Corporation Law 2024 Flashcards
Define Corporation
A corporation is an AB
created by operation of law,
having the right of succession and the powers, attributes and properties
expressly authorized by law or incidental to its purpose
What are the attributes of a corporation?
- artificial being
- created by operation of law
- has the right of succession
- has the powers, attributes, and properties (PAP) expressly authorized by law or incidental to its existence
What are the classes of a corporation?
Corporations may be formed as
- Stock Corporations
those which have capital stock divided into shares
and are authorized to distribute to the holders of such shares,
the dividends or surplus profits on the basis of shares held. - Non-stock corporations
one where no part of its income is distributable as dividends
Corporators vs Incorporators
Aoi
corporators are those who compose a corporation as stockholders in a stock corporation or members in a non-stock corporation
Incorporators
are those stockholders/members MENTIONED in the articles of incorporation as ORIGINALLY FORMING the corporation
When is the commencement of corporate existence?
Certificate
A private corporation commences its juridical personality from the Date the SEC ISSUES the certificate of incorporation under its official seal
Corporate term - how long can a corporation exists?
It has PERPETUAL existence unless its aoi provides otherwise
Minimum Capital Stock for Stock corporations - state the rule.
Easy for startup w/o Burden
Stock corporations shall NOT be REQUIRED to have minimum capital stock, except as otherwise specially provided by special law.
By eliminating minimum capital requirements, they make it easier for startups and small businesses to establish themselves without the burden of having to meet a specific capital threshold.
Corporate powers
What are the General Powers (vs Specific powers)?
Inherent as LE for All C
General Powers
Those inherent to it as a legal entity, every corporation has the following powers (& capacities)
- To sue & be sued under its corporate name
- To have perpetual existence
- To use a Corporate seal
- To amend its AoI
- To adopt by laws, amend or repeal
- In case of stock corporations, to issue/sell stocks; (admit members in case of nonstock corporation)
- To deal with (real & personal) properties including securities & bonds
- To enter into partnership, JV & other commercial agreements with natural/juridical persons
- To make reasonable donations
- To establish pension & other plans for the benefit of its directors, officers, & employees
- To exercise other powers Essential to its purpose
Corporate powers
What are the Specific Powers (vs general powers)?
Explicit Xpress in Aoi for Eftv Admin
Specific powers are those expressly outlined in its governing documents for its efficient and effective administraion as provided for in its AoI
- Power to amend corporate term - shorten or extend
- Power to increase or decrease capital stock
- Power to deny Pre-emptive rights
- Power to dispose its corporate assets, including goodwill
- Power to acquire Own Shares
- Power to invest in another corporation
- Power to declare dividends
- Power to enter into management contract
De Facto Corporations
Explain the concept.
3p RaBeC Even though F is not C
A “de facto corporation” refers to a legal concept that Recognizes a Business entity AS A CorporatioN even though it has NOT completed all the required formalities for incorporation under the law.
3reqs
1. good faith to incorporate
2. actual operations
3. recognition by 3rd parties
Estoppel Corporation
Explain the concept.
RABEC but later on Corp Denies
Corporation by estoppel is a legal doctrine that recognizes a business entity as a corporation for specific legal purposes,
even if it failed to properly incorporate or comply with statutory requirements.
This doctrine primarily applies to situations where a third party treats an entity as a corporation and later the Corp attempts to deny its corporate status in a legal dispute.
RATIONALE:
It aims to Prevent unjust outcomes by HOLDING the Entity ACCOUNTABLE for its representations when dealing with third parties.
Basic Principles and Doctrines in Corporation Law
1.
Doctrine of Separate Juridical Personality
- What is the General Rule
- Application as to a Director/Trustee, explain.
- Application as to a Corporate Officer, how?
- B. Application as a Stockholder, explain
- Application as to Parent or Subsidiary Corporation, state case law.
S&D personality
Shields of Dir Offcers vs PersLiab if in GF & W/in Scope Auth
GR:
A corporation has a separate & distinct personality from those who Represent it.
Its officers are Solidarily Liable ONLY when exceptional circumstances exist as enumerated in sec 31 of the Corporation code.
As a director/Trustee, to be Personally Liable, it must be shown that the director acted under circumstances in sec 31 of CC.
