be paid on installment? Natural. Kaya nga may shares of stocks not yet fully paid. Pwede naman na yung shares of stocks are issued not for the full payment but just for part payment. When you say ͞part payment,͟ how would the mechanics go? Siguro, the subscriber will pay a down payment, and then the balance payable at certain dates OR on call of the board of directors. As to when they call depend on the financial circumstances of the corporation. Some corporations haven͛t called the balance on the shares of stocks for 20 years. Pwede namang nakasulat rin sa subscription contracts kung kelan payable yung balance. Pwede bang may PN din yung balances? Yes. Aren͛t the shares of stocks issued on the PN in this case? No, may down payment naman eh. ISSUE: How big/small shall the DP be in order to allow the issuance of shares? Pwede ba piso? What is the rule? Look at S62: If the share is a par share, it cannot be issued for a consideration less than par. DLC says: That͛s our benchmark. The DP should be an amount less than par. ERGO, if that͛s a correct interpretation, hindi pwede na ang subscription 25% lang. Eh at incorporation the shares are issued at par. So ngayon, naghahatak tayo S62: full payment and incorporation 25%. How much must the DP be in order for the issuance of shares not to violate S62? When we say na may DP na piso, it͛s not covered by the prohibition on issuance of shares in exchange of PN. Walang PN, just 3. 4. 5. 6. ACTUAL CASH Bakit may actual pa yan? There is such thing as ͞cash substitutes͟ in accounting. Hindi pwede yun dito. A check was issued. There are two kinds: manager͛s check and personal check. Manager͛s check was issued. Is the contract of subscription valid? Of course. Hindi ba kailangan actual cash ang consideration, eh check ang binayad. Until the corporation has received the cash proceeds of the check, the subscription contract is not perfected. We will have to wait until the check is encashed. KAYA LANG, may nakalagay jan sa S62 na DzShares of stock shall not be issued in exchange for promissory notes or future service.dz Check is different from a PN. Bawal yung PN, but no prohibition on check. BUT no. 1 says actual cash. Suppose PN ang ibinayad. Oposa who͛s expecting P1M on his grandmother from paternal side since he͛s the favorite grandson. Kailangan niya na bumili ng shares of stock because the shares might go up. So in order to avail of the lower price. GF naman niya ang president of the corporation. Dapat sweetheart lahat tawag mo. 1000 shares of stocks. Payable one month from the date of issuance of shares. Nauntog si lola. Nakita ang PN ni Oposa in favor of the corporation as consideration for the 1000 shares of stocks. Past due na ito says the auditor. President is now under pressure to collect the PN or else she͛ll be in hot water. Legal counsel Garcia asked to file an action to collect. What action should that be? Specific performance. Abogado ni Mr. Oposa ay si Ms. Rodriguez. Motion to dismiss. The corporation has no cause of action because the contract of subscription is void under S62, the consideration being a PN. It is contrary to law and illegal. Under the CC, a contract which has for its consideration an unlawful object is void prohibited under S62. How will you rule on the MTD? ISSUE that judge must resolve: Is the contract of subscription void bec the consideration is prohibited by law? Is the subscription contract void? Ganyan yung exam ko before. Ang daming illiterate na hindi bumoboto. The contract is valid. That͛s why the action for a specific performance will proceed and prosper. BUT isn͛t there a prohibition in S62. What is the magic word you should underline in that paragraph? What should you underline in that paragraph? Issued. There͛s a difference in issuance of share and entering into subscription contract. 86 balance/utang. DLC says: Pareho lang yun. PN means payable in the future. That͛s the import. Nakuha nio ba problema? Si Oposa siguro hindi, kasi lumabas. That͛s our two measurements: y S62 CONSIDERATION: Not less than par. Consideration is not the amount received by the totality of amount willing to receive. y AT INCORPORATION: paid up 25% must be paid up. The other SH may have paid 100% of theirs which can absorb the balance on those who paid less than 25% on their respective subscriptions. What͛s the smallest amount of money corporation must receive for it to issue, record the name and allow the subscriber to exercise rights of the SH? I tried to ask than in my past exams. No one was able to give a good answer. It͛s your homework. PROPERTY TANGIBLE/INTANGIBLE Boundary dispute between Quezon and CamNorte. Cam Norte lost in their fight in the lower courts. Pero naisip nung counsel ng CamNorte na pumunta sa Law Center and stumbled upon our group. DLC was the managing partner. Handled the case for CamNorte. Lawyers involved were Sereno, Sison, Labitag, Feliciano. Adopted by CamNorte as sons and daughters because we won the case in SC. Dun sa bayan niyo sinasalok lang ang ginto from the river bed. The sand in CamNorte is black. You can easily spot the gold nuggets naturally occurring with the black stone by just looking at it. Wala mashadong silica. What makes the sand sparkle is silica. Fools gold, silver easily seen. Obias runs biggest mining operation in Paracali. Ang masama jan, ang process of freeing gold from other metals. They use mercury so mataas ang mercury poisoning in Mt. Diwalwal which is actually a mountain of gold. Pipiko ka lang dun, makakakita ka ng nuggets. That͛s how bountiful it is there. Kaya nagpapatayan mga tao dun. Mr. Obias was able to cumulate his hoards of gold nuggets. Eh hindi sha nagbabayad ng tax so kailangan niya ngayon ibenta his nuggets. Baka daw magkaron ng problem eh wala shang permit to pan gold in the rivers. How do I launder these gold nuggets to turn them into cash? Friend ko naman si Ron who͛s now President of San Manuel Corporation. ͞Oy Ron, I shall subscribe to P20M worth shares of your company.͟ San bayad mo? Biglang inilabas ang ginto. Maski ipacheck mo pa pustiso makers. They will tell you this is good quality gold. Ron called the treasurer to draw up the subscription contract. Weigh the gold and valuate at P10,000/ounce. Match it with the number of shares using the FMV. After all the computation, Doms is now entitled to P5M shares of stocks. Fully paid! Kinuha yung gold ok! Is the subscription valid? Is the consideration allowed? In No. 2 of S62, the corporation is not allowed to accept all kinds of property as payment for its shares of stock. Only property which is necessary or convenient for its use or lawful purposes. Yun lang allowed to be accepted by the corporation. Diamonds and gold are not needed by the corporation who manufactures beer. Since the property cannot be accepted by the corporation as consideration, is the contract of subscription invalid? E.g. Doms said nagkamali ako, hindi pala P20,000/ounce ang price ng gold at the time I paid it to Ron. P40,000 pala. Luging lugi naman ako. May Doms file a case in court to recover the gold he paid because the gold is not one of those allowed by the code as consideration for the shares? Magkaiba yung issues: 1. Validity of the contract 2. Validity of the payment Assuming mababawi ni Doms yung gold on the ground that the corporation has no use for the gold and should not have accepted it as payment. Pwede ba sha bweltahan ng corporation na, okay sige pero bayaran mo kami in cash. If you don͛t have cash, we sell gold so the proceeds will be applied for the payment of the subscription. UNANSWERED. LABOR PERFORMED FOR OR SERVICES ACTUALLY RENDERED TO THE CORPORATION Monetary value of the service could be used for payment of the shares of stocks. HOWEVER, hindi pwede future service. The same discussion with PN shall apply to future service. Racle invited by Ron to dance in his club. Magsasayaw lang ako sa club pero ang bayad ay shares of stock. Yes, pwede yun. Wala namang illegal kung magsasayaw si Racle sa club ni Ron. Hindi ko naman sinabing hubad magsasayaw. BUT Ron should not issue shares of stock to immediately make her an SH pending her rendering of the service. PREVIOUSLY INCURRED INDEBTEDNESS OF THE CORPORATION; AMOUNTS TRANSFERRED FROM UNRESTRICTED RETAINED EARNINGS TO STATED CAPITAL When does this happen? When the corporation declares stock dividend. The corporation will use URE to pay the value of the unissued stock that will be used for distribution to SH as dividend. So there are two steps in stock dividends: a. Determine blah blah __ b. Corporation will use the URE to pay shares of stock of the unissued stock for distribution to SH as stock dividends Binibili ng corporation his own shares of stocks from the unissued stocks then pay the fully paid shares of stocks to its SH as stock dividends. Natural, since the corporation pays itself with its own money, left to right pocket. Form the URE goes to equity since fully paid na yung shares of stock used to distribute stock dividends. Consideration is the amounts transferred OUTSTANDING SHARES EXCHANGED FOR STOCKS IN THE EVENT OF RECLASSIFICATION OR CONVERSION. In case of conversion, there are shares of stocks which are preferred. But the corporation said that the preferred shares are paid with 3 common shares of stocks. When the SH surrenders his preferred and he gets paid with 3 commons. The common came out from the unissued stock. What is the consideration of the 3 common? The consideration will be the outstanding share received by the corporation in exchange for the 3 common shares of stocks. In reality, not the shares, BUT the equity represented by the shares in the books. It has value in the books. Two processes involved here: Ibinalik shares of stocks ay the SH equity But no SH pay the equity to preferred as consideration from the common. Yung shares of stocks na lang ang nagbago. Same with reclassification. E.g. the AOI were amended. Reclassify the shares of stock in the process of increasing the ACS. In the ACS kasi, pwede increase yung ACS by simply increasing the par value. Pwede increase yung par value and the number of shares. But if you are holder of certificate with old and smaller par value. Shares of stocks issued in exchange from the unissued stock must be supported shall be solidarily. Security given on obligation of lender is on property of a third party. so to secure the obligation of the corporation. Sea water is free. y This is the liability of directors for watered stock. the directors. Nakakatawa eh ah! Centuries old na yun then suddenly this justice will change to an obviously wrong usage! Tawa nga ng tawa si VV. Everything is arbitrary. corporation has no property to mortgage BUT the president of the corporation is a wealthy person.g. Will most likely include a comment that S65 is wrong. Whenever a SH pays for the value of the shares and less than FMV. officers who responsible for the water sand the SH who paid the water are solidarily liable for the value of the water. Par value share cannot be issued for a price less than par b. Ruling in this case is no longer true under the current Corporation Code. When the board issues a share of stock for a price less than par. BUT there͛s civil liability under S65. It may borrow from individuals or it may borrow from the public. We have to have an admitted sample. DLC called the attention of the SC. the SEC rules and Exchange rules will not allow listing of stocks unless preemptive right is denied in the AOI. having knowledge thereof. Bakit case at bar? Not to the benches of the bar practitioners. not the case at bench. That͛s the historical origin of this term watered stocks. It may borrow from individuals like from the president of the corporation. Pano ginagawa yun? Through the issuance of bonds. there is water. Why is England money called pound? One pound is one pound of sterling silver. Yung sword pangtapyas ng ulo pag mas mabigat ang kabila. liable with the stockholder concerned to the corporation and its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. E. BUT may the corporation recover it? Of course. To determine the weight of a material. Bar of the scale. The value of this shares of stocks should be 20 pounds of sterling silver but you paid just one schilling. Not the bench. Under the new code. compare it with a known or assigned weight. valued in excess of its fair value. Kaya the case at bar. The case at bar. symbol na ng legal profession. does not forthwith express his objection in writing and file the same with the corporate secretary.87 from consideration i. Director must be guilty of breach of duty (duty of diligence) should not have issued shares of stocks at par when the FMV was at 20% premium. Not the bar and the bench. 144) viniolate yung S62 by issuing shares of stock for a consideration less than par. preemptive right applies not only in the increase of the capital stock but also to original capital stock AND all dispositions of shares. BUT water as defined in S65 is limited to the value received by the corporation LESS than the par value. Par value should not be the benchmark in determining WON water was paid for the shares. outstanding share issued which the SH had before the reclassification. Ibinayad niya na may kasamang tubig. the SEC and TSE will not allow the listing of shares unless preemptive right is denied to all SH in the articles because it will be absurd for SH to preempt shares of stocks that will be sold in the stock exchange. Assuming that S65 is what we shall apply. No par share cannot be issued for price less than P5. (n) the actual value received which is WRONG. What is private borrowing? The corporation will borrow from a bank. Nilagyan kasi ng water. Boiling is 100 and then freezing is 0. Generally it͛s free. . Mababawi yan sa director. Why does the law call it watered stocks? Because there is water in the payment of the shares of stocks. For the watered stocks. It may also borrow from the public. Water. Do you know how 1 kilogram was defined scientifically? One second. When a corporation will list its shares of stocks in the stock exchange for public subscription. You can hakot water in the manila bay all you want. Why? Measurement should not be the par value but the FMV. the SH of record are entitled to preempt. May masama rin ditto in S65. the shortfall (value received is less than par). NEXT SOURCE OF FINANCING OF THE CORPORATION is BORROWING A corporation may borrow money and use the money for its operations. Directors and SH who paid for a consideration less than par are solidarily liable for the balance. Celsius changed it. Fahrenheit. How? Through S31. The case at bench. Applying the method of determining values. To keep the standard of 1kg uniform.e. It should be the FMV. Laughing stock. president agreed to mortgage his own property for the corporation. Sumulat si DLC kay VV. Just bear in mind that preemptive right may be denied not in the bylaws but in the AOI under S39. That͛s the civil liability. Before the scale is not high-tech. Sinamahan ng water yung schilling! Libre naman kasi yung water. The corporation may borrow from two sources. Pag hawak na ni Lady Justice. most likely the security is a real estate mortgage on properties belonging to the corporation or real rd property mortgage on property of 3 party given to accommodate the corporation. It is a private borrowing from the bank approached by the corporation and the corporation. It͛s the difference of par value less Pwede yun as accommodation mortgage. that͛s called ͞at a discount͟ May violation ng S62 (not issued for stocks not less than par. Bakit nagbalance yan. Pwedeng private or public borrowing. Scale talaga dalawa. should you apply S65? Do you call the difference water? If you look at S65. or who. There is a case reproduced in the Camposes. The factual scenario of this case was under the regime of the old corporation code. how to measure weight of goods during the ancient times. 2 March 2011 PREEMPTIVE RIGHT TO SHARES Every time corporation will issue or dispose shares of stocks. If the security is given. Next issue: How much is a share of stock to be issued? What are the restrictions here? a. Suppose the directors issued shares of stocks at par at a time when the FMV of the shares has a premium of 20% in the par but ___ lang nila ng par. Is there criminal liability there? Your guess is as good as mine but DLC not aware of prosecution for that act of directors. They insist na case at bar. Yung private borrowing. pwedeng secured OR unsecured. How much must a share of stock be issued for? What͛s written there in S65: Any director or officer of a corporation consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash. Platinum iridium metal block deposited in the Louvre Museum in France. So when you get one pound of sterling silver isa lang yun. Dun ka tinitimbang. To avoid that problem. It is unsecured whether there is collateral/security given to insure payment of the loan. there are shares of stock on one side of the scale whose value should be 10 pounds. it͛s not water. When is a mortgage considered mortgage of all/substantially all of its assets? When such mortgage will result to the corporation not being able to continue its operations in accordance with its AOI. The amount of money that the corporation is applying to borrow will be distributed among the several banks and financial institutions willing to participate in the borrowing/lending. there were 12 banks and financing institutions that will form a syndicate that will form P2B for Reynold͛s Philippines. Therefore. Pero yung trust arrangement among the banks. sha lang ang pwede magdeclare ng event of default. In the case of Reynolds which has been discussed to you before. Who can you appoint as trustee? In the case of IKO group of trustee. may ayaw magforeclose. the banks will not lend that big amount of money without security. When you see a bank with a trust company. Para ma-collect ang kanyang commission. Corporation only pays to It may loan without security which is now called ͞unsecured. Their legal title to the receivable is given to the trustee (usually a trustee bank). Because when CB approves application of the bank as universal bank. Kasi kung magmomortgage lang ang corporation. Whereas surety͛s obligation is solidary with the principal debtor. Trustee will call all the banks and report on the default committed by the borrower corporation. no longer a separate contract. Trustee will ask the banks if an event of default shall be declared. Only at foreclosure that corporation will lose possession and enjoyment of property that was given as security. the rights of the creditors to the mortgaged property are transferred to a trustee. there͛s no priority. there must be agreement on fiscal management of the loan.g movable property belonging to the corporation. NB There is a provision in the code that requires SH approval whenever the corporation will mortgage all or substantially all of its assets. or a liability. But we modify it a little. The bank that will arrange the other financial institutions will most likely be the lead creditor/bank or manager of the syndicate. MTI will spell out the rules that will govern the relationship between the creditors on the one hand and between the trustee and creditor-corporation as well. it has a trust license. Most likely. Dahil may trust license. That contract exposes corporation to a risk of losing substantially all of its assets when the corporation defaults on its obligations. the mortgage creditor will have priority. Pwede ring surety. the mortgaged property will most likely remain in the corporation before the foreclosure. the banks members of the syndicate will be forced to sit down. all properties were registered in DLC͛s name as trustee for the bank. I think I mentioned to you earlier a syndication of loans. para isa lang ang kausap ng bangko. When the creditor corporation defaults on the loan.. Kaya lang. Pag corporation ang mag-aact as trustee. Sometimes. there is an order of priority among the corporation. package deal na yun. Since it͛s him who has legal title with the loan. All its assets are enough to cover all those liabilities. Universal bank under law has that license. It may be raised but most of MTI seen by DLC are just majority. When it is such. HOWEVER. an event during the life of the loan may be susceptible of different interpretations. To prevent that legal problem. hindi pwede na walang security. he can be a trustee. His liability therefore is primary for the full amount of the oblig. the mortgage given by the corporation to secure the corporation is in the form of a ͞mortgage trust indenture. A private borrowing may be to an individual or a group of individuals. One of the banks may interpret an event as event of default while the other banks won͛t. Trust license under CB law is when you manage property for another. Banks will now decide by majority vote (which must be in the MTI). Trustee will foreclose for the benefit of the creditor-banks and financing corporations. Include the agreement to create the trust in MTI. Insofar as proceeds of foreclosed property is concerned. If a cure shall be given and if no cure was forthcoming. Hindi pwedeng kanya-kanya.88 y y y y Pwede rin pledge e. corporation needs amount of money that can͛t be provided by a single lender limit because of CB͛s regulations on reserve. The loan was extended to the corporation by a syndicate of individual lenders. license to do all things bank is there.͟ There͛s difference in treatment of those two types of debts when it comes to liquidation of the corporation. It͛s still not public borrowing even if there are already 12 creditors lending. There are problems also in connection with payments. there will still be a difference in enforcement of the obligation when the obligation is secured. Lead bank is entitled to commission. Instead of the lender filing ordinary collection suit. properties of corporation is no longer sufficient to cover all the liabilities of the corporation. Pero 12 banks yan and only 1 bank thinks there is default. It͛s still private borrowing. Therefore. Most likely the corporation will give security in favor of the banks. Unibank. Change the mortgagee. Dati marami ngayon isang trustee na lang ang mortgagee. in case of event of default. banks who are members of the syndicate. one of the remedies available to creditor bank is to FORECLOSE the security. Meron kasing CB regulation for that (on how much money the bank can lend without security). Bakit kailangan na ng approval when it͛s not yet foreclosure? It͛s impossible to give approval while you are already foreclosing. tatawag ng meeting si trustee. meet and decide collectively. Those are security interest which corporation may give a lender to secure a loan. With that big amount of lending. legal title as accessory contract/subsidiary will be owned by just one individual. Syndicated among several banks. Called ͞trust license͟ BUT some of the banks have trust license. Pwede ring chattel mortgage (mortgage on movables belonging to the corporation) Pwede ring guaranty given by an officer of the corporation or a 3rd party who committed himself to perform the obligation of the corporation in case the corporation fails to pay. WON foreclosure will be initiated. kailangan ng license from the CB. How much is he entitled to foreclose? Can you foreclose only a proportionate part of your loan for the mortgage? 2 banks do not want to give the corporation an opportunity to cure the event of default BUT majority of the creditor banks are willing to borrower corporation chance to cure the defect/event of default. Magkakaron lang ng difference ang treatment between secured and unsecured pag bankrupt na yung corporation. Corporation doesn͛t want to meddle with payment. Magulo yan. Guaranty: obligation of guarantor is not primary but subsidiary. if you are talking to 12 . So before you have FEBTC (Far East Bank and Trust Company). May hawak kang assets which you manage for the benefit of a third party. May gustong magforeclose. Guarantor is entitled to the benefit of excussion. Mahahati sila ngayon. the secured creditor has additional advantage of foreclosure. Since kasha lahat ng assets niya. Mortgage trust indenture began with a mortgage contract.