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LECTURE NOTES ON CORPORATIONS

INTRODUCTION AND PRELIMINARIES

1. In the Philippines, business enterprises are organized principally in one of four forms, the single proprietorship, the general partnership, the limited

partnership, and the corporation. The choice of the form of organization is

usually made by the original organizers and is dictated by the requirements

of the business.

a. Normally, a single proprietorship will be resorted to if there is a

single owner who has the ''necessary resources for the intended

business acti!ity. "esort to partnerships and# corporations are

determined, to a large e$tent, by the need for resources and limitationof liability. The choice between a partnership and a corporation on

the other hand, is determined by %conomic factors.

b. Perhaps, the most significant economic reason for the continued use

of&partners ta$ based. partnership's distributable Income is ta$ed

once, while that of the corporation is ta$ed twice, once at the

corporate le!el and once again at the stoc(holder&le!el. Then again,

the same reason may be ad!anced in fa!or of a corporate structure as

the imposition of ta$ at the stoc(holder le!el may be delayed untilthere is a declaration of di!idends.

c. nother, though not necessarily less significant, is the nature of the

business. Traditionally, partnerships are ideal for short, term business

!entures, where the organizers do not foresee the continuance of their

union after completion of the business acti!ity and would li(e to

liquidate their in!estments quic(ly

d. corporation and a partnership are distinguished as follows)

a* THE MANNER OF CREATION - a corporation is created

by law, while a partnership is created by agreement

b* TO THE NUMBER OF INCORPORATORS& a

corporation generally requires a minimum of + and a

ma$imum of + incorporators, while a partnership requires a

minimum of . The e$ception is a corporation sole



c* COMMENCEMENT OF EXISTENCE & a corporation,

commences to ha!e e$istence upon the issuance or a

certificate of incorporation, while, a partnership commences

to ha!e e$istence upon agreement

d* POWERS THAT MAY BE EXERCISED& a corporationcan oh1y-e$ercse powers allowed by law, while a

partnership can e$ercise power not contrary to law or public

policy

e* MANAEMENT & a corporation is managed by a board,

while a partnership is managed by the managing partner

f* /0%//I2N& a corporation enoys the right of&

succession, while a partnership does not

g* PERSONAL LIABILITY & as a general rule, stoc(holdersdo not ha!e personal liability beyond the !alue of their

shares, while partners are liable beyond what they ha!e

contribute

h* TRANSFERABILITY OF INTEREST - one's interest in a

corporation is transferable without consent, while that in

partnership, requires consent

i* TERM OF EXISTENCE & a coloration can e$ist for terms

of no more than +3 years& at any gi!en time but subect toe$tension, while a partnership is no limited as to term

* DISSOLUTION ! a corporation cannot be dissol!ed

without. the consent of the state, while a partnership can be

dissol!ed without need for the consent of the state.

e" The Si#i$%&ities %&e'

i. both ha!e uridical personality

ii. can act only through its agent

iii. both are composed of an aggregate of indi!idualsi!. distribution of profits is gi!en those who ha!e contributed

capital

!. both can only be organized if there is a law authorizing its

registration

!i. both are ta$ed as corporation



f. Nonetheless, what is pre!alent is the use of the corporate structure as

the preferred business organization. "easons ad!anced for its use are)

limitation of liability, capital generation from equity, debt andincome retention, organizational control, free transferability of

ownership, and succession.

. 2ther forms of business organizations that ha!e been utilized to !arying

degrees are)

a. ()int %**)unts

+" +usiness t&usts

*" ()int ,entu&esd" *))e&%ti,es

e" s.ndi*%tes"

a. /)int %**)unts or sociedad de cuentas en participacion are

arrangements among merchants who Interest themsel!es In the

transactions of other merchants, contributing thereto the part of the

capital they may agree upon, and who participate in the fa!orable or

unfa!orable results thereof in the proportion they may determine.It is a form of business ssociation in which two or more

persons interest themsel!es in the business of another contributing

thereto money, property, or industry4 and participating in the results

of the business in the proportion that they may determine.

b. +usiness t&ust is a legal relation whereby one person, called the

trustor, con!eys a property to another for the benefit of aperson

called the beneficiary. The person in whom confidence is reposed as

regards the property is called the trustee.

trust agreement can actually be entered into with a trustdepartment of a commercial or uni!ersal ban(. Pertinent regulations

issued by the 5ang(o /entral ng Pilipinas defines the term #trust

business# as any acti!ity resulting from a trustor&trustee relationship

or trusteeship in!ol!ing the appointment of a trustee by a trustor for

the administration, holding, management of funds and6or properties



of the trustor by the trustee for the use, benefit or ad!antage of the

trustor or of others called beneficiaries

In the 0nited /tates, a business trust is called the

#7assachusetts Trust# because they were de!eloped in

7assachusetts from 1813 to 18+. It is defined as an unincorporated business association established by a declaration or deed of trust, and

go!erned contributions to the capital required and accepting a fair

share of the ris(s and benefits of the underta(ing in accordance with

uni!ersally accepted cooperati!e principles.

c. S.ndi*%te is a group of people who come together to wor( for a

common aim. This unincorporated business association is often

encountered among insurance companies who may be underwritinga, large ris( or bon(s who are lending 9 huge amount. /yndication

therefore the practice of di!iding in!estment ris( between se!eral

persons in order to minimize indi!idual ris(.

AD0ANTAES AND DISAD0ANTAES OF A CORPORATION

1" The %d,%nt%ges %&e'

a. the capacity to act as a legal unit

b. limitation of or e$emption from, indi!idual liability of shareholders4c. continuity of e$istence4

d. transferability of shares

e. centralized management of board, of directors4

f. professional management4

g. standardized method of organization, and finance4 and

h. easy capital generation.

2" The dis%d,%nt%ges %&e'

a. it is prone to #double ta$ation4 b. they are subect to greater go!ernmental regulation and control4

c. corporation may be burdened with an Inefficient management if

stoc(holders cannot organize to oppose management4

d. limited liability of stoc(holders may at times translate Into limited

ability to raise creditor capital4



e. it is harder to organize compared to other business organizations4

f. it is harder or more complicated to maintain4 and

g. the #owners# or stoc(holders do not participate in the day to day

management.

SUB/ECT CO0ERAE

1. These notes co!er the orporation ode, /% ode of orporate

:o!ernance, orporate "eco!ery, /ecurities "egulation ode, and other

related laws.

THE CONSTITUTIONAL BASIS FOR ENACTMENT OF THE

CORPORATION CODE

1. The constitutional basis for the ode is /ection 1;, rt. 1 of the 18<9onstitution which pro!ides) #ongress shall not, e$cept by :eneral law

pro!ide for the formation, organization or regulation of pri!ate,

corporations,, go!ernment owned or controlled corporations = may be

created by or established by special charters in the interest of the public

good and subect to the test of liability.

SCOPE OF THE CORPORATION CODE

1. The orporation odea. Pro!ides for the incorporation, organization and regulation of

pri!ate corporations, both stoc( and non&stoc(, including educational

and religious corporations

b. /tatement of corporate powers and pro!ides for dissolution

c. >i$es the duties and liabilities of directors6trustees6officers

d. ?eclares the rights of stoc(holders or members

e. Prescribes the conditions under which it may conduct business

f. Pro!ide penalties for !iolation of the ode

g. "epeal all laws or parts thereof that are inconsistent

CORPORATION DEFINED

1" The law defines a, corporation as an artificial being created by operation

of law ha!ing the right of succession and the powers, attributes and

properties e$pressly authorized by law or incident to its e$istence.



%" >rom the definition, the attributes of a corporation are)

i" created by operation of law

ii" it is an artificial being

iii" it only has the power, attributes and property e$pressly allowed

by law or incident to its e$istencei," it has the right of succession.

. @hen a corporation is said to be created by operation of Aaw. It means that

it cannot come into e$istence without the consent or any

grant of authority from the so!ereign go!ernment.

a. The grant of authority by the so!ereign go!ernment is a

concession. Thus the concept (nown as the Boncession Theory or

:o!ernment Paternity Theory# or the #>ranchise Theory#

b. ?istinguishing between Plenary or orporate or :eneral4 >ranchisewhich refers to the pri!ilege enoyed by indi!iduals to form a

corporation, and the /econdary or /pecial >ranchise which refers to

the pri!ilege enoyed by the =corporationC to be and to act as a

corporation.

c. Pri!ate corporations are generally organized and formed under the

pro!isions of the orporation ode.

d. They can also be formed under special laws or charters which

then shall be the primary Daw that will go!ern them to besupplemented by the orporation ode.