A separate corporate personality shields corporate officers acting in good faith and within their scope of authority from personal liability except for situations enumerated by law and jurisprudence, thus:
Personal liability of a corporate director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule, only when —
‘1. He assents
(a) to a patently unlawful act of the corporation, or
(b) for bad faith or gross negligence in directing its affairs, or
(c) for conflict of interest, resulting in damages to the corporation, its stockholders or other persons;
‘2. He consents to the issuance of watered stocks
or who, having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto;
‘3. He agrees to hold himself personally and solidarity liable with the corporation; or
‘4. He is made, by a specific provision of law, to personally answer for his corporate action.
B.
As a stockholder, ownership by a small group of stockholders of nearly all capital stock is NOT SUFFICIENT to disregard the fiction of Separate JP except if he has knowledge & took part in the criminal act.
C.
A corporation owning ALL of the stock of another corporation is not sufficient to treat these 2 separate entity as One corporation.
Basic Principles and Doctrines in Corporation Law
2.
Doctrine of Piercing the Corporate Veil
- Concept, explain
- Application, how
Aka the Exception to SJP
Hence Disregards it
Eff: Hold them Liable
Concept:
This is the exception to the doctrine of Separate Juridical personality.
Hence, a stockholder/member of a corporation may be held Liable for the obligations of the corporation.
Application:
This doctrine DISREGARDS the notion that a corporation has a separate & distinct personality from the corporators composing it.
Basic Principles and Doctrines in Corporation Law
3.
Doctrine of Limited Liability
- Concept, explain
For Obl if C, PersnLiab of Sh is Ltd to Invstmnt incaseof;
Prot PersAss of Sh Owners
Exc:FIG
This doctrine Protects the Personal assets of shareholders or owners of a corporation from being used to satisfy the debts or obligations of the corporation.
Exception: in case of Fraud, illegal activity or there was a Guarantee
Stockholder is liable up to the extent of his Unpaid Subscription.
Basic Principles and Doctrines in Corporation Law
4.
Business Judgment rule
- Concept, provide case law.
- Application, case law
GR: 1) BOD is Not personally Liable ( for natv consq) if acted within parameters
EXC: in BadFaith
2) C has no J over MoB policy
Q of Policy Not E by C
This rule provides that the BOD/BOT has the SOLE AUTHORITY to determine policies, enter into contracts & conduct business within the scope of its charter.
Hence, questions of policy is generally not entertained by the court.
Application:
Court has no jurisdiction to interfere with the management of the corporation by the BOD.
Exception: There is bad faith on part of BOD.
Basic Principles and Doctrines in Corporation Law
5.
Doctrine of Apparent authority
- Concept, case law
- Application, case law
- Instances where this doctrine was Not Applied
- What is the key determinant in the application of the doctrine?
Rule binds C
2ELem H&R
1.BU HOLDs staff as HAVING auth (even if its beyond staff power Actually) &
2.3P RELIES on that Reprsntn
HENCE corp is Bound by staff Acts
Rationale
To protect 3p Reasonably Relying on Corps Repreanttn
This doctrine provides that the corporation is Estopped from DENYING the agent’s authority if
a) corp Knowingly Permits one of its officers to act within the apparent authority or
b) corp Holds the agent out to the Public as Possessing the Power to do those actions.
Application:
A banking corporation is liable where the representation is made although the agent is secretly abusing his authority.
Not applicable:
When the principal did not commit any acts which a party relied upon.
Key:
The Acts of the Principal only and not the acts of the agent have CREATED the apparent authority.
Basic Principles and Doctrines in Corporation Law
6.
Ultra Vires Doctrine -BynDPwrs
- Concept
- Rule
- UV act vs. an illegal Act
UVA (acts of corp) are Void&Unenfrcbl
Hence BU not bound for trx acts of C outside its scope
UV or “beyond the powers” refers to actions/activities undertaken by a corporation that are beyond the scope or powers
granted to it by its articles of incorporation, its charter, or the laws governing corporations.
Generally, ultra vires acts are considered VOID or unenforceable.
This means that the corporation may not be legally bound by contracts or transactions that fall outside its authorized scope.
Similarly, shareholders or directors may challenge such actions as invalid.
Example
Under the Trust Fund doctrine, the corporation has no capacity to release a subscriber from his obligation to the corporation without a valuable consideration.
Ultra vires acts focus on exceeding the corporation’s authorized powers, while illegal acts focus on violating the law.
Basic Principles and Doctrines in Corporation Law
7.
Trust Fund doctrine
- Concept
- Application
Eg. Asset of Corp Held in Trust for benefit of Creditors
This principle provides that the property of the corporation is a Trust Fund managed by the directors & officers for the benefit of the corporation & payment of creditors.