͟ Or in practice MTI or REMTI (real estate mortgage trust indenture) What͛s MTI? Parang isa lang ang magfoforeclose ng property. only him can foreclose. Since liability is sufficient. trustee in a morthgage trust indenture. High turbulent area. But usually just two denominations. Pag yung fruit na malaki. What particular spice do they like in Europe which do not grow there? Black pepper. Technically. It may be 1000. How to demarcate the boundaries of the two oceans? Nagbabago yung current jan which the sailors are aware. But there was mutiny in the bounty. may flesh na pag sinaing/prinito it͛s like bread. Have you read the book Mutiny in the Bounty. he extended the frontiers of his empire in search for the source of pepper. This is how public borrowing happened. let͛s borrow from them. To finance a trade between Europe and the Far East. mahirap kumain ng malamig na pagkain. Later on. these are the T&C. The only thing you͛re selling a s piece of the blue sky. cookie jars and closets lent money to the expeditioners. the trader would need vast amount of money. Ayaw na mangutang ng corporation. They expect you to give a clean and updated copy the next morning so dapat your law office has a shower and you bring your clothes there. the venture was very risky. these are the allowable T&C. In the ordinary course of business. At that time. It required a lot of money to fund the expedition. Denominated like shares of stocks. Last page na lang ang boss. that͛s mahirap diba? Only the lawyers will earn from that. Pano tayo magreraise ng ganyang kalaking pera. What are the securities? When you see a bond issue. that was the easiest way to earn lots of profits. PN to be notarized by the lawyer. There͛s no such thing. Rimas/camanse in local. Not flotation. Over 90 days. Later on. And established the East India Co through the Cape of Good Hope in South Africa. 10000 or 150000. they are not called bond because they are not secured. Pag winter. What͛s their purpose of going to India? Spices. Sabi nila.89 the fiscal manager who is most likely the trustee in the MTI. The bond is the certificate of indebtedness issued by the corporation. Don͛t forget that S40 might be applicable. They announced to the whole of London. it means you agree to the T&C of the bond issued. The bond may be secured or unsecured. The corporation will be swamped with a multitude of sporadic cases all over the country. Niloloko na lang pala sila sa kumukuha ng investments hoping that there will be a investment to them. To raise the money. Adds flavor. But a public borrowing may be unsecured cos the corporation does not want to give security. Corporation puts up an office and all the willing lenders go there to give cash and the corporation will sign PN. So they need to put provisions in the ship. Parang langka.g. Fixed terms and conditions of the bond. ako na ang huling pipirma. DLC tasted it when he went to Papua New Guinea. Ano͛ng gusto ng mga taga-India? Opium. Pano ginagawa ang public borrowing? Dati inannounce nila kung sino magpapautang. It͛s a . If you want to lend P20. No two MTI are alike. Kaya nga bonded indebtedness. kausapin kami!͟ There͛ll be problem on documentation which we shall discuss later. pepper and silk. gusto na shares of stocks. You will sit down with the creditors. Empty naman pala your investment. when you say bond. How does corporation borrow from the public? Through a bond float. Ordinary people didn͛t want to be ka-sosyo because the investment may be lost.000 get four pieces of P5000. Marami na gusto magpautang. Floating of bonds. This incident lead the parliament to regulate the security. Pagbalik nila dami na nilang dalang plants. NB The two exceptions there: a. But that will be cumbersome. Better siguro kung utang na lang. Disposition of all/substantially all of assents. E. They will go to this island in the Pacific to get a bread fruit. the T&C usually takes 3 months to draft. Look at the signing copy for the last time. How are these two different? Time for maturity which is a CB regulation. Madali yung concept diba? Ang madugo jan ay implementation. in pursuance of the primary purpose Mas madugo: PUBLIC BORROWING This is an old institution available to corporations. Secured dapat ang bond. DLC works ____. Mashado kasing mabagsik yung captain of the ship. lalagyan niya na lang ng denomination the debt instruments. Dahil ako na ang boss ngayon. less than 90. Sa kanya magbabayad at sha rin ang sisingil. Isa pa yun. The trading for all these spices happens in Spice Islands in Moluccas near Singapore and Malaysia. When it͛s finalized. So every MTI has provisions concede to address particular requirements of the creditors-members of the indenture. Sometimes mabubwisit ka dahil you start 9AM then it͛s 5PM di pa tapos. todas all your investment. If this grows in Europe. The corporation instead of drawing up as many PN as there are lenders. Due diligence yan dapat. Buy one piece of the bond denominated P5000 if you want to lend P5000. business was good. then shares of stocks na utang. Explorers that went to the Pacific saw this bread fruit. 5000. It happened in England when it opened its trading routes to the east. LTCP are debentures because they are not secured. ͞Nangungutang kami! Lahat ng gustong magpautang. They first sold shares of stocks of the corporation. You will have to commission a bapor. Cebu. When the proceeds thereof b. It takes months. When you lend corporation money by buying the bond. ishare natin the burden to ordinary people. Creditors have different requirements and views on how the security will be enforced. of unsecured debenture by corporation are the short/long term commercial paper. if there are 12 banks. ganito kakapal with all the annexes. Alexander Great͛s reason for wanting to extend his empire to India. chinop mo. That legislation had a special name: ͞Blue Sky Legislation͟ Why that name? Kasi yung security na kanilang ibinebenta ay piece of the blue sky. Guarded secret kung san nanggagaling yan. But usually bond issues talk about ͞negative pledge͟ which is a common law term. Salaries of the sailors aboard must be paid. so nagpautang sila sa corporation. they expect to sign in a day͛s time. Sha rin ang magpapapamudmod at distribute among the different bank members of the syndicate. Two oceans meet there. Windfall business ito so the ordinary people from under their pillows. Also pay the insurance premium. Bursting of the _ (corporate?) bubble. Let͛s see if you can get that. Groggy at sabaw ka na rin nyan. Yung execution copy niyan has to be prepared. Pagkain like hamon because it has to be preserved foodums. you can only call bond those which are secured public borrowing. the hunger problem will be solved. Hindi niyo nabasa yun? Illiterate talaga kayooo!!! The ship is called Bounty. Initial the pages. Baguio. Pano na lang kung biglang hindi nagbayad ang corporation on the public borrowing? All over the place. That option of borrowing from the public has been handed down to us and still with us and still a potent source of financing for the operation of the corporation. it should be secured. Isang barkong lubog lang. In the Phil. In order to make the bond freely transferable. who will foreclose? We also put MTI in the bond. Drawing ni sir. BUT such negative pledge is considered security interest in the Art. That͛s the definition of bonded indebtedness under S38. Pwede rin naman na interests are payable annually if the bond issue is payable over a long period of time. Walang baterya. Wala pang bond holder. Otherwise. They will underwrite but of course. ide-detach mo yung coupon then ibabalik sayo yung certificate. The bond whenever the corporation will borrow money through a bond issue. the creditor and the debtor corporation will choose that. it has to stipulate that the debtor consents for the transfer of the bond. Someone should regulate the trustee because there͛ inherently conflict of interest. will it require consent of the corporation? Under the CC can always transfer his rights to another without the consent of the debtor. . it must even employ people who will take charge of paying and then checking all those certificates. The debtor will be freed from the accessory obligations e. Kung sa syndicate of bonds. When they foreclose. If the interpretation that every debt requires SH approval. If you amass it in 3 years. Last you will surrender is the bond for the payment of the principal. Register of deeds will not give you priority. Some writers in Corporation Law look at the definition of bonded indebtedness in Black͛s Law Dicitionary which pertains to secured indebtedness. investors will not come in hoards but in trickles. magnify the problem a thousand fold in case of bank issue. Businessmen can smell money out of the need of the corporation to get cash. the corporation may have to wait 3 years. Kaya lang lahat ng MTI dun. For as long as the corporation will mortgage/secure an obligation. Time is of the essence when the corporation needs money. Like coupon bonds. Therefore. Therefore. Who will choose the trustee? Not the bondholder. it is not bond which does not require SH approval because it͛s not secured/bonded public borrowing e. Everytime payable yung isang interest. no more need for S40. Real intention of S38: Limit bonded indebtedness as a form of SECURED public borrowing. is alang magdedeclare ng default and isa lang ang magfoforeclose. Accessory contract to the bond issue. chattel mortgage. all bond holders may remove the trustee through a meeting for grounds under general law of trust and a vote is provided for in the MTI. UNDERWRITING (Bond issues) What is underwriting? A commitment of an entity to sell/distribute the bond issue of a corporation or a security may be a share of stock. all the amounts payable to the owner are payable at maturity. However. no more certificate when you buy a government bond. There are RTDs with intrest payable at maturity. Big capital impact must be there.g. walang manghahappen. Like chits in a fair. Today we don͛t have that anymore. Madali na ang accounting niyan. Corporation should have big vault to keep the money if it͛s cash. Walang bibili niyan. Why do banks require this kind of commitment? So that the banks who will lend or bond issue will be in pari passu with all the creditors of the corporation. it͛s no. Debt of corporation will commit not to constitute any mortgage or lien over its assets while the bonds have remained unpaid. Babayaran ngayon yung interest. They will manage now. if it was transferred over the objection of the debtor. he consented to be party to that MTI. the trustee goes to the bondholders. problem na yung foreclosure. we choose bank with most number of branches. Bayad na ang lahat ng interest mo. Nowadays. Paperless na lang. Every bond therefore purchased by a third party is a debt obligation of the corporation. Pinili sha ng creditors and debtors pero he is acting for the benefit of the beneficiaries. We will help you sell bond but everytime we sell a bond. It͛s actually for the benefit of the bondholders. the corporation does not know either if the entire 2B will come from the payment of the investing public. whoever the holder of the bond is the creditor of the corporation. You will only get a certification receipt that you participated. sometimes. S40 includes lease etc and other disposition. So the trustee in the MTI has a conflict of interest. LTCP or STCP. it has to have a big office to accommodate all people. no law to authorize you to register the loan as such. only blue chip companies can issue LTCP. what could be its securities? Real property mortgage. LTCP (ordinary debenture . In case of default of the corporation. S40 requires SH approval only when the encumbrance covers all/substantially all of the assets. surety. Pano tayo magbabayaran ng interest. If the public borrowing is not secured. In the Philippines. we get commission. But isn͛t it utang of the corporation to the buyer of the bond? May the bond holder transfer it to another. 9 of ___ Code of the US.when we say DEBENTURE is unsecured). before it͛s able to raise the entire 2B. That bond is also usually a bearer instrument so that the bond is easily transferable. that commitment does not make the loan secured. guaranty. S38 will apply? DLC says it͛s not correct. Therefore. This is called negative pledge. you can only have enforcement via specific performance. A commitment not to give a pledge. Walang lamangan. Hanggang maubos yan lahat. Yes. Nauso tuloy ang bond coupons. In order to avoid spending all those cumbersome transactions. PROBLEM: Since the bond is secured. may trustee na tayo. It leads to another collateral business i. PROBLEM: In case of MTI. mortgage. Even the calculators may ganun. Does it include the NVSH? Look at S6.e. Hindi naman kasi talaga sha secured. Whenever the corporation will borrow money from the public. Walang computers dati. In case of default on those bonds issued by the debtor-corporation.90 commitment of the debtor not to constitute a security in favor of other creditors over its assets. When the bondholder buys bond issue wherein one of the terms is the MTI and then he agrees to be a party of the MTI and all other conditions rd of the bond issue? Parang stipulation in favor of 3 party. Kaya nga kailangan ng trust license. If the corporation will perform this function. These bond issue has mechanics for payment. BPI kay sir. for a fee. Mahal kasi yung MetroBank so BPI na lang tayo. at babayaran ka. we have to apply S38 that corporation cannot increase bonded indebtedness without approval of board majority and approval by 2/3 of the OCS. BUT HERE. they usually appoint banks. It͛s not a security interest under the Philippine law. Marami sila dapat check writers kung check. sana tinanggal na natin ang S40.g. Sir͛s slide rule story. 4. for whose benefit is the trustee holding the title to the receivable. The bond. Who calls such sale? Board of directors by a resolution ordering the sale of delinquency sales. No class on Fri. Pag may nabenta ako. when is the balance payable? It is payable upon call for . On or before the date stated in teh call. Firm basis ʹ WON underwriter sells it͛s considered sold so he pays up. b. The Board has to pass a resolution fixing the date when the payment should be made. you have to prove to the regulator is bound on sound public principles and no tendency defrauding the company. What happens when those shares become delinquent? Those shares may be sold in a delinquency sale. Nowhere in S67 is notice to pay required. nagsubscribe one foreign company to some shares of stock of a domestic corporation. it has to use the premiums receipts of insured to make the money grow otherwise nothing to pay when there is a claim. ASEAN Conference. There are two kinds of underwriting commitment: a. the corporation may conduct a delinquency sale. DLC says: Where is that requirement that shares of stocks be first declared delinquent? S68 is the declaration. For the shares to become delinquent. When the board adopts resolution ordering the delinquency sale. the demand is necessary to make the debtor in default. if not yet default. For it to be valid. 9 March 2011 How is payment of shares enforced? A subscription contract is an ordinary contract. ergo you cannot hold delinquency sale. ipso facto. So the board met and ordered the holding of a delinquency sale. that public distribution of the bond is regulated under Revised Securities Code. since it͛s public. Ako lang nakakaintindi kay Magallona. his prestation is not yet due and demandable. Like banks. Best effort basis ʹ like consignment. Usually given by the ones who have active market like an insurance co. Under S70. But in the absence of the stipulation. the corporation may file an action in court for collection the balance on subscription is an amount owing to the corporation. They will pay the interest to the third parties. wala problem. Magkakalayo diba? *insert entire section here* 30 days from the said date stipulated in the contract of subscription OR 30 days stated from the board call. Before a delinquency sale may be ordered by the board.Why? Because S13 says ͞without need of call͟ that͛s the equivalent of demand. I will distribute best efforts basis. Bangkok Thailand. it must have all the elements of a valid contract and the consideration must be lawful and not contrary to morals or public policy. Before the government allows you to offer publicly your securities. not yet in default. Bago na yan. Pero kung may call. it would seem that subscriber incurs delay and therefore in default without need of demand. Kung wala. All shares of stocks covered by the subscription become delinquent. EFFECT OF DELINQUENCY . . What are the exceptions? Demand is waived in the contract. S67 clearly says that failure to pay on such date shall render entire balance due and payable. The foreign corporation tried to stop/enjoin the delinquency sale ordered by the board on the ground that they did not receive notice of demand for them to pay the balance. 30 days after the date. Delinquency occurs automatically. we are not yet in delay coz we did not receive a demand from the corporation to pay the balance. an ultimately WON the investor will invest in the security. payment by the board of directors. It͛s called Securities Regulation Code. Merit regulation has been abandoned. therefore. Pending that demand. no payment was made. ISSUE: Is there a need for demand to make them in default? DLC opinion: S13 says no need of call. they have so many clients/investors. no payment was received by the domestic corporation. under the Revised Securities Act. Licensed din sila. In S13 when a date is specified in the contract of subscription for the payment of balance. That͛s what͛s provided for in S70. the shares become delinquent. You received notice. must there be a demand from the board? For a debtor to be in default. They also have commission. the first is delinquency sale and the second is specific performance under S70. Until then. Citing CC of the Philippines. call.DELINQUENCY SALE The subscription contract may provide when the balance is due and payable. PROBLEM: A subsidiary of the NDC. it amounts to public offering of a security. wala ako commission. they must first declare the shares delinquent. Underwriting naman is the expertise. Security is just one of the invs4tmnets bank may used for its deposits. It͛s one of merit. SRC. the subscription becomes delinquent. Wala na yun. ibebetna ko proceeds less my commission. 30 days from the date specified/stipulated in the contract for subscription and no payment was received. Dun naman sa securities. It͛s the revised securities act. It͛s nothing but a public auction of the shares of stocks to enforce payment of the balance. There are 2 remedies under the Corporation Code. Owner of money the bank yused in investing the securities. That͛s provided for in S13. Eh? Ano daw. balance was payable on date stipulated in contract of subscription. not yet delinquent. shares of stocks become delinquent. Regulatory framework under securities regulation code which requires any entity to disclose everything about the security and corporation which are material for a prospective investor in deciding WON he will invest in the security. Malaki ang yield niyan. ͞without need of call͟ when the contract of subscription does not provide for a date when the balance is due and payable. The corporation may file an action in court for specific performance for the subscriber to pay the balance. may call eh. there has to be a demand. the subscriber refuses OR fails to pay the balance? The answer is in S67.91 Who buys the bonds? Corporation holding properties of third parties. 30 days from such date stated in the call and no payment was received by the corporation. sorry na lang. the framework of regulation is different. SRC na. That is a ͞call for payment. Who are engaged in underwriting securities? Investment houses. Iba na ang regulatory framework under SRC. that is at the same time the declaration of delinquency. How does the corporation enforce payment of the balance on the subscriptions? Under S68. Investor should form his own disclosure materials and come up with his own disclose won on security is sound or not sound.͟ What happens if despite arrival of the date OR despite call of the board. Marami ka ipapadisclose to the person offering the security. P1M worth of bonds. a. unless the amount paid by subscriber is equivalent to damages suffered by the corporation. it͛s actually buying its own shares of stocks? Is that allowed? Of course. Corporation says go. di kayo papasa sa bar. Since may lang yun. Where the creditors extended credit to the corporation.000 Bustos 20 shares for P100.000 Oposa 50 shares for 180. not substitute. How much was the total consideration for the 100 shares? P200. Yun na lang ang balance and they received it from Bustos. Para maging fully paid. bid na kayo! Bidding is always at a fixed amount. a delinquency sale is nothing but a forced sale done by the corporation on behalf of the subscriber. ___.000. Bustos will win because P100. It must be one whole performance.000.000 just for 20 shares. Kung half lang binayaran ng SH so they won͛t pay the other half.000. All the shares covered by subscription are all deliquent and to be sold at the delinquency sale. What do we do at the auction? The only purpose of the corporation is to recover the balance and interest due (if stipulated). They are now fully paid. not to profit from it. just rescind and then make my 50% damages. Nalugi na ang inverstment niya. they just rescind. How much is a share of stock? P2. They have other remedies . Dapat fixed yung amount.Court action. Hindi nagbayad si Ron nung birthday ko. What happens to his DP P100k. What happens to Ron? Wala na. If the corporation incurred cost. all 100 shares of stocks are not yet fully paid. integrity of the obligation. Why? Because the 50% payment made by Ron was applied to all the 100 shares of stocks.000 for 100 shares. is it not unjust enrichment? No. Bakit sha hindi magbabayad kung malaki ang shares niya. there͛s a requirement that͛s not in S68. may a corporation bid for those shares if the corporation has no sufficient URE? Miss Accountant! DLC͛s ͞humble͟ opinion: We also apply S41. Bawal yun! That will work to defraud the corporation. if you look at procedure for bidding. under S41 (Power to acquire own shares). is corporation obliged to bid (assuming it has sufficient URE in its books)? No. Sino na-defraud? The creditors. Now he pyas that amount ot he corporation.000. During the time it wasn͛t delinquent. the board of directors met and ordered to sell the shares covered by Ron͛s subscription at a public auction. Fully paid nga diba? In reality. S70 tells us that specific performance is available to the corporation. Bakit Feb. Look at last par of S68. Kung wala. Date for payment of balance not stipulated BUT the board passed a resolution making a call. Retired shares c.e.92 How does delinquency sale work to enforce payment of the balance? How can the corporation collect balance through delinquency sale? Corporation will sell at public auction the shares of stock. integrity. because it͛s a contract of investment. Nalugi ka ng kalahati. As a GR. How does the auction work? The corporation will offer the shares of stocks to anybody willing to pay the amount due and owing to the corporation. they restitution pa. P100. What are the characteristics of contract? Identity. corporation must first collect the balance on the subscription BECAUSE that͛s part of the trust fund. Hind ipwede maging treasury shares kung hindi fully paid. He paid it with the 20 shares. 2011. Kelan ang 30 days non? March 9. Suppose there͛s a bidder offering to pay P100. Identity and integrity: same obligation. When the balance was not paid.000 to be collected from Ron. Why? Because collection of balance is subject to the discretion of the board. sorry ka. magiging treasury share pero wala namang nareceive yung corporation na value. Rescission plus damages. The 100 shares will now become fully paid upon receipt of the corporation of the 100K balance. The remaining 50 shares you sell at a delinquency sale? Not correct.000 leaving a balance of 50% or P100. Corporation says 100 shares to be sold at P100. 20 shares to be delivered to him. the cost must also be included in the amount to be recovered from the proceeds of sale. How many shares are to be sold at the public auction? Can Ron say that since I have paid the half. Oliva 100 shares for P100. hindi pwede yun. Deliver the shares to Oliva. Suppose Ron subscribe to 100 shares of stocks.000 for all the shares of stocks. Should there be no bidder͙ When the corporation bids. None of the above Tumama si Oposa! None of the above!!! 