Law on Corp - Close Corporation

Question 1

A corporation in which the stock is held in a few hands, or in few families, which stock is not at all or only rarely dealt in buying and selling.

Answer 1

Close Corporation

Question 2

What are the Mandatory Provisions in the Articles of Incorporation of a Close Corporation?

Answer 2

A. All its issued stock, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding 20.

B. All its issued stock shall be subject to one or more restrictions on transfer permitted by the Code (in relation to Section 97).

C. Any of its stock shall not be listed in any stock exchange or offered to the public.

Question 3

Under the Considerations in Close Corporations

All the three features provided by this section must be present for a corporation to be classified as a close corporation within the meaning of the RCCP. Non- compliance with any of the requirements shall not make the corporation a close corporation.

True or False?

Answer 3

True

Question 4

Under the Considerations in Close Corporations

Where 2/3 of the voting stock or voting rights of a corporation as defined above is owned or controlled by another corporation which does not fall within the definition of a close corporation, the former shall be deemed not a close corporation.

True or False?

Answer 4

True

Question 5

Under the Considerations in Close Corporations

Corporations such as mining or oil companies, stock exchanges, banks, insurance companies, public utilities, educational institutions, and corporations declared to be are vested with public interest are not allowed to be incorporated as a close corporation.

True or False?

Answer 5

True

Question 6

Under Permissible Provisions in AOI of Close Corporations
- optional (can be or cannot be added)

Classification of shares or rights and the qualifications for owning or holding the same and restrictions on their transfers as may be stated therein.

True or False?

Answer 6

True

Question 7

Under Permissible Provisions in AOI of Close Corporations
- optional (can be or cannot be added)

Classification of directors into two or more classes, each of whom may be voted for and elected solely by a particular class of stock.

True or False?

Answer 7

True

Question 8

Under Permissible Provisions in AOI of Close Corporations
- optional (can be or cannot be added)

A greater quorum or voting requirements in meetings of stockholders or directors than those provided in the RCCP.

True or False?

Answer 8

True

Question 9

Under Permissible Provisions in AOI of Close Corporations
- optional (can be or cannot be added)

The articles of incorporation of a close corporation may provide that the business in the corporation shall be managed by the stockholders of the corporation rather than by a board of directors.

True or False?

Answer 9

True

Question 10

Under Permissible Provisions in AOI of Close Corporations
- optional (can be or cannot be added)

The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees shall be elected or appointed by the stockholders, instead of by the board of directors.

True or False?

Answer 10

True

Question 11

What are the conditions on the transfer of shares?

Answer 11

A. Restrictions on the right to transfer shares must appear in the articles of incorporation and in the by-laws, as well as the certificate of stock; otherwise, they shall not be binding on any purchaser thereof in good faith.

can also be considered as incorporated partnership
> as to the law they are treated as corporations
> among themselves, treated as partners
> still applied to Delectus Personae

B. They shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholders with such reasonable terms, conditions, or period stated therein.

Question 12

What are the needs for Stock Transfer Restrictions in Close Corp?

Answer 12

A. Prevent changes in control of corporation.

B. Maintain delectus personae of partnership.

Question 13

The stockholder who wants to sell his shares must first offer it either to the corporation or to the other existing stockholders.

If the corporation or the existing stockholders fail to exercise the option within the period stated, the transferring stockholder may sell his shares to any third person.

What is this called?

Answer 13

Right of First Refusal

Question 14

Under Right of First Refusal

What is the period that is deemed sufficient for the corporation or the stockholders to signify their desire to buy the shares of the stock being offered for sale by any stockholder?

Answer 14

One month

Question 15

What are the Qualifying Conditions in Issuance of Shares?

Answer 15

A. The certificate for such stock conspicuously shows the qualifications of the persons entitled to be holders of record thereof.

B. The articles of incorporation states the number of persons who are entitled to be stockholders of record and the certificate for such stock conspicuously states such number.