In case of insolvency, the court will determine whether or not the BOD/BOT Breached their Fiduciary Duty - if yes, they will face legal consequences including personal liability for losses attributable to their actions.
Basic Principles and Doctrines in Corporation Law
8.
Doctrine of Equality of Shares
- Concept
All Issued Sh r EQUAL w same r.o Within Same
Under this doctrine, all ISSUED STOCKS are Presumed EQUAL with the Same privileges and liabilities Within the SAME CLASS of shares.
The court may determine if the corporate actions or management comply with the EQUAL TREATMENT among shareholders of the Same Class.
Nationality of Corporations
1.2
Nationality Test
- Tests to determine the nationality of corporations (4) - Regardless of the nationality of the stockholders/members
Note
The determination of a corporation’s nationality can have legal implications, especially in matters of taxation, regulation, and jurisdictional authority.
- Control Test
Nationality of the corporation is determined by the CITIZENSHIP of the CONTROLLING shareholders/members (at least 60% Filipino stocks is Filipino) - Incorporation venue test
Nationality is determined by the country where the corporation was registered. - Principal place of business Test
Where the key operational business is conducted determines the country it can be sued. - Grandfather rule
Nationality of corporation is determined by the Computed PERCENTAGE % of Filipino Equity OWNERSHIP.
Basic Principles and Doctrines in Corporation Law
2.2
Control Test vs Grandfather rule
- Define & explain each
- Under the Strict Rule, how do you determine the total percentage of Filipino ownership.
Control test is More Liberal than Grandfather rule.
Under control test, there is NO NEED to Further TRACE the ownership of the 60% Filipino stocks in the INVESTING CORPORATION because its already considered as Filipino.
Under Grandfather, the percentage of Filipino equity is Computed by ATTRIBUTING THE NATIONALITY of the 2nd TIER of OWNERSHIP to determine nationality of the shareholder.
Under STRICT grandfather rule, the COMBINED TOTALS of Investing & Investee corporations are summed up to determine the total percentage of Filipino ownership.
Establishment and Organization of Corporations
1.4
Articles of Incorporation
- What is the procedure in the amendment of AOI?
- State the rule on effectivity
- What are the grounds for Disapproval of AOI or Amendment thereto?
MajBOD + 2/3CS
Deny if corpLawReqs not compld
Not corr forms
UnL purp
How to Amend AOi - 2 reqs
Any provision in the Aoi may be changed by
1. A majority vote of the BOD/BOT AND
2. Written ACCEPTANCE of the stockholders (2/3 of OUTSTANDING STOCKS OR MEMBERSHIP)
The changes shall take effect:
a) Upon APPROVAL by the SEC; or
b) If NOT ACTED upon within 6 months from the Date of Filing.
SEC will NOT approve the Aoi or its amendment if:
a) its NOT COMPLIANT with the requirements of Corporation code
b) its NOT COMPLIANT in required FORM
c) the Purpose of the corporation is ILLEGAL
d) the Certification concerning the amount of capital stock subscribed is FALSE and
e) the Required percentage of Filipino OWNERSHIP of capital stock was not complied
Establishment and Organization of Corporations
2.4
Corporation name
- What is the rule on Registration?
Dstngshbl
Unprtctd
No corporate name is allowed if its a) NOT DISTINGUISHABLE from those already registered for another corporation or b) the name chosen is protected by law like “government” or “UN”.
Establishment and Organization of Corporations
3.4
Corporation Existence
- State the rule on its commencement
Corporate existence or JP commences from the date SEC ISSUES the certificate of incorporation under its official seal.
Establishment and Organization of Corporations
4.4
Continuous Non-operation
- What are the effects of continuous Non-Operation?
F to S Ops in 5y = revoke aoi
F to Oper for 5Y = Delinqnt status
2y as Delqnt = revoke
- a) For failure to formally organize or b) Failure to commence its business»_space; within 5 years from incorporation:
Certificate of Incorporation is DEEMED REVOKED - For failure to Operate of at least 5 CONSECUTIVE YEARS After commencement:
SEC may place the corporation under DELINQUENT STATUS after Due Notice
Note: A delinquent corporation shall have a period of 2 years to resume operations. If this lapsed without action from corporation, its certificate shall be REVOKED.
