SEC 22-47 Flashcards
1
Q
Who elects the BOD? Who appoints officers?
A
BOD- SHs
Officers - BOD
2
Q
Who decides in the corpo? Exceptions?
A
GR: BOD decides Exceptions: 1. close corp - SHS 2. excom 3. mngt contract
3
Q
Give the terms of office for BOD, Coop., Non-stock, and NS Educ
A
BOD - 1
Coop. - 2
NS - 3
NS Educ - 5
4
Q
How many qualifications for a BOD? What are they?
A
(1) Must own 1 share
(2) Share must be reg. in his name
(3) Must continuously reg. in his name
5
Q
3 corps vested with public interest
A
Securities, Banks, and Other cases (SBO)
6
Q
Req for corps vested with public interest
A
at least 20% of BOD are independent directors
7
Q
Independent directors
A
must be elected by SHS & entitled to vote in absentia
8
Q
Doctrine of hold-over
A
existing BOD will function as such until new BOD is elected
9
Q
Limitations/conditions for elections
A
(1) Presence in person or by written proxy, remote comm, or absentee voting
(2) Election by ballot if requested (if not - VIVA VOCE - raise of hand)
(3) No delinquent stock shall be voted
(4) Election by plurality
(5) Required notice must be given
(6) Quorum
(7) Only voting shares can vote
10
Q
Unpaid Shares
A
- can votes
- all rights are available
- has 30 days to pay on call of BOD
11
Q
Delinquent stock
A
- cannot vote
- unpaid shares which are past the 30 day-period set on call of BOD
12
Q
What constitutes a quorum?
A
M of the OCS - stock
M of members - non-stock
13
Q
Why is the quorum needed? Why is the majority of the quorum needed?
A
Quorum - required to hold meeting
M of Quorum - decision to be valid
14
Q
Formula for votes
A
VOTES = # of shares x # of directors to be elected
15
Q
Methods of voting
A
- straight voting
- cummulative voting for one candidate
- cummulative voting by distribution
16
Q
Rule for voting in non-stock
A
- may cast as many votes but may not cast more than 1 votes for a candidate
GR: NO cummulative voting
EX: unless allowed by AOI/ By-laws
17
Q
Manner of voting
A
Direct - SHs will attend and vote
Indirect - proxy, etc.
18
Q
Qualification of BOT
A
must be a member
19
Q
BOD’s power is original/undelegated
A
Theory of Original Power
20
Q
What are the remedies in case of BOD mismanagement?
A
RID
- Receivership
- Injunction
- Dissolution
- Derivative Suit
21
Q
Suit filed by SHs in the name of the corp, for the benefit of the corp. in case the BOD does not like to file or in case of mismanagement
A
Derivative Suit
22
Q
Can the BOD be removed?
A
GR: Inherent Power of Amotion
EX: If elected by minority through cummulative voting
23
Q
Inherent Power of Amotion
A
SHs can remove the BOD at any point in time without any valid ground
24
Q
Corp Officers
Give GR and EX
A
GR: Officers are elected by BOD
EX: Non-stock & Close Corp.
25
What is the term of office of corp officers?
- may be fixed in By-laws
| - may be removed any time by the BOD
26
Is there a prohibition if a SH, BOD, or Officer has another position in another corp?
GR: NO prohibition (As per Atty. "Di kasalanan maging mayaman lol)
EX: If prohibited in the By-laws
27
Qualifications to be a Pres of the corp
- must be a director
| - must attend BOD
28
Qualifications of a corporate secretary
- must be a resident and citizen
29
Qualification of a tresurer
must be a resident
30
Prohibitions in the coincidence of positions (2)
Pres and Sec
Pres & Treasurer
*IN OPC, Pres and Treasurer could be 1 person
31
Requisites for Board Meeting
1. meeting of BOD/BOT actually assembled
2. presence of quorum
3. decision of M of quorum
4. meeting at the time, place, manner provided in the By-laws
32
Can a BOD participate in proxy voting? Why?
No because what is delegated cannot be further delegated (Theory of Original Power)
33
Period to report election of BOD/Officers
within 30 days after election
34
In case of non-holding of election, what is the period to report?
within 30 days from date of scheduled election
35
In case of new date of election, what is the period to report?
not later than 60 days from scheduled date
36
If in case of non-holding of elections the 2nd time around, what happens?
