Corp Book 1-3 Flashcards
Describe the types of preferred shares as to dividends.
Preferred shares as to dividends may be cumulative, non-cumulative, or participating, each with different characteristics regarding dividend payments.
Define cumulative preferred shares.
Cumulative preferred shares ensure that any unpaid dividends accumulate and must be paid out before common shareholders receive dividends.
How do non-cumulative preferred shares work?
Non-cumulative preferred shares do not accumulate unpaid dividends; if dividends are not declared for a year, the right to receive them is lost.
Do participating preferred shares allow holders to receive additional dividends?
Yes, participating preferred shares enable holders to receive additional dividends beyond their fixed rate, based on an agreed-upon formula.
Describe a scenario where a company declined to pay quarterly interest on preferred shares.
If a company lacks unrestricted retained earnings, it may decline to pay quarterly interest on preferred shares, as seen in the case of Company X and A.
Can a shareholder compel the payment of quarterly interest on preferred shares if the company lacks unrestricted retained earnings?
No, dividends cannot be paid on preferred shares if there are no unrestricted retained earnings, even if the shares were guaranteed a quarterly dividend.
Describe the revisions under the RCC on provision on founders’ shares.
RCC prohibits holders of founders’ shares from voting or being voted as directors if it violates specific laws like the Anti-Dummy Law and the Investments Act.
Define founders’ shares.
Founders’ shares are shares in a corporation that come with special rights and privileges outlined in the articles of incorporation.
How long can the exclusive right to vote and be voted for in the election of directors be granted for founders’ shares?
The exclusive right can be granted for a limited period not exceeding five years from the date of incorporation.
What are some corporate acts that typically require shareholder approval under the RCC?
Corporate acts like sale of corporate property, incurring bonded indebtedness, mergers, investments, and dissolution usually require shareholder approval.
Describe the significance of SEC approval in relation to founders’ shares.
While SEC approval is not explicitly required for granting the exclusive voting rights, approval of incorporation effectively includes approval for such rights.
Do founders’ shares have voting rights in all corporate decisions under the RCC?
Founders’ shares with exclusive voting rights are typically limited to specific decisions like electing directors and may not have voting rights in all corporate matters.
Describe the voting rights privilege of founders’ shares in a corporation as per the Articles of Incorporation.
Founders’ shares have a 1:10 ratio in terms of voting rights compared to common shares, meaning one founders’ share equals ten votes. All shares, whether founders’ or common, can vote on all matters.
Define redeemable shares in a corporation.
Redeemable shares are shares classified in the articles of incorporation that can be repurchased by the corporation from the holders after a fixed period, as expressly provided in the articles.
How are founders’ shares’ voting rights affected by the limited period not exceeding five years under Section 7 of the RCC?
The 1:10 voting rights ratio for founders’ shares is not subject to the limited period of five years under Section 7 of the RCC, as this provision only applies to the exclusive right to vote and be voted for in the election of directors.
Describe the limitations on the exclusive voting rights of founders’ shares under certain laws.
The exclusive right to vote and be voted for in the election of directors for founders’ shares is subject to a limited period of five years from the date of incorporation, except when it violates specific laws like the Anti-Dummy Law and the Foreign Investments Act.
Define the term ‘Close Holding Corporation’ as mentioned in the content.
A Close Holding Corporation refers to a corporation where the founder’s shares have specific voting rights, typically with a ratio of 1:10 compared to common shares.
How are redeemable shares different from common shares in a corporation?
Redeemable shares, as specified in the articles of incorporation, can be repurchased by the corporation after a fixed period, while common shares do not have this repurchase provision.
Describe the concept of redeemable shares a corporation.
Redeem shares can be redeemed the issuing corporation, of surplus profit, as long as there are enough assets to cover debts and liabilities.
Describe who corporators are in a corporation.
Corporators are individuals who compose a corporation, either as stockholders or shareholders in a stock corporation, or as members in a nonstock corporation.
What is the role of incorporators in a corporation?
Incorporators are the stockholders or individuals mentioned in the articles of incorporation as forming and composing the corporation and who are signatories thereof.
Define the role of the Board of Directors in a corporation.