9. The corporation is said to be an artificial being that is in!isible

and intangible, it is said to e$ist only in contemplation of Daw. The law

treats as though it were a person by process of fiction#. It is li(ewise

said to be a uristic person resulting from a association of human

beings being granted legal personality by the state

a. onsequently, the corporation as a uridical person has a personality

separate and distinct from the persons composing it. In fact, this

separate personality is recognized under the i!il ode which beginsthe minute it is said to be duly constituted according to law.

b. The i!il code also pro!ides that as such it may acquire and possess

property of all (inds as well incur obligations and bring ci!il or

criminal actions in conformity with laws and regulations of their

organizations



c. Property so required or con!eyed to the corporation is the property

of the corporation and !ice !ersa. It has no personality to bring

action for reco!ery of property belonging to stoc(holder or its

members.

d. The interest of a stoc(holder6member is inchoate. It becomes actual,direct and e$isting only upon liquidation of the assets of a

corporation and its e!entual ssignment to him.

e. The obligations 4of a corporation are not obligations of its

Bstoc(holders or members 'and !ice&!ersa. The principle though is

subect to an e$ception, the ?octrine of Piercing the Eeil 2f

orporate >iction applies. This doctrine is also (nown as the'&

?octrine of ?isregarding the >iction of orporate %ntity or

orporate lter %go doctrine. It is an e$ception because theapplication of the doctrine see(s to hold the stoc(holder or members

of the corporation personally liable for corporate obligations.

f. >or the doctrine to apply, any of following circumstances must

obtain)

i. orporate fiction is being used to defeat public

con!enience. The con!enience is the creation of a separate and

distinct person from the stoc(holder or members to facilitate

the transaction of business. These are referred to as the lter&%go cases. n e$ample Is when a stoc(holder or member who

has an unsa!ory reputation utilizes corporate fiction to hide his

true identity for illegal purposes, or

ii. It ustifies a wrong, protects fraud or defends crime. These

are the referred to as the >raud cases.

g. To sustain the application of the doctrine&to alter&ego cases, resort

has been had to the instrumentality "ule. The requisites of which are)

i. There is complete domination of control of policy and business practice

ii. The control is used to commit the fraud

iii. The control used is the pro$imate cause of inury or loss



h. The residence of a corporation is ordinarily the place of

incorporation. >or !enue purposes, a domestic corporation is a

resident of a particular pro!ince, city or municipality.

i. Tort liability can be imposed on a corporation because generally

spea(ing, the rules go!erning liability of a principal or master for atort committed by an agent or ser!ant are the same whether the

principal or master be a natural person or a corporation. Fence, when

a tortous act is committed by an officer or agent of a corporation

under e$press direction or authority of the corporation, It would be

liable

. corporation is a person, in proper cases, within the due process and

equal protection clause of the onstitution. Dust li(e a natural person,

It cannot be depri!ed of Its life and property due process Fowe!er, itcannot e$ercise constitutional rights is inconsistent with its being an

artificial being, such as protection of liberty. Note howe!er that while

a corporation can in!o(e the right against unreasonable search and

secure, there is a legal way to obtain the required information as a

corporation cannot refuse to produce Its boo(s and records lawfully

required rely by the Bappropriate go!ernment agency. Fence, it has

been held that when a corporation, !ested a with special pri!ileges

and franchises, is charged, with abuse of such pri!ileges andfranchises cannot claim a right against self incrimination when

directed to produce its boo(s and records.

h. s a rule, no criminal action can lie against a corporation.

corporation cannot commit felonies as pro!ided for in the "e!ised

Penal ode because artificial beings are incapable of intent, nor can

it actually perform an o!ert act.

i. To ma(e a corporation criminally liable, the /upreme ourt 3

clarified that it is necessary that the statute, by e$press words or by

necessary intendment include corporations within the persons whocould offend against criminal laws and the legislature must at the

same time establish a procedure applicable to corporations. Fence,

the court acquitted the president of a corporation who signed a trust

receipt as the law pre!ailing prior to the enactment of the Trust



"eceipts Aaw did not pro!ide for the e$istence of corporate criminal

liability

. It cannot be entitled to moral damages. Note the ruling in

#7ambulao&Aumber !s.. PN5 allowing reco!ery of moral damages

for a besmirched reputation which was modified by the case of cme/hoe !s. ourt of ppeals when the /upreme ourt said that) mental

suffering can only be e$perienced by one ha!ing a ner!ous system

and it flows from real ills, sorrows and grief of life, all of which

cannot be suffered by respondent ban(s as an artificial person. The

subsequent case of /olid Fomes !s. ourt of ppeals pro!ided that

there is not abandonment of the 7ambulao ruling because it is not ah

en banc decision. This was followed by sset Pri!atization Trust !s.

ourt of ppeals, which restated 7ambulao, then again by 5/&5N ! ourt of ppeals stated that 7ambulao is an obiter dictum,

then 5PI !s. asa 7ontessori Internationale, which again cited

7ambulao and held that for breach of the fiduciary duty required of

a ban(, a corporate client may claim moral damages when its good

reputation is besmirched by the breach, and social humiliation results

therefrom. The latest Is >ilipinas 5roadcasting Networ(, Inc. !s. go

7edical and %ducational enter 9 where it was held that rticle 1

The i!il ode allows the reco!ery of moral damages on cases of libel, slander or any other form of defamation without qualification

as to whether the plaintiff is a natural or uridical person. @hile the

court may allow the grant of moral damages to corporations, it is not

automatically granted4 there Gmust be proof of the e$istence of actual

basis of the damage and its causal relation to the defendant's acts.

(. @hen a corporation is said to ha!e only those powers of properties

e$pressly authorized by law or incident to its e$istence, we loo( to

what is pro!ided for by law or Its charter first, then determine the

causal connection between the act or power with what is e$press.l. This attribute is a recognition of what is (nown as the #Theory of

/pecial or Aimited apacities. The opposite of this theory is the

#Theory of :eneral #apacities# whlchTnairitaTns that a corporation

can e$ercise any and all powers that may be e$ercised by persons.



m.Partnerships, corporations can only e$ercise those e$pressly

authorized by law, can be implied or are necessary to carry out its

purposes, such as acts In the usual course of business or Incidental to

y its e$istence because they attach to a corporation upon its creation

and said to be inherent such as the right of succession or to sue. Natural persons or partnerships, on the other hand can e$ercise or

perform any act pro!idedH it is not contrary to law. The reason being

that corporations owe their e$istence to the state, while natural

persons or partnerships.

E3&ess %nd I#$ied )4e&s *%n 5u&the& +e distinguished %s 5)$$)4s'

=a* %$press powers deal with main business, obect or purposed of the

corporation, while Implied powers deal with the means andmethods of attaining the obect or purpose

=b* %$press powers are determined by the language of the law and its

charter while Implied powers may change according to .time, place

and circumstances,

=c* Test of %$press powers is whether they are found in the @ords of

the law or charter while the Test of Implied powers is whether they

are purely incidental to Its e$press powers and is reasonably

necessary to their being carried out

The right of succession refers to its continued e$istence unaffected by anything

that happens to its stoc(holders or members limited only by the term stated in its

rticles of Incorporation.

It does not contemplate orporate Immortality but rather a continuity of

e$istence irrespecti!e of that of its components.

0nder the ode, the term of a corporation is fifty =+3* years is subect torenewal.

6INDS OF CORPORATIONS

There are two basic (inds of corporations.



1. st)*7 *)&)&%ti)n is one whose capital stoc( Is di!ided into shares and

are authorized to distribute to the holders of such shares di!idends or

allotments of the surplus profits on the basis of the shares held.

. n)n st)*7 *)&)&%ti)n Is one where no part of its income is

distributable as di!idends to Its members, trustees or officers, and whenany profit is obtained as an incident if its operations shall, whene!er

necessary or proper be used for the furtherance of the purpose6s for which

the corporation was organized

9. These general types of corporations ha!e also been distinguished as ci!il

corporations referring to those organized for the benefit, pecuniary or

otherwise, of its members as opposed to an eleemosynary or charitable

corporation that is organized to administer a charitable trust

. The pro!isions on stoc( corporations apply in the absence of specific pro!isions co!ering non&stoc( corporations.