80 goes to Ron because his shares now are fully paid. Kaya lang in S41. Hindi pwedeng porke walang nagbid. Ergo. eh di. Corporation has to reissue them d. That will later on work as fraud to creditors of corporation. Upon receipt. Can corporation say that they pity Ron and issued the 50 shares and sell only the 50? Hindi pwede yun. Quits na tayo. 7. SH and corporation may collude. Paid a DP of 50% equivalent to P100. he might have received dividend.000 Rodriguez 100 shares for P180. is the corporation obliged to sell on the lone bidder? S68 is silent. corporation may choose not to bid. 7? Birthday ni Sir. That will be violation of a time honored principle in ObliCon. WON corporation may refuse to sell. The corporation may choose not to sell the shares of stock. Only 1 bidder offering to pay P100. When they do. Corporation cannot acquire it because it didn͛t. you cannot divide the obligation into parts. all the 100 shares become fully paid. Presume that there were no interests and costs. they . Should there be no bidder at the public auction. To whom does the remaining balance 80 goes? Multiple choice as practice for vote. may the corporation file an action for rescission on contract of subscription plus damages? Agreed party has two remedies. Normally when the corporation is suffering from financial or liquidity problems. corporation ͞may͟ bid. In case of delinquent shares. May the corporation instead of conducting a delinquent sale or filing action for specific performance. On Mar 11. I. It has to be performed one whole. the URE. y DLC͛s humble and correct opinion: Corporation may choose not to sell. corporation must receive actual value for the balance.000 ʹ Hindi nangyayari to. we need it badly. How about rescission? May a corporation rescind the contract instead? As a GR no because that will work as a fraud on the creditors. What if walang magbid? Under S68. Hanggat di niyo nasasagot. issue the certificate for 50 shares. Wag mo na i-delinquency sale. Pay the balance on Feb. Able to participate even in the management of the corporation. Treasury shares b. all the shares of stocks became delinquent. why will . When should he pay? Public auction. Madrigal͛s house was ransacked. nilapitan niya. Rescission is not enforcement of collection.93 expected that the unpaid subscription will be collected bec that guarantees payment of loans. release the subscriber to unpaid subscription liability. As between the two of them. Along the beach. Straight to action na writ of execution. what͛s the consequence? It͛s not a fight between corporation and SH but SH and 3rd party. Si original owner matron naman. Will corporation pay his dividend? Katangahang malaki ng corporation yun. May board of directors order that it be sold on DQ sale? No way. All properties of SH levied at execution. Corporation shall withhold the stock dividend. Very politely. Snack break in McArthur Hiway Café Valenzuela. are those two remedies cumulative OR exclusive? S70 includes even DQ sale. What are these rules? y As between 2 innocent parties. wife will not have problems). Pwede na rescission. Applicable in shares of stocks. Yung mga mayayaman. can TS be sold on DQ shares? After sold to the buyer. Judgment creditor may ask for execution.g. What are these properties exempt from execution? If they know that value is less than par. certificated but endorsed in blank (so that if he dies. Just ͞fair value. However. buhay na non. If not acquire from any 3 sources. Bakit? a. There͛s a case nung panahon ng Hpaon. Suppose treasury shares (TS) are disposed of by corporation on installment. deduct the benefit owner of land would receive from the expropriation consequence. HOWEVER. When corporation is bankrupt. those SOS resurfaced. Shares of stocks ʹ evidence of ordinary chose in action/movable property. no more recovery of balance b. Secretary transferred to Ron. So is Ron. rescission is allowed when more advantageous to the corporation. be voted for. But we can͛t compensate that with the unpaid balance. those shares are not entitled to attend. owner reported that shares were stolen. When stock dividends are paid. sea wall. Olive was innocent party without fault. secretary saw the certificates inside his unlocked drawers. OR the corporation is already solvent and such rescission more beneficial ot the corporation.͟ In case of expropriation. she can invoke CC unlawful deprivation of property in order to recover from anybody. there͛s panic. 7 of S73: Publication at the expense of registered owner of certificate. y No. Should we include the stock dividend in the DQ sale? Nagbabasa nga kayo ng magic notes dahil Wala kay Campos yan. san kukuha ng pangsingil the creditors? Violation of the trust fund doctrine. When we have DQ sale and no one bids. No special treatment. Si Dean Carale. BUT when the corporation is solvent. you can recover without paying. Nakita nya yung name niya sa engraving. Shares of stocks na lang natira. Hindi kasali yun. This happens when the corporation is already bankrupt. Action for collection/specific performance c. Ninakaw ng maid. Dz. Corporation declared dividends but Ron͛s shares are DQ. what should the corporation do now? The corporation will now file a court action. Buyer of TS did not pay. When the Japanese bombed Manila on 7 Dec 1941.any cash dividends due on DQ stocks shall first be applied to unpaid balanceǥdz iapply muna his dividend to reduce the unpaid balance on the subscription. This is the reason why rescission is not allowed as a remedy of the corporation. Hindi na binalik ni matrona yung ring so demanda si babae from other table. Kaya nga trust fund. Stock dividends are not part of the subscription contract b. Constitute over shares o Chattel mortgage ʹ foreclose o Pledge ʹ foreclosure. Suppose the declared dividends are stock dividends. ____ Handwritten notes ____ What is the FMV of shares? Law did not intentionally use market. until unpaid subscription is fully paidǥdz Hindi pwede i-offset or compensation because it needs to be of the same kind. The remedy to collect balance of treasury shares: a. That͛s why in S43. nasa malate. Oliva failed to pay. Endorsed at the back. they are fully paid. vote. Rich ones just fled. Wait sir. What will apply? Ordinary provisions on movables. no longer TS shares. BUT one of them is negligent.. stock dividend but not limited to full payment of subscription. Olive subscriber to shares of stocks. Before the board has ordered the delinquency sales. Even the proximate cause of loss. Cause no longer issuance of unissued shares Mai͛s question: Period for reporting lost/destroyed certificate? DLC: If they provide a period for reporting. Kaya lang may exceptions jan under American jurisprudence. which by definition is ͞binding agreements for issuance of shares of stocks. S43 Dzǥwhile stock dividends shall be withheld. Ergo. rescission is no longer allowed as a remedy. Nakita niya yung babae sa other table. Tas nag-road trip sila.͟ Disposition of TS is not issuance but sale of property. all the rights of SH EXCEPT the right to receive dividends. the one whose negligence caused damage shall bear it. y What properties? Shares of stocks. Attach all properties not exempt from execution. Not honored because reported as lost certificates. Pwede ang rescission if it͛s more advantageous to the corporation. no more DQ sale. Rescission is removal of the obligation. When you rescind. Only unissued shares of subscription contract. E. Of the 10. Market value is one of indicators of fair value of shares. they can never be delinquent. See Abejo v Dela Cruz. don͛t forget that our laws now replete with rules of equity. Ruling: Original owner OR babae from the other table? Pwede mademanda si latter na Anti-Fencing. The corporation will simply look for damages resulting from non-payment of the subvscriptin. Hindi pwede ang kalabaw sa kambing. what are rights of a DQ SH? S71 on effect of delinquency.000 shares. After the war. When shares become DQ. Subject of DQ sale is subscription contract. payable on date stipulated. Matrona͛s brillante ring story. he whose negligence was the proximate cause of loss or damage shall bear it. Magastos yan. Kaya lang may cost. Many of the lawyers who do this are graduates of this college. Suppose shares of stocks that declared DQ belongs to a director. that͛s why it still receives dividends (only OCS are entitled to dividends). Matalino mashado. In S74. tawag tawag lang sa broker yan. Until subscription is paid in full. Pag nagbayad na sha ng DQ amount. Chinese wins because they have many books. They can͛t sell it to become money and apply to the balance. When the sale was consummated by payment of the broker. corporation cannot convert the property using cash from its funds. Work as fraud to creditors. Why does it have to be in the contract? So you won͛t have to pay the sheriff. Sinasabi namin sa prof namin dati. lose the effect of DQ. does he become director again? Look at S23 ͞ceases to be owner of at least one share͙͟ does not aply because he stills own the stocks albeit delinquent. nawala na. Being a listed company. pwede. Tumama yung demand for the payment of balance after he had dissented from a corporate act and after served notice that his shares are dissenting. In case of failure to pay the balance.g. property div (in fact. bibili ako SMC shares. WHyyy!??!?!! Baltazar v Lingayen Gulf A subscriber cannot demand that certificates be issued corresponding to his payments. Sabi ni Ron sa stock broker niya. Appraisal right will not happen either because he cannot attend a meeting where he can vote against. y Why? a. Why is it a problem? The case of SMC. E. BUT since Ron is rich. ___End handwritten notes ___ Property dividend: Law in S43 is clear as to cash and stock dividends. Our typical problem here is who will shoulder the cost of the publication. Can the corporation say that we won͛t pay you appraisal right because you are DQ. SMC has a stock and transfer agent. signified in writing intention to avail appraisal right. Bawal sa US maglagay. Approximately P7. What shall corporation do with the property? May the corporation sell the property? May it convert to cash the property? Later on when we reach the dividends. the corporation may apply the proceeds to the balance. hindi na entitled sila to attend. can he request to the corporation to issue him 50% of the shares subscribed? Not pwede because of S64 ͞until full payment of his subscription͟ GR: Hangga͛t may balance. Do we include the number of DQ shares in the computation of the quorum? Hindi na. So what do we gather from those provisions? May director reassume position after delinquency has been cured? DLC says mukha. So here. It can͛t be made partial b.͟ Can he exercise preemptive right? Kalokohan! Wala nga pambayad ng balance. Broker forwarded the sale to the STA of SMC who mailed the certificates to Ron who didn͛t receive the certificates. liable for a crime in their home country. Is the DQ SH entitled to stock right? Right to subscribe to certain number of shares is a right which may be assigned or transferred. Crime for an American MNC to do corrupt business outside the US territory. cannot be found. May receipt and wala. not entitled to any rights of SH except right to dividends. 2/3 vote.500 (P2. Dilute the right of corporation to recover the balance. Will it make a difference? Yes. receipt from broker is to be presented to stock and transfer agent and you will be issued with a certificate. When he͛s looking for the certificates. not a single share in the subscription may be certificated. They just don͛t know which lawyer to get. BUT they can do that by stipulation in a contract for subscription. Dalawa bayad jan. no more American corporation win in the contract. if he pays the amount. Who shoulders that cost? Ron says: why me? It wasn͛t my fault! STA says: Why us. Okay lang samin na ang nilalait niyo kami. Wala na bang ihihirap yung exam mo? Sayang pagod namin sa review. we mailed it to you! We can͛t sue the postman/post office. 3 consecutive weeks. Nnanalong director pero di nagbayad ng kanyang balance. Comply with S73 but it has publication requirement. you can͛t be issued with a certificate. In execution. magbabayad kayo. Hindi kami happy pag walang hirap. But suppose he͛s a dissenting SH then refused to pay balance. What͛s the difference from sale at execution and DQ sale? In DQ sale. S71 says unless he pays the amounts. LOST OR DESTROYED CERTIFICATE When a certificate is lost. . was he removed? No. Hindi ko na itatanong sa exam. what͛s the remedy of the SH in order to obtain proof of ownership of shares? There͛s a procedure in S73. Delinquent share while his shares are dissenting shares. corporation would favor the 3P to makes shares attractive. Nakakaisip ng paraano pano icicircumvent. bidder cannot offer amount lower than balance. magpepreemptive right pa. Amount of shares to be DQ sale reduced by the amount issued. Obligation does not cease when he became a dissenting share.͟ Tulad ni Labitag. Violative of the oblicon principle integrity of performance. When you execute writ of execution. Suspended lang ang voting rights. Ron bought stock in the stock market through an agent.94 corporation take cudgels for the stranger 3P? Perhaps. stock div withheld.500/publication). No authorization by law. Will he resume the position as director? In S28. S23 says ͞ceases. Kulang ba? Batakin yung ibang property. can͛t be found anymore. One problem in preemptive right: suppose preemptive right gives him stock right which he can sell. different treatment for this. those have to be reconstituted or reissued. cash div applied. DQ shares are still part of the OCS. I hope you won͛t become those lawyers in the future. Mahirap i-book yung wala. kasi kailangan. he already paid 50% but not DQ (time to pay the balance has not yet arrived). and other costs required to be done before a new certificate is issued. If they book that. Discussed this stock right during preemptive right. You will find out when you leave this college na yung mga nilalait niyo ang may pinakamarami kayong natutunan. include the stock div na rin) shall be sold and for this purpose. We have discussed this sufficiently. Ang dali mashado. Mashadong giveaway ito. What happens to him? Right to attend board meeting? No more because all rts suspended except dividends. Para di mawala ang velocity. it cannot do so. According to practice: come from profits realized/received of investment. Ron did not discover theft of his shares of stocks. E. It won͛t be retained because losses still have to be settled. It͛s a return on investment. Corporation able to issue new shares of stocks at a premium at P100. Action for rescission of contracts. If you don͛t have certificate. increase in value of assets. dividends is the return on investment of subscriber is shares of stock of corporation. Not negotiable documents of title is not applicable too. Book value gone up. . you can͛t transfer shares of stocks to another. Without it. is that earnings? No quarrel that profits realized from operation are earnings.e. Same is true from source of payment. elsewhere. Oliva forged Ron͛s sig and approached the STA to transfer it into his name. But are they immediately available for distribution? No. gross receipts less cost of sales will be ____ business operation. Certified by the STA as genuine and so he paid good money and was granted with deed of assignments.͟ It͛s not defined in S43. Saka lang nadiscover ni Ron na nawawala yung certifs niya nung nasa pangalan na ni Tony. but rather defer to the practitioners. Certificate of shares of stocks is not a negotiable instrument. New code uses URE but not define. Paid up is P100M YEAR 1 (nothing but paid up) Cost of sale 70M 40M 40M (do or die na ito) Gross receipts 20M 30M 60M Earnings (50M) (10M) 20M 2 3 Can he declare dividend this year? Not yet. No provision where this is categorically defined as ͞dividends means͙͟ but that͛s how it͛s defined under old Corporation Law. See S23. ikaw magbayad. What is URE? There are three words here. Appraisal surplus i. it͛s not enough that there are earnings. During deliberation. Look at the whole pic (total financial position) settle to remove the losses before earnings may be retained in the books. RETAINED After booking earnings. It must be retained. None of those three will apply. How does accounting practice define a corporation͛s earnings? When corporation engage in business. Since they͛re buddies. May Ron recover the certificates from Tony? Let us put this to a vote. di nga lang explicit. ͞allotment of surplus profits on the basis of shares held. Only paid from URE. it will remain in books as earnings. P10M moral claim. Sabaw. If you didn͛t get it. In short. ____ Handwritten notes. it͛s not our fault.95 Broker says we mailed it because you authorized us. not. He can recover. so that their hands won͛t be so tied. It͛s not a Torrens title. is that donation earnings? Material to know how these are classified? Computation of URE won͛t be available for distribution. EARNINGS What does this mean? Before it͛s not URE used but ͞surplus profits͟ What does profit mean? Defined to refer to profits generated/received from business operation. Kung gusto mo magkacertificate. Declaration if without URE is illegal. Premium in issuance of shares par value is P1. y y y y Corporation received donation from 3P. P1M to P100M because skyway is now finished. 2. Due course holding provisions are not applicable. What if not lost but stolen? Ron subscribed to 10 shares of stocks placed inside his bag and then Oliva stole it. Let practice define it. 1. Til hindi pa naibabalik yung 60M (net loss is 40M). innocent purchaser for value in LRC is not applicable. What shall we use? The ordinary provisions in the CC on movables. Difference between FMV and cost of acquisition. _____ CHAPTER XIII: Dividends and Purchase by Corporation of its Own Shares Is there a definition in the Code? Meron. ergo. Oliva went to Oposa to sell Ron͛s shares. I asked this definition. available for distribution as dividends. Otherwise. (Used ___ to buy property in Muntinlupa). Is the P99 earnings? If earnings. SolGen Mendoza who was sponsoring this law said that it was advisable not to define it in law. besmirched reputation.g. Laws ʹ banks. that͛s the treatment. ͞Surplus profits͟ defined in the old law as profit limited to ͞profit realized from business operations. Appraisal surplus: Encountered this in Club Filipino de Cebu v CIR. then it is not earnings. moral damages received by the corporation when it wins a case. They saw that the present value of assets was more than the cost of acquisition. He was dean of UE Institute of Law. Kung 100M but not yet fully paid (only 50M paid yet). For the accountants. It͛s booked as ͞additional paid-in͟ capital. how to classify? y DLC opinion: Even under the old code. not available for distribution as dividend. not making kampi to him. Hector de Leon. How to characterize the premium? The ACS is exceeded if that is to be considered . the amount received by the corporation in excess of the par should not be treated as capital because no such provision in S6. Pag nabayaran na lahat ng ACS. then they should be earnings. 50M ʹ 40M = 10M 10M + 30M = 40 Baka sa 5 year na sha maka-declare. Ergo.e. there is a provision in the law which discourages retention of UREs beyond a certain level. Highlighting the difference between the two BUT accountants considers surplus profits as used in the new code the same as URE. If you ask me. the word used in defining/distinguishing a stock from a nonstock corporation is the same term surplus profits. corporation can͛t declare dividends. what they do is the ͞stated capital͟ and ͞legal capital͟. building. rd 2. Contract ʹ one of the commitments as security for payment of loan is that no dividends will be declared til loan is fully paid Dividends can only come from URE. Look at S6. 3. but anyway let͛s proceed. Ergo. The premium is made an ͞additional paid in. the excess premium is booked as ͞additional paid in. If not earnings. Club Filipino conducted a reappraisal of its assets. So far. That͛s the reason why in S3 which we looked at last meeting.g. What is the difference? The accountants.g. payment for shares in excess of par should not be capital. Wala pa shang kakamping writer. mag-isa pa lang jan si Hector. Paid up and paid in becomes the same with additional paid in. Even CSV who is also a CPAlawyer. Bakit? 1. kasi yung paid up is the amount of money received by the corporation in exchange for the shares. Pero unti-unti ginagamit na nila si CSV. ___End handwritten notes ___ th Note that S43 says ͞paid in͟ and not ͞paid up͟ because those two are different. If they are not capital. For that particular year. This proviso is inserted because of an unwritten GR of the code i. Hindi kasali ang raw materials. donations from people who donated money/funds to the corporation. moral damages still arise from business operation. The accountants treat the premium as capital. Year 2: Another 40M to produce services. Two sources of restriction: a. What is the remedy of a SH who hasn͛t received a return on his investments? First. That͛s the textbook they use in Ateneo.͟ When your definition is like that. wala naman shang reputation to protect. PLUS supplies worth 20M. Yung sobra sa 100M is additional paid in. How do classify this? Under old code it͛s not earnings because the earnings there is limited to those coming from business operations. to prevent this from happening. The premium should be treated as capital. Ano sabi ni Hector? Mukhang binago na under the new Corporation Code. That͛s why Justice Tinga when he was still a congressman. available for distribution as dividend. are they obliged to declare dividends? No. The only reason it͛s entitled to a moral damages is because it has earned a reputation. Look at the wording: ͞surplus profits͟ Wait wala pa pala tayo dun. That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends͟ Why was there a need for this proviso to be inserted in S6? De Leon says that the effect of lack of this provision: the consideration received by the corporation in excess of the issued value should not be treated as capital. Balance sheet shall allocate cost. . If it didn͛t operate. 3 par proviso: ͞Provided. not exceeding the par value given to the SOS. Tinanggal na ung surplus profits as the source of dividends. Moral dagames available only when reputation of the corporation has been besmirched. dalawa na ngayon. vehicle. He filed a bill to remove that surplus profits from the code. Amortize some of the properties over period of life. Value had already 11 March 2011 Assuming that there are URE in the books. However. for distribution as dividends. If that is capital. are those earnings? Available for distribution as dividends.͟ the par value is the paid up. fully paid na. it͛s now the URE. The prevailing view now is that premium is not earnings but part of the capital. maraming hindi masasama sa computation ng dividends e. Ang ginamit niya ay not URE but surplus profits which is used in the old law. in the case of a par share. Kasi nga ganun ang definition ng ͞surplus profits͟ under the old law. insurance companies etc b. pero wag muna nating gawin yun. Without that. whenever a share of stock is issued at a premium. The problem here is the difference in the definition of surplus profits in the old law and URE in the new law.96 Year 1: 100M: 50M used for capital expenditures (capex) e. premium paid by subscribers whenever shares of stocks are issued at a premium. You can sue the board. paid in is 100M. The amount of capital that will correspond to the ACS is the paid-up. this can be treated as earnings. Additional paid-in. UNRESTRICTED Even if retained. Found in S43 2nd par. Moral damages recovered by the corporation from winning a case against a third party. He͛s a CPA-lawyer. the board may abuse this discretion by refusing to declare dividends for so many years despite existence ofURE in the books of the corporation. BUT there is one author who disagrees with this treatment of the premium. If earnings. It can therefore be classified as earnings. pwede bawiin. declaration of dividends is discretionary on the part of the boards. Therefore. The excess is additional paid-in. further. losses is 50M. practitioner before he became a congressman and justice of court. I have discussed this with you before. equipment. land. not earnings ergo not available for distribution as dividend. Every distribution of dividend it is illegal. there might be restrictions. Sino sha? Si Prof.