RA 11232 - Propriety Rights Flashcards
o Right to dividends
▪ Entitlement to dividends
✓ The stockholders are entitled to dividends only upon declaration by the board of directors.
▪ Requirement for declaration of dividends
✓ There must be unrestricted retained earnings.
▪ Extent of right to dividends
✓ Of full-fledged stockholder – Full right.
✓ Of subscribers which are not yet delinquent – Full right.
✓ Of subscribers which are already delinquent – The delinquent subscribers are entitled to dividends, but the cash
dividends shall be offsetted to the subscription balance while the stock dividends will be withheld until the subscription
balance is fully paid.
Notes only
o Right to inspect corporate books
▪ Requirements for exercise of the right to inspect
✓ The right must be exercised during reasonable hours on business days.
✓ The person demanding the right has not improperly used any information obtained through any previous examination
of the books and records of the corporation.
✓ The demand is made in good faith or for legitimate purpose.
▪ Justified grounds for denial of right to inspection of corporate books
✓ To obtain information as to business secrets or to assist reveal business secrets.
✓ To secure business prospects or investment advertising list for the purpose of selling it to an advertising agency.
✓ To find technical defects in corporate transactions in order to bring nuisance or strike suits for purposes of blackmail or
extortion.
✓ To obtain information intended to be published as to embarrass the company business.
▪ Remedies if the denial of the right to inspect by the corporation is unjustified
✓ File a petition for mandamus against the said corporate officer.
✓ File an action for damages against the said corporate officer.
✓ File a criminal action for violation of BP 68 against the responsible officer.
Notes only
o Preemptive right
▪ Define Preemptive rights.
refers to the natural right of shareholders to subscribe to all issues or disposition of shares of any class in proportion to their present shareholdings unless denied in the articles of incorporation. It is intended to protect both the proprietary and voting rights of a stockholder in a corporation, since such proportionate interest determines his proportionate power to vote in corporate affairs when the law gives the shareholders a right to affirm or deny board action
▪ Extent of preemptive right
✓ It extends to all issuance of shares.
▪ Issuance of shares where preemptive right is not available
✓ Shares to be issued to comply with laws requiring stock offering or minimum stock ownership by the public such in the case of initial public offering (IPO).
✓ To shares that are being reoffered by the corporation after they were initially offered together with all the shares to the existing stockholders who initially refused them.
✓ Shares issued in good faith with approval of the stockholders holding 2/3 of the outstanding capital stock in exchange for the property needed for corporate purposes.
✓ Shares issued, with approval of the stockholders holding 2/3 of the outstanding capital stock, in payment of previously
contracted debts of the corporation.
✓ Waiver of the right by the stockholder.
✓ In case of non-stock corporation since there is no control in membership.
✓ In so far as the assignee is concerned, where the assignors have previously exercised their pre-emptive rights to subscribe to new shares.
✓ When the pre-emptive right is denied in the articles of incorporation or amendment thereto.
Validity of Denial of pre-emptive right?
It must be denied in the articles of incorporation and cannot be validly denied in the by-laws.
The required vote for denial of pre-emptive right is 2/3 of outstanding capital stock.
Explain
Right of first refusal
Right of first refusal provides that a stockholder who may wish to sell or assign his shares must first offer the shares to the corporation or to other existing stockholders of the corporation, under terms and conditions which are reasonable; and that only when the corporation or the other stockholders do not or fail to exercise their option, is the offering stockholder at LIBERTY to dispose of his shares to third parties. It arises only by virtue of contractual stipulations; in which case the right is construed strictly against the right of persons to dispose of or deal with their property. It is normally available in a close corporation as stated in its articles of incorporation. It is a contractual right of a stockholder.
Explain
Right of Appraisal
Appraisal right refers to the right of a dissenting stockholder to demand the payment of the fair value of his shares after DISSENTING from a proposed corporate action involving a fundamental change in the corporation in the cases provided by law when such right is available. This right may be waived by a shareholder if he has done so knowingly and intelligently. There must be unrestricted
retained earnings before the stockholder in an ordinary corporation may exercise this right.
Right of Appraisal
▪ Grounds for exercise of appraisal right (AIM-CSC)
✓ Amendment to the articles that has the effect of changing or restricting the rights of shareholder, or of authorizing preference over those of outstanding shares.
✓ Investment of corporate funds in another corporation or in a purpose other than the primary purpose.
✓ Merger or consolidations.
✓ Changing corporate term whether shortening or extending.
✓ Sale, encumbrance or other disposition of all or substantially all of the corporate property or assets.
✓ In a Close corporation, a stockholder may for any reason, compel the corporation to purchase his shares when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock.
Right of Appraisal
▪ Manner of exercise of appraisal right
✓ The dissenting stockholder shall make a written demand on the corporation within 30 days after the date on which the vote was taken for the payment of the fair value of his shares.
✓ The withdrawing stockholder must submit his shares to the corporation for notation of being dissenting stockholder within 10 days from his written demand.
✓ All rights accruing to such shares shall be suspended from time of demand for payment of the fair value of the shares until the abandonment of the corporate action.
✓ The dissenting stockholder shall be entitled to receive payment of the fair value of shares thereof as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate
action.
✓ The payment must be made by the corporation within 30 days from the determination by the Board of Appraisers of the
fair value of the shares otherwise the rights of the dissenting stockholders will be restored. The Board of Appraisers consists of a person appointed by the corporation, a person appointed by the dissenting stockholder and the third person appointed by the two appointees. The decision of majority of the Board of Appraisers on the determination of fair value of shares shall prevail.
✓ Stockholder must transfer his shares to the corporation upon payment by the corporation.
✓ Upon payment of the fair value of shares, all the rights of dissenting stockholders are terminated and not merely suspended.
✓ There must be unrestricted retained earnings for the exercise of appraisal right to prosper.
Propriety Meaning?
conformity to established standards of good or proper behavior or manners. appropriateness to the purpose or circumstances; suitability. rightness or justness.
Propriety Right
o Remedial Right
- Individual suit?
- Representative suit?
- Derivative suit?
- Individual suit is an action brought by a stockholder against the corporation for direct violation of his contractual rights.
(Stockholder vs. Corporation) - Representative suit refers to an action brought by a person in his own behalf or on behalf of all similarly situated. (Association of
Stockholders vs. Corporation) - Derivative suit refers to a suit brought by one or more stockholders or members in the name and on behalf of the corporation to redress wrongs committed against it or to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue or are the ones to be sued or hold control of the corporation. The corporation is a necessary party to the suit. It is a suit filed by a person who must be a shareholder to enforce a corporation’s cause of action. (Stockholder in behalf of corporation vs. Board of Directors of Corporation)