DIFFERENCES BETWEEN STOC6 AND NON STOC6

CORPORATIONS

1" /ubect to the rticles of Incorporation or 5y&Aaws, the right to !ote may

be limited, broadened or denied to some e$tent.

a. 0nless.so pro!ided, each member is entitled to one !ote.

b. In e$ercising the right, he may !ote by pro$y and also by mail or other similar means as authorized by the rticles of Incorporation or

5y&Aaws with the appro!al of and under conditions prescribed by

the /%.2" 7embership and all rights, are personal and non transferable unless

pro!ided by the rticles of Incorporation or 5y&Aaws.a. It may be terminated in the manner and for the uses pro!ided in the

rticles of Incorporation or 5y&Aaws b. Note that courts ha!e no power to strip membership as it constitutes

an unwarranted and undue interference with the right of acorporation to determine its membership.

c. Termination of membership .carries with it all rights to property and

other pri!ileges unless 5y&Aaws pro!ide otherwise. Note that

admission is an e$pressly granted power in the orporation ode.



8" It may ha!e any number of trustees as fi$ed in the rticles of

Incorporation or 5y&law from the ran(s of its membership.

a. The term of the original trustees is such that 169 of their number

shall ser!e for a year, the second 169 for two years and the third 169

for three years b. Trustees subsequently elected shall then ser!e for a term of three

years. Trustees elected to fill !acancies, shall only ser!e for the

une$pired portion.

9" The members elect corporate officers, unless otherwise pro!ided by

rticles of Incorporation or 5y&Aaws.

:" 7eetings can be held outside the place of principal business. Pro!ided,

there be notice of the date, time, and place and should always be in thePhilippines

PROBLEMS CONCERNIN NON-STOC6 CORPORATIONS

1. non stoc( corporation cannot amend its rticles of Incorporation and

con!ert itself into a stoc( corporation as the members are not %ntitled to

share in the profits of the corporation as 6 all present and future profits

belong to the corporation. 5y con!erting to. a stoc( corporation it will be

deemed to ha!e distributed corporate P assets among members without a. prior dissolution. 2n the other hand, if it were a stoc( corporation at the

onset, it maybe con!erted to a non&stoc( corporation as the corporation is

not distributing assets without dissolution, but rather, they are wai!ing&

their rights.to any profits6di!idends.

. JK is a recreational club which was organized to operate a golf course for

its members with an original authorized capital stoc( of PFP

133,333,333.33. The rticles of Incorporation or the 5y Aaws pro!ided

for declaration of di!idends although there was a pro!ision that after its

dissolution all its assets shall be gi!en to a charitable corporation. In thiscase, JK is a stoc( corporation as the power to declare di!idends is

inherent in a stoc( corporation and the pro!ision allowing for distribution

of Its assets to a charitable corporation does not prohibit a declaration of

di!idends before dissolution.

PURPOSE OF ORANI;ATION



1" Non&/toc( orporations may be organized for the following purposes)

charitable, recreational, fraternal, religious, trade, cultural, educational,

literary, scientific, professional, social, ci!ic ser!ice, industry, agricultural,

chambers or any combination subect to special pro!isions

DISTRIBUTION OF ASSETS UPON DISSOLUTION

1. The assets of a non stoc( #corporation are to be distributed in accordance

with the following rules)

a. Aiabilities and obligations of the corporation shall be paid, satisfied

or discharged, or adequate pro!isions made therefore

b. ssets held' under a condition requiring return, transferL con!eyance

and which condition occurs by reason of dissolution shall be

returned, transferred and con!eyed.c. ssets recei!ed and held by the corporation subect to limitations

permitting use only for charitable, religious, bene!olent, educational

or similar purposes, but not subect to return, transfer or

recon!eyance by reason of dissolution shall be transferred to

corporations underta(ing similar acti!ities pursuant to the plan of

dissolution

d. 2ther assets shall be distributed in accordance with the rticles of

Incorporation or 5y&Aaws determining the distributi!e rights of itsmembers or 3as pro!ided

e. In any other case, assets shall be distributed M to such persons,

societies or organizations whether organized for profit or not as

pro!ided in the plan of distribution.

. The plan of distribution must be consistent with the distribution rules

abo!e&outlined. This plan is adopted pursuant to a maority !ote of the

5oard of Trustees, then submitted for the affirmati!e !ote of 69 of the

members ha!ing !oting rights at a regular or special meeting, prior notice

ha!ing been gi!en.

ADDITIONAL DISTINCTIONS BETWEEN CORPORATIONS1. s to the state of incorporation& it is a domestic corporation if incorporated

under Philippine law or a foreign corporation if incorporated under the laws

of another country. Note though that for purposes of transacting, business in



the Philippines, it must be one whose state of incorporation allows >ilipino

corporations of citizens to do business therein.

. s to whether it is open to the public or not it is a closed corporation when

it limits stoc(holders to a number not e$ceeding 3, has limitations on

transfers and does not list in the stoc( e$change or ma(es any publicoffering of its shares1 or it is an open corporation when its stoc(s are

publicly traded

i. corporation that goes from close to open is said to be Bgoing public

public.#, while one that goes from being open to close is said to be

Bgoing pri!ate

9. s to whether it is a public or pri!ate corporation& a public, corporation isone that is formed for the go!ernment of a portion of the state for the

general good, while a pri!ate corporation is one that is formed to underta(e

a pri!ate acti!ity which includes go!ernment owned or controlled

corporations. It also includes quasi&public corporations that ha!e accepted

from the state a franchise in!ol!ing 3 o the performance of a public acti!ity

for profit.

. s to legal right to e$ist& it is de ure, de facto, a corporation by estoppels or a corporation by prescription.

i. de ure corporation is one that is considered as a legally constituted

corporation, ha!ing fully complied with all the requirements of law.

ii. de facto corporation is one that is so defecti!ely created as not be a de

ure corporation, but ne!ertheless Is the result of bona fide attempt to

incorporate under e$isting statutory authority coupled wit the e$ercise of

the corporate powers and is recognized by the courts as such upon

grounds of public policy in all proceedings, e$cept upon a direct attac(

by the /tate questioning its corporate e$istence4iii. The requisites of a de facto corporation are)

1. There is a !alid law under which the corporation may be recognized.

. There is % bona fide attempt in good faith to incorporate

9. There is an actual !alid e$ercise of corporate powers.



i!. In general a de facto corporation is deemed to ha!e substantial legal

e$istence e$cept as against the state. onsequently it has the same

corporate power and liabilities li(e a de ure corporation. It is obliged to

pay ta$es contracts that are entered, into are !alid and binding, it is

allowed to bring suit!. Its e$istence is not open to a collateral attac(. The only way by which is

can be4 attac(ed is by way of quo warranto proceedings to determine the

right to the use or e$ercise of a franchise or office and to oust the holder

from his enoyment of the same, that is initiated by the /olicitor :eneral

because =a* it is the state's right or authority that is usurped =b* it would

produce endless confusion if it's e$istence is questioned in e!ery suit

that it is a party to =c* it is in the public interest to maintain the !alidity

of the business transactions entered into with de facto corporations,!i. corporation by %stoppel arises when the persons assume to act as a

corporation (nowing it to be without authority to do so4 in this case said

persons shall be liable general partners for debts, liabilities and damages

and it cannot as a defense, neither can one dealing with it resist

performance. Fence, one who assumes an obligation to an ostensible

corporation as such4 cannot resist&performance thereof on the ground

that there was in fact no corporation.

!ii. corporation by prescription is one that is not formally organized assuch but has been duly recognized for a substantial length of time as a

corporation with rights and duties that are enforceable under the law. In

the Philippines, the "oman atholic hurch is recognized as such.

