CORPO BAGYO Flashcards
Securities Regulation Code Purpose
Its purpose is to protect the public against the imposition of unsubstantial schemes and the securities based thereon. To protect legitimate business seeking to obtain capital through honest presentation against competition from crooked promoters and to prevent fraud in the sale of securities.
It was designed not only to provide investors with adequate information upon which to base their decisions to buy and sell securities, **but to protect legitimate business. ** seeking to obtain capital (Seeking to obtain capital refers to the process of acquiring funds or financial resources needed for business operations, investments, or other financial ventures. This can be done through various methods, depending on the needs and circumstances of the individual or business.) Through honest presentation against competition from crooked promoters and to prevent fraud in the sale of securities.
Unsubstantial schemes - refer to plans or ideas that are lacking in strength, substance, or likelihood of success. These schemes are often poorly thought out, unrealistic, or not supported by strong evidence or resources.
Define Securities
Securities are financial instruments that represent some type of financial value. They can be broadly categorized into two main types:
Equity Securities: These represent ownership in a company, such as stocks. When you buy a stock, you become a partial owner of the company and may have a claim on part of its assets and earnings.
Debt Securities: These represent money that is borrowed and must be repaid, such as bonds. When you buy a bond, you are essentially lending money to a corporation or government, which promises to pay you back with interest.
In simpler terms, securities are like pieces of paper that have financial value and can be traded between people or institutions. They are a way for companies to raise money and for investors to potentially earn returns on their investments.
Securities Include:
- Shares of Stocks, Bonds, Debenstures, notes, evidences of indebtedness, Asset backed Securities
- Investment Contracts
- Fractional Undivided interest
- Derivatives like option and warrants
- Certificates of assignments
- Proprietary or nonproprietary
- other instruments
Debenture
Is a promissory note or bond backed by the general credit of a corporation and usually not secured by a mortgage or lien on any specific property
Asset-backed securities
Asset-backed securities (ABS) are financial instruments that are backed by a pool of assets, such as loans, leases, credit card debt, or receivables. These assets are bundled together and sold to investors, who then receive payments from the interest and principal of the underlying asset
Imagine a bank has issued a large number of car loans. Instead of waiting for years to receive the loan payments, the bank can bundle these loans together and sell them as asset-backed securities to investors. The investors then receive the loan payments as they are made by the borrowers.
Investment Contract
Refers to a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. It is presumed to exist whenever a person seeks to use the money or property or others on the promise of profits.
Common enterprise
In a general sense, a common enterprise refers to a group of individuals or entities that come together to achieve a shared goal or objective. This concept is often associated with business and legal contexts. Here are a couple of examples:
Business Partnerships: In a business context, a common enterprise might refer to a partnership or joint venture where multiple companies or individuals collaborate on a project or business venture with the aim of sharing profits and responsibilities.
Legal Context: In legal terms, especially in the context of securities and investments, a common enterprise refers to an arrangement where the financial success of the participants is interlinked. This is often a key consideration in determining whether an investment scheme qualifies as a security under the Howey Test in the United States.
What is Howey Test:
The Howey Test is a legal principle used to determine whether a transaction qualifies as an “investment contract” and therefore a security. The test considers:
A contract, Transaction
An investment of money.
In a common enterprise.
With an expectation of profits.
Derived from the efforts of others.
Common enterprises can take various forms depending on the context and the specific goals of the participants involved.
Investment Contract sample
So, if your friends give you money, you’re all working together, and they’re expecting you to make money for them, then it’s like a magic rule that says you’ve made an “investment contract.”
In determining whether a dispute constitutes an intra-corporate controversy, there are two tests, namely:
The relationship test and the nature of the controversly test.
In determining whether a dispute constitutes an intra-corporate controversy, there are two types, namely the relationship test and the nature of the controversy test.
An intra-corporate controversy is one which pertains to any of the following relationships:
- Between the corporation, partnership or association and the public
- Between the corporation partnership or association and the state insofar as its franchise, permit or license or operate is concerned
- Between the corporation, partnership or association and its stockholders, partners members or officers
- Among the stockholders, partners, or associates themselves.
Thus, under the relationship test, the existence of any of the above intra-corporate relations makes the case intra-corporate.
Quasi-Judicial Power
Yes, the Securities and Exchange Commission (SEC) has quasi-judicial powers over intra-corporate disputes:
Quasi-judicial powers
The SEC has the authority to investigate facts, hold hearings, and draw conclusions to exercise judicial discretion.
Scope of quasi-judicial powers
The SEC’s quasi-judicial powers include:
Intra-corporate and partnership relations, including elections and appointments
State and corporate affairs, including the legal existence of corporations, partnerships, and associations
Investors and corporate affairs, including fraudulent practices by directors, officers, and other stockholders
The SEC’s powers and functions have been expanded through several presidential decrees and acts, including:
Presidential Decree No. 902-A
Reorganized the SEC as a collegial body with a Chairman and four Associate Commissioners
Batas Pambansa Blg. 98
Also known as the Corporation Code of the Philippines, this act mandated the SEC to register corporations and collect fees
Republic Act No. 8799
Also known as the Securities Regulation Code, this act reorganized the SEC to improve its structure and operations
