Corpo Finals

Question 1

Trust Fund Doctrine

Answer 1

The trust fund doctrine provides that subscriptions to the capital stock of a corporation constitute a fund to which the creditors have a right to look for the satisfaction of their claims. A corporation may not dissipate this and the creditors may sue stockholders directly for the unpaid subscription

Question 2

Money received for subscription of increase of authorized capital in relation to trust fund doctrine

Answer 2

Not covered by the trust fund doctrine prior to the approval of such increases to the SE.

Question 3

Examples where the trust fund doctrine is violated

Answer 3

1. When the corp. releases or condones payment of the unpaid subscription
2. When there is payment of dividends without unrestricted retained earnings
3. When properties are transferred in fraud of creditors
4. When properties are disposed of or undue preference is given to some creditors even if the corporation is insolvent

Question 4

Distribution of Assets and the Trust Fund Doctrine

Answer 4

Subscriptions to the capital stock of a corp. constitute a fund to which the creditors have a right to look for satisfaction of their claims.

Question 5

Qualifications of Directors

Answer 5

A. Stock Corporation - Must own at least 1 share of the capital stock in his own name
Non-Stock - Must be a member

B. He must not possess any of the following disqualifications:
a. Convicted by: a) final judgment of an offense exceeding 6 years; b) violation of the RCCP; c) violation of the Securities Regulations Code

C. He must be of legal age

D. Other qualifications as prescribed by law and by-laws of the Corporation

Question 6

Business Judgment Rule

Answer 6

Questions of policy or management are left solely to the honest decision of officers and directors of a corporation and the courts are without authority to substitute their judgment for the judgment of the board of directors

Question 7

Election of Stockholders or Trustees

Answer 7

Each stockholder or member shall have the right to nominate any qualified director or trustee

XP: Exclusive right is reserved for holders of founder’s shares

Question 8

Requisites for removal of a Director or Trustee

Answer 8

1. It must take place at a regular meeting or special meeting duly for the called purpose
2. There must be previous notice to the stockholders or members of the intention to propose a removal
3. The removal must be by vote of the stockholders representing at least 2/3 of outstanding capital stock or 2/3 members
4. Director may be removed with or without cause (Unless he was voted by the minority, in which he may only be removed with cause)

Question 9

Doctrine of Corporate Opportunity

Answer 9

This covers cases when a director takes a business opportunity that belongs to a corporation

a. Corporation is financially able to undertake
b. From its nature, it is in line with the corporation’s business
c. It is one in which the corporation has an interest or a reasonable expectancy

If the director seizes such opportunity which should belong to the corporation thereby obtaining profits to the corp, he must account and refund the same

XP: Ratified by a vote of 2/3 of stockholders owning the outstainding capital stock

Question 10

Kinds of meetings of the Board

Answer 10

Regular Meetings - Monthly unless specified otherwise by the by-laws

Special Meetings - Any time upon the call of the president or as provided for in the by laws

• At least a 2 day notice prior to the scheduled date

Question 11

Subscription Contract and kinds

Answer 11

Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed.

Pre-incorporation contract - entered into before the incorporation and irrevocable for a period of at least 6 months
XP: 1. All other subscribers consent to the revocation; or
2. If the corporation fails to incorporate within the 6 months period or longer

Post incorporation contract - Entered into after corporation

Question 12

Doctrine of Individuality and Indivisibility of Subscription

Answer 12

A Subscription is one, entire and indivisible whole contract even if two or more shares are covered. The subscribers is not entitled to the certificate untill all the full payment of the subscription prices plus interest in case of delinquent shares

Question 13

How are shares of stock transferred

Answer 13

THOSE REPRESENTED BY A CERTIFICATE:
1. Delivery of the certificate
2. Indorsement by the owner or his agent
3. To be valid as to third parties, the transfer must be recorded in the books of the corporation

THOSE NOT REPRESENTED BY CERTIFICATE
1. By means of a deed of assignment
2. Such is duly recorded in the books of the corporation

Question 14

May a stockholder bring suit to compel the Corporate Secretary to Register Valid Transfer of Stocks?

To be valid and binding on the corporation and 3rd parties, is attachment or mortgage of shares of stock required to be registered in the Corporation’s books?