͟ why? Because it͛s still capital. Pag kinuwenta natin his assets. Yung investment mo ay natali ulit sa corporation. Representing cash payment of the dividend. this case resurfaced. We are paid for spending time reading. y E di nawala yung URE? Of course not. Does the 2/3 vote requirement here include NVS? Of course not. 1M cash only but the books reveal 20M URE. Pwede kasi na nakatali yung kanyang cash to some hard assets/investments. Hindi pwede to. pag-uusapan yun sa Commission. not only does it requirement SH approval. A lady lawyer. Sir kasi when you allow a corporation to use its additional paid in for additional stock declaration. Naging case yung stock dividend. property or stock. hindi kailangan. Pera na kasi dapat yung matatanggap nila but the corporation won͛t declare it as money but it will get the URE and change it stocks. it has to be approved by 2/3 vote of the OCS. Okay let͛s declare property dividends. it includes the inventory. Liability of SMC. it has to be ratified. Until then. Cash. Baka mamaya may ininvestan silang lupa or SOS. How do you classify additional paid in as capital. So you transfer it to capital. Kaso magrerevolution our SH we might lose in the next election. Declare na lang tayo promissory note as dividend? This is allowed. Bakit naman stock dividend? If property or cash. yun ang ibebenta niya. may papasok na cash pero may liability. then we cannot use it for dividend declaration? How do you classify it? Earnings or additional paid in? May SEC ruling kasi abroad ka nung lumabas yun. one batch younger. you can declare dividends? Of course. Another corporation was applying to make use of the ruling of the SEC by converting its additional paid in into stock dividends. Interest will somehow reduce the URE available for distribution but it can͛t consume all the URE. Utang naman. As usual. borrowing money has costs. PLDT. There͛s a prejudice. Pero kung ordinary company. Every share entitled to a bottle of beer. If as earnings. BDO. The corporation has a choice. One of the terms: The corporation will use its additional paid in from issuing SOS to declare that premium as stock dividend. or maintain a comfortable reserve wag muna tayo magdeclare.g. Imagine Jollibee nanganganak. it can͛t be earnings. walang nawawala. Conservative si DLC. LTCP declared as dividend. but for it to be effective. that would be the crux of the matter. Jollibee and SMC. the inventory. The increase in value has been declared as stock dividends. For the URE. It͛s also required not under S43 BUT under a rule implemented by the SEC. pwede yun. then available for distribution as dividends. Buti na lang at that time. But why don͛t you include the NVSH? Yun ang ginawang decision ng mga lawmakers. Contemporary in the college. they should not be included cash/stock dividend will be declared. How do you classify the additional paid-in. Why will a stock dividend appease the SH? Kasi nga if the SH are traded in the market. There are three forms of dividends. The assets is in the beer. Meat of the dispute. Additional paid in cannot be distributed as cash/property dividend but can be issued as stock dividend. 2 steps in stock dividends: y Corporation will use cash to buy its own unissued stocks. Madali lang yung cash. URE is not capital. y When transferred to capital. Walang cash but the value of investments will be included in the computation of URE. So I asked him. Pero yung Lopez Group of Companies bigla na lang bumagsak. Either classify it as capital or classify it as earnings. What property to declare as dividend? E. Kaya kailangan ng SH approval. But if capital. no prejudice therefore. Is it possible for a corporation to have URE and yet it has no cash on hand but in the books it has so many URE? Yes. Yung cash is the most popular kind of dividend. Hahahahaha Good investments: Jollibee. property and stock. But when it needs the money for expansion. never available for distribution whether cash. illusory lang yun. corresponding shares now fully paid and ready for distribution. Only those who vote to ratify a stock dividend declaration are only the voting shareholders? Why? Kasi. PN is negotiable. Transferring from left to right pocket money remains with the corporation. Your URE will remain there. Hahaha. Why will SH receive stock dividends? Kasi mataas ang value ng SOS in the stock market. . You apply for approval of stock dividend declaration.97 increased. The SOS of the corporation has value. Encash it by transferring to another. it also requires SEC approval for registered companies. Even if without cash. You can transfer it. Corporation may choose to declare property dividend instead. This has to do with management and preferred SH has surrender its right to the management. Mataas kasi ang value sa market. they made him handle Metro Pacific. Nalaglag ako sa upuan. It͛s only footnote in the books. But for a stock dividend to be effective. property or stock. Magigrill ko na sha bakit niya inallow. the director of the SEC who recommended the approval by the commission of the conversion was still there. Mare-realize mo lang yung value until ibenta mo. E. Usually happens when the stocks are traded in the market. you are forcing the SH to increase the investment in the corporation. You don͛t book the amount. Declare the URE as cash. DLC respects only senator.g. Medium size law office story. DLC so amazed that in the senate hearings. The appraisal surplus is not an earning until the property is sold. Management decision na daw yun. Therefore. Ikaw gumagawa ng ruling na ito no? Later on I became SEC commissioner. Jan ka mali. y San kukunin yung pambayad? Nangutang. Every time stock dividends are declared. Of course. You know very well that the board may declare stock dividends. DLC have not met a former student who would not thank me for having taught about this? Can appraisal surplus be declared as dividends? No can do. not included in S6. si Johnny Ponce Enrile lang nakaintindi nun. Value in addition to its capital. Another corporation applied for conversion of its additional paid in into stock dividends. the corporation should receive additional value. corporation will shell out money. The money will be transferred from URE to capital. if you sell it.͟ After 2 years in the SEC. script dividend. corporation receives value in addition to its capital. SMC so many beers produced. Sana di na lang sila nagdeclare ng stock dividend. We haven͛t been declaring stocks for the past 5 yeARS. Pwede ba yun? Usually only accountants discuss this but you will encounter this in practice. Ninong ko kasi yun. Since corporation law and securities is DLC͛s specialty. guess who. ͞We have to accommodate realities in the business. If not traded in the market. It͛s prohibited. it͛s now capital. you can͛t declare as dividend no matter what form. After dividend declaration communicated to the SH. nagastos ko na sa good time ni Garcia. nobody acquires vested right over illegal thing. They can do this in the next election. not entitled to receive stock dividends more than proportion to his stocks in the OCS. May bagong kaso sa Raul Palabrica. talo palaig ang minority. Tama ka DLC. pwede bang bawiin? Of course. I consulted with PICPA. the board may abuse it. this includes additional paid-in in the computation. nagbago lang isip ng board. the right to dividend vests. No matter what election we do. If the paid in is 100M. S43 was designed to check unreasonable abuse of discretion on the part of the board. kung capital. But that͛s a method of increase of ACS and use that as method of stock dividend declaration. Pwede ba bawiin ng board ala Indian giver? Rules. the corporation may retain 100M URE without declaring dividend. cash nga yata) dividends and include Nielsen as one of the recipients. Later on. When does right to dividends vest on the SH? How does the board declare dividends? Adopting resolution declaring dividends. ii. Pero kung hindi illegal. Baka nga stock yung gusto nilang ideclare kasi gusto nila maging SH si Nielsen. Remember our discussion on who are the officers of the corporation. So far. Assuming wala sa exception and so much URE. Lumabas sa computer. Pero mali talaga. Kung di niyo gets. Bawian yan. Wala pang tatlong oras yan. Bayaran muna sha ng reward charged to the URE. Can they go to court in order to compel the board to declare dividends? There are two views i. dapat pinagkakitaan ng corporation. magvevest yugn right to dividend. But since discretionary. are the directors criminally liable? We can try. Surcharge in tax b. No way. But if capital becomes capital. YES. Pero pag capital dapat di available for distribution. The moment na declare yun sa kanila. Stock split: necessarily entails amendment of the AOI. The SH must share in the value of the stock dividend to be paid to Nielsen. what shall we do this application? Talo ako sa botohan. kabahan kayo kasi paborito ko yan. Accountants should come up with a categorical stand on this. There is where the prejudice comes in. Preference as to dividends ʹ already discussed Liability for illegal dividends Better if you can discover the dividends before distributed coz board can still withdraw. no more bawian. Nielsen is a SH. From earnings. Nagpatalo na ako ditto. Daming URE no dividend declaration. It͛s categorical. Walang natanggap na returns on their investment. Eh ang daling i-circumvent niyan. Who knows? Sampahan nga natin yang punyetang yan sabi ni DLC pwede daw. The amount of dividend you are entitled to receive must be in proportion to the SOS you are holding. 2nd par prohibition: They can only retain til 100% of the paid in. Ginugulangan nila yung SH. Dividend declaration is discretionary on the part of the board. But there are 3 exceptions in S43 ha. Kung URE. Just vote me down. you will see that it͛s a tool to tap capital through stock dividend when we go to increase in ACS. You can͛t receive dividend just because you͛re an officer. That͛s the rule in the US and other common law jurisdiction. Walang URE. Halimbawa nakatanggap na kagad si Oliva ng P10K. A very rare case where I lose in the commission. KAYA LANG. Naubos ng isang gabi. negative pala. What do you do with the excess? Declare as dividends. so be it. walang additional value. SH questioned: you can͛t receive dividend more than what your SOS are entitled to received. Wala pa akong tinuturo dito na mali! Mga two weeks ago siguro to. Baka student ko yung researcher niya. capital din ginamit mo. Di pwede iimplement. Tatanggalin na namin kayo. illegal yung dividend. Natuto yung researcher na to. Nielsen v Lepanto Lepanto used to have a president by the name of Nielsen. When illegal? y If without number of votes y If without URE Since illegal. Additional paid in received from premiums in issuance of shares available for distribution as STOCK dividends. kaya nagreklamo yung mga SH. corporation received consideration from shares of stocks. Change the board. additional value receive that will answer for the liabilities of the corporation.98 Nung lumabas nag SOS. I discussed with you the case of PAL. magiging capital. Mashadong maganda ang service niya so to reward him. may positive. When you declare SOS. SC: SH is correct. Ayaw magdeclare ng dividend maski napakaraming URE. If capital. we can sue the board for dividends. hindi malaman kung kelan officer at kelan hindi. the board decided to declare stock/cash (di ko matandaan. Law has realized that so in S43. what are the effects? a. Magdidissent na lang ako. Then declare dividends from what remains of the URE. . GR: SH cannot compel the board to declare dividends. ang nakikinabang sa malaking URE ay ang majority stockholding. Ginisa mo yung corporation sa sarili niyang mantika. If you classify as capital. This SC is gulong-gulo. Includea mount to be distributed to the SH. Remedies of the SH: 1. As president. But most likely he only has qualifying shares. revoke the declaration. withhold. Kaya lang kadalasan. the rule hasn͛t changed. Creditors are prejudice because they expect that whenever shares of stocks are issued. No right to keep it. Taking note of the intention of the law. There is one exception: when the declaration is illegal. Balitaan niyo na lang ako. we can go to court to compel the corporation to declare the dividend as declared. nullify the resolution subsequently adopted by the board. (something like that) Nobody but SH of record are entitled to receive dividends no matter what form. But the dividend declared to him is so much more than his nominal share. EXCEPT: in violation of the prohibition in S43. Dapat talaga bawiin. naissue nang walang value nareceive ang corporation. Pano kung naipamudmod na. Nagkaroon ng error ang computer in the computation of the URE. not cash not property. S144 there is even criminal violation. Bawal iretain yung sumobra. You have to make a categorical stand. or officers. Pero ito bang application for registration of a corporation that was subsequently approved by the SEC. is that a contractual obligation? DLC does not think so. wala kayong makukuhang P10K sakin. What͛s important here is URE. It will not remain the same. WON the right is one that vests? When the right is an exercise of a privilege. it should come from the constitution. then those have to be honored. There͛s not corporation in civil law. Sir. WON a third party. Hindi naman ako may kasalanan in the first place? Sino liable? The board of directors who willfully. or officers. No law shall be passed impairing the obligation of contracts. In your poli law. Pagpasenshahan niyong marami akong nalilimutan dahil bumabata ako.99 Maski patayin niyo ako ngayon. Because it͛s a common law institution. knowingly assented to the patently unlawful act under S31. It does not usually vest. Baka naman kasong cited in Campos. nor any liability incurred by any such corporation. When a state authorizes privileges. directors. CHAPTER XIV: Amendments of Charter AMENDMENT BY LEGISLATURE Charter refers to AOI of the corporation. congress cannot pass irrepealable laws. GR: Contractual rights are vested. Purchase of corporation of its own shares ʹ nadiscuss na natin yan. because that is the amendment automatic of its charter by subsequent legislation is a term implied in the approval by the state of the AOI. the laws in force in the country were Spanish laws. Ang problem is what are those vested rights? What are those rights which are vested. members. That would bind the congress but not its own laws. there is also legal basis in their liability as provided in S43. Before Americans came here to colonize us. All laws passed by congress were passed subject to that condition. But we will not focus on that. not affected by subsequent amendment of the corporation code or passage by the legislature of a law which runs counter to the articles. SH or corporation itself has acquired a vested right that is protected and therefore not affected by subsequent legislation. Hanapin niyo. It͛s subject to subsequent changes in the law. it cannot claim protection. members. Ano yung exception to the rule? When it will impair vested rights of the same party. When the law changes. That͛s a $64 quesiton. on amendment of the charter BY the constitution itself. hindi ba that will be impairment of a vested right? Later on congress will pass a law which will run in conflict with the AOI. Hala wala naman. directors. and therefore. there is a discussion on what rights vest. That͛s somewhere in the code. The corporation does not acquire a vested right for the continued right of a charter change. We didn͛t . If there are vested rights. its stockholders. Hindi ko na linya yun. We can also say that this is gross negligence on their part in running the corporation. trustees. trustees. Even if it made irrepealable. Rather. May liability on illegal dividends. So S145: No right or remedy in favor of or against any corporation. The charter of a corporation is amended not only by the corporation itself but by the state through a subsequent legislation. I had a problem with S148. Nadiscuss na natin yan. the state may impose conditions for the continued exercise of the privilege. Implied yun na approve natin ito but subject to modification by subsequent legislation. subject to repeal. no corporation in the Philippines. will that not amount to impairment of a vested right? No. Kung wala shang vested right doon. Before the passage of old corporation law. We also follow another principle. shall be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this Code or of any part thereof. stockholders. To create a corporation is a privilege. the AOI may be changed accordingly. (n) WON right is vested is a question that shall be resolved by principles of political or constitutional law. there are grounds for rejecting in S17. Anonymous societies. Marcos was salutatorian. chastity. Di pwede kulang. Valid way of proposing: [1] Congress sitting as a constituent assembly. There are 3 Concepcion in the SC. They have an organization called hospital. proposed by majority vote of board of directors. No constitution or any change thereof shall take effect unless ratified by a votes cast in a plebiscite. I will no longer disclose. What to do with our assets? We want to sell one of the big assets fo the corporation. maybe in the form of a help. [2] Through a constitutional convention. there are amendments which are specifically governed by specific sections of the code. he was St. names of original incorporators and amount paid. Corporation code din hindi comply. Dun sa 2nd par ng S16. Marami kang makikita along the way. DLC: Anong school ang Augustinian? Oliva: St. change in corporate term. It must be for a legitimate purpose. Do you know who Santiago is? According to legend. One of them is that in S38. Power to amend its charter is inherent in every corporation registered and organized under the corporation code. To defend the pope. We only had sociedades anonima.100 have corporation laws. Whenever an amendment has the effect of changing the rights of existing SH. . Maraming klase yang sociedades na yan. When a Spaniard goes bankrupt. Justice Fernandez called Don Ramon. nakapagsalita sila ng ibang language. DLC is planning to join that one of these days. A mahusay na abogado? Sino yun? Shempre yung partner ko. Why dissent from your own ponencia? Fernando made singit that. Behind the mysterious death of a pope is a Jesuit. Lahat ng nakalagay sa articles. The Jesuit. So many assets. [3] System of people͛s initiative. will it result in change of personality of the corporation? Of course not. The experience of walking from Madrid to somewhere else. reduction of capital stock. Mar Roxas. One of them is increase/decrease of ACS. a dissenting SH may exercise appraisal rights under S81 BUT NOT if the amendment will not have any effect on the rights of existing SH. Limitations on power There also are limitations on the power to amend. Bat ba tayo napunta don? The hospital did not comply with the requirements of the old corporation law. While S16 gives us the GR. kaya wala kang makikitang Kastila na mahirap at namumulubi sa Pilipinas. Ano sa English yan? Parang Da Vinci Code yan. Landmark dahil sa kapalpakan. If we can draw an analogy. How is amendment carried out? General provision on amendment embodied in S16 of the Corporation Code. The proposal must originate from the directors. Increase or decrease of the capital stock. This hospital has its office beside Letran in the Dominican order. Because there͛s no valid proposal. Ron may change from Ronaldo to Ron. Pag binago yung pangalan ng corporation. Classmates of Marcos. Black pope story again. May specific provisions applicable. AMENDMENT BY STOCKHOLDERS Corporation may amend its AOI. pwede palitan EXCEPT the names of original subscribers. Valedictorian of Marcos͛s batch. James the Apostle. Class of 39 has so many chief justices. San ka nakakita ng decision without dispositive portion? First batch of the graduate of this college produced the first president of the republic. bordering into secret societies. Special Amendments Concentrate on special amendments. There͛s a procedure that has to be followed whenever AOI are amended. are we still authorized to sell. Approval by the SH 3. Fait accompli or accomplished facts na yun. Hindi pwedeng sumakay. Yung pinsan ko. change of name unaccompanied by ____ will not result in the personality of the corporation. They give money to create/build up a fund that they will use to help a Spaniard in need of money. so three requirements. the SH cannot in a SH meeting simply move to amend the AOI and proceed to vote. There are INDISPENSABLE steps: 1. Like the passion play in Germany. Bat ba tayo napunta don? Para di kayo mabore. Ito palang mga Kastila. It doesn͛t happen every year. Hospital de Santiago de Compostela. Grounds for rejection of an amendment Is the approval a ministerial duty on the part of the SEC? No. Everything else may be amended. the next step is ratification. Since they have problem as to their status. He has a shrine there. The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation. Nung nagbaba yung holy spirit during Pentecost Sunday. ratified by at least 2/3 of the OCS and approved by the SEC. Matabuena Gan v Yap Dissenting from his own ponencia. Approval by the SEC What may be amended? What are the contents AOI? They are enumerated in S14. they need a lawyer. including the name of the corporation. baka maging 4 pa. What is placed there? 2 step process: proposal and ratification. In the case of Maria Carmen Hortigan. ERGO. Akala niyo yabang portion na naman? What we did. There͛s a pilgrimage you have to walk. changing rights. Makapal yung libro. Obedience. When the proposal is valid. Bryan ang gusto niya. You still remember the case Javellana v Exec penned by CJ Roberto Concepcion who is from UST. This Santiago de Compostela went to Spain. For an amendment to be effective. What am I telling you? It͛s a case to case basis. It͛s staged only every 10 years. Restricting. The totality of the amendment shall be the basis in determining WON the purpose is legitimate. draw analogy from the manner our national constitution is amended. As to when a purpose is legitimate will depend on circumstances obtaining at the time the amendment is adopted. poverty. Augustine͛s DLC: Sampalin kaya kita? Hahahahaha Jesuits is the only order with the fourth vow. they go there to ask for help. There was one sociedad na naiwanan. giving privilege or preference to another group. Proposal by the board 2. Decisions with a footnote. SEC will look at the additional capital. Does not require approval: increase in OCS. If you amend articles to reduce capital stock to cover losses 20M. what are the requirements for such an increase to be valid? E. they needed to increase their ACS to offer to the public in an initial public offering. New shares of stock created has the consequence of increase. Kung babasahin mo lang yung batas. occasion that the original will be sufficient to support the increase. Like any homework I assigned. This is what happened in Metro Pacific. baka itanong ko sa exam. They declared stock dividend is the additional paid in. Provided. must the stock dividends be fully paid or can it be partially paid only? 4 accountants from big competing firms in Makati. then 25% of the additional capital stock shall be declared as stock dividend. There has to be a corresponding decrease in the capital stocks. laging meron ka dapat bago. whenever the ACS is increased. OCS of 5M. The 25% must be subscribed and 25% of the corporation must be fully paid. you didn͛t do.g. SH may say ayaw na nila. everything common? What could be a reason? To write off losses. Can the stock dividend not be fully paid? Babayaran lang ng 25% tas idedeclare lang sa SH na walang 75%? If you allow it. the stock dividend to come from the new shares created by the increase. Why do you need to write off your losses? Til you write off your losses. 25% of the subscription has to be paid. To support the increase. immediately. What are the requirements? They are there found in S38. if the reduction is 40M. Nagkamali yung nagtype. you even had URE. The net losses in the books of the corporation is 1M. Otherwise. Itatanong ko sana sa exam kaso mazezero lang kayo kaya idiscuss na lang natin.5 M na lang because 8M already subscribed NACS 50M 25% = 12. Is there a requirement that a stock dividend be fully paid? I-research niyo. The stock div will be paid from the URE. Consequence of retirement of redeemable shares. Whenever stock dividends are issued. is the URE capital? It͛s not even classified as capital but earnings. What must the corporation do to effect a valid increase of its ACS? Before we go there. Dapat maraming shares. Not only have you written off losses. Either do not push through with increase or offer the additional stocks to outsiders. Mahirap na bagong tao na naman. in the example I gave you. Kung sa 50M. That the Securities and Exchange Commission shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate. Where to apply the 25%? 50 or 40? Sir͛s mushy moment with his wife. Why a corporation will increase its ACS? So the capital base will increase. must be fully paid. that͛s just window dressing the financial structure to make it more bankable and marketable. Whenever the authorized capital stock is increased. Only an increase in the ACS is governed by S38. What for? To be able to acquire more money for expanding its operations. Can we use that? Pwede naman. 