RA 11232 - Close Corporation

Question 1

o Requirements to be classified as close corporation (4)

Answer 1

✓ The number of stockholder must not exceed 20.

✓ Issues stocks are subject to transfer restrictions such as right of first refusal or a right of preemption in favor of the stockholders
or the corporation.

✓ The corporation shall not be listed in the stock exchange or its stocks should not be public offered.

✓ At least 2/3 of the voting stocks or voting rights are not owned or controlled by another corporation which is not a close corporation.

Question 2

o Characteristics of close corporation

Answer 2

✓ Stockholders may act as directors without need of election and therefore liable as directors.
✓ Stockholders involved in the management of the corporation are liable as directors.
✓ Quorum may be greater than mere majority.
✓ The corporate officers or employees may be elected or employed directly by the stockholders instead by the board of directors.
✓ Transfers of stocks to others, which would increase the number of stockholders to more than the maximum are invalid.
✓ Corporate actuations may be binding even without a formal board meeting.
✓ Appraisal rights can be exercised regardless of existence of unrestricted retained earnings.
✓ Pre-emptive right is absolute and available to all stock issuances unless restricted by the articles of incorporation.
✓ Deadlocks are settled by SEC.

Question 3

o Disqualified corporations to be classified as close corporation (I COME BSP)

Answer 3

✓ Insurance companies
✓ Corporations vested with public interest
✓ Oil companies
✓ Mining companies
✓ Educational institutions
✓ Banks
✓ Stock exchange
✓ Public utilities

Question 4

o Validity of restrictions on transfer of shares
✓ Right of first refusal
✓ Right of first option

Answer 4

Notes only

Question 5

o Void or Prohibited restriction on transfer of shares
✓ Absolute prohibition on sale of shares of stocks

Answer 5

Notes only

Question 6

Preemptive rights of stockholders
✓ It is absolute in nature and there are no exceptions.

Answer 6

Notes only

Question 7

o Appraisal rights of stockholders
✓ It is exercisable for any reason.

o Deadlock in a close corporation
✓ The SEC has the authority to break the deadlock of a close corporation.

Answer 7

Notes only