SEC can order that an election be held
37
If a director, trustee, or officer dies, resigns, etc., what is the period to report?
report within 7 days from knowledge
38
What are the grounds for disqualification of directors, trustees, and officers
If within 5 years prior to election/appointment, he committed any of the FFF
39
FFF grounds for disqualification
1. Convicted by final judgment - offenses exceeding 6 years like estafa, murder, theft, etc; violating the corp. code; violationg RA 8799 (securities regulation code)
2. Found administratively liable for any offense including fraudulent acts (misappropriation, forgery, etc.)
3. Violation of 1&2 of a foreign law
40
Vote required for election of BOD/BOT
M of OCS
41
Required for meeting for removal of BOD:
M of OCS
42
Vote required for removal of BOD
2/3 of OCS
43
T or F - SEC can now remove BOD if found to be disqualified
T
44
T/F - BOD can remove another BOD
F. Why? BOD cannot remove another BOD because only the SHs can remove by 2/3 vote of OCS
45
3 types of evidences
criminal, civil, and administrative
46
Proof beyond resonable doubt
criminal evidence
47
Preponderence of evidence
Civil
48
Substantial evidence
administrative
49
T/F - The SEC and PCC impose other qualifications/disqualifications
T
50
T/F - Any vacancies occurring in the board of directors and trustees may be filled by the vote of at least majority of the remaining directors and trustees
True, if it is other than by removal or expiration of term and if still constituting the quorum.
Otherwise, said vacancies must be filled by the stockholders or members in a regular or special meeting called for a purpose.
51
Who can fill the vacancies in the office of directors or trustees?
1. By the stockholders or members
a. removal or expiration of the term
b. other than by removal or expiration, but no quorum
c. other than by removal or expiration, there is a quorum but delegated
d. increase in the number of the directors
2. By member of the BOD
- other than by removal or expiration, there is a quorum and they decided not to delegate
52
When the vacancy is due to term expiration, when shall the the election be held?
No later than the day such expiration at a meeting called for that purpose
53
When the vacancy arises as a result of removal by the stockholders or members, when shall the election be held?
It may be held on the same day of the meeting
54
What is the period to fill the vacancy for the other grounds? (Vacancy of directors and trustees, aside from term expiration and removal)
The election must be held no later than forty-five (45) days from the time the vacancy arose.
55
What do we call the director or trustee elected to fill a vacancy?
Replacement director or trustee
| they shall serve only for the unexpired term of the predecessor in office
56
Emergency board
Unanimous consent of remaining directors or trustees
- Happens when the vacancy prevents the remaining directors from constituting a quorum
- May be filled from among the officers of the corporation
- temporary only (the term shall cease within a reasonable time from termination of the emergency or upon election of the replacement director or trustee, WHICHEVER COMES EARLIER)
57
When must the corporation notify the commission for creating an emergency board?
Within three (3) days from the creation of emergency board, stating therein the reason for its creation
58
Compensation of directors
GR - BOD has no compensation
Exception - if granted by the vote of the MAJORITY OF THE OCS
Limitation - not to exceed 10% of the net income before the income tax of the corporate during the preceding year
59
T/F - Directors or Trustees can participate in the determination of their own per diems or compensation
False - they shall NOT participate
60
T/F - Corporations vested with public interest shall not submit to their shareholders and the commission, an annual report of the total compensation of each of their directors and trustees
False - they SHALL submit
61
Liability of directors, trustees or officers
GR - NOT liable (Business Judgement Rule)
Exception - liable if: (1st par) SOLIDARILY LIABLE
1. Willfully and knowingly votes or assents to patently unlawful acts of the corporation (Obedience)
2. Guilty of gross negligence or bad faith in directing the affairs of the corporation (Diligence)
3. Acquires any personal or pecuniary interest in conflict with his duty (Loyalty)
(2nd par)
Liable as trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation
62
Special Fact Doctrine
Attempts to acquire or acquires an interest adverse to the corporation in respect of any matter which has been reposed in them in confidence
63
T/F - A contract of the corporation with (1) or more of its directors, trustees, officers or their spouses and relatives within the fourth civil degree of consanguinity or affinity is VOIDABLE
True
64
What are the 5 requisites in Self-Dealing Directors?
a) 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;
b) The vote of such director or trustee was not necessary for the approval of the contract;
c) The contract is fair and reasonable under the circumstances;
d) In case of corporations vested in 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
e) In case of an officer, the contract has been previously authorized by the board of directors.
IF ANY OF THE 3 IS ABSENT OR VIOLATED - VOIDABLE
65
What is the vote to ratify the contract in self-dealing directors (where any of the first 3 conditions is absent)
Vote of stockholders representing at least two-third (2/3) of the OCS
66
Contracts between corporations with interlocking directors
GR - interlocking doctrine is VALID
Exception - if the requisites is Sec.32 are violated/absent
It can be invalidated if:
1) in case of fraud
2) contract is not fair and reasonable
Presumption - stockholdings exceeding 20% of the OCS shall be considered substantial for purposes of interlocking directors
Vote to ratify - two-thirds (2/3) of the OCS
67
Corporate Opportunity Doctrine
acquires a business opportunity which should belong to the corporation
68
Disloyalty of Directors
(obtaining profits to the prejudice of the corporation)
The director must account for and refund to the latter all such profits, unless the act has been ratified by a vote of the stockholders owning or representing at least two-third (2/3) of OCS
69
Reason of the BOD for creating Executive Committee
To have lesser quorum requirement
70
Who creates the Executive Committee?
