Law on Corporation Flashcards
Limit of compensation of directors
Total yearly compensation shall not exceed 10% of net income before tax of the corporation during the preceeding year
Rights of a Stockholder
- Participation in the management of corporate affairs
- Receive dividends and to compel their declaration
- To exercise pre-emptive rights
- To exercise their appraisal rights
- To inspect the books of the corproation
- To be furnished by the most recent financial statement of the corporation
- To enter into voting trust agreement subject to the procedure requirements and limitations imposed
Methods of Voting
- Straight Voting- number of votes of a stockholder is the equivalent of shares held
- Cumulative Voting- gives stockholders entitled to vote the right to give a candidate as many votes as the number of directors multiplied by number of shares held.
Election of Members
- Majority of the outstanding capital stock
- Voting via viva-voce is allowable, and can be held via ballot.
3.No minimum requirement for number of votes to win
Definition of CORPORATION
Artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence
Compensation of Directors
Not entitled to receive any compensation. except:
1. Reasonable per diems
2. Provided in the by-laws
3. Majority vote of stockholders
4. Performing other functions other than that of a director
Disqualifications of a Director
- If within 5 years prior to election, the person was convicted by final judgement of an offense punishable by imprisonment for a period exceed 6 years and violation of the Corporation Code
- Found administratively liable for any offense involving fraud acts
- By a foreign court or equivalent regulatory authority for act
- Other disqualifications provided by in the by-laws
Instances where no board resolution but majority of the outstanding stocks
- Revoke delegated power to amend by laws
- Calling a special meeting to remove director
- Fix compensation of directors
- Fix issue price or stated value of no par shares
- Election of directors
Requisites for valid transaction with self-dealing director
A. All of the following are present
1. Presence of such director was not necessary to constitute a quorum
2. Vote of such director was not necessary for the approval of the contract.
3. Contract is fair and reasonable
B. If any of the first two conditions are absent, ratification of the stockholders representing 2/3 of outstanding stock
Meetings: Voting Requirement
Directors- Majority of those present shall be valid as corporate act
Stockholders- Depends on the action to be taken
Watered Stocks
Watering of stocks happened when the shares are issued at less than its par value or issue price
No bidder in Delinquency Sale
Corporation may bid for the same and the total amount due shall be credited as paid in full in the books of the corporation and become treasury shares
Instances where vote of majority of BOD and 2/3 of outstanding capital stock is needed
- Increase/Decrease Capital Stock
- Incur, create. or increase bond indebtedness
- Sell, dispose, lease, encumber all or substantially all corporate assets
- Invest in another corporation
- Amend articles of incorporation
- Merger or Consolidation
- Voluntary Dissolution of Corporation
- Extend or shorten corporate term
- Declare Stock Dividends
- Deny preemptive right
Contents of By law
- The time, place, and manner of calling and conducting regular or special meeting of the directors
- The time and manner of calling and conducting regular or special meeting and mode of notifying stockholders or members
3.The required quorum in meetings and manner of voting - The modes by which a stockholder, member, director, or trustee may attend meeting and cast vote
- The form for proxies of stockholders and members
- The qualifications for directors or trustees and responsibilities
- The time for holding the annual electin of directors or trustees and manner of notifying
- The manner of election and appointment of officers other than directors or trustees
- The penalties for violation
- Manner of issuing stock certificites
- Other necessary matters
Classes of Corporations: As to distribution of profits
- Stock- Authorized to give dividends or allotments of the surplus
2.Non-stock- not authorized to distribute surplus profits
What are the By-laws
Rules of action adopted by a corporation for its internal government and for the regulation of conduct and it prescribes the rights and duties of its stockholders or members towards itself and amount themselves in refence to management
Founders’ share
issued to the founders of the corporation which grant certain rights and privileges such as the exclusive right to vote and be voted for in the election of directors for not a period to exceed 5 years from commencement
Classes of Corporations: Under the law it was created
- Domestic- Formed under the Philippine Law
- Foreign- Formed under any law other from Philippine Law
Rights of a Subscriber
A subscriber although not yet fully paid is entitled to exercise all rights of a stockholders and the corresponding liability that attach thereunder, except:
1. Issuance of certificate of stock
2. If his shares are declared delinquent
3. When he exercises appraisal right
Meetings: Proxy Voting
Directors- Not allowed
Stockholders- Generally Allowed
Exceptions as to the commencement of corporate existence
- Corporations by estoppel
- Those created by special laws
Sole Corporation
When does the corporate existence of the corporation commence?
At the time of the issuance of the Certificate of Incorporation or Registration. It is only from this time that it acquires juridical personality
Cumulative vs Non-Cumulative Preferred Stocks
Cumulative- Entitle the owner thereof to payment not only of current dividends but also back dividend not previously paid whether or not during the past year’s dividend were declared or paid.