COMPONENTS OF A CORPORATION

1. The components of a corporation are)

a. orporators are those who compose the corporation either as

stoc(holders or members

b. Incorporators ate those stoc(holders or members mentioned in thearticles as originally forming the corporation and are signatories thereof

. 2ther components are)

a. Promoters are those who bring about the incorporation and organization

of a corporation



b. /ubscribers are those who ha!e agreed to ta(e out and pay for original

unissued shares of a corporation formed or to be formed.

c. /ubscribers become stoc(holders upon payment of the agreed

consideration for the purchase of shares a pro!ided for in their

subscription contracts.d. s to number of components. It is a corporation it consists of more than

one member, or a corporation sole if it consists of only one member.

e. corporation sole is an ecclesiastical corporation as it is composed

entirely of a spiritual personas established to further a religion and

perpetuate the rights or a church. The opposite of an ecclesiastical

corporation is a la! corporation,

NUMBER AND <UALIFICATIONS OF INCORPORATORS

1. The required number and qualification of Incorporators are)

a. + not more than 1+ persons, e$ception when It is a corporation sole

b. apacity to enter into contract, the act of forming a corporation being

a contractual in nature. >urther, the articles must be ac(nowledged to

secure the state against the possibility of a fictitious name to be

subscribed and to furnish proof of signatures.

c. maority must be residents of the Philippines. It is mandatoryrequirement because the business is to be conducted in the

Philippines

d. They must be residents of the Philippines. It Is a mandatory

requirement because the business is to be conducted in the

Philippines

e. They must own or subscribe to at least one share of stoc(

CAPITALI;ATION

1 /toc( 6corporations shall not be required to ha!e a minimum authorizedcapital stoc(, e$cept as otherwise pro!ided by special laws, subect, to the

pro!isions of /ection 19 pro!iding that +O of the authorized capital stoc(

must be subscribed and +O of which must be paid up, the remaining balance

to be payable on a date fi$ed or upon call, which in no case shall be less than

Php +,333.33



a. %$amples of capitalization requirements as fi$ed by law are)

0ni!ersal 5an(& PFP ,8+3,333,333.33. ommercial 5an( PFP

,33,333,333.33, Thrift 5an( in 7etro&7anila PFP 9+,333,333.33

and a "ural 5an( in 5aguio PFP ;,+33,333.33.

b. orporations6may subscribe but cannot be considered in determiningcompliance with +6+ rule because they are not incorporators. /uch

howe!er is debatable as /ection 19 states authorized capital stoc(

without qualification

PROCESS OF INCORPORATION'

1* The process of incorporation begins with the e$ecution of the

rticles of Incorporation, which 0pon return by the /%, together with

the ertificate of Incorporation constitutes it as the harters of thecorporation.

* The rticles of Incorporation is the document prepared by the person's

region of decomposing the orporation and subsequently filed with the /%

containing requirements of law. @hen a group of persons which to create a

corporation, they would ha!e to e$ecute documents and comply with the

requirements of this state before being gi!en uridical personality, since such

is a mere pri!ilege. This is another e$planation for what is (nown as the

Boncession Theorya. in addition, since incorporation in!ol!es the e$ecution of contracts among

members, between members and the orporation, and betwee members

or the orporation and the state, the process of incorporation is (nown as

the Bontract Theory.

CONTENTS OF THE ARTICLES OF INCORPORATION

1. Name of the corporation & it is from the name that a corporation acquires

uridical personality4 it is through the name that it e$ercises the power of

succession, it is how it is distinguished from another corporation.a. If the name is identical, decepti!ely, or identical or confusingly similar to

that of an e$isting corporation, or to any name already protected by law,

or patently decepti!e or contrary to law it cannot be allowed.

b. The change of name does not dissol!e the corporation and becomes

effecti!e only upon appro!al of the amendment of the articles.



c. 0se of corporate name is a right in "%7. If a corporate name of another

corporation is confusingly similar to its corporate name, it is entitled to

see( its cancellation as the appropriation of a dominant part is considered

an infringement. Test is priority adoption.

d. The /% has authority to deny the registration corporate name that is inits estimation cause confusion.

e. It must not be contrary to law. %$ample) section 1, " ; prohibits the

use of the emblem, seal, and name of the 0nited Nations.

. /pecific purpose for which it is being incorporated. If it has more than one,

the articles must state what is the primary purpose to facilitate its

classification.

a. Pro!ided, and on stoc( corporation may not include the purpose that

would change or contradict its nature as such. b. 2ther reasons why the purpose is required are)

i. This operates as authorization to management to enter into

contracts, the directors, officers are made aware of the scope of

the allowable business acti!ity.

ii. Persons who in!ests will (now where and in what (ind of

business this money will go.

iii. Third persons can be made aware whether the corporations this

transaction within its authority.

9. These were principal office is located is required for effecti!e regulation 6

super!ision. It refers to the place where the boo(s and records are (ept.

a. hange of address to another city or municipality requires amendment

of the articles . If otherwise, note is sufficient.

. /tatement of Name, nationalities and residences of incorporators determines

prima facie compliance with constitutional and legal requirements.

+ Term of e$istence is for a ma$imum of +3 years from date of incorporation

unless sooner dissol!ed or the term is e$tended.

a. 5e e$tended for periods not e$ceeding +3 years at any instance the

amendment of the articles. Pro!ided, no e$tension can be made earlier



than fi!e years prior to original or subsequence e$piry date unless

ustifiable reasons for an earlier e$tension is gi!en to the /%.

b. amendment requires maority board action, confirmed by 69 of

stoc(holders or members, who shall ha!e the right of appraisal a!ailable.

c. If delay in affecting amendment is due to the neglect of the office withwhom it is required to be filed or a wrongful refusal on its party to

recei!e it, it would be considered as ha!ing been file before the e$piry

date. This is (nown as the ?2T"IN% 2> "%ATI2N. If due to the

force maeure without the inter!ention of the orporation, it can also be

considered as filed on time.

d. In the e!ent of failure to ha!e the term e$tended, the remedy is to re&

incorporate. The requisites of which are)

i. meeting of stoc(holders to affirm the decision to re&incorporate.Those who are not willing will ha!e to be their participation after

pro!isions for liabilities ha!e been made

ii. copy of passed resolution signed by all stoc(holders !oting for re&

incorporation countersigned by the president and secretary is

submitted to the /% with the new articles of incorporation

iii. deed of assignment of assets and liabilities, including the name of the

defunct orporation to the new one is to be attached to the rticles.

;. Number of directors or trustees which shall not be less than + nor more than

1+.

<. Names, nationalities and residences of the persons who shall ser!e as

directors 6 trustees until the first regular election.

. If a stoc( corporation, the following must be stated)

1. amount of authorized capital stoc(

. number of shares into which it is di!ided4 if it be with or without par !alue

9. names, nationalities, residences of original subscribers and the

amount subscribe and paid.

ii. ?efining topic of stop and related terms) =*authorized capital sto & is the

amount fi$ed in the articles to be subscribed and paid, or agreed to be



paid by stoc(holders in money, property ser!ices or other means at the

organization of the corporation and after wards and upon which it is to

conduct business =* subscribed capital stoc( & is the amount of capital

stoc( that is subscribed =* outstanding capital stoc( is the portion of

capital stoc( issued and held by persons other than the corporation itself =* unissued capital stoc( & is the portion of capital stoc( not issued or

subscribed =* paid up capital stoc( & is the portion of subscribed or

outstanding capital stoc( that is paid =* Aegal apital & is the amount

equal to the aggregate par !alue in or issued !alue of outstanding capital

stoc(.

iii. /hares or stoc(s or the representation of onesG right or interest in a

corporation, its management from the right to !ote, incorporate earnings

may be of di!idends, and property upon dissolution.i!. The authorized capital stoc( when di!ided into shares may)

1. further be di!ided into classes6series or both, ha!ing rights,

pri!ileges or restrictions as stated in the rticles. bsent such, they

are equal in all respects. This classification may also be underta(en

for the purpose of complying with constitutional or legal

requirements.

. @hen so classified, they may further be di!ided into common

shares entitled to a pro&rata di!ision of profits or preferred sharesthat are gi!en preference in the distribution of assets, di!idends or

other pri!ileges, pro!ided such are not in !iolation of the

orporation ode or do not ha!e a right greater than corporate

creditors. /uch preferences are decided by the board, as it may be

authorized to fi$ terms and conditions, which shall be effecti!e only

upon filling of the appropriate certificate with the /%.