Board of Directors (BOD)
71
What are the 4 requisites to create the Executive Committee?
1. By-laws must provide for it
2. Composed of not less than 3 members of BOD
3. Must be directors of the corp.
4. The BOD will create the ExCom
72
Minimum required members of Executive committee
3 members
73
What is the vote to create the Executive Committee?
Majority of the BOD
74
what is the vote to decide in ExCom?
Majority of ALL its members
75
If there are 5 members of the ExCom:
(a) what is the quorum?
(b) what is the vote to decide
(a) 3 members
| (b) 3 members - majority of All its members
76
What are the 5 instances when the ExCom cannot change the decision of either the SH or the BOD?
1. Approval of any action for which SH's approval is required
2. Filling the vacancies in the board
3. Amendment or repeal of BY-LAWS
4. Amendment or repeal of any resolution of the board
5. Distribution of the cash dividends to the SH
77
T/F: The BOD can create special committee of temporary or permanent nature.
True
78
T/F: The BOD can create special committee of only permanent nature.
False. Because the BOD can create special committee of either temporary or permanent nature.
79
The corporation cannot exercise power that is not found in the express, implied, and inherent powers.
Doctrine of Limited Capacity
80
The corporation can exercise any power, except those which are prohibited.
Theory of General Capacity
81
The corporation can exercise those powers which are specially prohibited unless it is allowed by law.
Theory of Special Capacity
82
What are the three kinds or classes of powers of the corporation?
Express, Implied, Inherent
83
This power of the corporation is stated in the Revised Corporation Code, primarily in the AOI.
Express
84
This power of the corporation is reasonably necessary to carry out the express power.
Implied
85
This power of the corporation is automatically given to the corporation.
Inherent / Incidental
86
T/F: The power to sue and be sued of a corporation is an inherent power.
False. Sue and be sued is an express power.
87
T/F: If a corporation is not registered, it can be sued but it cannot sue.
True
88
Is the corporation entitled to moral damages?
GR: No, because it has no feelings.
E: Besmirch reputation; tainted or ruined reputation
89
T/F: If a foreign corporation is not licensed to operate in the Philippines it can sue and be sued.
False. A foreign corporation without a license to operate cannot sue but can be sued.
90
T/F: A corporation has an implied power to acquire property.
False. Power to acquire property is an express power.
91
T/F: A corporation can acquire private land.
True
92
T/F: A corporation can acquire public land.
False. Corporations are not allowed to acquire public land, only private land.
93
What are the 2 requisites needed for a corporation to acquire its own shares?
1. The presence of unrestricted retained earnings.
| 2. There must be a legitimate corporate purpose.
94
Can a corporation acquire shares of another corporation?
If it is the primary purpose of the corporation, then YES.
But if not, then there is a need for the VOTE OF THE SHs and BOD to exercise the power.
95
T/F: Domestic corporations are allowed to contribute to political parties, but foreign corporations are not allowed.
True
96
It protects a person acting for and in behalf of the corporation from being personally liable for his authorized actions.
Doctrine of Corporate Immunity
97
What is the vote needed for a private corporation to extend or shorten its term as stated in the AOI?
Majority of the BOD + ratified by 2/3 of the OCS
98
T/F: In case of extension of the corporate term, a dissenting stockholder may exercise the right of appraisal.
True. Under Section 36, last sentence of the law.
99
Can a corporation invest its corporate funds in another corporation of business or for any other purpose?
GR- if primary purpose, vote is M of BOD.
E- If not, M of the BOD and 2/3 vote of OCS.
E to E- but if implied power vote is M of BOD.
100
Who has the power to declare cash dividends?
M of the Quorum of BOD
101
Who has the power to declare stock dividends?
M of the Quorum of BOD and 2/3 of the OCS
102
Cash Dividends belongs to whom?
Stock holder
103
Stock Dividends belongs to whom?
Corporation
104
Difference of Cash Dividends to Stock Dividends?
- Stock Dividends increases corporate capital while Cash Dividends don’t
- Cash Dividends are applied to the unpaid shares
- Stock dividends are withheld from the stock holder
105
Is declaration of dividends mandatory?