C. The stock certificate conspicuously shows a restriction on transfer of the corporation’s stock.

Question 16

Under the Effects of Breach of Qualifying Conditions

In the cases contemplated in paragraphs (a), (b), and (c) of Section 98, the transferee is conclusively presumed to have notice of the restriction or condition and, therefore, he is not allowed to prove lack of notice even if such is the fact.

The corporation cannot be compelled to register, although it may, at its option, register the transfer of the stock in the name of the transferee.

True or False?

Answer 16

True

Question 17

Under the Effects of Breach of Qualifying Conditions

The transfer, however, shall be binding upon the corporation notwithstanding such conclusive presumption, where it has been consented to by all the stockholders of the close corporation or if the close corporation has amended its articles of incorporation.

True or False?

Answer 17

True

Question 18

Under the Effects of Breach of Qualifying Conditions

The term “transfer” includes donation.

True or False?

Answer 18

True

Question 19

Under the Effects of Breach of Qualifying Conditions

The breach of any restriction in the issuance or transfer of stock is without prejudice to the right of the transferee under existing laws to rescind the transaction or recover under applicable warranty, express or implied.

True or False?

Answer 19

True

Question 20

When action taken by directors without meeting or at improperly called meeting is VALID

True or False?

Answer 20

True

Question 21

In any of the four cases specified, the action by the directors of a close corporation without a meeting is deemed valid. The exception is when the by- laws provide otherwise.

True or False?

Answer 21

True

Question 22

If a director failed to attend an improperly called meeting and action is taken therein within the corporate powers, the same is deemed ratified by failure of such director to file a prompt written objection with the secretary of the corporation after having knowledge thereof.

True or False?

Answer 22

True

Question 23

Any action taken by the directors of a close corporation without a meeting called properly and with due notice shall nevertheless be deemed valid if:

Answer 23

(a) Before or after such action is taken, a written consent thereto is signed by all the directors; or

(b) All the stockholders have actual or implied knowledge of the action and make no prompt objection in writing; or

(c) The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or

(d) All the directors have express or implied knowledge of the action in question and none of them makes a prompt objection in writing.

Question 24

There can be no ratification if the action is taken beyond the powers of the corp (ultra vires act)

True or False?

Answer 24

True

Question 25

Extends to all stock to be issued, whether common or preferred, voting or non-voting, etc., newly authorized shares or newly issued balance of originally authorized shares including treasury shares; whether the consideration for the issuance of the stock is cash or otherwise; and whether or not its denial will affect their relative interests or positions in the corporation.

Answer 25

Preemptive Right

• the right of pre-emption is a matter of absolute right on the part of the stockholders, except only when limited or curtailed by the articles of incorporation. This is of vital importance in closely held corporations to keep the association intact and prevent the shifting of control from one faction to another or to unwelcome outsiders and thus, avoid deadlocks in the management of the corporation.

Question 26

Any amendment to the articles of incorporation which seeks to delete or remove any provision required by this Title or to reduce a quorum or voting requirement stated in said articles of incorporation shall require the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock, whether with or without voting rights, or of such greater proportion of shares as may be specifically provided in the articles of incorporation for amending, deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose.

True or False?

Answer 26

True

Question 27

Under Amendment of Articles of Incorporation

Mere written assent of the stockholders which is allowed under Section 15 is insufficient. The other provisions of Section 15 apply.

True or False?

Answer 27

True

Question 28

Under Amendment of Articles of Incorporation

Even those without rights are entitled to vote.

True or False?

Answer 28

True

Question 29

Under Amendment of Articles of Incorporation

The effect of the amendment is to terminate the status of the corporation as a close corporation.

True or False?

Answer 29

True

Question 30

Occurs when the directors or stockholders are so divided respecting the managem the corporation’s business and affairs that the votes required for any corporate action cannot be obtained with the consequence that the business and affairs of the corporation can no longer be conducted to the advantage of the stockholders. In such case, any stockholder may file a written petition to the SEC to arbitrate the dispute.

Answer 30

Intra-Corporate Deadlocks