25% of that subscription must be paid. Easy to understand why a corporation will increase its ACS. . Not the existing shares but the new shares created by the increase in the ACS. Where will that fresh capital come from? E. It is inadvertence. b. REDUCTION OF CAPITAL STOCK. wala akong bayad. that must be 40M. the SH have preemptive right. The additional ACS increase must be subscribed. Use the URE for buying the shares. How done? Declaring the URE as stock dividends. you can declare dividends if you have retained URE. you can͛t declare a dividend. When the loss is written off. How do we it? The corporation will amend its articles to increase ACS. Law is silent but it does not refer to OCS or paid up stock. ACS now is 10M. subscribe na you. it used the additional paid in coming from the increase.g. may isa pang problem dun.g. E. may it use the URE as a support in the ACS? But sir didn͛t you say fresh capital. That͛s the only reason. In that case. What if walang redeemable shares. Such increased capital not of such increase ͞in͟ capital. Baka may nagtamper. Oh. When the corporation Original ACS 10M OCS 25% = 8M Paid up ѐACS 40M 4. Di pwedeng walang support yung additional capital stock. In order to make it more bankable. Pero mali yun. Sinampal naman ako bigla ng ruling from the SEC. Kaya nga hindi ganon ang interpretation ng SEC. Remember this ha! Conclusion: URE may be used to support the increase in ACS. The real intention behind increasing ACS is to raise additional capital. Every increase in ACS has to be supported by fresh capital. it needs it for window dressing. RULE: Every increase in ACS has to be supported by a fresh capital coming in to the coffers of the corporation. But suppose the corporation has URE. Baka may nagpropose ng amendment sa floor babatukan ko yun. Kaya lang. Corporation has ACS of 10M.101 I have mentioned to you last session that the capital stock in S38 refers to ACS. Only increase in the ACS requires approval by the SH. he wants to increase ACS to 50M. 10M (10M additional for change) 20M -25% = 5M OC 6M 5M Kung sa new ACS. you have dividend available for distribution. 25% of that 10M. Pag di natuloy project. DECREASE IN CAPITAL STOCK Sa stock dividend. fully paid-up of 5M. What is the reason to reduce its ACS? Many reasons: a.5M 25% of such increased capital has to be subscribed. mali yun. Wag na natin gawan ng example. let͛s first ask. showing that at least twenty-five (25%) percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is equal to twenty-five (25%) percent of the subscription: Everybody is in agreement that the wording of S38 is unfortunate. the scenario is like this. The corporation wants to increase its ACS. lalaki yung stock that the URE may pay for distribution to the SH. Hindi in-approve ng SEC. sobra ka pa ng 1M. the corresponding decrease in the ACS has to be accomplished. the SEC will not act on the application until the fact of the amendment is published so that the SEC will not rely on representation by the corporation that such amendment will not prejudice corporate creditors. special amendment governed byS37. 16 March 2011 DECREASE IN CAPITAL STOCKS . That͛s why in S38 last par. you return 1M. has a SH appraisal right? The answer is neither in S38 nor S81. SEC. You can͛t declare dividend til paid up is intact. The amendment cannot be approved by a mere referendum.102 reduces its ACS to 4M. Dzprovide further. SEC should guard against. Ordinarily in S16. line and sinker the representation that no corporation creditor will be prejudiced. a dissenting SH is not entitled to appraisal right. Provided. That may be distributed as reduction surplus dividend. Exceptions. SEC has also come up with some exceptions to the rule. may be approved by referendum. Is the creditor bound by the publication? They will only be bound if the proceeding is in rem as provided for in the law. there͛s a requirement there. Buti sana kung kilala yung creditors. gawin nating 25% lang? So lalaki yung reduction surplus.dz Paid up minus loss. further. When those shares are retired. Definitely there will be a change in right but the right here must be vis-à-vis other SH. If the creditor was in fact prejudiced. ISSUE here: Can we redo the subscription contract instead of fully paid yung paid-up. Whenever the corporation amends its AOI to reduce its capital stock. Hindi na dapat papalabasin yung pera natin. There are requirements. Another reason for amending the AOI to decrease the ACS is when redeemed shares are retired. Hindi pwede kasi in fraud of the creditors. Creditors will not likely to give consent will no longer be informed. Most likely. [3] S122 last par. It will not suffice because self-serving on the part of the corporation. On decrease in ACS Except by decrease of capital stock and as otherwise allowed by this Code. what is the effect. A reduction will entitle a dissenting SH only if the reduction will change in the rights vis-à-vis each other. That no decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate creditors. SEC will not accept hook. He only feels unsecured. The creditor may ask the SEC to disregard the order approving the reduction of the ACS so that all the SH will remain liable to the original amount of their subscription. You still have 4M. that is made as a condition for the approval of the amendment as provided for in S38. shall order the publication of the amendment applied for. The dissenting SH has appraisal right under S37. Dapat i-publish din nila the written consent given by creditors. A decrease in ACS is done through an amendment of the AOI. Sobra pa tayo ng 2M. corporation will make that representation in order to effect. the sobra called reduction surplus. SEC having required publication did not make the proceeding in rem. Anyway. every decrease of the ACS has the tendency to defraud the creditors. That was just a tool to aid the SEC in disseminating the information but the requirement of publication does not operate to make the proceeding in rem so as to bind the whole world. and 4M paid up too. Or such change will create a class of shares not enjoyed by existing. Pera of 4M. DLC thinks the creditor still has prejudice. Nagkaron ako ng reduction surplus of 1M (3M na lang ang ACS). How will creditors who feel prejudiced by such decrease do the comment they learned about this amendment to decrease the ACS? They may file an opposition with the SEC that such amendment will prejudice their interest. How different is S37 from S16? One difference DLC can see is the manner. Kung nanotify sila. Unless the increase will result to change in the rights of existing SH. I know of one instance where the SEC accepted a written consent allegedly by the creditors to such a reduction of ACS. Knowing propensity of Filipinos to perjure. 1M lang reduction. but there are exceptions: [1] redeemable shares. SEC͛s addition of the requirement does not make it in rem. Since a decrease in ACS will necessarily reduce the liability of existing SH. It must be a SH meeting called for the purpose. The only reason why a corporation would decrease its capital stocks is to wipe out losses in order to restructure the financial position of the corporation. requires that whenever amendments to reduce the ACS is filed with the SEC. you have no URE. The corporation having submitted written consent of all creditors allowed the reduction of the ACS. is there appraisal right for dissenting SH? Sa increase wala. such may operate to prejudice claimants or creditors of the corporation in order to ensure that 3P are not prejudiced by such reduction. Praning lang. Akala niyo lang maliwanag yan. [2] appraisal right. done through an amendment. Just enough to paid the new ACS. can you declare that? Is that allowed? didn͛t we say that equity can͛t be returned to SH til corporation is dissolved? True. no corporation shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities. Change in corporate term The AOI is amended to shorten or extend the term of a corporation.. It͛s not the authority to determine WON the position is in rem. what is the effect? Ang subscription is 5M. as a last attempt. The paid up has to be intact all the time. Won a creditor was prejudiced by the reduction is a question of fact. So there͛s a requirement of publication so the creditors will be constructively notified. Not governed by specific provision. How about in the reduction. Reduce the ACS and reduce the paid up too. ǥ if its effect shall prejudice rights of corporate creditors. Only the law will make a proceeding binding against the whole world upon compliance with certain acts prescribed in the law. Who knows what applications are pending in the SEC. How will SEC know that creditors are affected? SEC in its exercise of its powers to promulgate rules and regulations. what shall the company do now? s Last par of S122 I have already discussed. to ___ the impending amendment. But suppose reduce from 5M to 2M. S97 1st par No. But this close corporation is a corporation but a special kind because it can do many things which an ordinary corporation cannot. general principles of corporation law prohibit a corporation from imposing restrictions on transferability of shares. Secretary of Finance inutusan ko. they didn͛t. Let the quedan holders file y In an ordinary corporation. pero puro implied. This APIC can now support an increase of 20M times 16 = 320M. you don͛t need this provision. this is an extraordinary situation calling for extraordinary remedy. Yung mga magpapractice ng corporation.g. share holder ka na. WON you are a good corporate lawyer will depend on how creative you are. APIC (additional paid in capital). That͛s the cornerstone of corporation: transferability of shares Since this is the cornerstone. I did my best to revive this dying corporation. CHAPTER XV: Transfer of Shares Transferability of the interest which the SH has in the corporation is one of the cornerstones that makes a corporation different from an ordinary partnership. magkano paid up? 40. May APIC na 20M. . Unlike in partnership you don͛t automatically step into the shoes of the transferor. Boss na namin bigla. Wala ulit kumuwestiyon. Reduce ACS and then create APIC. pwede walang board and SH may manage and direct the affairs of the corporation. Archbishop of Manila becomes a corporation unto himself. First successful rehabilitation that ever passed through the SEC. I asked him to make a rehabilitation plan where it wipe out its losses and create new shares. Asked all the SH in approving the amendment to reduce to apply APIC as their subscription to the new SOS in the resulting increase in the ACS. We need operating capital next crop to be harvested in 2 months͛ time. There were two amendments: same documents and same meeting. Dalawa silang special animals: corporation sole and the close corporation. Impose restrictions on the transferability of shares. those who conceived corporation as a business organization did away with the delectus personae principle as a cornerstone feature of corporation. To create additional paid in. APIC created when ACS was reduced. In case of ordinary corporation. this is a corporation without a board. S97 2nd par. akala lang nila yun. If you must have observed. Or yung mga sugars covered by quedan eh nasa bodega ng Victorias. it allows it to be there. When accepted. A partner can transfer is share but not his partnership. he can͛t do. the interest of a partner is not freely transferable. Ganito yun: (draws diagram) ACS is 100M. Kasi kung kinuwestiyon nila. only a close corporation but even then. they used the APIC to support subsequent increase in the ACS. The 20M became fully subscribed and fully paid up. Hanggang dun lang. Their balance now is just 50M (assuming everything is fully paid) a claim in SEC with me. Multiply APIC by 16 kasi diba. Pag itiniransfer mo ang SOS mo. Precisely because restriction is a GR. He was chairman of rehab committee of Victoria͛s Milling Corporation when it closed shop for financial reasons. 2 Why is there S98? If restriction is the GR. Tandaan niyo yung case na ito. y ACS OCS Paid up Losses Balance on hand 100M 80M 50M 10M 40M Reduce the ACS to 20M. Pinag-agawan ng mga taipans. Super special ang corporation sole. Sell all those sugars so we have operating capital.103 There are many remedies available to creditors. This is allowed in close corporation. In a partnership. 20M becomes 340M (increase of 320M) 20M * 4 * 4 = 320 We don͛t need to fully pay because we͛re not declaring it as dividends. Kumita at naibalik ang mga sugars. Parang naintindihan nila yung batas. the reduction surplus before it is distributed may be classified as additional paid in. a SH who wants to transfer his shares shall first offer his shares to existing SH. How did it use the APIC? They had a SH approval authorizing the corporation to use the reduction surplus as their payment to the new subscription. may all the SH participate in the management? No. Wipe out losses in order to create new shares of stocks. That͛s unwritten rule but that͛s the general principle. it cannot impose restriction more onerous than ROFR. I required you to read corporation code. ano pag-aagawan nila? Hindi naman sa pagmamayabang (pag sinabi mo ito. ACS is 100 APIC ang capital ng 40-20 before distribution as reduction surplus. Marami nagagawa na hindi nagagawa ng ordinary corporation e. There͛s a law on FRIA. 3 dyan. DLC issued order dispensing the requirement on ground of rehabilitation plan. You can assign your interest (bec that͛s also property). Necessarily has to amend articles in order to increase ACS. even if S98 allows a close corporation to impose restrictions on transferability of shares. magyayabang ka talaga) 4 or 5 lang ang successful rehabilitation. This is the principle of delectus personae. A partner is admitted to the partnership on the basis of his personal qualifications. ako may hawak. S98 appears in the title on close corporations. I think in S98 on close corporations. SH cannot group themselves and elect the board from among themselves. When they created that. Because we didn͛t declare it as stock dividend. To make a corporation better than a partnership. Meron na silang 50M impairment of the capital. not the right to become a partner. DLC in response to Mai͛s question: What will be the basis for the corporation to hold it? SEC will require in approving the reduction that reduction surplus be distributed. kasi the 320M = 25% has to be subscribed and 25% of which fuly paid up. may express provision prohibiting corporation from imposing restrictions? Walang express. In close. Kung hindi matibay ang prof niyo. that interest which member of corporation has is made freely transferable: not only interest but even his membership in the corporation. These amendments in order to be valid have to be approved by the 2/3 of the OCS. Eh di go to court and question it. This close corporation is a special animal in the corporate world. Nagrereklamo ang ibang SH. Actually 350 nga dahil may 20 pa. They reduced the ACS to wipe out losses. SH surrender their right to board of directors. Quedan is a negotiable document to title to sugar. arbitrary on the part of the lawmakers. Sino gusto mo mapangasawa? Si Phoebe daw. Look at provision of corporation on close corporation. May the subscriber of unpaid shares transfer his interest in the shares? Of course. Not yet fully paid 2. Therefore the subscriber can transfer his interest in the SOS which are not yet fully paid. If their consideration is illegal. it does not bind the corporation. Jose Flaminiano was there. DzNo shares of stocks against which corporation holds any unpaid claim shall be transferable in the books of the corporation.104 Obliged to sell to existing SH. Class of 1953. they enjoy all rights of a SH. mawawala sakin. iniissue pa lang. How is a share of stock transferred? There are two kinds. Suppose the corporation will provide the following in its AOI. Not exceeding 20. If you will practice corporation law. Fully paid a. mataas ang bayad ng dividends. Who knows??! Bustos. Fletcher on Corporations has 21 volumes. So what͛s the GR: A corporation cannot impose restrictions on the transferability of shares. What is the effect if the transfer cannot be effected in the books of the corporation? It is the transfer of the shares that will bind the corporation and the whole world. JPE: No reason. parang student ko). But really. who imposed the restriction? It͛s the SH. Outstanding (nasa labas pa. magpasikat ka. PROVIDED Ron cannot transfer these shares to another without first offering me these shares. Kapatid kasi tingin namin. No SOS of this corporation shall be issued except to relatives within the 3rd degree of existing SH. Abad Santos asked them the reason behind live for 24 hours if intra-uterine life of less than 7 months. Hindi pwedeng basta basta na judge ang hahawak ng corporate matters. Who will be defrauded in that case? The corporate creditors. Dean Pang and Mam B. pag nakakita ng UP. the contract is illegal not because of transferability prohibition. Bakod na bakod yun. Lahat na kasi ng sagot niyo ay mali na. One of Erap͛s impeachment lawyer. Unless it is recorded in books of corporation. MM?MY. Met students in SH. Gagastos kang malaki sa traje de boda. Only when no existing SH is willing to buy a share thtat he is free to offer it to 3P outside the corporation. Yan ay kung naiintindihan ng judge ang ginagawa niya as many of the rules are not written. ano pa sasabihin ko. dream of a lifetime. Fan ni Danicon (yun din tawag sakin. Many things in the law are arbitrary. but because the consideration is illegal. Oldie. Oliva has 100 SOS in X corporation. sasampalin kita!!! I don͛t know sir. Sir was at the wake of his classmate͛s mother. It represents a proprietary interest.dz Unpaid balance on the subscription is an unpaid claim which the corporation has over the shares of stocks. Ordinary corporations are open.͟ The latter is for issuance of shares. Nagpa-exam ako sa judges. Treasury (kasi nasa corporation na) b. Close here means sarado. Nandun ang sagot. In the wake. Will transferee step into the shoes of the transferor? Will he become the new SH? No. (Whole world is not accurate) binding to all parties who have actual notice and privies except the corporation. No particular reason is a potential answer. What if? I am assigning all my interests in the 100 shares of stocks in X corporation to Ron. I love you boy. Corporation cannot record the transfer. Hindi ko pa naitatanong sa exam iyan. Because that is property. City fiscal of Manila. nakabukas. PROVIDED Ron cannot transfer the shares except to me. Simple tanong ko di masagot. Therefore. Timmy Cruz. bumagsak sila. Sabi ng girls. Why does the law prohibit the recording of transfer in the books when the shares are not yet fully paid? Because SH may transfer to an insolvent person to the prejudice of the corporation. The art of giving a good answer is to make it short. I͛m giving you a second opportunity. magkukwento. Kaya pag nagbabasa ka nito. Is that a valid provision of the AOI? NB that that provision has nothing to do with transfer. last par. diba? What are the kinds of our shares of stocks? 1. Bihira ang nagkakatuluyan. In this case. Campos discussion here is in the close corporations. Closed to a group not more than 20. I need to liquidate some of my assets. He was the oldest member of his batch. For as long as those shares are not DQ. nakakawala ng interest. Though in a way. Hindi pa tinatransfer. MM?MY. The prohibition applies to the corporation. Magkaiba yung ͞restrictions on transfers͟ and ͞classifications for owning. also the other SH. there should be an underlying general principle to which it relates. not in an ordinary open corporation. MM?MY. ERGO. Deed of assignment says: I͛m assigning my shares to Ron. So ibinenta niya ngayon his shares to Ron. Restrictions are allowed only in case of close corporation. it is no t binding against the corporation. General provisions on contract law yan. more than double the written rules are unwritten. Pag-isipan niyo yan. Kaya nga nasa SEC yan dati since they͛re supposed to specialized on regular courts. So SC designated commercial court. Garcia. Singer. Bat tayo napunta jan? Hindi ako nagkuwento nang walang konekshon. Because of S63. Pakasal ka with pomp and something. Parang si Mam Beth lang. Is the restriction valid? Valid. owned by the SH) SHARES WHICH ARE NOT YET FULLY PAID A share of stock which is not yet fully paid is entitled to all the rights of SH under S72. Oliva said sayang these shares. S87 No. DLC: Dapat dito may D. the corporate creditors because they . Batchmate ko si JPE. Bakit parang hiyang hiya ka sa asawa mo? I need cash for my wedding ceremony. Right of first option/right of first refusal. May papakainin kang di mo kilala. It may have actual notice but unless in the books. It is the issuance of a share. The corporation cannot impose restriction on the transferability of shares. 1: for classification of sharesand qualficiations for owning or holding. Mag-aasawa sha eh. every restriction imposed by the corporation is illegal. Yung matandang abogado. What do you think is the reason? Last Fri. Corporation has nothing to do with the contract. Why does the law prohibit the recording of the transfer in the book when the shares transferred were not yet fully paid? Oposa!!! Pag sinabi mong arbitrary yung sagot. Magkabatch nga. it may be set aside in court as invalid. Aiai delas Alas in Tanging Ina. Ayan. Anybody who has interest in discharge of obligation has right to insist payment. See the certificates were endorsed in the back. it͛s no longer money but the corporate control. transfer tax is imposed under IRC. It cannot take place without the consent of all the parties. May right sha. it becomes ministerial duty on part of secretary to report it. who is liable to pay it? As far as the corporation is concerned. kasi minsan. how do we transfer the shares? Law says endorsement + delivery. Therefore. therefore. may pogi points ka na. We can only implement the instruction from our SH of record in light of a report that it was lost. So what did the transferee do? Filed an action with SEC to compel the corporate secretary to record the transfer. the creditors may waive such benefit. Bring him here or get SPA from him. Since that is for their benefit. Problem only is how to know that all the creditors have consented. the corposec and treasurer will be covered. transfer is effected. NIRC provides that secretaries. pwede ko ipamigay for free. who will corporation send the notice to? Ron still. Ano gagawin ko dito sa certificates na ito?? SC speaking through Teehankee. The transfer is valid and binding between them. SEC has jurisdiction not because intracorporation but because seeks to enforce performance of the secretary of the ministerial duty. The SEC when I was a commissioner. Correct decision ito maski Ateneo grad sha.105 lost an asset to run after in case assets of the corporation fall below their ____. Certificated b. transfer agents are prohibited from effecting a transfer unless certificate . All creditors not consented will not be bound by the recording. DLC doesn͛t see anything wrong with that. Ron then has duty to Oliva to forward to him the notice to Oliva is given opportunity to protect his rights.