GR- no for it is the prerogative of the BOD
E- when it exceeds the 100% of the paid in capital
E to E- if it will be intended to be use in Expansion Projects, Loan Payments and Special Circumstances.
106
How can a corporation have the power to enter into a management contract?
Majority votes of BOD & Majority votes of OCS are needed
107
Manner of voting for corporation to enter into a management contract will change if the following instances occur:
- if 1/3 of the OCS of the managing and the managed are the same
- majority of the BOD of the both are the same
108
How long is a management contract?
GR- Maximum of 5 years
E- when it is about exploration of natural resources
109
It is when acts are inside the power of the corporation
Intra Vires Acts
110
It is when acts are outside the power of the corporation
Ultra Vires Act
111
It is when acts are prohibited by law
Illegal Act
112
Vote to ratify Ultra Vires Act
2/3 of the OCs
113
Vote to ratify Illegal Act
It cannot be ratified, it is prohibited by law
114
Difference between Articles of Incorporation and By-Laws
- AOI is made from the start
- By-Laws is a condition subsequent which means it can be from the start or after
- AOI is condition precedent which means a corporation cannot exist without it
- AOI is more superior than By-Laws
- AOI is more important to the Third Person While By-Laws is more important to the Stock Holders
115
Can a corporation exist without the AOI?
No
116
Can a corporation exist without the By-Laws?
Yes, but can’t operate
117
These are the internal rules of the corporation
By-Laws
118
If By-Laws are filed before the incorporation, who shall approve it?
All of the incorporators
119
If the By-Laws are filed ater the incorporation, who shall approve it?
Majority of the OCS
120
When is the By-Laws effective if filed before incorporation?
When AOI is approved and COI is given by SEC
121
When is the By-Laws effective if filed after incorporation?
Separate approval for the By-Laws is needed
122
TF: Certificate from appropriate government agency is needed for adoption or amendment purposes.
True
123
TF: The content of the By-Laws are specific and must be detailed
True
124
What is longer, AOI or By-Laws?
By-Laws
125
What is the vote for the amendment of the By-Laws?
GR- M of BOD and M of OCS
126
What happened when the stockholders delegated their power to amend the By-Laws?
2/3 of the OCS is needed
127
In case the OCS decides to revoke, how many vote is needed?
M of the OCS
128
T/F: The corporation can increase or decrease its capital stock.
True
129
T/F: Only the capital stocks that are authorized by the BOD and the SHs can be increased.
True
130
T/F: If the unauthorized capital stocks were increased, it will result in over-issued stocks.
True.
131
T/F: Corporation cannot decrease the capital stock if it will prejudice corporate creditors.
True
132
T/F: Corporation can decrease the capital stock if it will violate the Trust Fund Doctrine.
False. The corp. cannot decrease capital stocks if it will violate the trust fund doctrine
133
What are the three ways to increase capital stocks?
1. by increasing the number of shares
2. by increasing the par value of the shares
3. by increasing both the number of shares and the par value
134
What is the vote required to increase or decrease the capital stock; or incur bonded indebtedness?
M + 2/3 (Majority of the BOD + 2/3 of OCS)
135
Is there a need for prior approval from SEC to increase and decrease or to incur bonded indebtedness?
YES, in both cases.
136
What is the general rule for the application in SEC to increase capital stock?
GR: The application of increase must be made 6 months from the date of approval.
E: Justifiable reasons
137
T/F: The 25% 25% rule is required for increasing the capital stocks.
True
138
T/F: When incurring bonded indebtedness, bonds must be registered in SEC.
True
139
The right where before the shares of the corporation are sold to the third person or to the public, it must be first offered to the existing stockholders.
Pre-emptive right
140
The general rule is that the pre-emptive right is automatically given, what is the exception to the rule?
What are the 2 ways to remove the pre-emptive right?
GR: The pre-emptive right is given.
E: When the right is DENIED
2 ways to remove the pre-emptive right:
1. Stated in the AOI that there is no pre-emptive right
2. After the creation of the corp., the vote needed to remove the pre-emptive right is: M + 2/3
141
What is the vote needed to remove the pre-emptive right after the creation of the corp.?
Majority of the BOD + 2/3 of the OCS
142
What are the three circumstances where there is no need to deny the pre-emptive right of the corporation as it will be already denied by the law?
L.C.D.
1. Laws requiring minimum stock offerings
2. Corporate purposes
3. Contracted debt
143
When is the sale of assets, a sale of all or substantially all assets?
If it would render the corporation INCAPABLE of continuing the business.
144
If ALL shares are sold at the start, do the remaining unsubscribed shares still have pre-emptive rights?
NONE
145
If only specific shares are sold at the start, do the remaining unsubscribed capital still have pre-emptive rights?
YES