9. if shares are classified as common, they may or may not ha!e par

!alue e$cept when it is a ban(, trust company, utility, building or

loan association.. If the shares are classified as preferred, it

a. should always ha!e par !alue

b. it may be depri!ed of !oting rights, together with redeemable

shares but if so, there must be class6series which shall ha!e full

!oting rights or In addition, e!en if !oting rights are not



enoyed, holders of such shares shall still !ote in the following

instances)

i. amendment of articles

ii. adoption or amendment of by laws

iii. /ale, lease, e$change, pledge or other disposition of all or substantially all of corporate property

i!. increase6decrease of corporate bonded indebtedness

!. increase6decrease of corporate capital stoc(

!i. merger6consolidation

!ii. n!estment in another orporation or business, and

!iii. dissolution.

+. If shares are without par !alue, they)

a. are considered fully paid and none assessable, meaning thestoc(holder is no longer liable to the corporation

b. cannot be issued for less than P+.33

c. entire consideration is treated as capital, thus not a!ailable for

di!idends.

;. /hares may also be classified as)

a. >20N?%"Gs /hare =Preferred shares* & which are classified in

the articles as ha!ing been gi!en certain rights or pri!ileges not

enoyed by others. Pro!ided, if the e$clusi!e right to !ote andthey !oted for in the election of the 5oard of ?irectors, it

should be for a limited period not e$ceeding fi!e years subect

to /% appro!al.

b. "%?%%75A% /F"%/ which the orporation may issue

when e$pressly allowed by the rticles and may be purchased

and ta(en up by the orporation upon the e$piration of a fi$

period, regardless of the e$istence of unrestricted retained

earnings and such other terms and conditions stated in the

articles and the certificate of stoc(. Note though that they holdthe power that the /upreme ourt has held in the case of

"epublic Planters 5an !. gana, /r. that the orporation after

redemption, must ha!e sufficient assets in its boo(s to co!er

debts and liabilities inclusi!e of capital stoc(. s a rule,



redeemable shares are not to be re&issued unless allowed by its

rticles

c. T"%/0"K /F"%/ are shares that ha!e been issued and

paid for but subsequent reacquired by purchase, redemption,

donation or any other lawful means. It may again be disposedof for a reasonable price as determined by the board. Note that

its acquisition must be always be funded by surplus profits,

otherwise it !iolates the T"0/T >0N? ?2T"IN% as capital

is impaired.

8. If non&stoc(, amount of capital, names, nationalities, residences of

contributors and amounts.

13. such other matters that are not inconsistent with law, which they

incorporate di!ersity be necessary and con!enient. Note, if the corporation is to

engage in nationalized business acti!ity, a prohibition must be stated that it will

not allow any transfer of stoc( or interests that will reduce its ownership to less

than the percentage required by law.

FORM AND ATTACHMENTS TO ARTICLES'

1. The rticles, as we'!e been in >ilipino or %nglish, must be accompanied bya. treasures affida!it indicating compliance with the +6+ rule

b. if fa!orable recommendation, if required, and

c. should be up (nowledge to guard against fictitious names and

signatures.

PROCEDURE FOR AMENDMENT

1. 0nless otherwise pro!ided by the code or special law, amendments ma(e the

place by =a* a maority !ote of the board, and =b* 69 !ote or written asset of

outstanding capital stoc( or members =c* the original and amended articlesare then submitted to the /% with underscoring, duly certified by corporate

secretary and maority of the directors that it has been duly appro!ed by the

record !ote =d* in case of corporations that are regulated by another

go!ernment agency, a fa!orable recommendation must be submitted

li(ewise.



a. The rule that allows written assent does not apply when the obect of the

amendment is to e$tend or shorten the term or the increase or decrease

capital stoc(.

. The amendments are effecti!e =a* 0pon appro!ed by the /%, or =b* from

date of fighting with the /% If not opted upon within si$ months from dateof fighting for a cause not attributable to the orporation.

a. This rule is not applicable to an amendment the short end of term as a

means to dissol!e the corporation.

9. If it is a foreign corporation amending its articles, it must file within ;3 days,

and shall be authenticated copy of its articles of incorporation which should not

enlarge or alter the purpose for which it was granted a license.

. mendments may be reected or disappro!ed if =a* not substantially in

accordance with the prescribed form =b* purpose is unconstitutional, illegal,immoral or contrary to go!ernment rules or regulations =c* treasurerGs ffida!it

is false =d* required percentage of ownership of capital stoc( has not been

complied with =e* no fa!orable recommendation for ban(s, quasi ban(ing,

building and loans associations, trust companies and other financial

intermediaries, Insurance companies, public utilities, corporations and other

go!ernment corporations co!ered by special laws indicating that the

amendments are in accordance with law is submitted. Pro!ided, that the

orporation be gi!en by the /% a reasonable time within which to correct or modify the obectionable portions of the articles or amendments thereto.

COMMENCEMENT OF CORPORATE EXISTENCE

1. corporation commences to ha!e e$istence from the issuance by the /% 2f

a certificate of incorporation under its official seal. The effect of which is to

constitute its stoc(holders or members and their successors as a 52?K

P2AITI and 2"P2"T% under the name and for the term stated in the

articles.

=/%"F*

CORPORATE MANAEMENT

1. There are three le!els of control in the corporate hierarchy)



a. the board & which ?ic(er means corporate policy and prescribes the

manner of general management of its business acti!ities. Towards this

end, the law pro!ides that all corporate powers of all corporations

formed under it shall be e$ercised, all business conducted and all

property held by a board of directors or trustees. This is for the purposeof efficiency in e$change for profits.

b. The corporate officers & ward charge with the mandate to e$ecute the

decisions of the board and who, oftentimes, determining the best manner

by which the business is to be run.

c. The stoc(holders or members & who are considered as ha!ing residual

power o!er fundamental corporate changes as they are required by law

to gi!e their assent by the e$ercise of the right to !ote. Note though that

they hold the power to elect themsel!es to the board. In fact, theauthority to elect is !ested solely in them. ?irectors cannot indirectly

usurp such authority or disregard an election conducted pursuant to such

authority.

. The directors are the e$ecuti!e representati!es of the orporation who are

charged with the administration of its internal affairs and management and use

of its assets. corporation can only act through its directors and officers. The

board is the central power, which authorizes the e$ecuti!e agents to enter intocontracts and to embar( on the business. It must be noted that in the e$ercise

of corporate powers that)

a. with the e$ception of powers reser!ed by law to stoc(holders or

members any action by them is ad!isory in a resolution passed not

recognizing the board is without effect.

b. The powers that are e$pressly reser!ed by law to the stoc(holders or

members are) =a* remo!al of directors or trustees =b* granting of

compensation, other than for diems, the directors =c* "ectification of

acts of self&dealing directors or trustees, interloc(ing directors, disloyaldirectors =d* The litigation of power to amend by laws =e* calling off a

meeting, upon good cause, when no person is authorized call it =f* wend

management of the close orporation is !ested in the stoc(holders.

c. The courts or the /% can not interfere unless the acts are so

unconscionable and oppressi!e so as to amount to a wanton destruction



of the rights of the maority. s long as they are underta(en in good

faith, they are not re!iewable. This is (nown as the 50/IN%//

D0?:7%NT "0A%.

d. The principal remedy to internal dissension our corporate elections as

the maority must be a allowed to rule as long as he (eeps within the powers pro!ided in the charter.

Q0AI>ITI2N/ >2" %A%TI2N)

1. stoc(holder or member who would li(e to be elected to the board should

possess the following qualifications)

a. Kou must own at least one share or at least it should be listed in his name

as owner, if it is a nonstoc( corporation, he must be a member.

b. @hat matters is legal title to the share. person who does not hold beneficial title, li(e the !oting trustee in a !oting trust agreement is

allowed to be elected as a director.

c. pledgee 6 mortgatee on the other hand cannot be elected. /he may not

be a stoc(holder for the present time but upon assumption of office, it is

absolutely necessary that he must own at least one share of stoc(.

d. 2ne who has been elected director as a nominee of the P:: which

holds the shares pursuant to sequestration is a de facto direct or as the

shares may only be !oted by its members or pro$ies.e. 2wnership is absolutely necessary upon the assumption to the office of

an elected director. Fence, a person can be elected e!en if he does not

own the stoc( at the time of election. If he is not a stoc(holder, he may

be considered an e$&officio member without !oting rights in the board.

f. 5etween husband and wife, if both are listed as owners, they are

qualified to be elected but only one can be elected, unless they own

shares listed in their indi!idual names.

