RCC Flashcards
Attributes of a corporation
It is an artificial being
It is created by operation of law
It has the right of succession
It has powers, attributes, properties expressly authorized
by law or incidental to its existence
The corporation is regarded as
a person
The corporation is regarded as a person is under what doctrine
Doctrine of Distinct and Separate Juridical Personality
Separate Judicial Personality is disregarded if it is used to defeat
- public convenience
- justify wrong
- protect fraud
- defend crime
There must a __________,
governing the creation of private corporation
general law
GOCCs are incorporated under
special laws
A private corporation created through a law enacted by legislature is
unconstitutional
Corporation is not immortal,
but only power to exist
continuously
Corporation can only exercise
powers conferred upon it by
Law, AOI, those limited from the conferred powers, or incidental to its existence
powers specifically granted to a
corporation by law or by its Articles of Incorporation. Section 35 of the Revised Corporation Code (RCC)
Express Powers
Not explicitly stated but reasonably necessary to carry out the express powers
Implied Powers
essential for the corporation’s
continued operation, even if not
expressly enumerated
Incidental Powers
De Facto Corporations requisites
- Existence of a valid LAW
- GOOD FAITH to incorporate
- ACTUAL USE or exercise in
good faith of corporate powers
Exist when two or more persons assume to act as a corporation knowing it to be without authority to do so
Corporation by estoppel
Test determined by the state of incorporation
Incorporation Test
Based on the nationality of a corp engaged in nationalized areas of activities under the Constitution and other applicable laws
Control Test
the Filipino equity is accurately computed in cases where corporate SH with foreign shareholdings are present, attributing the nationality of the second or subsequent tier of ownership to determine the nationality of the corporate shareholder
Grandfather Rule
Number of BOD/BOT
not more than 15 for SC; may be more than 15 is NSC
term for BOD/BOT
1 yr for BOD; not to exceed 3 yrs for BOT
Requirements to become BOD/BOT
- must have atleast one (1) share of stock (SC), maintain member for (NSC)
- must have not been convicted by final judgment of an offense punishable by imprisonment for a period exceeding 6 years, a violation of RCC or SRC; or other violations similar thereof in foreign tribunal within 5 yrs prior to the date of election/appointment
When is 20% of BOD are independent directors required?
-mandatory to corporation vested with public interest such as:
- public corporation (50M Asset with 100 each shares threshold)
- Corporations whose securities are registered (publicly listed companies)
- Specially regulated financial intermediary
- Those corporations required by law to have ID
The subscription is one, entire and indivisible whole contract is under what doctrine?
Doctrine of Individuality of Subscription
- Refers to subscription of shares in a corporation still to be formed
- Irrevocable for a period of 6 months
Pre-Incorporation Subscription
Requirement during incorporation
No minimum subscription and paid up capital requirement
Any contract for the acquisition of unissued stock in an existing corporation or corporation still to be formed
Subscription Contract
These are forms of securities representing equity ownership in a corporation divided into units
Share of Stocks
- the amount fixed in the AOI to be subscribed and paid by the SH
- The maximum number of shares that the corporation is legally allowed to issue without amending the AOI
Authorized Capital Stock
the portion of the ACS which is covered by subscription agreements whether fully paid or not
Subscribed Capital Stock
the total shares of stocks
issued under binding
subscription contracts to
subscribers or stockholders,
whether fully or partially paid,
except treasury shares
Outstanding Capital Stock
the portion of the ACS which has been subscribed and paid by the SH of the corporation
Paid-up Capital Stock
All stocks issued by the corporation are presumed equal, with the same privileges and liabilities, except as otherwise provided in the AOI and certificate of stock. What doctrine is this?
Doctrine of Equality of Shares
the ordinary/basic share of stock of a corporation, usually issued without privileges or advantages except they cannot be denied the right to vote
Common Shares
entitles the holder to some preferences over the holder of common stock as may be provided in the AOI; may be denied the right to vote
Preferred Shares
With certain rights and privilege not given to owner of other stocks
Founder Shares
Shares that may be purchased by the corporation from the holders regardless of unrestricted retained earnings
Redeemable Shares
Shares which have been issued and fully paid for, but subsequently reacquired by the issuing corporation
Treasury Shares
The board is the governing body; decision making authority save on cases requiring shareholders approval. What principle is this?