Answer 14

a. Yes. It is the duty and obligation of the corporate secretary to register transfers of stock. Mandamus is available in case the corporation refuses to register the transfer

b. An attachment or mortgage is not necessaary as a chattel mortgage does not involve a transfer of shares and only absolute transfer of shares are required to be recorded in the corporation’s books

Question 15

Obligations of a Stockholder

Answer 15

1. Liability to the Corporation for unpaid subscriptions
2. Liability to the corporation for interest on unpaid subscriptions if so required by the by-laws
3. Liability to the creditors of the corporation for unpaid subscriptions subject to the Limited Liability Rule
4. Liability for watered stock
5. Liability for dividends unlawfully paid
6. ACC liability for stockholders responsible for violation of the RCCP

Question 16

Derivative actions

Answer 16

Those brought by one or more stockholders/members in the name and on behalf of the corporation to redress wrongs committed against it

OR

To protect corporate rights whenever the officials of the corporation refuse to sue, or are the ones to be sued

Question 17

Requisites of a derivative suit

Answer 17

1. He was a member or stockholder of the corporation at the time the act subject of the action transpired and the time the action was filed
2. He exerted all reasonable efforts, and alleges the same with particularity in the complaint
3. No appraisal of rights are available for the act complained of
4. The suit is not a nuisance or harassment suit

5.The corporation is impleaded as a plaintiff

Question 18

Pre-emptive right

Answer 18

Right of shareholders to subscribe to all issue or disposition of shares of any class in proportion to their shareholdings. It is the right granted to the stockholders to have the first option to subscribe to any issuance or disposition of share from the capital stock in proportion to the stockholdings of the shareholders.

Purpose: To retain his proportionate control and equity in the surplus

Question 19

When is pre-emptive right not available

Answer 19

1. Shares issued to comply with laws requiring stock offering or minimum stock ownership to the public
2. Shares issued in good faith with the approval of the stockholders representing 2/3 of the OCS
3. When Pre-emptive right is denied in the AoI
4. Shares issued in good faith
5. When another shareholder does not want to exercise his pre-emptive right, other shareholders are not entitled to purchase the corresponding shares.

Question 20

May the by-laws deny pre-emptive rights?

Answer 20

No. It may however fix the procedure for its reasonable exercise

Question 21

Appraisal right

Answer 21

Right of dissenting stockholder to withdraw from corporation and demand payment for the fair value of his shares

Exercised after dissenting from or voting against proposed corporate acts involving fundamental changes in the corporate structure.

Question 22

Rules for the exercise of appraisal rights

Answer 22

1. Stockholder must be a dissenting one and attended the meeting and voted against the proposed action
2. Stockholder must make a written demand on the corp within 30 days after the vote was taken
3. Proposed action involves fundamental changes in the corporate structure
4. Price to be paid is the fair value of the shares on the date BEFORE the vote was taken

5.Fair value shall be agreed upon, but if no agreement is had within 60 days after the vot was taken, 3 disinterested persons shall decide

6. The dissenting stockholder shall submit his certificates of stock within 10 days after demand of payment

Question 23

When right of appraisal is lost

Answer 23

1. Shareholder withdraws demand with corporation’s consent
2. Proposed action is rescinded by the corporation
3. SEC disapproves the action
4. Dissenting stockholder fails to make a demand within the 30 day period after vote
5. There is transfer of shares by the stockholder
6. Dissenting stockholder fails to submit certificate of share within 10 days from demand of payment

Question 24

Remedies of a Corporation to enforce payment of stocks

Answer 24

1. Extrajudicial Delinquency sale at public auction. This is only available upon failure of stockholders to pay unpaid subscription within 30 days specified in the contract
2. Judicial Action
3. Collection from cash dividends and withholding of stock dividends

Question 25

Effects of delinquency

Answer 25

1. Deprives the stockholder the right to vote, be voted and to representation at any stockholders’ meeting
2. They shall not be entitled to any of the rights of a stockholder except that he is entitled to dividends under Section 42
3. Delinquent stocks shall be subject to delinquency sale.

Question 26

Contents of a stock and transfer book

Answer 26

1. All stocks in the name of the stockholders which are alphabetically arranged
2. Amount paid and unpaid on all stocks and the date of payment of any installment
3. Alienation, sale or transfer of stocks
4. Other entries as the by-laws may prescribe

Question 27

Merger vs Consolidation

Answer 27

Merger - When one corporation absorbs another one or more corporations into a single corporation. One Corporations survives and the others are dissolved

Consolidation - A new corporation is formed and the existence of all the other corporations have ceased.