͟ Pwede ba yun? That͛s called substitution of debtors. The prohibition is in protection of creditors. May unpaid balance pa eh. Transfer is not bound by the transfer as far as other SH are concerned. DLC: tinanggal na ngayon ang control. But if with notarized SPA. Uncertificated (only us use this word) When shares are certificated. He now has obligation to transfer it to Oliva. May the corporation refuse to accept payment on the ground that we do not know you. Since all requirements have been complied with. No intracorporate dispute between petitioner and corporation because the form is not yet a SH of record of the corporation. original subscriber remain liable. not all of them became my students. obviously delivered to me because I am in possession. How can he vote? Irrevocable proxy. Under the law. BUT not as between transferor and transferee Ron is dating Annie (Bato na bakal pa) so he transferred his shares to Oliva at a discount (lower than the par value). inilagay na sa S63. diba mayroon dong isang transferee presenting his certificates duly endorsed at the back by the original SH of record. Oy punyeta ka. Corporate secretary: sorry sir but we received a report that said certificates were lost by the SH of record. In fact. In order to make it real protection on part of creidtors. Baka daw kasi nakaw lang. Without that SPA. SHARES WHICH ARE FULLY PAID There are two kinds of fully paid: a. it becomes ministerial on part of secretary to record the transfer. original subscriber remains the SH. That͛s why if you still remember the case of Abejo v dela Cruz. PERO kung ako abogado ng SH. How? By giving consent to such transfer. Can he run? No. Kung ayaw ibigay. May corporation ba na tatanggi sa pera? Yes. pinpapirma ko lang client with a condition: ͞We agree to record the transfer in the name of the transferee on the condition that the original subscriber remains liable to us for the unpaid balance. the creditors are not parties to the subscription contract. As between them. akin yang dividend na yan. Sabi niya these certificates were assigned to me for a valuable consideration. Transfer of certificate is a privilege. baka fake lang yung pirma. Filed by a certain Ceniza. not the transferee. Oliva is the owner of the share. Par value is P1000. Sha ang unang justice na nakasuhan ng impeachment. In fact. When corporation declares dividend. MM?MY. To compel the secretary to perform a ministerial duty is within the SEC͛s jurisdiction to supervise and ___ corporation. Oliva will have the right to compel him by court action to deliver to him the dividend. That͛s in the CC. we can͛t entertain you or else our SH of record with which we have contractual privity will sue us for damages. Para wala tayo problem since lahat ng treasurer marunong sa corporation law. yet the stipulation is for their benefit. Change the balance of control of the corporation. corposec will refuse. Only two requirements here: endorsement of certificate and delivery of certificates. whose name? Ron pa rin Has Ron right to keep the check? No way. Secretary is prohibited unless there͛s a certificate authorizing registration is presented from the BIR. you͛re not our subscriber but Ron? Corporation has no right to refuse. sold at P500. This is insofar as corporation is concerned. This is not intra-corporation dispute bec petitioner is not yet SH of record. he just needs to show his deed of assignment. pwede nila iwaive the protection given them through a written waiver. In implementation of trust fund doctrine. To enforce right of government to collect the tax. thought of how this provision is circumvented. SH also give authorization to effect transfer of certificates in his name after the balance has been paid. When requirements of law for transfer of shares. Certificate shall be endorsed by the SH and then he will deliver the certificate to the transferee. Requirements under Special Laws In the NIRC. hindi lang yan. Will the corporation record the transfer of the shares in the name of Oliva? No. creditor͛s consent is not supposed to be required under general provisions of CC on contracts. Unfortunately. What we do is give SPA authorizing him to effect the payment. May Oliva attend meetings? No because he is not transferred. They consent to the recording of the transfer. So what do corporations do now to transfer unpaid stock transfers? They get consent from all their creditors. The respondents are correct. MTD: assailed SEC͛s jurisdiction limited to intra-corporate dispute. Every transfer is a privilege for which excise tax is imposed by law. because not stockholder of record. Is the transfer valid when it͛s transferred for a consideration less than par? Prohibition applies to issuance of share by the corporation. Tinago na yung may-ari. who is entitled to attend SH meeting? Vote at those meetings? Dividends? The original subscriber. May unpaid balance. not transfer of shares from on SH to another. How did SEC circumvent this prohibition? Since that last par of S63 is for the benefit of the creditors. It does not cover S98. COLLATERAL TRANSFERS Certificate was used as a collateral to secure an obligation. Nung araw. Who provided service as the first bankers? Knights Templar. Sold his shares to Ron. president agrees to extend loan to the corporation. Those are the requirements before a transfer may be reported in the books. I was not privy to the loan obligation. the only alternative we have for cash is checks. If payee is not depositor. baguhin your form of certificates. S6. Therefore. Ron will be forced to pay the balance of the loan by Oliva. Due nga kagad yan. You can͛t issue nonstock unless the non-stock is fully paid. saka ita-transfer. Book value is less than cost of acquisition. Ano dala nila dati? Document signed with seal of Knights Templar in Paris to pay the gold. Kung may interest yun. Consideration cannot be lower than the value. So he was given a soft repayment scheme. Ron couldn͛t find Oliva anymore. SH agreement giving all SH of record the right of SH. Dahil marami silang gold from David͛s temple in Jerusalem. No-par shares hindi pwede. Look at the wording of the law. Has corporation right to refuse to transfer the certificate in the name of Ron on the ground that the loan is not yet paid? Has the corporation right to demand as condition for transfer that the balance first paid? That͛s the question I asked in the exam. Incorporate in S64. Hindi nabayaran ang installment. isinasama na yan usually sa isang document. there will be deed of assignment which will attract docstamp. you can no longer negotiate a check. pati interest. we have to make the document a credible document which the people transacting with document will put full faith and credit. Dati nga walang pera. In reality. if you become corporate secretary later on. Okay you will pay on a period of 1 year. Parang pareho lang din since nasa S99 din ang ROFR. And so I am warning all of you. term transfer as used in this section is not limited to transfer for value. pinautang sha. mukhang adik. Docstamp lang ang due. What is the antecedent here? Claim should be against the shares and not the shareholder!!! It will only be a claim on the shares of stock kung isinangla niya yung shares as collateral. Nawalan tuloy ako tanong sa exam. In order to repose or imbue the docuemtn with characteristics enough for people to impose full faith and credit. You have to present a ͞certificate authorizing registration͟ Hindin totoo na yun lang hihingin nila. Everytime SOS is issued. Walang record. UNAUTHORIZED TRANSFERS ʹ discussed this in the lost ring story . Ganon ang DLC technique. It should indicate at the back the amount of consideration. contract of subscription that the subscriber becomes a party to SH agreement to circumvent the restriction on transfer. liable for tax. Ang pwede lang mag-installment ay par shares. only S99. Sabi niya hopeless na. Ron went to the corposec with deed and authorization from Oliva. Binayaran ngayon sha after the deed of assignment. Illustration of the application of this principle. STT (depend on WON traded and listed in the stockex). Later on. When there are two years and lower value of shares. docstamps (DST on the transaction of assignment and on the issuance of the new certificate) Constructively issued n ayan. Accountants book that as deposits for future subscriptions. What am I telling you? For a certificate of title any commercial document to acquire credibility to make use of corporation as business org. It should be not more onerous than right of first refusal. We will go there when we reach close corporations. hindi papatulan ng BIR yan. So when they compute. I͛m giving this to my son. Pano kaya pumapasa sa SEC yun? Kung ako gagawa ng dokumento. Kaya ang sabi sa printers. so he borrowed money from the corporation.g. Napakabigat non. we won͛t transfer. Who was the king who ordered the execution of last knights templar? Executed on Firday 13th. the restriction allowed to close corporation and transfers. if I͛m donating. By practice. King of France owed them so much. Analyze each and every word! In S64. Problem in the exam. There should also be a space for notarization. It͛s an offense defined and penalized under the NIRC. Barter then silver and golds. Ayaw ni corposec kasi may utang si Oliva. Kaya maski non-stock ganon din. Presumption in law (juris tantum) na fully paid. That͛s how the exam is structured ha! You are tested on your ability to analyze the code. Siguro it͛s now an evolving practice to allow ROFR. kung gusto ko ng ROFR. Some people who transfer unlisted shares. Allow me to pay the loan on installment. So the BIR will look at the corporation͛s book value. Nagprint na sila ng pera. Cost of disposition is equal to cost of acquisition. Ano ang gain? How do we tax the gain? Cost of disposition less cost of acquisition but in no case lower than the book value. Hindi pwedeng magrecord lang nang magrecord basta basta without certificate from BIR. If not notarized. BUT he needs cash. That͛s why I stopped teaching Nego. Ipapabago rin sayo ng BIR yan. Tax on the gain. Although if you will look at S99 No. no tax is due because no gain. The only remedy is to sell the shares. You read the code. He͛s being honored by the masons. Banks won͛t honor indorsed checks. Sandal lang. the corporation is prohibited from issuing a certificate to cover shares of stocks which are not yet fully paid. Oliva has shares of stocks which are fully paid AND certificated. If you͛re using the old form. inaareglo ang financial statement to lower the book value of the shares. sharesholders agreement yan. Highway robbery pa kalaban mo jan. How do we book the loan to the corporation? If utang.106 authorizing registration is issued by BIR. Problem: since in constant need of cash. nothing appeared on the certificate. Suppose corporation needs money. check is negotiable instrument kuno. 12 months monthly payment. if the utang booked is turned into subscription. DLC saw that many corporations have included that restriction in the bylaws even though not classified as close corporation. Ano value/consideration of the transaction upon which the amount of tax will depend? Sa stock certificate hindi sinasabi kung magkano consideration. Pay every month. NB that the right of ROFR in S98 is limited to a purchase. To lend full faith and credit to the certificate of stock. banks will not accept it. Why does the law prohibit the corporation from issuing certificate when the shares are not yet fully paid? In order to make a certificate of stock a credible document. no space for notarization and consideration. MM?MY. Assuming that the corporation has power to lend money to its SH. Small pound of gold. How do we prove the gain? Selling price less cost of acquisition. Don͛t issue certificate unless fully paid. You need to pay in England when you are in France. You deposit your gold in Paris with commission. When share is no par. hindi pwede issuehan ng certificate yan. BIR in turn will not issue that unless taxes due on transfer are paid e. record. 6. Look at S63 last par. there͛ll be problem because there are docstamps and also tax on the payment. hindi na kailangan ibenta sa existing SH. Til then. A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily. . NAKO! Mali na naman! Dun kasi sa recording of transfer. At the instance of anybody. 1. When does dissolution take place? S117 CLOSE CORPORATIONS According to Camposes. 1 2 1 . the corporation is dissolved. This is the DLC position ever since E. the action need not be bought by SolGen. to revoke the registration of corporation. Methods of dissolution. if all characteristics in S96 are present. Sawa na sila sa kagagawa ng beer so they͛ do something else.g. This is not an intra-corporate dispute. Under S121. You won͛t say na ͞oy may utang pa yan. NB All characteristics must be present. hindi rin pwede. But suppose not incorporated as a close corporation but ordinary open corporation. Creditors consented but what if you transfer the certificate. Revised Securities Act PD 902-A Other special laws NB This is different from quo warranto action that SolGen may file in case of de facto corporation. DLC thinks it͛s not the designation that controls. . you protect creditors. It͛s the characteristics given the corporation in the AOI that will corporation. the necessary consequence is dissolution of the corporation. upon the filing of a verified complaint. Voluntary if at the instance of corporation Involuntary if against its will. it͛s a de facto partnership in a corporate shell. When registration is revoked. How about voluntary dissolution? As I mentioned earlier. But because of some violations. rules and regulations. Eh bat nag-issue pa certificate? What is that for? Therefore the transferee is subject to payment of balance. The action is filed with the SEC. (n) On what grounds? Grounds provided by rules and regulations. No longer commissioner. In dissolution. voluntary dissolution is governed by S118. Always remember Last sentence of 1st par: ͞Notwithstanding the foregoing. but upon the complaint of any individual.A corporation may be dissolved by the Securities and Exchange Commission upon filing of a verified complaint and after proper notice and hearing on the grounds provided by existing laws. Allowed issuance of certificate which are not yet fully paid with the condition that all creditors will issue consent. If only 2 are present. But they will have to liquidate the assets of the old business. it is the same with revocation of registration. to be used as start- . Talagang close corporation. informed by a former student who is lawyer in big Makati law firm. The complaint is filed not with the regular courts but under SEC under S121. pwede ba yun? Kung nakalusot sa SEC. Under the Corporation Code. In case of a juridical person. Involuntary dissolution. 28 March 2011 CHAPTER XVI: Dissolution The juridical personality of a natural person ceases or terminates when he dies. The wolf in the red riding hood. grounds are provided for in the law. ͙͟ There are also some forms of business which may not be incorporated as close corporation. Creditors are affected if the dissolution will prejudice the recovery of creditors. It͛s upon its initiative that the corporation will dissolve. This cause of acting has remained with the SEC. It͛s not the presence of the characteristics of a close corporation that makes it a close corporation. the dissolution is brought about by the corporation itself. Close shop and open a new business. Dissolution therefore is termination of existence of a juridical person. The corporation in fact is productive. the personality terminates upon dissolution. Voluntary dissolution where no creditors are affected under S118 2. voluntary dissolution is classified into two. under S121. But the owners of the corporation want to change line of business. But here.107 BUT the SEC has a way of circumventing that. is it necessarily a close corporation? Yes.͟ Safeguard mechanism: certificate shall be with annotation that it͛s not yet fully paid. S97 remember that. Sec. The complainant is not required to have intra-corporate relations with the corporation. If corporation has characteristics. it͛s not one of those causes of actions transferred by Securities Regulation Code back to the regular courts. Example: The corporation is not suffering from any financial problem. But if the dissolution will not affect the recovery by creditors. Voluntary dissolution where creditors are affected. I should ask about this year. who do you protect? The transacting public. it presupposes the valid creation of a corporation. Since it͛s not necessarily an intra-corporate dispute. it͛s a pseudo-corporation. When is the corporation deemed dissolved? Sabi dissolved upon filing but the filing. That dissolution is governed by S119. Since it͛s a petition. banks. dissolution may be effected through 1. But if it will affect creditors. even if they still have 30 years remaining in the life of the corporation. SEC must be considered in deciding WON the ___ the dissolution applied for. not from the lapse of 6 mos period. The problem is when the termination is within the 6 month period. That in case of extension of corporate term. 1. BUT SEC fears that they may be cheated by the corporation. 2. nagdi-dissolve na pero di pa approved yung dissolution resolution. SEC by its resolution requires publication even though mode of resolution is S120 shortening of amendment nonetheless. The amendment is deemed approved. convert to petition no effect of creditors approve No need for AOI amendment. During the balance of the period of the contract.g. 6 months after filing of amendment and SEC has not acted on amendment. it requires approval by the SEC. 10 years yung contract so the unperformed balance is 6 years. The amendment takes effect from time of filing. corporation will be dissolved. we have so much money we can arrange for delivery/performance of our obligation for the remaining year under the contract. How different are the two? y Both S119 and S118 has publication y Dissolution by shortening corporate term has no publication. e.͟ Application was approved. All those contracts are allowed basta winding up. If all the creditors of all business will be paid because there are more than enough assets remaining. 2011. That͛s why there͛s the winding up period of 3 years. pababagsakin na lang sa S120. appraisers. is dissolution already effective? No. First method: By the corporation simply adopting a dissolution resolution o Majority vote of board o 2/3 of the OCS ʹ including the NVSH because No. is insolvent. SEC will look at the fact. Corporation will dissolve in the middle of performance of the contract. corporation was dissolved. such dissolution is governed by S118. After the resolution resolved had been approved. 1. Corporation said ͞no problem po. Because the creditors are not affected in their recovery. 30 year will come next year. Take note that the 3 year is a winding up. WON the creditors are affected. When SEC convinced that creditors will be affected. Shortening ʹ if 50 years of existence. But if the corporation. creditor should have informed the SEC about the existence of that contract which is still partly executory. Meron pa shang 3 year winding up period. what is personality of the corporation to perform. suppliers. Since the shortening may have an effect of affecting the creditors. How about the other 3 years not covered? The remedy is provided for in the law. it will be filed with the SEC for SEC approval if it will not affect creditors under S118. Written notice of the proposed action and of the time and place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid. (n) Dissolution Resolution Dissolution AOI amendment Affects creditors No effect on creditors via petition with the SEC It should be read together with S120. Those are minor problems which DLC believes are not insurmountable. Dissolved na. The requirements therefore of S37 should be complied with when the mode of dissolution is through shortening of corporate term. then dissolution takes effect upon approval by the SEC. it has to be filed as a petition under S119. Usually they will require publication so that the creditors will be affected. Term of corporation will expire. Hindi naman pwede na mai-consider na dissolved at the time of filing because 6 months pa yung new term. Power to extend or shorten corporate term. The corporation is deemed dissolved upon approval by the SEC. or served personally: Provided. meaning its assets are not sufficient to cover all its liabilities. therefore. It will be illegal and invalid contract. What is the effect of dissolution? Personality of corporation ceases.A private corporation may extend or shorten its term as stated in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members in case of non-stock corporations. Redirect your attention to S37. problem here is an amendment of the AOI may be approved by SEC through inaction under S16. When it arrives. Prohibited from entering into new contracts in pursuance of its business. whether by petition because creditors are affected. there must be a proceeding under S119. Same thing when it͛s the corporation that expects obligation from 3P. S122 2nd par: At any time during said three (3) years. any dissenting stockholder may exercise his appraisal right under the conditions provided in this code. That creditor will surely be affected by the dissolution. Second method: Shortening of corporate term This is done by amendment. even if creditors will be affected. insurance companies. Contract requires corporation to perform an obligation over a period of time. After SEC has approved the dissolution. Wala ka nang business so you can͛t get contracts to do business. 8 of S6 When that resolution by board has been approved by the SH. magre-retroact yung approval. and as a consequence of that expiration. the corporation is authorized and empowered to convey all of its property to trustees for the benefit of via application with the SEC Shortening of the term affecting the creditors deny application. The dissolution of corporation will not necessarily affect the rights of creditors to recover on their credit. say 5 years. th . 3 year lang winding up. we can amend articles by shortening the term to coincide with Dec. 31.g. . It will be prejudiced. Mabuti nang mabuti if the new expiration of the term is beyond 6 months. If so. what is the effect of such approval by the SEC. In order to prevent unscrupulous individuals from availing difference in treatment. the new end of term hasn͛t arrived yet. Idi-dissolve nila. gone out of existence. they will deny the application and ask them to convert to a petition. y If the mode is No. What happens to contracts the corporation may have entered into and those contracts are not yet fully performed either in one or both sides? E. 2 or 3 methods. But all contracts needed for winding up its affairs are all allowed. Corporation is allowed 3 years to wind up its affairs.108 up capital of the new business. Victorias Milling. bumagsak pa yung 80% to 20% at nakuha na ng liquidator yung 60%. Liquidator holds the legal title. Magandang specialization yan. Wala tayo ganong body of laws. bagsak ang recovery value mo niyan. This is called ͞liquidation. Nasan na tayo? Nagyabang na naman kasi ako. it͛s allowed. NB that this is done by the liquidator in accordance with the liquidation plan. creditors and others in interest. Everything of value has to be recovered by the liquidator so that those assets may be disposed of and proceeds apply to discharge the liabilities of the corporation. settlement of world obligation of countries was based on the gold standards. Pwede rin as a method of paying creditors. When the corporation is under liquidation. to whom will that go? To the SH as their liquidating dividend. IFC (lending arm ng WB). That͛s the work of liquidator. WB. Including Prof. benefits and wages of labors. Babalansehin ng liquidator yan. asset na lang ibabayad. and it͛s claiming for unpaid taxes. Sino pwede iappoint? Entirely within the powers of the board UNLESS it is a petition for dissolution where creditors are affected. You͛ll hardly find any country which is not friendly. Sino yung pwede iappoint as liquidator? Anybody. Nung nagde-default na sha. he cannot. Nasa Fort Knox yung gold equivalent for the money. Where is the value of currencies worldwide now pegged under Bretonwood Agreement? US Dollar. gusto . parity of money is tied up with the value of gold. Created shortly before the close of WW2. aarestuhin. Alam niyo na sa transpo yan. Pag yung appointed by the corporation. That trustee is called the liquidator. creditors. New imperialist is US controlling the economy of the world. There͛s no gold there. Pwede bang para di muuglo. lahat ng utang you file with the liquidator. Available only to corporations and partnerships. It was called and held at Bretonwoods. then the corporation has the right to nominate and in fact. here are the values. y Ano ngayon ang recovery ng mga creditors? 