Non-Cumulative- Grant the holders of such shares only to the payment of current dividend but not back dividend when and if dividends are paid to the extent agreed upon before any other stockholders are paid the same.
Implied powers of a corporation
- Issue checks or promissory note or bill of exchange or mercantile documents
- Establish local post office in case of mining company
- To operate a power plant in case of a cement factory
- To sell, supply, or manage advertising materials in case of an advertising company
Instances where no board resolution but 2/3 of outstanding stocks
- Delegate to the board the power to amend by laws
- Remove a member of the Board
- Ratify a business opportunity
- Ratification of contracts of self dealing directors where his presence is required to constitute a quorum
Meetings: Date of Special Meeting
Directors- Any time deemed necessary or provided in by laws
Stockholder- At any time deemed necessary as provided for in the by laws
Inherent Powers of a corporation
- Right of succession
- Right to have a corporate name
- Right to make by laws for its governance
- Right to sue and be sued
- Right to acquire properties and hold for the purposes authorized by the charter
Rules on Vacany via removal
Stockholders by the election of a replacement in the same meeting of the removal
Rules on Vacancy in expiration of the term
Stockholders by the election not later than a day of such expiration
Meetings: Date of Regular Meeting
Directors- Monthly as fixed in by laws
Stockholders- Annual date fixed in the by laws, any date after April 15
Instances where vote of majority of BOD and majority of outstanding capital stock is needed
- Enter into management contracts
- Adopt, amend, or repeal the by-laws
Classes of Corporations: As to purpose
- Private- formed for some private purpose or benefit
- Public- created for public purpose (municipal or government owned and controlled)
Voting rights of Preferred Shares
- Incurring, creating, or increasing bonded indebtedness
- Increase or decrease of capital stock
- Investment in corporate funds in another corporation
- Amendments of AOI
- Merger or Consolidation with another corporation
- Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of corporate proper
- Adoption and amendment of by-laws
- Dissolution of the Corporation
Pre-emptive right
Shareholder’s right to subscribe to all issues or disposition of shares of any class in proportion to his present holding to retain his proportionate control in the corporation
Meetings: Notice
Directors- Regardless of meeting 2 days prior to the meeting
Stockholders- Regular: 21 days Special: 1 week or as stated in by laws
Promotional Stage of Incorporation
Organizers look for investors and bring them together to form a corporation. No VALID corporation and organizers who enters into contracts is personally liable
Self-dealing director
one who deals or transacts business with his own corporation
Express powers of a Corporation
- To sue and be sued
- Of succession by its corporate name for the period of time stated in the articles
- to adopt and use a corporate seal
- Amend its articles in accordance with the provision of the code
- Adopt by laws
- Issue or sell stocks to subscribers and to sell stocks
- Deal with such real and personal properties including securities and bonds of other corporations
- Enter into merger or consolidation
- Make reasonable donations. (Only foreign corporations cannot donate to a public political party
- Establish pension, retirement, and other plans for benefit of its employees
Requirements for removal of director
- Take place at a general or special meeting duly called for that purpose.
- Removal must be by the vote of the stockholders holding or representing 2/3 of outstanding stocks
- There must be a previous notice to members of the intention to propose the removal
Rules on vacancy in cases of death, resignation and abandonment
NOT LATER THAN 45 DAYS FROM TIME VACANCY AROSE, if BOD still constitutes a quorum, if no quorum, stockholders will fill vacancy
Meetings: Quorum
Directors- Majority
Stockholders- Majority of the outstanding stock
Requirements for Amendment of Articles of Incorporation
- Majority Approval
- Written Assent of stockholders representing 2/3 of outstanding stocks
- Approval of the SEC
Requirements for Amendment of Articles of Incorporation
- Majority Approval
- Written Assent of stockholders representing 2/3 of outstanding stocks
- Approval of the SEC
Participating vs Non-Participating Preferred Stocks
Participating- entitle the shareholder to participate with the common shares in excess distribution at some predetermined or at a fixed ratio as may be determined.
Non-participating- Entitle the shareholder thereof to receive the stipulated preferred dividend and no more
Interlocking Director
Director of two corporations who have transactions with each other which may result in the director favoring one over the other
Classes of Corporations: As to whether they are religious purpose.
- Ecclesiastical Corporation- formed for religious or spiritual purposes.