- Principle of Centralized Management
The board is the body that
has authority to bind the corporation. What principle is this?
- Authority to Bind Corporation
A principle where corporation can be held liable for the actions of its agents, officers, or representatives, even if they acted without actual authority, so long as it appears to third parties that such authority was conferred upon them.
- Doctrine of Apparent Authority
The members of the board must act with care, loyalty and obedience.
They must exercise independent judgment for the best interest of the corporation for all stakeholders. What principle is this?
Business Judgment Rule
What are the requisites for the election of BOD/BOT to be valid
- Every SH/M has the right to
nominate the D/T to be elected - Notice of meeting sent to the SH in accordance to form under the BL
- Presence of majority of OCS or member entitled to vote; either in person or representative authorized thru written proxy
- For SC; SH may cast such number of votes based on the shares registered in their names in the books of corporation multiplied by the whole number of directors. For NSC; members may cast as many votes as there are trustees to be elected but may not be more than 1 vote for 1 candidate unless cumulative voting is allowed in AOI/BL
- The nominees receiving the highest number of votes shall be duly elected
- The elected must possess all the qualifications and none of the disqualification under the RCC and the BL of the corporation
What are the methods of voting for election of directors?
Straight Voting
Cumulative Voting
a. Cumulative voting for 1
candidate
b. Cumulative voting by
distribution
After election the following corporate officers must be
elected:
- President
- Treasurer
- Secretary
- Such other officer provided in the BL
Set of rules and regulations adopted by the corporation for its internal government, regulate conduct and prescribe rights of its members in reference to the management of its affairs
Bylaws
How are bylaws adopted?
The affirmative vote of the SH representing at least a majority of the OCS or at least a majority of the members in case of nonstock corps
Will the non-submission of bylaws result in the automatic dissolution of the corporation?
No, there must be proper notice and hearing
Are the bylaws binding to third parties?
No, only binding among SH and members of the corporation
When do bylaws become effective?
Only upon the issuance of the SEC of a certification that the bylaws are in accordance with the RCC
How are bylaws amended or revised?
- Majority of BOD/BOT
- Majority of OCS or members
- Regular/Special meeting duly called for that purpose
Is there a compensation for directors and trustees?
No compensation but only reasonable per diem unless allowed in their bylaws
A corporation holds such powers which are not prohibited or withheld from it by general laws. What doctrine/theory is it?
Theory of General Capacity
General Powers
(Sec.35, RCC)
- To sue and be sued in its corporate name
- To have perpetual existence
- To adopt and use a corporate seal
- To amend its articles of incorporation
- To adopt bylaws
- To issue or sell stocks to subscribers and to sell treasury stocks/ accept members in case of NSC
- To deal with Properties
- To enter into p, jv,m/c
- To make reasonable donations
- To establish pension, retirement, and other benefits for its stakeholders
- To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation
May the minority stockholder
file a case in the name and on behalf of the corporation?
Yes, through a derivative suit?
An action filed by a minority SH in the name and on behalf of the corporation to enforce a corporate right or cause of action against the directors or officers who committed a wrongful act against the corporation
Derivative Suit
Power to Amend AOI
- Approval of a majority of the BOD/BOT and vote of SH representing at least 2/3 of the
OCS - Submit old AOI and new AOI underscoring the changes made
- Certified by corp secretary and majority of the BOD/BOT that the required votes was obtained
- Effective upon approval or upon filing thereof if not acted upon with 6 month
Power to Issue and Sell Stocks to subscribers
Includes the power to set the terms and conditions such as:
25% of the issued stocks must be subscribed and 25% of such subscribed must be paid
Power to make Donations requisites
- Donation must be reasonable
- Must be for valid purpose
- Must bear a reasonable relation to the corporation’s interest
- For FC-The donation must not be in aid of political party, candidate, partisan political activity
A corporation cannot exercise
powers except those expressly or impliedly given to it. (Sec. 36 to 43 , RCC)
Theory of Specific Capacity
Power to Extend/Shorten Corporate Term Sec. 36,RCC
requisites?
