Finals (SH-Foreign Corp)

Question 1

TITLE VII Stocks & Shareholders

A subscription of shares in a corporation still to be formed shall be IRREVOCABLE for a period of?

sec 60

Answer 1

(6) months from the date of subscription unless
- all subscribers consent to the revocation, [or]
- corp fails to incorporate w/n the same period or longer stipulated in the Contract of Subscription

Question 2

can a pre-incorporation subscription be revoked?

sec 60

Answer 2

No, after articles of incorporation is submitted to the SEC, then pre-incorporation subscription cannot be revoked

Question 3

Can you subscribe on credit?

Answer 3

There is no expressed prohibition on credit.

Question 4

what is Debt to equity conversion?

Answer 4

This is insofar as considerations for stock is concerned where the corporation who is indebted to a person pays their obligation through shares of stock making you the creditor now a SH

Corporation converts its debt (owed to creditors) into equity (shares).

Question 5

A agreed to 1k shares but paid only 600. can he demand for issuance of stock cert of the 600 and pay later some other time the 400?

Answer 5

No, SEc. 63

Question 6

ABC Corporation has a par value of ₱100 per share. To attract more investors, its board of directors decided to issue shares for ₱70 each advertising it as a 30% off discount.

Is this valid?

Answer 6

No, it is a watered stock and a watered stock are not valid shares of stock such that they are deemed as if they have never been issued in the first place

Question 7

how to make a valid transfer of shares of stock?

Answer 7

62 (2)

transferred by DELIVERY of the cert ENDORSED by the owner/his atty-in-fact/any other legally authorized to make transfer

no transfer will be valid until the transfer is recorded in the books of corporation

Question 8

A’s name was recorded in the general information sheet submitted to the SEC by XYZ corp.

is he a stock holder?

Answer 8

No, based on prevailing JP.
best proof is stock and transfer book while the stock cert is corroborative

Question 9

Director consented for a SH who paid 1peso for 100 pesos per shares

a. what is the liability of a director who consented to the issuance of a stock

b. who can demand from the director?

c. suppose the answer in B will not take action, what is the remedy?

Answer 9

a. you liable solidary with that SH who paid 1peso to the 99pesos not paid

b. the corporation itself

c. other SH can file a derivative suit to compel the director and SH to pay the required amount

Question 10

a. when do you pay for your subscription?

b. if there has been capital call or period to pay has elapsed and no payment was made, what happens to your shares?

c. why is it important to know w/n a stock is delinquent?

d. in the answer of B, when should it be done or what period?

Answer 10

a.
GR: pay based on the SubCon
XPN: if not provided, upon capital call of the board

b.
- if no payment made within 30 days (grace period) from said date, ALL stocks covered by the subscription becomes delinquent
- & shall be subject to sale unless BoD orders otherwise

c. - because delinquent stocks no longer have voting rights but still has right to dividends

d - not less than 30 (grace period) nor more than 60 days for the public auction to be held (sec. 67)

Question 11

amount due: 1m
necessary costs: 100k
auctioned shares: 1k

bidders:
A - 1m for 900 shares
B - 1.5m for 1k shares
C - 1.1m for 1k shares
D - 800k for 900 shares

what are the conditions in this auction sale

Answer 11

1. full amount (1m)
2. least number of shares

B wins

Question 12

a. and the delinquent shares are 1000 and total amount due is 1million, considering the two conditions, who will be the winner:

Bidder A: Will pay ₱1,000,000 for 1,000 shares.
Bidder B: Will pay ₱1,000,000 for 900 shares.
Bidder C: Will pay ₱1,000,000 for 800 shares.

b. what happens to the remaining shares?

c. what happens if there are no bidders?

Answer 12

a-b
200 goes back to the original subscriber who was the delinquent SH who did not pay because the shares are not fully bidded

c. Corp buys it back and becomes treasury shares

Question 13

can you question the auction?

Answer 13

Yes, on the ground of irregularity or defect in the NOTICE OF SALE [or] SALE itself

• tendering the amount due with all interest from date of the sale plus legal interest
• within the period of (6 months) from date of sale

Question 14

can a corp do public bidding and take court action at the same time or is it alternative?

Answer 14

They can avail both so long as there is unpaid amount

Question 15

TITLE VIII: Corporate Books & Records

a. what if the total liabilities or total assets exceed 600k?

b. suppose it is less than the amount

Answer 15

a., then needs to be signed by the pres, treasurer, and audited by independent CPA

b. mere certification under oath by the pres. or treasurer will suffice.