Powers of the Corporation
A. General Corporate Powers & Capacity
- State the 11 General powers
See Card #8
Powers of the Corporation
B. Specific Corporate Powers & Capacity
1.8
Power to Extend or Shorten Corporate Term - What are the 2 requirements?
What is the remedy of a DISSENTING stockholder for extension of corporate term?
MajBOD + 2/3 CS
AppR
- Approved by Majority of BOD/ BOT And
- Approval or ratification by 2/3 of O/s capital stock or membership
In cases of mergers, consolidation or changes to corporate structure, the dissenter may exercise the right of APPRAISAL.
If this right is exercised, the stockholder may DEMAND that the corporation BUY BACK his shares AT FAIR VALUE.
This right is for the PROTECTION of Minority shareholders.
Powers of the Corporation
B. Specific Corporate Powers & Capacity
2.8
Power to Increase or Decrease Capital Stock;
Incur, Create or Increase Bonded Indebtedness
MajBOD + 2/3CS
SEC approves
3 requirements for inc/dec of Capital stock
Requirements - i) Majority of BOD/ BOT and ii) Ratification of 2/3 o/s cs or membership and iii) Approval of SEC or Philipine Competition Commission
Powers of the Corporation
B. Specific Corporate Powers & Capacity
3.8
Power to Deny Pre-emptive right - state the rule.
This is the right to SUBSCRIBE to all issuance of shares IN PROPORTION to their shareholdings
GR: Available to all stockholders
Exception: when Aoi states otherwise
Powers of the Corporation
B. Specific Corporate Powers & Capacity
4.8
Sale or Other Disposition of Assets - rule?
what are the 3 reqs for its exercise?
MajBOD + 2/3BOD + complywCompttnAct
A corporation may sell, lease, pledge or dispose of its property for a VALUABLE CONSIDERATION as its BOD/BOT may deem appropriate.
Reqs 3 - a) Majority BOD/BOT plus b) RATIFICATION by 2/3 o/s CS or membership AND c) compliance with Philippine Competition Act
Powers of the Corporation
B. Specific Corporate Powers & Capacity
5.8
Power to Acquire own shares - (only for Stock Corp);
What are the for lawful purposes this can be applied for?
1.To Elim Fr Sh
2.To P Diss Sh
- to eliminte Fractional shares
- to collect debts to corporation due to unpaid subscription
- to pay Dissenting stockholders (right of appraisal exercised by dissenters)
Powers of the Corporation
B. Specific Corporate Powers & Capacity
6.8
Power to Invest corporate funds in another corporation or business - rule and requirement
This power can be used for purposes Other than the purpose when the corporation was organized.
Same 2 requirements as Extending Term
But when the purpose of this investment is the same purpose as in Aoi, #2 Requirement is Not Needed
Powers of the Corporation
B. Specific Corporate Powers & Capacity
7.8
Power to Declare Dividends
- What is the source of dividends and how is it paid?
- reqs?
- Dividends of delinquent stockholders - rule?
-What is the rule on Retention of surplus profits? Exc
From UnR R.E., in C,P,S forms
Retentn up to 100%pdinCapMax
Dividends are declared out of the UNRESTRICTED R.E.
It shall be payable in Cash, Property, or in Stock to all Stockholders
Reqs
1. Available Unrestricted RE
2. 2reqs as above
For delinquents - apply CASH dividends first to Unpaid balance, if its Stock dividends this will be withheld until full payment of subscription
Surplus profits may be retained ONLY UP TO 100% of Paid In Capital
EXC 1) if its for expansion projects or 2) there is loan agreement to keep it for more than 100% 0r 3) NECESSARY under the circumstances to KEEP it
Powers of the Corporation
B. Specific Corporate Powers & Capacity
8.8
Power to Enter into Management Contract - what are the conditions?
MajBOd
Aprvd by Both Business
Up tp 5Y
- approval of BOD/BOT
- approval of BOTH managing & managed corporation’s stockholders (majority vote)
- contract shall NOT be for MORE than 5 years
Directors / Trustees and Officers
1.11
Authority of the Board
Ex CorPow
Cond B
Manage Pr of C
3 Authority/DUTY of BOD
1. Exercise the corporate powers
2. conduct all business, and
3. control all properties of the corporation
Directors / Trustees and Officers
3.11
Independent director
What are the companies VESTED with PUBLIC Interest
PubliclyListd w 50M
Financials bank
- Corporations Listed with EXCHANGE And with Assets of 50M or more
- Banks, quasi banks, pawnshop & Insurance and other Financial INTERMEDIARIES
- any other determined by SEC with Public Interest
Directors / Trustees and Officers
2.11
Term of Office
D 1
T 3
Directors shall be elected for 1 year term
Trustees shall be elected for a term NOT EXCEEDING 3 years
A director who cease to be a shareholder CEASES to be a Director.