- Lay Corporation- Eleemosynary (charitable purposes) or civil
Preferred Stock
shares that preference over common stock with respect to payment of dividends and/or with respect to distribution of assets upon liquidation
Right of Succession
The death, incapacity or civil interdiction of one or more or even all of its stockholders does not result in its dissolution
Rules on adoption of By-laws
If prior to incorporation- must be signed by all the incorporators
If after incorporation- must be submitted within one month after receipt or issuance of certificate of registration and must be approved by majority of outstanding capital stock or member
Required officers as per the Code
- President
- Treasurer
- Secretary
4.Other officers provided for in the by laws
When are subscribed shares declared delinquent
30 Days on date indicated in the contract or date specified by the BOD pursuant to a call, no payment is made, all the shares covered by the subscription shall be considered delinquent
Qualifications of a Director or Trustee
- Must own at least own 1 share or is a member
- Majority must be resident of the Philippines
- Indicated in the by-laws
Effect of Delinquency Sale
The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor.
Concurrent positions not allowed to be held by the same person
- President and Secretary
- President and Treasurer
Executive Committee
Composed of not less than 3 members of the Board, appointed by the board, created to act by majority vote of all its members on such specific matters within the competence of the board
Common Stock
Shares of stock with complete voting rights, and can be issued as par or no-par value shares
Liability for Watered Stocks
- Liability for Par Value Shares- the directors who consented to the issuance or were passive about it, without written dissent are solidary liable
- Liability for No Par Value Shares- Only the directors consenting to the issuance are liable
Limitations imposed by the Code on Preferred Stocks
- Issued only with a stated par value
- Preference must be stated in the AOI and in the certificate of stock otherwise will be equal to all other shares
Classes of Corporations: Number of owners
- Close- Limited to 20 owners
- Open- traded through the PSE
Contents of Articles of Incorporation
- Name of Corporation
- Specific purpose or purposes for which the corporation is being incorporated.
- Place of Principal Office
- Corporation Term
- Names, nationality, and residence of incorporators
- Number of directors (max 15) or trustees (can exceed 15)
- Names, nationality and residence of director until first directors are elected
- For Stock Corporation, authorized stock, # of shares, par value, names ,nationality, and residence of original subscribers and the amount subscribes
- If nonstock, amount of capital, names, nationality, and residence of contributors and contributed amount.
Effect of Delinquency of Stocks
Stockholder immediately loses the right to vote and be voted upon or represented in the stockholders meeting as well as all the rights pertaining to a stockholders except the right to receive dividends
Ultra Vires Acts
Those which cannot be executed or performed by a corporation because they are not within its express, inherent, or implied powers (not necessarily illegal)
Concurrent positions not allowed
- President and Secretary
- President and Treasurer
Meetings: Place
Directors- Anywhere, even outside the Philippines
Stockholders- Principal place of business, if not practicable, city or municipality in the principal office f the corporation
Highest Bidder in Delinquency Sale
Bid made for the least number of shares in exchange for the total amount due
Requirement for self- dealing directors of corporation vested with public interest
- At least 2/3 of the entire membership of the board
- At least majority of the independent directors
Merger
Combination of two or more corporations whereby one corporation absorbs the other corporation
Consolidation
Combination of two or more corporations forming a new corporation
Requirements for Merger and Consolidation
- The BOD of each corporation shall approve of the plan of M&A
- Approval of 2/3 of outstanding capital stock
- Prior notice of such meeting 2 weeks before
- Execution of the articles of merger or consolidation
- Submission of Articles of Merger
- Issuance of Certificate of Merger or Consolidation by the SEC
Effects of Merger or Consolidation
- Only be 1 single corporation
- Termination of corporate existence of constituent corporation and the absorbed corporation
- The surviving corporation or consolidated corporation will possess all the rights, privileges, immunites, and powers and shall be subject to all the duties and liabilites
- The rights of creditors or any lien on the property shall not be impaired
- No liquidation needed
Effects of Merger or Consolidation
- Only be 1 single corporation
- Termination of corporate existence of constituent corporation and the absorbed corporation
- The surviving corporation or consolidated corporation will possess all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities
- The rights of creditors or any lien on the property shall not be impaired
- No liquidation needed
Non-stock Corporation
A corporation where none of its income is distributed as dividends to members, trustees or officers except upon dissolution
Non-stock Corporation: Purpose
Primarily organized for charitable, religious, educational, professional, cultural, scientific, social, civic service, r similar purposes like trade, industry, agricultural, and like chambers of any combination thereof
Non-stock Corporation: Voting
Straight Voting only
Non-stock Corporation: Term office
3 Years
Non-stock Corporation: Transferability of interest
Membership is personal and non-transferable unless AOI is provided
Non-stock Corporation: Classification of Membership
It is allowed as long as provided by in the AOI or by laws and may classify different voting rights for different classes
Rules on Close Corporations
- No more than 20 stockholders.
- All issued stock of all classes shall be subject to one or more specified restriction on transfer.