20% na lang. Bahala na sha magbayad dun. wala yan under Insolvency Law. tumama yung Asian financial crisis some time in 1997. file with SEC for petition for corporate rehab. That͛s a course in post gradu programs of London School of Economics. Kapag nabayaran na lahat ng liabilities or provisions are made especially for contingent liabilities (liabilities to mature in the future). niyo dacion en pago. wala sa dictionary yan. US government has a commitment that if you present the dollar in Fort Knox. When that is done. E. The liquidator in such case has to observed and apply provisions of CC on preference of credits. and PNB. Estelito Mendoza. the corporation will appoint the liquidator because no creditor is affected. Maglupasay na lang sila kung gusto nila. we expect those proceeds to cover all the liabilities. I was the Benjamin so ako inutusan. y Do they have preference? Yes. The creditors who are the beneficiaries may request that the liquidator be nominated by them. When corporation is insolvent. the legal interest vests in the trustees. after all those assets are disposed of. International economic law. But the entitlement of the SH will depend on their preferences. the dollar. PAL made utang to buy new fleet of aircrafts. Kung naubos nila. FRIA ʹ Financial Recovery and Insolvency Act. When the liability is 10M. EXIM bank filed a proceeding in California to allow them to arrest airplanes when they land in the US or any country which is friendly to EXIM Bank. Here are the assets. Do we do outright fire sale of all assets then apply all the proceeds? Pag finire sale mo yan. we have a closing out sale. Kung amin yung liquidator.g. Mas magaling sakin. you are actually making the 3 year winding up period irrelevant. the government is one of the claimants. It means the assets are corporation are not sufficient to pay all the liabilities of the corporation in full. Not sure if that͛s the law na kasali ako sa gumagawa. Sa Bretonwoods. Dacion en pago. All the liabilities as well are transferred. PAL͛s lawyer. In the hands of liquidator. But may the liquidator enter into a contract continuing the business of the corporation. Concepcion.e. Babatukan ko kayo hindi lending institution ang IMF. Baka may preferred SH who are given preferences to liquidating dividend. Biglang nag-default si PAL from amortization on EXIM bank loan. Same resolution providing for the dissolution contains appointment of the trustee. benta ba lahat to maximize recovery. Pwede namna hindi mag-fire sale but program the dispotiion of assets. all claims against the corporation have to filed with the liquidator. SEC issued stay order prohibiting all enforcement and actions anywhere. Bank in whose favor mortgage is constituted on property where the plant is standing. Charles De Gaulle (The Who? The Gold?) was president of France. All interests which the corporation has over properties will be conveyed to this trustee. wala na yung winding up period. Ang kanyang power is simply to effect an orderly liquidation of the corporation.͟ Dati kasi ang corporate rehab. That͛s the expertise. Bawal na yun. If the dissolution does not affect creditors. It͛s done by appointment of trustee. Ayaw magpautang ng mga international lenders.109 stockholders. It͛s just a passage in the PD 902-A. Exchange those dollar bills into gold. That might help improve the recovery from the disposition of those assets. Upon the call of apparent victor in that war i. There͛s a law filed in Congress. When to sell. members. The liquidator is now free to deal with those assets and there is no limit of 3 years. that͛s our own lookout. High level Icoconvey nila yun. all interest which the corporation had in the property terminates. mas mahirap yun. Some of our government lenders e. That͛s what you put in the liquidation plan. What will liquidator do? Obligation to gather all assets of the corporation. KAYA LANG. Balance the assets. Dumami ngayon yung ifinile na petition sa SEC for corporate rehab. Consequence of corporate rehab proceeding. and the beneficial interest in the stockholders. dapat papalitan yan ng gold equivalent. Pag nagsasara ang isang company. Approve na yung provisions. we convey at the start of dissolution? Yes. Kennedy suspended the ___ of dollars to gold. He filed a motion with the CA high court to stay the proceedings using the stay order issued by the SEC as the basis. Lawyers͛ lawyer. It͛s the CB of the world. wala na mapupunta sa common. what to sell. members. guess who the lawyer was. ADB. Nawindang CA lawyers over there. and other persons in interest. dispose everything at an auction or plan the disposition. When DLC was in the SEC. Pag nag-land yan. name of the bill was ͞corporate recovery and insolvency law. USA.g. From and after any such conveyance by the corporation of its property in trust for the benefit of its stockholders. Separation pay. Before that time. creditors or other persons in interest. in English: dation in payment.͟ The liquidation of a dissolved corporation. if the corporation is not insolvent. So dapat the countries. Unless this corporate rehab becomes a settled matter. Napakagaling na tao. Rehabilitation is provided for in PD 902-A. Parang fire sale. Instead of me disposing the assets. that fell under exclusive jurisdiction o fth eSEC. New Hampshire. Isa jan ang ADB na ayaw talaga mag-release. Para sa amin naman those assets so we nominate our liquidator instead. Sila yung mauunang bayaran ng return on capital. nasa PD 902-A. called ͞provisioning. may bagong batas. Convey all assets to the liquidator.͟ After provisioning may natira pa. Some creditors prefer to be paid in property. so the lending institutions withheld releasing funds for the PH in accordance with loan agreements. that͛s the start of removing the gold standard. members. the assets are only worth 2M. One of them was by PAL. The chairman was an idiot. But the court imposed dissolution as a penalty in this case. All bills not acted upon by congress are deemed vacated unless refilled. e. This corporation cannot continue doing business without violating the law (not organized as bank. We didn͛t know the examiner was there. Kung walang settlement proceeding. we should have rules and regulations implementing the corporate rehab provision of PD 902-A. congress lapses every three years. Third method is conducted by receiver appointed by SEC upon its dissolution. File a petition with the SEC for the appointment of liquidator. the necessary consequence is liquidation. I will not check if no question will be asked coming from a list. sa chairman galing yan eh. Injunction was not an appropriate relief in this case. yung ginawang rules ni DLC. Nilolobby yun AJI. CJ Davide. because he might fail his own exam. The law says it͛s the SEC. Three instances or how is corporation liquidation accomplished? Nasa suggested answers yan. who do we put as substitute parties. US AID. a complaint was filed against a corporation. If it͛s not done. nagkagulo na sila. In one poli law meeting. Ayaw na niya mag-business. namatay yung natural person plaintiff. Yung AJA which is linked with the CIA. WB threatened to file a case against me. pero hindi ko pa nababasa. what happens? Problem yun. The remedy not with us but the Congress who has power to change the legal framework. received a call from committee. corporation is the plaintiff. when no other remedy to be resorted to in order to enjoin violation of law for the commission of the wrongful act.110 meeting. Why? Creditors may object to outright dissolution of the corporation because such may be more prejudicial to them. Creditors should called to a meeting and vote. Why does the SC require the law center to do that? We are required to give the suggested answers before the examiner checks. We followed closely your draft. Can they convey the assets to trustee after the three period (law says before the 3 year expires)? Nalimutan kasi nila i-convey sa trustee. but it has to be done by the SEC. normally a corporation should not be dissolved for violating provisions of law. Ayaw nila ng trabaho. to dissolve that corporation for engaging in a business outside its powers. I wrote an article on corporate rehab in the Philippines which I presented to ADB meeting in Australia. the heirs of the deceased plaintiff. Filed when the corporation was still doing business. Inviting you personally. It͛s tasked by the SC to come up with answers to the bar exam question. Cayetano who was my boss before. Standing is gone. Baka sumama na naman loob ko. Doon lang i-impose ang dissolution as a penalty. corporation is dissolved. If I do what is provided. Pero kailangan pa rin ang liquidation plan kasi liquidation plan has nothing to do with application of proceeds. Hindi naman ako gumawa ng tanong na yan. In the middle of proceedings. What is the effect when three year winding up period has expired and corporation has not conveyed its properties and liabilities to a trustee. Pakitain niyo naman kami. I don͛t know who the examiner is but definitely he is the idiot. They removed the control. Once in a while. dumating si Perfecto Fernandez. Kaya lang tinaransfer sa RTC from SEC. Dissolutions of the corporation is an extreme penalty that can be likened to death penalty in case of individuals. SEC gumawa kayo ng rules. Wala naman magrereklamo diba? Pero kung wala. Rules on corporate recovery I made that. Substitution by the trustee who may be the liquidator or whatever name he͛s called by the board. wala rin silang rules. analogy. Without obtaining vote. transfer of jurisdiction from SEC to courts by mere rider in the SRC. NB that preference of credits is irrelevant when the corporation is solvent. Hindi pwedeng i-enjoin lang kasi pag inenjoin lang. 2-3 question pa lang tinatanong ko. In the case of Republic v Security Credit. We were colleagues at the IBP. FRIA limitation does not apply͙͟ Footnote: Corporation Code S119. magiging irrelevant ang preference of credits. What happens to the case pending in court? Now since the plaintiff has gone out of existence. The half is plan on disposition of assets. Hindi pa rin ako invited sa hearings at TWG until one day. courts naman. Notify the court of the dissolution and then the change of parties. the estate represented by the administrator or executor will substitute. Court pa rin. Ako pa tinanong nila kung pano gagawin through Sen. Kailangan siguro. What do I use there? The power SEC has over corporations. Therefore. Court may appoint receiver. Experts in the fields of law that were given the previous Sunday would gather in the Law Center. calling it Corporate Recovery and Insolvency Law. Kung solvent yung corporation. unlicensed by CB but its actual business is banking). Can they appoint the trustee/liquidator after the 3 year period? Yes.g. sabi niya. The same thing if the decedent is the respondent. What if the corporation is plaintiff. hence resorted to dissolution as penalty of that erring corporation. Insofar as pending cases. wala na shang ibang gagawin. Then suddenly lumabas na ang FRIA. the case has been dragging on. Umaattend for the first time. Published by Sota University in Japan. SC formed a committee to come up with drafts of rules on corporate rehab but I was not invited. DLC opinion: pwede naman. DLC: S119 only happens when creditors are affected. When the corporation undergoes rehab and rehab fails. The security credit was performing the functions of bank without the necessarily license given by the CB. we͛d be joined by professors who teach in other law schools for the first time. so sakin ipinasa. Finally they filed a bill in congress. That͛s the law you will apply in case of corporate rehab. It͛s in the website under my name. Wala kasi sa batas natin. knowingly promulgating a rule contrary to the enabling law. Pagdating sa regular courts. what happens to the pending case? The pending case has to abate because the plaintiff is no longer a party with standing in court. When the new rules were being discussed. Bilihin niyo sa law center. Liquidator may be a single person or committee or even juridical entity like a bank performing a trust function. Required number of votes reached. This time. feeling ko dapat dumaan muna sa SEC. corporation should not undergo rehab but dissolved. This was asked in the bar when the examiner was former SEC Rosario Lopez. but the creditors do not agree but the creditors. final say on WON the corporation will undergo rehab or not. SC decision. bat pipilitin pa? Creditors may realize that it͛s better for the corporation to continue doing business because still . Or kung may magrereklamo. baka sha yung examiner. Magkasama kaming gumawa nitong BP 68. but it still has supervision over all corporations registered with the SEC. who substitutes? If there͛s a settlement proceeding. only time allowed to go on rehab. the penalty of dissolution should be meted out only when injunction is not available as a remedy to correct the wrong being committed by the corporation. Nagalit jan si Joker Arroyo. Inilagay nila as a rider in the Securities Regulation Code. instead na SEC. Camposes͛ comments: ͞Three methods of liquidation. Notify the court and file motion for substitution of party. Ok lang naman. Patay kasi hindi rin creditors magdedecide. Kaso nung matapos na yung rules. In the eyes of Congressmen. Oscar Moreno now governor of Misamis. and the corporation is dissolved? Apply the same rule. Distribute to SH as liquidating dividends. Ginamit yan sakin sa Legacy ni Delos Angeles. all he hast to do is convince the court that surrendering all the assets. apply profits from operation to discharge and then after paid. Wala daw jurisdiction ang SEC for liquidation of the corporation. pwedeng ibenta business as a going concern. SEC dismissed on ground of lack of jurisdiction citing case of Planters Bank v Consol Metal. Hoy magbayad ka ng utang mo. Freed from liabilities.111 profitable. Wala nang pera except from tools of the trades. Corporate creditors cannot make singil until distressed pa ang financial condition niya. Ito assets ko. Wala sila ituturn over sa bank. it͛s only given a sustained moratorium. Liquidation is just an effect of dissolution. After given discharge. NB that dissolution of the corporation where creditors are affected is an insolvency proceeding. Hindi kasama sa naisama sa regular courts. file petition for insolvency in court. 150M. the corporation is not dissolved. same person will be allowed to start over. It͛s not in PD 1956 or PD 902-A. Service fee for keeping that amount in your account which has become dormant. wala na akong utang. hindi gawa-gawa lang. Presumption is adequately discussed in Credit Transactions. it can be dead account. hindi nangyayari ang escheats. Tatapat sa bahay with microphone. it has to be in the bank. Hindi na nangyayari yun. No discharge is given. Pero araw-araw akong sinusulatan ng collection lawyers. That͛s called receivership. I just don͛t know if that wrong decision has been corrected in the FRIA. That͛s an escheat mechanism when it comes to bank deposits. To allow him to start all over. in the exercise of power. Assets < utang. the SEC may appoint even beyond the 3 year winding up period. Preference of credits no longer to be discussed. when he becomes bankrupt. ito utang. Mauubos lang sa expenses yan. file petition for insolvency under Act 1956. This is a wrong decision. kaya niya gusto magfile under insolvency law is for the corporation to be freed from liabilities while allowing to do business under the same corporate personality. Individual muna. Companies filed petition with SEC. In insolvency therefore. surrender the corporation to SH. Case of Planters͛ Bank v Consolidated Metal. everything is my liabilities. Di pwedeng buhayin natin sila at the expense of other creditors. can the unpaid creditors in full recover? No more. The insolvency law (Act 1956) does not provide for dissolution of a corporation. When this individual convinces the court that the list of assets is real without hiding anything. Kung hindi tumama sa lotto. but in S119 of the Corporation Code. If your accounts don͛t move for at least 1 year. Impossible na idi-dissolve under A1956. Act 1956: no discharge given to corporation. Yung namili ng mga Rural Banks. the balance of the account has to be turned over to a bank dead turnover instead of the bank. I just don͛t know if my position has been modified by the FRIA. I still have to look. DLC opinion: Powers of SEC is sourced not only in S119 but also in PD 902-A. Hindi match. Sa totoong buhay. Remedy of dissolution is unique to the corporation code. Sobrang swerte dumapo sa akin. tumama sa lotto. Congressional inquiry on this and I was one of the resource persons invited by Congress. Public shaming. Kaya nga sha humihingi ng declaration is to allow to do and continue business under the same corporation. To save the individual for embarrassment. balasubas ka!!! No imprisonment for non-payment of debt kasi. because the corporation. They will have to convince the SEC that that is not only advantagoues to them but also prejudicial to other creditors. Homework niyo kung binago nila ang batas under the FRIA. Unless bilyon yun. . Instead of running the business. Sorry na lang. Declare insolvent and give discharge. Comment of Camposes is limited to receivers appointed under S119. kasi may charge na. After certain number of years. logically it won͛t. Dissolution where creditors are affected falls within exclusive jurisdiction of SEC under S119. In mergers. pwede sila gumawa ng series of transactions in order to achieve combination pero ayaw ng liability. Nag-merge ang Equitable Bank with PCI. To make what appears illegal appear legal. When you are lawyer for the creditor. independent entities. Gagawa ng legal engineering. I-cash na natin lahat ng investments natin. Surviving corporation will remain intact and all other constituent corporation will be absorbed in the corporate structure of surviving corporation. See notebook. And then napunta sa Equitable. let the independent directors and SEC do their job of ensuring that the merger was not to the prejudice of the SH of the constituent corporation. wala nang hard assets but they are now cash. X became a SH of Y but not unified corporate structure. It͛s still a corporation with SH. Sino ang nag-survive? BPI absorbed Far East Bank. Para mahabol yung business. SH decided to sell all their assets to Corporation Y. one of them is through sale/disposition of all/substantially all the assets. Show that what was intended was a combination. Old Corporation Law did not have these provisions on corporation combinations. Kasi if it͛s a merger or consolidation. X decided to dissolve. may mga recent mergers na nag-merge for instance ang Far East Bank with BPI. Expense and cost-efficient. because corporate structure did not unite. Suppose ang ibinayad ay hindi cash but shares of stocks. SMC bought Balintawak Beer Brewery in Valenzuela. Called the ͞consolidated corporation͟ new one formed to absorb all the constituent corporation. what should you pay now to the shares of stocks of the surviving corporation? Ipambayad the shares of stocks hawak nila in the constituent corporation. Parang phoenix rising from the ashes. The moment it appears that what the parties intend to achieve is a combination. The rest will just be modifications of either a merger or consolidation. Maski mawala ako dun to oppose. X SH Assets Y SH Assets WON a combination follows the procedure outlined/prescribed in the corporation code may be material in determining liability retention. That͛s 60% of problem in the combination. may prohibition for foreigners to own land. Still not unified corporate structure. A lawyer creates legal structures to accommodate. but no matter what they erect in order to camouflage the real intention of the parties. So cash was used for distribution as liquidating dividends to SH. Mas tax efficient ang merger kaysa sa consolidation. Special practice in corporation law. put in the AO merger or AO consolidation. Code regulates two types of combinations a. Ano ang palitan nila? Nandun ang issue ng valuation. Diyan nakikita kung magaling ang lawyer. If you do post-grad to specialize here. BDO ang natira. Nagbenta. E. Show that the transaction was really to combine but simply avoided the inheritance of liability by erecting those structures. lahat naman ng combinations may be narrowed down to these two. the SH of the absorbed corporation will be SH of the surviving corporation. bayad ka na lang. CONSOLIDATION Constituent corporation will all go out of existence. Pwedeng 4 shares of stock of absorbed corporation are equivalent to one share of stocks of the surviving corporation. Mergers and acquisitions. circumvent the law. Consolidation MERGER Two or more constituent corporation combine to form one single corporation in the entity of one of the constituent corporation as the surviving corporation. To make the surviving/consolidated corporation liable. After dissolution. Madugo yan.112 CHAPTER XVII: Corporate Combinations When you say combinations: 2 or more corporations unite or combine. Lalo na kung abogado ka ng creditor. Merger b. the two remained distinct. The merged/absorbed corporations . all the liabilities of the constituent corporation survive and are inherited in full by the surviving or the consolidated corporation. Yan ang kanyang course title. But they were able to do it through other provisions in Corporation Law. Come to think of it. Pwede kasi gawin ng mga parties in order to acquire only the assets but not the liablities. shares of the surviving corporation so I now become SH of the surviving corporation. To be absorbed by just one corporation. gano karaming shares ang palitan. Important yan. Later on X decided to dissolve. After determining the valuation. Wag na tayo mag-business. land held by this corporation and the equipment and business owned by another corporation. kambyo ulit. Kambyo ng shares. we͛ll have to apply all the consequences of the corporation under the code. How many shares of the absorbed will match the shares of stocks fo the surviving corporation. X remained a corporation. May list tayo niyan in deciding what mode of combination to take. After the sale. When do they combine? If they will unify their corporate structure.g. Madugo yang issue na yang ng valuation. Was there combination here? No. That͛s all you have to know about corporate corporation. . Or liability transfer. Isa na lang. ang problem jan ay valuation. Gagawa ng dalawang corporation. The corporation code regulates those two types of combinations. Napunta ulit sa BDO. Kasi I was a SH of PCI. Is there corporate combination? Wala pa rin. was there combination? Wala parin. nadissolve. In combinations. It speaks of a representative office and a branch office. (n) fabric. Nagsara na lahat ng textile mills natin. b. DLC not abreast with latest developments on this. Under foreign law. Do partnerships need to get license? SEC ruling. Not in Paris. doing business but had no license. Nag-settle pero nawalan ako ng kaso sa France. It must be covered by CivPro. See how inefficient our government is? Matataxan sana sha diba? DLC advice: Mukhang doing business kayo ngayon. Itong basong to. Ang nasa continent na Europe ay lahat Civil Law. Prohibited from suing if no license to do business.For the purposes of this Code. Are conceived in Milan. There are no corporations in France. Garment subcontractor the designs and fabric. Pwede ba yun? We will try. madidismiss tayo. idedemanda ang Filipino contractor. Almost all. If without license to do business. Unfortunately. Bonded warehouse. it must have a license to do business. Suppose in France. lahat sila ay civil law countries. run after French bank. will Philippines recognize it? It depends. What constitutes doing business? Marami yan. How to acquire jurisdiction over foreign corporations? If with license. Don͛t forget the NIRC. Just bear in mind that there͛s such a thing. no need for license to do business. Most likely ganon. can I tell Parisians. Foreign corporations have choices/options: y Domestic subsidiary ʹ makes irrelevant the need for license. may lag between presentation for clearing and something else. this glass is personified in France through legislation. United Kingdom and Ireland. Pero kung itong basong ito. What are you in France. Companie limite. 15 years na niya ginagawa yun. Bring this up to authorities in France. a foreign corporation is one formed. DLC had a French Jew woman client. Derogatory information. According to my Paris lawyer. Nung na-reject. Yung isa sa mga kaso jan. pwede ba sila enter into contract? Of course. Dadalhin niya then to Bangkok. Dito tatahiin lahat ng fabrics. Season in and season out. If this paper cup is organized as a corporation. it cannot sue. She͛ll get the design and some prototype. one of the requirements is specification of agents. Pag pumunta sila rito. Separate tax treatment. Lahat ng European continents. Even if irrevocable. ͞May͟ dahil may isa pang requirement. 