. %!ery de!eloper must continuously own at least a share during his term,otherwise, you shall cease as the director. ny subsequent purchase does not

return the director to his pre!ious position.

9. The maority must be residents of the Philippines as the business is primarily

underta(en in the Philippines.



. Fim us that ha!e been con!icted by final udgment of an offense punishable

by a period in e$cess of ; si$ years or a !iolation of the code, committed within

a period of fi!e years prior to the date of election.

+. itizenship in the instances required by law. %$ample) corporation engaged in

mass media is required to be 133O owned and managed by >ilipinos.

;. /uch other qualifications that may be pro!ided by the by&laws. %$ample) he

must ha!e paid for his subscriptions in full. ?isqualifications may also be

pro!ided. %$ample) engaging in competing business, unustified absences

during the pre!ious term, unless the stoc(holder resigns his current

employment with the orporation.a. It would not be acceptable, howe!er, if the by&laws @ill pro!ide that the

qualifications or disqualifications shall be subect to the udgment or

determination of the board, @hat is required is that the same shall be

e$pressly spelled out In the bylaws. bsent the pro!ision, a corporation

can not require additional qualifications other than that prescribed by

law.

b. proposal that the directors come from the ran(s of corporate officers

is not in accordance with law. They must come from the stoc(holders or members of the orporation.

c. @hile no age requirement has been pro!ided by law, a stipulation

allowing a minor to be elected as a member of the board is not some

corporate practice as they ha!e limited capacity to act. It has also been

said that since incorporators are required to be of legal age, the same

requirement should be applied to subsequent directors.

HOW ELECTED'

1. >rom among the holder of shares or members or a term of one year until their

successors are elected and qualified.

. Note though that in a nonstoc( corporations, the terms of trustees is between

1 to 9 years for the original trustees, then 9 years for those subsequently



elected and for educational corporations it is between 1 to + years for though

subsequently elected.

RE<UIRMENT FOR 0ALID ELECTION'

1. The requirements for embedded election area. the presence of a maority of the capital stoc( or members authorized to

!ote

b. election must be made by ballot, if requested

c. number of !otes to elect must be obtained

. In a nonstoc( orporation, unless otherwise pro!ided in the rticles 6 5y&

Aaws, member has as many !otes as there are trustees but only one !ote

goes to each candidate.

9. In a stoc( corporation, a stoc(holder has as many !otes as he has shares, if

the by&laws are silent, he can)

1. Eote the number of shares for us many persons as there are directors to

be elected or

. umulate his !otes be gi!ing one candidate as many !otes as there are

number of directors to be elected.

a. %$. 133 shares $ + direct !erse means he has +33 !otes and he cangi!e one candidate or

9. Fe may distribute to as many candidates as he deems fit P"2EI?%?

that the total number of shares cast shall not e$ceed the number of

shares owned multiplied by the number of directors to be elected

. umulati!e Eoting are allowed if no election can be had because the

required maority of stoc(holders or members cannot be had but it

cannot be adourned sine die or indefinitely.

+. Neither is !oting by zones and out as implied from section when it

says that the maority of the capital stoc( or members is required to be present in a meeting. Note that the /% only allows teleconferencing or

!ia !ideoconferencing for meetings of the board.

;. /toc( that is delinquent or in the treasury do not ha!e !oting rights.





. 2bect is to minimize the incidence of front of and conduct can the board and

is meant to call attention the de!iations from the path of good corporate

go!ernance.

9. Independent directors are required in the following instancesa. issuers of registered securities to the public, requires at least or 3O of

the board, whiche!er is lesser.

b. In ban( requires at least .

c. s stoc( or securities e$change requires at least 9, and the president must

be an independent director.

d. >inance companies, in!estment houses, bro(ers, in!estment companies,

preneed companies and subsidiaries of foreign corporations operating and

are listed in the Philippine /toc( e$change requires at least 1.

AI7I/TTI2N/ 2N TF% %J%"I/% 2> 2"P2"T% P2@%"/ 5K TF%

52"?)

1. The action requires certification of the stoc(holder our members.

%$ample) in!estment of corporate funds in another corporation or

business other than the primary business of the corporation.

. The remo!al of directors which requires that =a* it must ta(e place at theregular meeting of the orporation or special meeting called for that

purpose =b* there must be pre!ious notice to stoc(holders or members of

the intention to propose such remo!al. The notice must be specific and in

writing, by publication or sending of a copy of the notice =c* The remo!al

is affected by 69 !ote of capital stoc( 6 members entitled to !ote e$cept

that a director elected by cumulati!e !oting cannot be remo!ed as it

affects is to depri!e minority stoc(holders or members of the

representation.

a. ny special meeting the cause remo!ed by is to be called by the/ecretary on order of the President or upon written demand of

stoc(holders representing at least a maority of the outstanding

capital stoc( or of the members. If the /ecretary, refuses, does not

e$ist, or fails to gi!e notice, the call for a meeting may be addressed



directly to stoc(holders or members by the stoc(holders or members

signing the demand.

b. The election of new directors may ta(e place in the same meeting.

9. In close corporations, when its articles pro!ide that it be managed by the

stoc(holders.

DELEATION OF CORPORATE POWERS

1. :enerally, the e$ercise of corporate powers can be delegated.

. There can be no delegation if the =aRpower rests only with

stoc(holders 6 members =b* effect of delegation is to cede entire

super!ision 6 control o!er the corporation =c* when the by&laws

wor( authorization for an act restricts the delegation.

9. !alid delegation can ta(e place when the orporation, cting through board and by resolution, designates a particular person6s or entity to

e$ercises specific corporate power subect to the abo!e stated

limitations.

a. 2r when an e$ecuti!e committee has been created by and under

the pro!isions of the bylaws.

b. The committee is a body composed of no less than 9 members of

the board to whom corporate powers are delegated to assure

prompt and speedy action and solution without the necessity of board meetings and manages the orporation between meetings of

the board. It may act by maority !ote on such matters that are

within the competence of the board as may be delegated to it in

the bylaws or on maority !ote of the board.

c. The committee has no power to act on) =a* appro!al of option

requiring stoc(holder or member appro!al. =b* filling of !acancies

in the board =c* mendment or repeal of bylaws in the adoption of

a new by&laws =d* amendment or repeal of any board resolution

which by its terms is not so repealable or amendable. =e*distribution of cash di!idends to stoc(holders

FORMAL ORANI;ATION



1. Immediately after the election, the directors of the corporation must

formally organize, by the election of a president, who shall be the director,

a treasurer, who may or may not be a director, as secretary who must be a

resident and citizen of the Philippines and such others as may be pro!ided

for in the by&laws.a. ny person may hold concurrent positions e$cept that of the

President&/ecretary our President&Treasurer.

b. nd appointi!e or elected public official cannot ser!e as a corporate

officer of any pri!ate ban( e$cept when the ser!ice is incidental the

financial assistance pro!ided by the go!ernment or a :2 to the

ban( or unless otherwise pro!ided.

. 93 after election the secretary or any other officer shall submit to the /%

the names, nationalities and residents of the directors6trustees6officerselected.

a. /hould any one of them die, or cease to hold office, such shall

immediately be reported to the /%.

9. /hould a !acancy arises due to causes other than remo!e on or e$piration,

it may be filed by the board by maority !ote of the remaining directors if

still constituting a quorum.

a. 2therwise, the !acancy should be filed by the stoc(holders or

members in a regular or special meeting, the stoc(holder or member so designated or elected shall only ser!e the une$pired portion of the

term.

. ?esignating the losing candidate who polled The highest number of !otes

in the immediately preceding election to fill up a !acancy which is

automatic in nature is contrary to law as an elections required.

a. @here a heartbrea( office is not specifically indicated in the roster of

corporate offices in the bylaws of the orporation, the board of

directors may also be empowered under the bylaws to create

additional offices as may be necessary. b. If the bylaws pro!ide, the board may create a board of ad!isors was

function should be purely ad!isory and should not in any manner be

granted the authority to participate in the management and control of

the affairs of the orporation since they belong e$clusi!ely to the

board.



c. newly elected board is not bound by the choice of officers of the

pre!ious board as it !iolates the law as immediately after the

election, the newly elected board must for formally organized by

electing the corporate officers. pro!ision that pro!ides that the

incumbent Eice&hairman should automatically be the hairman of the succeeding board, if elected, is not allowed

+. The power to elect corporate officers is a power that is to be e$ercised by

the board and cannot be delegated.