Directors / Trustees and Officers
3.11
Independent Director
Not Assctd w C that Compromise OA
An independent director refers to a member of a company’s board of directors who is NOT ASSOCIATED with the company (eg. not employees, officers, etc)
in a manner that COULD COMPROMISE
their OA - objectivity and ability to act
in the best interests of the corporation and its shareholders.
- Usually holds the Audit committee or Governance
- Known for ODM & EA - objective decision making and Enhanced Oversight
- If a corp is a company VESTED w PUBLIC INterest = 20% of the BOD must be Independent directors
Directors / Trustees and Officers
4.11
Election of Directors / Trustees
a) Requisite to be elected
b) What is the manner of election?
Nomntd & elctd by Maj
1sh = 1vote x #of open postns
a)
1) Must be nominated by stockholder/member &
2) Elected either in person or through a representative AUTHORIZED by Written Proxy ( Majority Stockholders)
b)
- election by Ballot
- For Stock corporations : a) stockholder may vote under the principle of ONE VOTE per share For EACH open director position eg. if owns 100 shares & there are 3 Open director position.> means 3 x 100 = 300 votes available for use
- For Non Stock corporation : the member can cast as many votes as there are trustees position BUT member may NOT cast More than 1 vote for one candidate
Directors / Trustees and Officers
5.11
Corporate Officers Who?
Pres - must be a Director
Treasurer - must be Resident
Secretary - must be Cit and Resident of Philippines
Such other officers in the ByLaws
If co is w Pub Int»_space; there must be compliance officer
Directors / Trustees and Officers
6.11
Disqualification of Directors, Trustees or Officers
When DQ
A person if within 5 years prior to Election or appointment was
a) Convicted by Final judgment (Within or Without Philippines) : of offense w/ >6y imprisonment; for any RPC violation AND Sec Regulation Code violations
b) OR - Found liable for FRAUDULENT acts
Directors / Trustees and Officers
7.11
Removal of Director or Trustees
How
Any Director or Trustee may be removed by
a) 2/3 CS vote or members vote in non-stock - with or without Cause, Exc in Without Cause removal - it should not violate minority representation
b) by order of SEC after notice and hearing
Directors / Trustees and Officers
8.11
Joint & Several Liability of Directors / Trustees (or Officers)
Solidary liability or j&s for D/T who
1. wilfully assent to unlawful acts
2. guilty of gross negligence or Bad faith
3. caused damage to corp after having pecuniary interest in conflict w his duty as DT
Directors / Trustees and Officers
9.11
Dealings of Directors, Trustees or Officers with the Corporation
SelfDealing assume voidable unless shown as F & R or Ratfd 2/3 CS
A contract between Corporation and with any D/T or their relatives up to 4th civil degree is VOIDABLE at option of corporation
EXC:
a) presence of such party-D/T was not necessary for that contract
b) vote of such D/T was not necessary for approving contract
c) contract is Fair and Reasonable
d) in case of Officer, contract was authorized by BOD BOT
Directors / Trustees and Officers
10.11
Contracts with Interlocking Directors
An interlocking director is someone who sits on the board of directors for two or MORE companies at the SAME time
The contract between the companies should be fair and entered into at ARM’S LENGTH (without undue influence). Both companies should have FULL DISCLOSURE of the interlocking director and any potential conflicts of interest.
GR - Contract between 2 companies with an interlocking directors shall Not be INVALIDATED
exc:
1) if contract w/ fraud
2) if interest of IntDir is substantial (>20% of CS) in one company and nominal in the other - subject to scrutiny
Directors / Trustees and Officers
11.11
Disloyalty of a Director
Disloyal - when a director, BY VIRTUE of SUCH OFFICE, acquire a business opportunity which SHOULD BELONG to corporation and PREJUDICIAL to corporation»_space;> that director must refund the profits to the corporation
EXC: if acts of that director was RATIFIED BY 2/3 CS
Stocks
1.5
Subscription contract
Contract for acquisition of UNISSUED STOCK
Stocks
2.5
Rule on Pre incorporation Subscription
This subscription is IRREVOCABLE for 6 months from date of subscription
EXC
if all other subscribers CONSENT to the revocation