Question 16

Title IX: Merger & Consolidation

a. merger
b. consolidation

Answer 16

a. A + B (constituent corp) = A (surviving corp)

b. A + B = C (consolidated corp)

Question 17

M&C de facto v. Statutory M&C

Answer 17

[de facto]
- no automatic dissolution
- transfer of assets or management

[statutory]
- automatic dissolution
- covered by chapter 9

Question 18

what is the Nell Doctrine

when is it applicable

Answer 18

a. Nell Doctrine states as a general rule, transfer of all assets of a corp to another SHALL NOT render the latter liable to the liabilities of the transferor except;

• purchaser expressly or impliedly agrees to assume such debts
• transactions amounts to consolidation or merger of the corporation (precisely the liabilities continue)
• purchasing corp is merely a continuation of the selling corp, and
• transaction is entered into fraudulently to escape liability

b. applicable only to de facto merger in a purchase of all or substantially all of the assets

Question 19

M&C applicable to stock corp when the voting in order for the plan of merger to be approved only mentions 2/3 of the OCS?

Answer 19

False, it is applicable to non-stock as well.

Question 20

what are the contents of M/C?

Answer 20

sec. 77

a. plan of merger or plan of consolidation

b. as to stock corps, # of shares outstanding as to non stock, # of members

c. as to each corp, # of shares/members for or against such plan

d. the **carrying amounts & fair values of the assets & liabilities of the respective companies as of the agreed cut-off date

e. method to be used in the M/C of accounts of the companies

f. The provisional or pro forma values, as M/C, using the accounting method, and

g. such other information as may be prescribed by the commission

Question 21

when do M/C take effect?

what are the effects of M/C?

Answer 21

a. issuance of Certificate of M/C that

b.

1. constituent corp becomes surviving corp or consolidated corp as the case may be
2. the separate existence of the previous constituent corp ceases
3. the surviving or consolidated corp shall possess ALL [rpip] rights, privileges, immunities, and powers [and] be subject to all duties & liabilities of a corp under the RCC
4. the surviving or consolidate corp shall possess all [rpif] rights, privileges, immunities, and franchises of each constituent corp [and] ALL real/personal property, ALL receivables due…W/O further act or deed
5. S/C corpis responsible for ALL liabilities & obligation of each constituent corp [and] any PENDING claim brought by or against the S/C corp may be prosecuted

Question 22

In one of the effects for merger
and consolidation, it says that the company will be liable for the obligations, liabilities, and constituents. But what if in the case one constituent owes money to the other constituent? So what happens to the receivables or debt between the two companies?.

Answer 22

M/C will extinguish the obligation but in practice it will be part of the plan of merger/consolidation

Question 23

Can a non-stock and stock merge to a stock corporation?

Can a non-stock and stock merge into a non-stock?

Answer 23

a. No, because it will amount to distribution of goods/assets which is prohibited under a non-stock

b. Yes, no prohibition

Question 24

Title X: Appraisal Right

when can the appraisal right be exercised?

Answer 24

1. • amendment to AOI with the effect of changing/restricting the rights of any SH or class of shares
   • authorizing preferences in any respect superior to those of outstanding shares of any class
   • extending/shortening corporate term
2. in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of ALL or SUBSTANTIALLY ALL of CORPORATE property & 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 corp

Question 25

is the increase of the authorized capital stock an instance where a SH can exercise the right of appraisal?

Answer 25

No, as it is in the ordinary course of business within the corporation and exigencies of business may require additional capitalization

Question 26

give advice to a client on how to exercise appraisal right

Answer 26

1. attend meeting & vote against the action
2. written demand w/n 30 days & deliver stock cert for notation w/n 10 days
3. Agreement of Fair Value of shares; if no agreement w/n 60 days, majority of 3-man appraiser determine the FV
4. payment of FV with the unrestricted retained earnings (URE) & transfer shares to the Corp.

Question 27

what is the basis of the Fair Market value? when should it be recalled?

Answer 27

day before the approval.

ratio: you should not be benefitted or prejudiced by the action that was voted on (the action you dissented with)

Question 28

A exercised his right to appraisal on Jan 1
but on Jan. 2 the company did not have URE.

later on February 3, the company had URE, will A’s exercise of AR prosper?

