CommRev Prelim Review

Question 1

Explaiun the trust fund doctrine

Answer 1

The trust fund doctrine provides that subscriptions to the capital stock constitute a fund to which creditors have a right to look for the satisfaction of their claims and which the corporation is not allowed to impair to their prejudice.

Moreover, the trust fund doctrine is not limited to the stockholder’s subscriptions. The scope of the doctrine encompasses not only the capital stock but also other property and assets generally regarded in equity as a trust fund for the payment of corporate debts.

Question 2

What are the qualifications of a director/trustee of a corporation?

Answer 2

A director/trustee must have all qualifications in law and bylaws; none of the disqualifications in law and bylaws Directors must own at least 1 share of stock. For non-stock corporation, the trustee must be at least a member.

Examples of disqualifications under law: imprisonment of more than 6 years, violation of the RCC within the past 5 yrs; declared disqualified by the Commission.

Examples of disqualification under bylaws: Gokongwei case where stockholders with conflicting business interests cannot be directors.

Question 3

Corporate officers

Answer 3

President, Treasurer, Corporate Secretary, those mentioned in the bylaws

Compliance officer for corporations vested with public interest

RCC Sec 24

Question 4

Qualifications of Corporate officer

Answer 4

President must be a director;
Treasurer must be a resident;
Secretary must be a citizen and resident of the Philippines

Note: no one shall act as president and secretary at the same time OR president and treasurer at the same time UNLESS the Code allows

RCC Sec 24

Question 5

How do we compute for unrestricted retained earnings?

Answer 5

URE = Assets - Liabilities - Equity

Question 6

Piercing the corporate veil

Answer 6

GR: A corporation has its own legal personality. A stockholder may not be made to answer for acts or liabilities of the corporation, vice-versa.

XPN: Corporate veil is pierced. Three areas where the doctrine applies:
* Defeat of public convenience – used as a tool to evade an existing obligation
* Fraud cases – corporate entity is used to justify a wrong, protect wrong, or defend a crime
* Alter ego cases – the corporation is merely a farce; merely an alter ego of another person or another corporation

One cannot pierce the corporate veil in order to acquire jurisdiction over a party [Pacific Rehouse Corp. v. CA]

Question 7

Qualification/Election/Composition of Board of Trustees

Answer 7

Qualification of Trustee: Must be a member; have none of disqualifications in law or bylaws

Election: Voted by members (members are entitled to 1 vote; no cummulative voting) unless AOI or bylaws provide otherwise

Composition: may or may not be more than. 15 (note: NSC vested with public interest: independent trustees must be at least 20% of the board)

Term: not more than 3 years; ends when their successors are elected and qualified

Question 8

Action to compel BOD to declare dividends

Answer 8

As a general rule, declaration of dividends is discretionary. However, RCC Sec. 42 provides that stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital stock, except:

(a) when justified by definite corporate expansion projects or programs approved by the board of directors;

(b) when the corporation is prohibited under any loan agreement with financial institutions or creditors, whether local or foreign, from declaring dividends without their consent, and such consent has not yet been secured; or

(c) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies.

While the stockholder cannot compel the board to declare dividends, he/she can file a complaint to the SEC if such grounds are present.

Question 9

What is the appraisal right?

Answer 9

Appraisal right is the right of a SH to demand payment the payment of fair value of his shares after dissenting against a proposed corporate act in the cases specified by law.

Question 10

What are the cases where the right of appraisal is available?

Answer 10

Appraisal right available only:
1. In case of amendment of AOI which has effect of changing or restricting the rights of any SH or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corp existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets
3. In case of merger or consolidation
4. In case of investment of corporate funds for any purpose other than the primary purpose of the corporation
5. In a close corporation, a SH may, for any reason, compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock

Question 11

Redeemable shares

Answer 11

RCC Sec 8. Redeemable shares – Redeemable shares may be issued by the corporation when expressly provided in the AOI. They are shares which may be purchased by the corporation from the holders of such shares upon expiratiuon of a fixed period, REGARDLESS OF THE EXISTENCE OF UNRESTRICTED RETAINED EARNINGS in the books of the corporation, and upon such other terms and conditions stated in the AOI and the certificate of stock representing the shares, subject to rules and regulations issued by the Commission.

Question 12

Can treasury shares be distributed as property dividends?

Answer 12

Yes, as long as there is sufficient unrestricted retained earnings

Question 13

How many trustees in an educational corporation?

Answer 13

Not be less than 5 nor more than 15. The number of trustees shall bei nmultiples of 5.

Note: There is no more pre-incorporation requirement in the RCC. The RCC repealed this requirement in the OCC. Educational corporations do not need a favroable recommendation from the Department of Education for the incorporation or amendment of charter of educational corporations. This is only a requirement for banks and other corporations vested with public interests.

Question 14

Action required for merger or consolidation

Answer 14

Majority vote of each board of directors or trustess of each corp + affirmative vote of at least 2/3 sh OCS or 2/3 Ms of each corp.

Special meeting
Same requirements for amendments to plan of merger/consolidation
Appraisal right is available

Question 15

Reissuance of lost stock certificate

Answer 15

Affidavit; publication; issuance after 1 yr if no contest

file bond if want issue before 1 yr RCC Sec 72

Question 16

One Person Corporation

Answer 16

OPC Qualifications: Natural Person, trust or Estate. Prohibitions: Banks, quasi-banks, pre-need, trust, insurance, public and publicly listed corps., non-chartered GOCCs, and licensed profession

OPC = no minimum authorized capital stock required except if special law provides

AOI of OPC is the same as standard but must contain names and details of nominee and alternate nominee

OPC is not required to submit bylaws

OPC Corp Name must have “OPC” below or at the end of the name

OPC single stockholder isdirector and president BUT must appointment Treasurer, Corporate Secretary, and other officers . The Single SH cannot be corp sec at the same time but he can be the self-appointed treasurer

Burden of proof is on the single stockholder to show that the corporation was adequately financed

Question 17

Corporation Sole

Answer 17

Corporation sole - for the purpose of administering and managing, as trustee the affairs, property and temporailities of any religious denomination, sect or church, a corporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of such religious denomination, sect or church