HOW CORPORATE POWERS ARE EXERCISED

1. orporate powers are e$ercised and performed by the board through

meetings. This so because it must act as a body and a decision must bealways be reached after affording opportunity for consultation. In

addition, ?irectors are trustees ha!e the power to act other than as a

board.

. The e$ceptions are)

a. directors happened to be the only stoc(holders

b. act is underta(en by someone authorized by the board

c. stoc(holders wa!e the necessity of ha!ing a meeting

d. when there is an e$ecuti!e committeee. when the orporation enters into a management contract

f. when the act is ratified at a subsequent meeting.

9. The requisites of a !alid board meeting are)

a. meeting of the directors6trustees should be assembled as board.

=?irectors6trustees cannot attend or !ote by pro$y as their personal

udgment is required

b. presence of a required quorum

c. the decision is reached by a maority !ote of the quorum or by a

entire board as required by lawd. meet at the time, place and manner pro!ided in the bylaws.

. In the absence of a pro!ision in the by&laws, a maority of the

directors6trustees as is stated in the articles of incorporation shall

constitute a quorum.



+. The formula for determining the maority this one half plus one of the

entire numbers of directors6trustees notwithstanding the e$istence of

!acancies in the board.

;. quorum once established is not bro(en by the subsequence withdrew

one of a part of a faction of those present, unless the transaction requiresthe affirmati!e !ote of a greater proportion.

WHAT IS CORPORATE O0ERNANCE AND CORRESPONDIN THE

ENERAL RESPONSIBILITY OF DIRECTORS=TRUSTEES

1" orporate go!ernance is a system whereby shareholders, creditors, and

other sta(eholders of incorporation ensure that management enhances the

!alue of the corporation as it competes in an increasingly globalmar(etplace.

2" It prescribes that the board of directors is primarily responsible for the

go!ernance of a corporation.

8" Fence, a directorGs office is one of trust and confidence. Fe should act in

the best interest of the orporation in a manner characterized by

transparency, accountability and fairness. Fe should e$ercise leadership,

Prudence and integrity in directing the orporation towards sustained

progress o!er the long&term. director assurance certain responsibilitiesthe different constituents or sta(eholders, who ha!e the right to e$pect that

the institution is being run in a prudent and sound manner.

THREE FOLD DUTIES OF DIRECTORS

1. They must be diligent. ompliance with the duty of diligence requires the

e$ercise of reasonable care, prudence, and equate (nowledge and s(ill.

a. The meaning and e$tent of the Dudy of diligence is to be understood

to mean that those who !oluntarily ta(e the position of directors

underta(e that they possess, at least, ordinary (nowledge and s(ill,and that they will use such in the performance of their obligations.

b. The le!el of care, s(ill and diligence that is required is that which an

ordinary prudent band with e$ercise in similar circumstances

=ampos and Aopez&ampos*. /uch, howe!er, !aries, depending on

the nature of the business of the corporation. %$ample) a director of a



ban(ing corporation is held to a higher standard of diligence as

compared to a director in a manufacturing corporation.

c. onsequently, a directors should e$ert effort to obtain a basic

understanding of the business of the corporation. Fe must be familiar

with its operations. Fe should be able to prepare himself for boardmeetings to be able to ma(e an informed decision.

d. This duty is specifically imposed by the orporation code, when it

pro!ides that) directors are trustee willfully and (nowingly !ote for

or assent the patently unlawful acts of the orporation or who are

guilty of gross negligence In directing its affairs shall be liable

ointly and se!erally are all damages resulting therefrom suffered by

the orporation, its stoc(holders or members and other persons.

e" orollary to this duty of diligence is the protection afforded todirectors under the B50/IN%// D0?:7%NT "0A%. If in the

course of management, they arri!e at the decision for which there is

a reasonable basis and they acted in good faith, as the result of their

independent udgment, and uninfluenced by any consideration,

other than what they belie!e to be for the best interests of the

orporation, it is not the function of the court to say that it should

ha!e acted differently and to charge the directors for any loss or

e$penditures incurred.. They must be loyal to be (eeping the interest of the orporation abo!e

personal moti!es. ompliance with this duty requires that the director act

in a manner characterized by transparency, accountability and fairness.

a. The basic principle to be obser!ed is that a director should not use

his position to ma(e profit or to acquire benefit the ad!antage for

himself and6or his related interests. Fe should a!oid situations that

may compromise his impartiality. If an actual or potential conflict of

interest should arise on the part of directors or senior's e$ecuti!es, it

should be fully disclosed in the concerned director should not participate in the decision&ma(ing. direct or who has a continuing

conflict of interest of a material nature should consider incubating or

resigning.



b. This duty is specifically imposed by the orporation) in the

pro!isions regarding self&dealing directors, interloc(ing directors and

disloyal directors.

c. The general rule is that a contract between a self&dealing

director6appropriation this !oidable at the option of the orporation. Notwithstanding, the contract shall be !alid when =a* presence of the

director6trustee in the board meeting in which the contract was

appro!ed was not necessary to constitute a quorum =b* is the !ote is

not necessarily appro!e the contract =c* that the contract is fair and

reasonable under the circumstances. In the case of an officer, the

contract has pre!iously appro!ed by the board. If howe!er,

conditions =a* and =b* re absent, the contract may be ratifed by 69

!ote of the outstanding capital stoc( in the meeting duly called for such purpose with full disclosure of the ad!erse interest being made

at the meeting and that the contract is ne!ertheless fair and

reasonable. Note that there is no requirement that the orporation

suffer damage.

d. The rules that obtains as far as contracts between corporations with

interloc(ing directors is that the contract is !alid as long as there is

no fraud and the contract is fair and reasonable. Fowe!er, if a

director's interest in one orporation is substantial in his interest inthe other orporation6s is nominal, the contract shall be subect to the

pro!isions of /ection 9 insofar as the orporation6s where he has a

nominal share as it is as if the orporation is transacting with the

self&dealing director. /hareholdings in e$cess of 3O of the

outstanding capital stoc( shall be considered substantial.

e. nd director is disloyal it may !irtue of his office, he acquires for

himself a business opportunity which should belong to the

orporation, thereby obtaining profit, you must account for it by

refunding the same to the orporation, e!en if the director ris( hisown funds in the !enture, unless, his act is rectified by a !ote of the

stoc(holders owning or representing 69 of outstanding capital stoc(.

This is also (nown as the ?2T"IN% 2> 2"P2"T%

2PP2"T0NITK. The pro!ision does not apply if) =a* he acts in good



faith, =b* the orporation is unable to underta(e the opportunity or

the same is not essential to the orporation

f. the duty of loyalty of a director precludes the director from acquiring

an opportunity that is open to the orporation because that is in

effect competing with the orporation, oftentimes with the ad!antageof inside information thus depri!ing it of the profits that it would

ha!e otherwise earned. @hether the particular opportunity is one

which properly belongs to the orporation is a question of fact which

must be decided in the light of the circumstances of each case. This

rule is premised on the principles of Btrust. It is the position of

domination and control that ma(es the thing of corporate opportunity

obectionable.

g. ?istinguishing between /ection 91 and /ection 9, the former spea(sof the acquisition of any personal or pecuniary interest in conflict

with his duty in respect to a matter reposed in him in confidence as to

which equity imposes a disability to deal in his own behalf, he shall

be liable as trustee it must account for all the profits that would ha!e

otherwise accrued to the orporation. @hat is !iolated is the trust

specifically reposed, thus there is no ratification, the latter spea(s of

a !iolation of the general trust that is reposed on a director.

h. ction for a !iolation of this :P is the liability for damages under /ection 91 of the orporation code and forfeiture of all the benefits

obtained.

9. They must be obedient by (eeping within the powers of the corporation.

The duty of obedience simply means that directors are bound to obser!e

the limits of their authority. They should not perform acts which are

beyond the powers of the corporation, there should be shown to act in

situations where the law has gi!en such prerogati!e the stoc(holders.