- Majority of the BOD; ratification of SH representing 2/3 of the OCS or 2/3 of members in case of NSC
- Written notice to SH/M
- Requires amendment of AOI thus require favorable recommendation from govt agency for special corp/imbued with public interest
- Done 3 years prior to expiration unless earlier extension is allowed for justifiable reason
Power to Increase/Decrease capital stock or incur, create, increase bonded indebtedness Sec 37,RCC requisites
- Vote of at least MAJORITY of the BOD; ratification by SH representing at least 2/3 of the OCS, 2/3 of members in NSC
- written notice
- Certification signed by at least majority of the BOD countersigned by chairman and the secretary of the SH meeting
Effectivity of increase or decrease of capital stock
Approval of the SEC and its issuances of a certificate of filing of increase or decrease of capital stock
Borrowing of corporation which is long term in nature involving large number of lenders and secured by the encumbrance on corporate assets.
Bonded Indebtedness
Right of SH to subscribe to all
issues or disposition of shares of any class by the corporation, in proportion to their respective
shareholdings
Pre-emptive Right
Instances where there is power to deny pre-emptive right
- Denied in the AOI
- Waiver of SH whether express or implied
- Shares issued in compliance with the laws requiring minimum stock ownership of the public
- Issuance of shares in exchange for property given for a corporate purpose, if approved by SH representing atleast 2/3 of the OCS
- Issuance of share in payment of debt made in GF, if approved by SH representing atleast 2/3 of the OCS
2 kinds of encumbrance of corporate assets
- Disposition of any of corporation’s property and assets in the ordinary course
business - Disposition of all or substantially all properties of the corporation
Requisites for investment other than primary purpose
- Approval of majority of the BOD/BOT and ratified by SH representing 2/3 of the OCS or
by 2/3 of members in case of OCS - Notice of the proposed investment for meeting
- Appraisal right for dissenting SH
Conditions to declare dividends
- Presence of URE
- Shall be payable in cash, in property, or in stock to all SH based on outstanding stock held by them
- The cash dividend must be approved by majority of the BOD. In case of stock dividends, in addition thereto, must be approved by SH representing 2/3 of OCS at a meeting duly called for that purpose
Declaration of dividends is mandatory if
the surplus profit is in excess of 100% of its paid in capital
Declaration of dividends is mandatory if the surplus profit is in excess of 100% of its paid in capital except
- Corporate Expansion
- Prohibited by Creditors
- Reserved for contingencies
Any dividends other than from the unissued shares of the corporation
Cash Dividends
One that is declared and paid out of the unissued shares of the corporation
Stock Dividends
POWER to ENTER INTO MANAGEMENT CONTRACT Sec. 43, RCC requisites
- Approval by majority of the BOD and by stockholders owning at least the majority of outstanding capital stock (or majority of members in a nonstock corporation)
- If more than 1/3 of the managing corporation’s voting stock is owned or controlled by the same interest in both managing and managed corporations, or a majority of directors are the same in both corporations, then the contract must be approved by at least 2/3 of the outstanding capital stock (or 2/3 of the members in a nonstock corporation) of the managed corporation
- No management contract may
exceed five (5) years for any single term
Three (3) ways by which a person may be a stockholder:
- Contract of subscription with the corporation;
- Purchase of treasury shares from the corporation; and
- Purchase or acquisition of shares from existing stockholders.
is the authority given by the stockholder or member to another to vote for him at a stockholders‘ or members‘ meeting.