- Cannot list the stock in any stock exchange or make any public offering on any stock of its class
Business that cannot form a close corporation
- Mining Companies
- Oil Companies
- Stock Exchanges
- Banks
- Insurance Companies
- Public Utility
- Educational Institutions
One Person Corporation
Formed by a natural person, a trust, or an estate who is the sole stockholder
Which are not applicable in OPC
- Authorized Capital Stock
- Minimum Capital Stock
- By-Laws
- Minutes of the Meeting
Contents of AOI of an OPC
- If sole stockholder is a trust or estate, the name, nationality, and residence of the trustee, administrator, executor, guardian, conservator, custodian or other person exercising fiduciary duties and proof of such authority
- Name, nationality, residence of the nominee and alternate nominee and the extent, coverage, and limitation of the authority
Other positions that can be held by the Sole Stockholder
Treasurer is allowed provided he shall give a bond to the SEC in such a sum as may be required and a written undertaking to faithful administer the OPC funds to be received as treasures and to disburse and invest the same according to the Articles
Role of Nominee and alternate nominee
Take the place of the single stockholders as director and shall manage the corporation’s affairs in the event of the sole stockholder’s death or incapacity
Who is in charge of communicating to the nominee and SEC the incapacity or death of the Sole Stockholder
Corporate Secretary
Liability of a Sole Stockholder
Sole shareholder claiming limited liability has the burden of proving the corporation was adequately financed
Liability of a Sole Stockholder
Sole shareholder claiming limited liability has the burden of proving the corporation was adequately financed. In the event he cannot prove that the property of OPC is independent of stockholders personal property, he shall be jointly and severally liable for the debts and other liabilities
Foreign Corporation
On formed, organized or existing under any laws other than those of the Philippines
Incorporation Test
If it is incorporated under Philippine Law then it is a domestic corporation. If incorporated in another state then it is a foreign corporation
Control Test
Used to determine corporate nationality for purposes of applying laws example is prohibition to acquire land applicable to corporations more than 40% owned by non filipinos
Grandfather Rule
Determining the nationality of a corporation which in turn is wned by another corporation by breaking down the entity structure of the shareholders of the corporation
Resident Agent
A condition precedent to the grant of license to do or transact business in the Philippines, the foreign corporation is required to designate a resident agent n whom summons and other legal processes may be served in all actions or legal proceedings against such corporation.
Also requires the resident agent is of sound financial standing and must show proof that it is in good standing
Resident Agent
A condition precedent to the grant of license to do or transact business in the Philippines, the foreign corporation is required to designate a resident agent n whom summons and other legal processes may be served in all actions or legal proceedings against such corporation.
Also requires the resident agent is of sound financial standing and must show proof that it is in good standing
Test of Doing Business in Philippines
- Continuity Test- implies a continuity of commercial dealings and contemplates to some extent the performance of acts of some functions normally incident to and in progressive prosecution of the purpose of its organization
- Substance Test- If it is continuing the body or substance of the enterprise of which it was organized
- Contract Test- Actual performance of specific commercial acts within territory of Philippines
Doing Business in Foreign Investments Acts
- Soliciting orders and service contracts
- Opening offices or branches
- Appointing representatives or distributors domiciled in the Philippines staying in the country totaling 180 days or more
- Participating in management of entity incorporated in the Philippines
- Any other act that imply a continuity of commercial dealings
Exception when a Foreign Corporation can transact business in the Philippines
- Foreign Corporation can sue before the Philippine courts if the act is an isolated transaction
- Protect its trademark
- Violation of the Revised Penal Code
- Merely defending a suit filed against it
- Where a party is estopped to challenge the personality of the corporation
3 Ways of Dissolution
- Expiration of Corporate Term
- Voluntary Surrender of its primary franchise
- Revocation of its corporate franchise
Requisites for Voluntary Dissolution
- Majority vote of the BOD
- Sending of notice to each stockholder via mail or personal delivery at least 20 days prior to meeting
- Publication of notice of time, place, and subject of the meeting once in a newspaper published in the place of principal office
- Resolution adopted by the majority of outstanding stockholders or majority of members
- A copy of the resolution authorizing dissolution certified by majority of the board and countersigned by secretary
- Verified request for dissolution shall be filed
- Issuance of Certificate of Dissolution
If creditors a request, voting requirement will be 2/3 and its a petition
Withdrawal of Dissolution
- A withdrawal be made in writing and verified by anyone and signed by the same number for dissolution
- Must me be submitted no later than 15 days from receipt of request of dissolution
Grounds for Revocation
- Serious misrepresentation
- Refusal to comply of any lawful order
- Continuous inoperation for a period of at least 5 years