40% were rejected. Pero nakasingil ako. Competitor ang Sri Lanka. If the contract is breached by Filipino party. Philippine corporations are recognized AND allowed to do business there. Sec. PrIL nightmare. Ask your tax profs the difference. kinucut na yung tela otherwise mapupunta sa Divisoria. Assuming that this foreign corporation is recognized as a juridical entity in the Philippines because the two conditions are obtaining. irrevocable. China. We call this principle reciprocity. If the foreign corporation is doing business in the Philippines. Definition and rights of foreign corporations. It shall have the right to transact business in the Philippines after it shall have obtained a license to transact business in this country in accordance with this Code and a certificate of authority from the appropriate government agency. May that corporation answer the complaint filed against him? Yes. Exporting substantial portion of the foreign corporation. . Crux of the matter: When is a corporation considered as doing business in the Philippines? y GR: Isolated transaction is not to be considered as doing business in the Philippines. But can it be sued? Of course. Kasi nandoon imamanufacture yung fabric. if not doing business in the Phil.113 CHAPTER XVIII: Foreign Corporation The only issue: Do we recognize as a judicial person a corporation that was organized abroad? Oh my. 20% is not even break-even. then it ͞MAY͟ be recognized in the Philippines as a juridical person. Atelier in French. India. I am a limited partnership. Hindi na tayo nagmamanufacture ng ganon . Mamaya ko na sasabihin yung problem ko sa kanila. Instead of running after Filipino compatriot. No license to do business. sinabi kong tao ka. Luge sha. Hahanap sha ng textile manufacturer. Pwedeng magdemanda because recognized as a juridical entity under S123. Pare-pareho ang idedesign nila. Her business is in the fashion industry. the foreign corporation was sued. dinala sa paris. and Vietnam kasi mura mga labor dun. corporation or societe or partnership or single proprietor? Why? If single proprietor. It cannot raise a counterclaim which is a suit. Design establishments eh talyer. 1 2 3 . prohibited to sue but can defend itself. Under French law. There are two requirements: a. no requirement to do business. They were under Roman rule for a long time. y Branch office y Representative office y Not set up any of the two at all Di ko na ituturo sa inyo yan. Lahat ng mga fashion houses ay nasa Milan. All the designs of garments in the world. Nag-aamuyan talaga sila. Was my client doing business in the Philippines? Mukhang oo. y EXCEPTION: When isolated transaction is intended to be start of doing business. Letter of credit was irrevocable but DLC saw that before bank cleared the LC. Hindi papatol yung Filipiino subcontractor without letter of credit. Before problem cropped up. We sue. Lahat sila continent. tao itong basong ito. My client went to Milan with a house of fashion designer. organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. foreign partnership are required to have license to do business. Wala na tayo competitive advantage when it comes to textile industries. Ewan ko lang kung binago no. May letter pala addressed to bank to stop payment of credit. pwede bang magdemanda ang foreign corporation to ask relief? It depends. If no license or not doing business. However. since we don͛t have license. how to acquire jurisdiction over person of foreign corporation? San serve summons? OSG under the ROC. 114 Special Corporations 1. 2. 3. Educational corporations Religious corporations Close corporations Berlin v Ramirez: happen in the archdiocese of Nueva Caseres in Bicol. Nueva Segovia is Ilocos. Group of Bishop Aglipay, Ilocano prelate, revolted from the Catholic Church. Father Jose Burgos from Vigan talaga nagsulsol jan. Supposed to be a brilliant theology student in UST. Kabirthday ko yan kaya magaling yan. Father Jose Burgos came from a wealthy family. Hindi pwede magpari ang anak ng mahirap. Bahay niya ay yung malaking bahay sa harap ng Vigan Cathedral. Sha yung secular. Two kinds kasi yung mga pari at madre: REGULAR belongs to an order/society. SECULAR doesn͛t belong to order. All the parishes in the country during Spanish time were headed by parish priests who were regular priests. Kanya kanyang dominion yan. Burgos champions the cause that parishes should be secularized. Nag-umpisa muna sha sa secularization. Nako filibuster ang paring itey. Erehe. Heretic! Yung dalawa niyang alalay na hindi alam ang ginagawa niya, nadamay sa pagkagarote sa kanya. During Bishop Aglipay͛s time, he seceded from the Roman Catholic church, ala Martin Luther to found his own church. Iglesia Independiente Filipina. Pero kung titingnan mo ang kanilang dogmas, the same with Catholic church except for two distinctions. No vows sa pari. Pwede magasawa. Wala ring vow of poverty. Hinidi lahat ng pari may vow of poverty, yung mga regulars lang. came to be known as Aglipayan Church under Obispo Maximo Gregorio Aglipay. Godfather of Ferdinand Marcos. Aglipayan sila. Kasama ni Bishop Aglipay. Isabelo delos Reyes. Mga ilokano sumama jan. parish priest in Nueva Caceres ang sumama jan. declared that this church is Aglipyaan. Arsobispo ng Nueva Caceres, sayo ba yang simbahan na yan? Karamihan kasi ng members dito Aglipayan na. What did archbishop of Nueva C do? file action in court to recover the church. MTD: What is the personality of the bishop? Of the catholic church? Case was brought in the name of Catholic Church represented by the bishop. SC: How dare you. Wala pang Pinas, may Catholic Church na. But there is an anomaly there. Catholic church is an organization. So church has to have a representative. So they recognized the archbishop. You cannot tell catholic church to register to SEC, blasphemous yan. Mortal sin yan to ask them to register. Kung yung representatives sila, ano na liability ng archbishop? Personally liable for contracts entered into in the name of the church? Mahirap yun. What form will the archbishop take? Compromise: Archbishop shall be considered as a corporation by himself. A corporacion sola in Spanish. He represents the organization but incurs no personal liability. If you will look at the SEC, there͛s no protestant sect organized as corporation sole. Most of them are organized as non-stock religious corporation. Merong board of trustees. Merong council of elders. Ang corporation sole na nakita ko ay archbishops at saka si Executive Minister of INC. Kung mababasa niyo yung Da Vinci Code, siguro mga 30% of what͛s written there is historical. Like what happened in the council of N. divinity of Christ was voted upon. It was called by Constantine the Great. Who was the pope at the time? No pope then yet. If you will read historical accounts, if you look at what Constantine the Great did, first pope of Catholic Church. Bishop Silvester but not the Pope. Constantine the Pope rallied all of them. Decide on impt matters. First organic pope. But the first is really Peter. Heresy headed by Bishop Bartolome Arius of Barcelona. Aryan heresy. He will say that JC is not a god. Went against another bishop of Alexandria in Egypt. God and man. Dumadami ang Catholics, they must be controlled. Hindi naman umattend lahat. Of the 800 bishops, mga 400 lang dumating. In the same council, they decided to reformulate the Apostle͛s Creed. Summary of faith of all Catholics. Description of JC. Kaya ang tawag sa apostle͛s creed ay Nicene Creed. Arian heresy is alive in the US. It͛s a church. United Church. If you will look at the dogma of INC, parang ganon eh. EDUCATIONAL CORPORATIONS The corporation code in providing for educational corporations simply settled the controversy of WON educational corporation should be allowed to incorporate as stock corporations. There was a strong lobby from organized sectors of our society to limit educational corporations to non-stock corporations. Now the corporation code settled the matter by allowing educational institutions to be organized as stock corporations. Then made provisions in case an educational institution is organized as a non-stock corporation. that͛s why if you will look at S108, that is a provision applicable to an educational institution organized as a nonstock corporation. BUT DLC doesn͛t know if that is still the case under the Education Act. Meron kasing ipinasa na education act sometime in 1992. You look at that law. May nakapagsabi sakin na the Education Act already prohibits organization of educational institutions as stock corporation. Of course, that prohibition can only be prohibitive in application. Cannot be applied to already organized as stock corporation. Check on that. CLOSE CORPORATIONS Classify as special corporation because it can do many things that an ordinary corporation cannot do RELIGIOUS CORPORATIONS There are two types 1. Corporation sole 2. Religious societies Corporation sole Not a new provision of the code. Meron na shang counterpart before in the old corporation law. That͛s why if you look at S110, corporation sole was carried over from S154 of old corporation law. This is to accommodate primarily the Catholic Church wherein the form of organization of Catholic church is one of dictatorship. Lahat ng pari, may vow of obedience to the superior. So kung hindi pwede mabuhay na may nagdidikta sa buhay mo, di ka pwede maging religious. Ke nasa pari or madre ka. May vow of obedience sila. Nga lang, if you can͛t follow, you can always get out. Unlike in a communist state. That͛s the reason why Catholic church is well organized and efficient. To enforce dictatorial style of church management, they created in the 10th/6th century the dogma of the infallibility of the Pope. May hierarchy yan, it starts with the parish priest. Then bishops. Then archbishop. Then pope. Walang jurisdiction ang cardinal. Cardinal is just a title, giving him privilege to participate in the selection of the pope. That process is called conclave sa Angels and Demons. They do it in the Sistine Chapel at the Vatican. Frescoes there painted by Michelangelo. When it comes to the diocese, it͛s the bishop who calls the shots. Archdiocese is the Archbishop. Archbishop controls the patrimonial affairs of the archdiocese. He decides on all patrimonial matters. Parish has to go to archdiocese for decisions. The archdiocese is headed by the archbishop. Who decides for the archdiocese? The archbishop. Halimbawa lumindol at nasira ang Manila Cathedral, somebody has to enter into a contract with contractor for the repair of Manila Cathedral. Who will represent the church in that contract? Kaya nga may kaso: 115 Corporation code provides for the mechanism on succession, registration of person as corporation sole and assumption of successor as corporation sole. Basahin niyo na lang. Non-Stock Corporations As I have asked you to do, go section by section and asked yourselves if the section is applicable to a NSC. S1-S5 - Of course S6 - Non-voting members in a NSC. Look at S89. Walang broadened sa stock corporation. How do you do it? The preference given to shares is vote twice. Common shares just one. Wala na ako sasagutin. Exam na lang lalabas yan. Sa NSC, right to of member may be limited, broadened and denied. NVS in SC are allowed to vote in S6, is there a similar provision in case of NSC? Boboto rin ba yung mga non-voting members? Hindi niyo natanong sa sarili niyo yan no? Boboto ba yung mga non-voting members? Look at S87 last par. Yung pagboto ng mga non-voting members for S6 matters. Pertinent ba yun? Should there be ͞preferred membership͟ dahil may ͞preferred shares͟? There may be no mention, but there is no prohibition. Therefore, we might apply this provision of S6 being pertinent. How does one become a member? In case of SC, one may subscribe to the shares of stock of corporation which may have par value and paying the par value or the issued price as consideration. Sa kaso ng NSC, how does one become a member? Is there a subscription contract for membership. If there is, how much is the consideration? Pwede bang membership with par value? Pwede ba membership with no par value? Redeemable. Pwede ba may redeemable membership? Pwede ba merong founder membership? Bakit natin tinatanong? Kasi may provision in S87 2nd par. Meron bang treasury membership? Corporation Code͛s framework, ayaw nila makialam sa NSC. Kaya mashadong minimal ang provisions. What is the practice? Membership is left to the corporation to determine. The corporation will set the rules, terms and conditions for one to become a member. Pwede magdonate ng certain amount, you͛ll become a member of the NSC. In case of golf and country clubs, they do two things. Two structures. E.g. BCC, MGC, WWGC. Bakit ba Wack-wack yun? Golf Club Membership only: cannot utilize the facilities unless member or authorized by a member. All the facilities pag-aari ng golf club. But there͛s a NSC where you shall buy membership. But your membership pin the NSC does not give you the automatic membership in the golf club. Kailangan mo pa mag-apply. Pag rejected ka, ibenta mo na lang membership mo. With this structure, new structure developed to a stock corporation. buy a share here, qualified na sa membership. Para pwede na i-list sa stock market. May mga intricate relationship between stock corporation and non-stock golf and country club. Manila bay and yatch club. Pwede ba in the case of stock corporation, can you buy as many shares you want to buy for what is available for sale, if you want to buy all the 100,000 shares in the market, that will give you control in the election of the members of the board. But in NSC, can you buy 3 membership in your name? If you look at NSC as one purely for promotion or development of arts/sports, parang walang saysay. No rhyme nor reason why somebody will have to memberships. In those organizations, no matter how much contribution, entitle you only to be a member, period. Religious societies These are the orders. Jesuit, Franciscan, Dominicans. Dominicans, the order of preachers, own the Pontifical and Royal University of the Sto. Tomas. Hindi lahat ng catholic universities in the world are under the protection of the Pope. If you will look at their seal, there͛s the triple crown. Pope wears three crowns. Para masuot lahat yun. Sha na ang Miss Universe!!!! Sino ba nagrurule sa Europe dati? He ruled the world through Papal Bulls(hit). So nung nag-aaway ang Portugal and Espana sa colonization of new world, sabi ni Papa, ito ang demarcation niyo! Popes were forced to become warriors. Lumalaban sila sag era. May suot na armor, may espada at may kabayo to defend his possessions. In Italy, many cities there were under the possession of the Pope called papal possessions. Hindi lang sha pontifical, royal pa. binigya ng sovereign Spain when Philippines was still under the Spanish crown. Alam niyo story ni St. Dominic. Nagpipreach sha sa mga non-believers. Sinunog al the books except the one he͛s holding. Malaking story ang bible na yan. Achievement ni Constantine the great. Before the council of Nicaea, madaming evangelists. Kaya maraming gospels ang nawala. Nagtago sa dead sea, kaya nga may Dead Sea scrolls para yung apat lang ang matira. Si Constantine lahat may kagagawan niya. Dati kasi walang computer. No two bibles are alike because copied by hand. For a long time, wala silang makitang Aramaic, the original language it was written. King James translated from the Greek bible to English. Kung mag-study kayo ng theology and study the bible, you͛ll see there how it was edited. If you don͛t believe in those basic truths, you are not a Christian. Hindi ako atheist, I͛m a devout Catholic. They are also allowed to take the form of corporation, there are special provisions applicable to them if they incorporate. Sila yung mga orders. Jesuit order was organized by St. Ignatius Loyola who was once a soldier. But was injured in one battle so he had a handicap. Ordered organized by the pope in order to reconcile scientific developments with the Christian faith. Inquisition si Galileo Galilei. Scientific findings contradict the dogmas. Pag pinangalanan mong Darwin yung anak mo, may edict silang wag binyagan. Pano si Darwin Angeles? Eh pano naman yung Charles? Mangani-ngani sagutin ni si na nakalagay na po sa birth certificate yung Darwin. Sino sino yung mga unang pari na naging scientists, mga Jesuits. In addition to the three vows, only the Jesuits take a fourth vow to defend the pope. To defend the pope at that time, one has to be a warrior. Kaya may dala shang espada na i-ooffer sa pope. I am your defender. Nakaluhod. Ignatius is Latinized name. Inigo talaga pangalan niya. 116 While member, you have right to vote unless AOI give a member no. of votes equivalent to money given to corporation. For every 100 peso contribution, you are entitled to one vote. Popularity contest. Ang beauty queen ay yung may pinakamaraming boto. Bibili ka ng balota. One of my youth leaders in Bicol had this as a contest. National head of Kabataang Bgy. Give him an award. Problem is cleanliness. Solution is beauty contest. Balota ay bao ng niyog. Isang boto. Hinakot lahat ng bao ng niyog sa bakuran. Nilagay sa isang lugar at ginawang uling. 2 projects at the same time. Beauty contest and cleanliness project. Walang sweldo ang mga kabataang barangay dati. Bat tayo napunta dun? Votes. If you will look at the provisions of the code, pwede kasi nga pwede i-broaden but it should be in the articles. Those who contributed more have bigger say in running affairs of the corporation. kaya nga binigay na ang membership sa NS corporation. S12 None in the corporation but there is in some special laws. Eg. If the NSC will incorporate as a foundation, there͛s a minimum capital foundation must have for it to qualify as a foundation. What is the minimum capital? P1M. bakit hindi capital stock? Kasi nga walang shares of stocks, capital stock come from contributions from grant of grantors or from government. At dahil walang ACS, wala na rin yung ACS. S14 When pertinent? Affidavit of treasurer? Yes. Pero yung affidavit of treasurer is to simple declare under oath how much capital was received by treasurer from contributions of incorporation and original members, breakdown of who and how much respective contributions were Officers ʹ maliwanag na applicable yan Last par of S25 (cannot vote by proxy) applicable yan. But look at S89, it does not modify last par of S25 kasi applicable yung latter to board of trustees, S89 is for the members. Election of the board of directors. What is the term of the directors under S23? 1 year. CF S92. Ano ba talaga ang term? 3 years. Multiples of three tas may staggering of term. What is the reason behind staggering? Para laging may quorum, laging may members na may quorum. Ano ba talaga? 1 year or 3 years? It depends on the articles. It may provide for 1 or 3 years. Suppose the AOI is silent, what is the term? What is the default provision? If you look at S92, it would seem that the default is 3 years. The practice in SEC, the default provision is 1 year. That͛s not in accordance with literal wording of S92. May cumulative voting ba sa NSC? Look at sentence after 2nd proviso. No DQ stock may be voted. Unless therwise provided in the AOI or bylaws͙. May cast as many votes. y As a GR: wala. That͛s the default. y EXCEPTION: The opening qualification of the sentence. If provided by the AOI or bylaws. Consistent yan sa S89. Right. Compensation ʹ Sa S30 bawal diba? Is there similar provision for trustees, are they prohibited from receiving compensation as such trustees? Dapat diba trustees and directors? Ano implication niyan? We use common sense which is not very common. Kung yung business na kumikita ng pera, bawal bayaran yung director. Eh bat babayaran ang trustees when the organization. Explain the concept of non-stock non-profit corporation: Organize kayo ng non-stock corporation, your purpose is to help indigent but deserving children acquire education through scholarship grants. To raise funds, you made a foculare. Religious societies that make furniture at a mark up. Then use the mark up for maintaining the organization. Gawa tayo furniture. Pag gumawa sila nun, bili ng materyales. All the factors of production. After computing and allocating the cost, may margin profit sila ngayon. Olive said bawal dahil NSNP tayo so dapat wala tayo profit. Tama ba si Oliva? Of course not. Pag sinabing non-profit, not mean na magpapalugi the corporation. it means no profit realized by the corporation is distributable to b e shared among the members. Precisely, kaya nga kailgnan kumita para may ma-sustain sa kanilang cause or purpose. Is the profit taxable? Depends on tax exemption applicable. Safest answer there. S33 with interlocking trustees and directors. I͛ve discussed this with you before. Disloyalty of a trustee? Wala ba nun? S35 executive committee in a NSC? Yes, kay nga gamit jan ay members of the board. To make it applicable equally to stock or non-stock. How about the powers delegated approval also required? Hindi sinabi na members͛, sinabi lang sH? Distribution of dividends? We shall apply the provision when pertinent. Eh hindi naman pertinent sa distribution of dividends, wala namang dividend sa NSC. S38 not applicable yung increase/decrease. Only 2nd part applies as to nd bonded indebtedness. See 2 to the last par. S41 Acquire own membership? BCC not record transfer if less than benchmark consideration. They͛ll have right to buy membership at price stated at transaction. Appraisal right in NSC? Babalik tayo sa trust fund: investment shall stay with corporation til dissolution. Same with membership? In a membership, may return ba? Hindi naman investment? May ROI ba yan? Pre-emptive right, whenever membership is issued? Nangyari sa WWCH. Hindi ganyan itsura niyan dati. Maliit lang and sprawling. Galvanized iron sheets roofing lang pero homey. Nasunog yan. Increase membership has implication. Under its AOI there are two kinds of membership: proprietary and non-proprietary. The latter are the only ones entitled to share in remaining profits of corporation after dissolution. Wackwack Country Club ʹ create more non-proprietary membership. After a series of meetings and heated debates, increased proprietary shares. Bumagsak ang value dahil more will share. From 20M to 10M and then finally, 5M. Pancit de Vino and Ben͛s Burger. Additional proprietary membership is there preemptive right under S39? Is it pertinent? Present document transfer at P350,000, Baguio CC will buy at lower than benchmark value. Tubig there is gold, raisin bread, potato and banana bread. Officers Board of Regents, Council of Elders, Board of Advisors, The Senate. Governing board in his School in England. University of London. Princess Royale. Princess Ann. Medieval yung mga robe namin. They will kneel before the royal princess and she will bestow the degree on them and put the hood on the candidate. During the time of Queen Victoria, the eldest daughter was Princess Royale. NSC and then sell memberships. Voting trust in non-stock corporation In stock corporations. basahin niyo na lang. Books to be kept: records or trustees. Ticklish to sa SEC. paparte sa lupa. . not combination anymore. may DQ sale/DQ member? Lost destroyed certificate of membership Corporate books and records? Definitely no STA. Ayoko na pag-isipan yan. Donative intent. Trustee liable for water membership? Pwede bang installment? Pano kung di nakabayad. Is there pre-incorporation contract? Original members. can they deny right to vote? No. The same may also be said about voting trusts. there must be ͙ DLC doubts such intention in proprietary membership. but there͛s membership and transfer agent. Pwede ba iforeclose. hindi. May legal title rin sa membership because you have membership certificate. S94 and S95. BUT in case of proprietary membership. corporation cannot deny right to vote by proxy. But for advance the arts. Consideration: bahala na ang corporation S63 certificate of stock and certificate of membership Last part: May STB ba ang non-stock corporation? Gawin nating membership and transfer book. Of stock and non-stock corporation? SEC: No. one of the corporations must first be dissolve. Pertinent ba iyo? Proxies S89 In stock corporations. walang membership. Anything of value may be collateral. Pwedeng pang exam ito. consider first dissolved. Appraisal right . directors and trustees. S76 Merger and consolidation of 2 non-stock corporations? Yes allowed. In fact. My exam will separate boys and men. Provisions of code on subscription contract not applicable in full. May be denied in AOI in case of non-stock corporations. Non-irrevocability is also applicable. he͛s actually donating. May book value ba ang membership? Proprietary net worth ganyan. Can͛t transfer legal title to another. Subscription contract What contract? By definition. if you look at S76 it says. S90: all rights are personal. DISSOLUTION Specific rule section on distribution of assets.When members pay contribution. Only when pertinent. You have to study ha. Sell golf and cc. Look at S89 2nd par. they͛re not making investment. SH transfers legal title. Suppose sold for consideration less than book value. In the exam I asked. Can a membership be jointly owned? S56 says shares lang ito.117 S55 can you mortgage/sangla membership? If you look at code. Right to inspection: natural. Issuance of stock certificate. technically. Golf and country club membership is transferrable because allowed in AOI.