Proxy
is an agreement whereby one or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding 5 years at any one time
Voting Trust
PROPRIETARY RIGHTS
- Right to dividends
- Right of appraisal
- Right to inspect
- Pre-emptive right
- Right to vote
- Right of first refusal
It is the right of a stockholder who dissents from certain corporate actions to demand payment of the fair value of his or her shares
Right of appraisal; Appraisal right
Directors, trustees, stockholders or members of the corporation have the right to inspect records of all business transactions and minutes of any meetings of the corporation
Right to Inspect
It is the preferential right granted to all stockholders of a corporation to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings
Pre-emptive right
It is the right granted to stockholders of existing corporations to buy the shares of stock of another stockholder at a fixed price and only valid if made on reasonable terms and consideration
Right of first refusal
Requisites of a valid meeting
- The meeting must be held on the date fixed in the by-laws or in accordance with law;
- Prior notice must be given to the stockholders or members;
- It must be held at the proper place; and
- It must be called by the proper person
A contract of the corporation with one or more of its directors or trustees or officers or their spouses and relatives within the fourth civil degree of consanguinity or affinity
is voidable, at the option of such corporation
A contract of the corporation with one or more of its directors or trustees or officers or their spouses and relatives within the fourth civil degree of consanguinity or affinity is voidable, at the option of such corporation except when
- The presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;
- The vote of such director or trustee was not necessary for the approval of the contract;
- The contract is fair and reasonable under the circumstances;
A contract of the corporation with one or more of its directors or trustees or officers or their spouses and relatives within the fourth civil degree of consanguinity or affinity is voidable, at the option of such corporation exception to the exception
- In case of corporations vested with public interest, material contracts are approved by at least two-thirds (2/3) of the entire membership of the board, with at least a majority of the independent directors voting to approve the material contract;
- In case of an officer, the contract has been previously authorized by the board of directors.
When one (or some or all) of the directors in one corporation is (or are) a director(s) in another corporation.
Interlocking Director
A piece of paper or document which evidences the ownership of shares and a convenient of instrument for the transfer of title
Certificate of Stock
Requirements for valid transfer of stocks
- The certificate of stock must be duly endorsed by the transferor or his legal representative;
- There must be delivery of the stock certificate; and
- To be valid against third parties, the transfer must be
recorded in the books of the corporation
Is the registry of ownership in a
corporation. It is the quintessential record of all stockholders and their corresponding stockholdings in the corporation.
STOCK and TRANSFER BOOK
a. Issued without consideration (Bonus Share);
b. Issued as fully paid when the corporation has received less sum of money than its par or issued value (Discounted Shares);
c. Issued for consideration other than actual cash (property or service), the fair valuation of which is less than its par or issued value;
d. Issued as stock dividends when there are no sufficient retained earnings or surplus to justify it.
Watered Stocks
is a union effected by absorbing one or more existing corporations by another which survives and continues the combined business.
Merger
is the uniting or amalgamation of two or more existing corporations to form a new corporation
Consolidation
Procedure for merger and consolidation
- Approval of merger or consolidation plan by Board of Directors/Trustees
- Approval of the plan by stockholders representing 2/3 of the outstanding capital stock, or 2/3 of the members in non-stock corporations
- Prior notice of such meeting, with a copy or summary of the plan of merger or consolidation
- Execution of the articles of merger or consolidation, signed by P or VP certified by corporate secretary
- Submission of the articles of merger or consolidation to the SEC
- Issuance of the certificate of merger or consolidation by the SEC at which time the merger or consolidation shall be effective.
Two types of Dissolution
Voluntary and Involuntary
Voluntary dissolution types
- Where no creditors are affected
- Where creditors are affected
- Shortening of corporate term
Dissolution where no creditors are affected
- Majority of the board of directors or trustees must vote
for the dissolution. - Resolution adopted by affirmative vote of the stockholders owning at least majority of the outstanding capital stock or members
- At least twenty (20) days prior to the meeting, notice shall be given to each shareholder or member of record personally, by registered mail, or by any means authorized under its bylaws
- A verified request for dissolution shall be filed with the SEC
Dissolution where creditors are affected
- Verified petition to SEC
- Submission to SEC
- Issue an order for any objection
- Publication
- Hearing of the petition and objection
- Issuance of certificate of dissolution
Involuntary dissolution happens when?
- Non-use of corporate charter within five (5) years from the date of its incorporation
- Failure of the corporation to resume operations within two (2) years after the same has been placed under delinquent status
- Upon receipt of a lawful court order dissolving the corporation
- Upon finding by final judgment that the corporation procured its incorporation through fraud
- Upon finding by final judgment of commission of securities violations, smuggling, tax laundering, evasion, money or graft and corrupt practices