The Board of Directors is generally elected by the stockholders to conduct the business, control the property, and exercise corporate powers.
How are directors elected in a corporation?
Directors may also be elected by their fellow directors in specific cases and under certain conditions.
Describe the voting rights of treasury shares in a corporation.
Treasury shares shall have no voting right as long as they remain in the Treasury.
What are the legitimate purposes for a corporation to acquire its own shares?
Legitimate purposes include eliminating fractional shares, collecting or compromising indebtedness, and paying dissenting stockholders entitled to payment.
How is the purchase of treasury shares from stockholders viewed in a corporation?
It is seen as a return to the stockholders of the value of their investment and a reversion of the shares to the corporation.
Describe the role of incorporators in a corporation.
Incorporators are individuals mentioned in the articles of incorporation who originally form part of the corporation and are signatories thereof.
What is the definition of a promoter in the context of a corporation?
A promoter is a person who brings about the formation and organization of a corporation by bringing together the incorporators or interested parties, procuring capital, and initiating the incorporation process.
Do incorporators usually need a promoter to form and organize a corporation?
In actuality, a corporation is usually formed and organized by the incorporators themselves without the need for a promoter.
How is the promoter of a corporation viewed in terms of agency before the corporation comes into existence?
The promoter is not considered the agent of the corporation before its formation, as there must be a principal for an agency relationship to exist.
Define the fiduciary relationship a promoter holds towards a corporation and its subscribers.
The promoter holds a fiduciary or quasi-trust relation towards the corporation when it comes into existence and towards the subscribers prior to its organization, requiring acting in good faith in all dealings on behalf of the corporation.
What is the distinction between incorporators and corporators in a corporation?
Incorporators are individuals who originally form part of the corporation and are signatories, while corporators are mentioned otherwise in the corporation’s structure.
Describe the responsibilities of officers in a corporation.
Officers are appointed to assist the Board of Trustees in managing the affairs of the corporation.
What is the role of the Board of Trustees in a nonstock corporation?
In a nonstock corporation, the Board of Trustees is responsible for overseeing the organization’s operations and decision-making processes.
Describe the difference between subscription of shares and purchase/transfer of shares.
Subscription of shares pertains to unissued shares of a corporation, while purchase/transfer of shares pertains to shares already issued by the corporation.
What is a subscription contract in the context of business organizations?
A subscription contract is any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed.
Explain the role of incorporators in a stock corporation.
Incorporators are individuals involved in the formation of a corporation, with their number limited to 15 in a stock corporation.
What residency requirements exist for incorporators under the OCC and RCC?
Under the OCC, the majority of incorporators should be residents of the Philippines, while no such requirement is imposed on incorporators under the RCC.
Define purchase/transfer of shares in the context of business organizations.
Purchase/transfer of shares pertains to shares already issued by the corporation, involving the acquisition of these shares by a buyer or transferee.
How do the rights differ between a subscriber and a buyer/transferee of shares?
A subscriber is entitled to exercise stockholder rights even without full payment, while a buyer/transferee cannot exercise purchased shares’ rights without full payment, unless specified otherwise in the sale agreement.
Describe the Trust Fund Doctrine in relation to subscription contracts with a corporation.
The Trust Fund Doctrine states that subscription contracts form a fund that creditors can access for payment, and the corporation cannot release original subscribers from their obligations.
Define privity in the context of creditor enforcement in a corporation.
Privity refers to the direct involvement or relationship between parties in a contract, where lack of privity can prevent a creditor from enforcing payment.
How does the acceptance of a stock subscription impact the subscriber and the corporation?
Upon acceptance, the stock subscription becomes a binding contract that the subscriber cannot withdraw from, and the corporation cannot release the original subscriber or cancel the subscription.
Do subscription contracts with a corporation fall under the Trust Fund Doctrine?
Yes, subscription contracts are subject to the Trust Fund Doctrine, meaning creditors have a right to look to the subscription fund for payment.
Describe the power of the board of directors in canceling subscription contracts with a corporation.
The board of directors cannot cancel subscription contracts without justifiable cause, as doing so would relieve an original subscriber from their contractual obligation.