Answer 28

There is still no cause of action as the fact that the corp later had URE do not correct or cure that it didn’t have w/n 30 days from A’s exercise.

However, supposed that it would be within 30 days, then his action would prosper

Question 29

when is the right to payment of the FV of the dissenting SH cease?

Answer 29

warden

w - withdrawn w/ consent of the corp (BoD, SH)

a - corporate action is abandoned

r - corporate action is rescinded

d - corporate action is disapproved by SEC

en - SEC determined dissenting SH is not entitled

in these instances, the right to payment shall cease [and] all dividend distributions which would have accrued on the shares shall be paid to the SH

Question 30

TITLE XI: NonStock Corporation

what is a nonstock corporation?

Answer 30

No part of its income is distributable by dividends and any profit obtained incidental to its operation shall be used for the futherence of its purposes

Question 31

What is the rule of distribution of assets in a nonstock corporation?

Answer 31

assets of a NS Corp undergoing dissolution shall be distributed as follows;

a. all liabilities & obligations are to be paid and satisfied

b. assets held by the NS corp requiring the return upon dissolution must be returned

c. assets whose use is limited to [crbed] chariable, religious, benevolent, educational without a condition of return shall be transferred or conveyed [cso] corporation, societies, or orgs engaged in the Phil substantially similar to the dissolving NS corp

• prohibited to stock corp

d. assets not mentioned above be distributed based on the AoI or BL which determines the members distributive rights

e. in any other case, assets may be distributed as specified in the plan of distribution which includes, PERSONS, societies, orgs

Question 32

what is the content of a Plan of Distribution of assets in a NS corp?

Answer 32

1. MaJ vote of BoT adopt resolution recommending plan of distrbution
2. each member entitled to vote be given a written notice of the plan of distribution and date, time, place of the meeting
3. approved by 2/3 of members with voting rights PRESENT or represented by proxy at such meeting

Question 33

TITLE XII - Close Corporation

characteristics of a closed corp

Answer 33

1. not more than 20 SH
2. cannot sell to 3rd person unless it is sold to the closed corp first
3. not listed in the stock exchange
4. management is undertaken by SH

Question 34

Closed Corp

1. what vote required to ammend AoI in close corps?
2. what happens if deadlock?
3. if withdrawal of SH or dissolution?

Answer 34

1. 2/3 of OCS w/ or w/o voting rights
2. SEC arbitration
3. compel the purchase of the FMV subject to available net assets (URE?)

Question 35

in a close corp, who are liable?

Answer 35

since SH are the managing in replacement of the BoD, SH becomes liable for corporate court if they actively participate in the management or operations-

Question 36

What to set up in order that a OPC is not liable?

Answer 36

1. invoke limited liability affirmatively showing that the corp is adequately financed
2. the SH proves that the property is independent of his personal property

Question 37

TITLE XIV - Dissolution

how do dissolve a corp?

Answer 37

1. Voting If it does not prejudice creditors, MAJ of BOD + MAJ of SH
2. Verified REQUEST 20 days BEFORE the meeting
3. 15 days from receipt by SEC, approve and issue cert of dissolution
4. corp deemed dissolved from its receipt of the same

Question 38

how to dissolve where creditors are affected

Answer 38

1.MAJ of BOD + 2/3 OCS

2. verified PETITION
3. SEC orders 1/wk for 3 weeks for objections,
4. if no objection, then w/n 5 days, SEC give notice to corp to hear its petition to render judgment
5. if favorable, issues Cert of dissolution

Question 39

if corp dissolves by means of shorterning its term, what are uireqment?

Answer 39

1. MAJ of BOD + 2/3 OCS
2. submit amended AOI to SEC
3. SEC issues cert of ammendment tantamount to cert of dissolution

Question 40

how to withdraw request or petition to dissolve /

Answer 40

verified request = verified request
verified petition = verified motion

Question 41

instances where there is INVOLUNTARY dissolution

Answer 41

1. non-use of corp charter
2. continuous inoperation
3. receipt of lawful court order dissolving corp
4. final judgment that corp incorporated through fraud
5. final judgment that the corp;
   - created for illegal purposes
   - tolerated illegal purposes

assets forfeited to the gov’t (based on #5)

Question 42

3 persons who effect liquidation

Answer 42

1. thru BOD
2. thru trustee
3. thru SEC appointing reeiver or committee to liquidate

Question 42

Titlve XV Foreign Corp

effect if foreign corp does business without license

Answer 42

cannot sue but can be sued