/hould they go beyond the limits, they are personally responsible for any

damages which the orporation may suffer unless they acted in good faithand with due care in the e$ercise of their business udgment.

a. This means that the board must (eep within the powers of the

institution as prescribed in the articles of incorporation, by&laws, and

e$isting laws, rules and regulations. onduct and maintain the affairs



of the institution within the scope of its authority and prescribed in

the charter and in e$isting laws, rules and regulations.

b. The abo!e principle is embodied in the concept of 0AT" EI"%/

pronounce in the orporation code that) no corporation under this

code shall process her e$ercise any corporate powers e$cept thoseconferred by this code in its articles of incorporation and e$cept such

as are necessary or incidental to the e$ercise of the powers so

conferred.

PERSONAL LIABILITIES OF A DIRECTOR

1. nd director of the be held to be personally liable if he) =* @illfully

and (nowingly assents or !otes about the unlawful act of theorporation =b* he is guilty of gross negligence or bad faith in directing

the affairs of the orporation. %$ample is illegal dismissal of employees

when attended by bad faith or malice, where they would be solidarity

liable with the orporation. =c* acquisition of any personal or bac(ing

any interest in conflict with his duty in respect of matter reposed in him

in confidence, =d* onsents to the issuance of watered stoc(s or ha!ing

(nowledge of the issuance of watered stoc( does not quantify the

corporate secretary in writing of the fact of issuance =e* grees to be personally liable =f* is made liable by specific pro!ision of law.

COMPENSATION FOR DIRECTORS

1. ?irectors as a rule do not recei!e compensation other than reasonable per

diems.

. 2ther or additional compensation may be granted only if =a* fi$ed in the

bylaws =b* Is granted by a maority !ote of stoc(holders at the regular or

special meeting but in no case shall compensation e$ceed 13O of the

income before income ta$ of the preceding year.9. In computing any additional compensation, per diems re not included to

determine whether the limit has been reached.

CORPORATE POWERS



1. %!ery corporation incorporated under the code has the power to) =a*

to sue and be sued in its corporate name =b* to succession by its

corporate name for the time stated in its article and certificate of

incorporation =c* to adopt and use a corporate seal.Note that /ecton

;9 "equires stoc( certificates to be sealed> although not a mandatoryrequirement, it has been held to be desirable to ha!e a seal as it is

prima fascia e!idence that the instrument to which it is attached is

the act of the orporation =d* to amend its articles in accordance with

the pro!isions of the code. @ith appropriate pro!ision is /ection 1

s far as the amendments pertaining to the name, place of principal

business, term, an authorized capital stoc( of the orporation =e* to

adopt bylaws not contrary to law, morals and public policy and to

amend or repeal the same =f* in cases of stoc( corporations, the issueor sell stoc(s to subscribers and to sell treasury stoc(s in accordance

with the pro!isions of the code. If it is a nonstoc( orporation, to

admit members and obtain capital by increasing the number of

persons sharing the same purpose or mission. =g* to purchase,

recei!e, ta(e or grant, hold, con!ey, lease, pledge, mortgage or

otherwise dealing with real and personal property, including

securities and bonds of other corporations as the transaction of the

lawful business of the orporation the reasonably and necessarilyrequire, subect to the limitations prescribed by law in the

onstitution. N2T% that in!estments as long as stated in the articles,

li(e in!ol!ing the purchase of shares or securities are !alid, if not

stated that stoc(holders appro!ed is required. =h* to enter into

mergers and consolidations with other corporations as pro!ided by

section <;&3 =i* to ma(e reasonable donations, including those for

public welfare or for hospitals, charitable, cultural, scientific, ci!ic or

similar purposes %J%PT the nations indeed of any political party or

a candidate or for purposes partisan political acti!ity =* to establish pension, retirement other than plans for the benefit of directors,

trustees, officers and employees. The purpose is to create or foster

better relations between the orporation and its employees, which

ideally should result in greater producti!ity =(* to e$ercise such



power as may be essential or in a society to carry out the purposes

stated in the articles.

. The power to e$tend or shorten the corporate term Is underta(en by a

maority !ote off the board and !ote of 69 of the stoc(holders

holding the corporation's outstanding capital stoc( or members at themeeting, of which they were gi!en we can notice addressed to them

at the gi!en address as shown in the boo(s of the orporation

deposited at the post office or deli!ered personally.

i. In case of an e$tension, a stoc(holder is allowed to e$ercise his

appraisal right. This is also allowed when the term is shortened.

ii. The general rule of assumed appro!al under section 1; is not

applicable as the date of appro!al by the /% maybe before the

effecti!ity date of the e$tension, the determining compliance insection 11 or shortening, which may be in the nature of a

!oluntary dissolution which requires the consent of the state.

9. Power to increase or decrease capital stoc(, incur create or increase

corporate bonded indebtedness is underta(en by a maority !ote of

the board and !ote of 69 of the stoc(holders holding the showing

compliance orporation's outstanding capital stoc( or members must

fa!or the increase or decrease at the meeting to which they would

ha!e recei!ed written notice addressed to their residences as shownin the boo(s deposited at the post office or deli!ered personally.

i. >or nonstoc( corporations, the same requirement is required but

it creates or increases orporate bonded indebtedness

ii. after the meeting & a certificate in duplicate must be signed by a

maority of the directors, countersigned by the chairman and

secretary of the meeting stating that) =a* requirements of this

section ha!e been complied with =b* amount of decrease or

diminution of capital stoc( =c* if capital is increased =1* amount

of capital stoc( or number of shares subscribed =* names,nationalities, residences, of persons subscribing and the number

or amount subscribed by each, the amount paid in cash or

property =9* or, amount of capital stoc( or number of par !alue

stoc( allotted to each stoc(holder if such increase is for the

purpose of ma(ing effecti!e a stoc( di!idend therefore



authorized =d* any bonded indebtedness to be incurred, created

or increased =e* actual indebtedness of the corporation on the

date of the meeting =g* !ote authorizing the increase or

diminution of the capital stoc(, or the incurring increasing or

creating of corporate bonded indebtedness.iii. 2ne copy of the certificate is (ept in the corporate officer, the

other filed with the /% and attached its articles. 2ther

attachments required are proof of the transfer of cash or

property to the orporation and a treasurerGs affida!it showing

compliance with the +6+ rule. If corporate bonded

indebtedness, the registration of the 5ond for the /% the

determinate sufficiency of terms.

i!. >rom and after /% appro!al and compliance of a certificate of filling, the capital stoc( shall stand increased or decreased or the

bonded indebtedness has been incurred created or increased.

Pro!ided, no decrease shall be appro!ed if creditors are

preudice or terms of bond issue is not sufficient.

!. The limitation on when the decrease of capital stoc( is that it

will not be allowed if it would relie!e stoc(holders of the

obligation to pay for their subscription without !aluable

consideration. Fence, all subscriptions must be paid.!i. n increase in e$cess of the amount stated in the articles is

0ltra !ires s there must be an amendment of the articles and a

reduction 6 increase of the capital stoc( can only decrease in the

manner pro!ided for by law.

!ii. The ways of increasing or decreasing capital stoc( are as

follows)

!iii. Increase 6 decrease the number of shares without increasing 6

decreasing par !alue =b* increase 6 decrease par !alue without

increasing the number of shares, or =c* both.i$. reduction creates a surplus if capital is not impaired by losses.

The surplus can be distributed to stoc(holders as long as the

surplus is o!er and abo!e the par !alue of the outstanding

capital stoc( as reduced and other corporate indebtedness, and



the assets so distributed will not be required to carry out the

business.

$. 5onds are underta(ings that are fully secured. It has in!ol!es 9

parties =a* 5orrowing orporation =b* bond holder =c* trustee or

holder of the security.. Preempti!e rights referring to the right subscribe on issues or

disposition of shares in proportion by stoc(holders shareholdings

may be denied.

i. The reason for its and I once is to preser!e a stoc(holders

unaltered and unimpaired influence in the orporation. It does

not apply to shares originally unsubscribe or undisposed

ii. s a general rule, preempti!e rights e$ist but maybe restricted

were denied by the articles or an amendment thereto. It will note$ist when =a* the shares are issued in compliance with laws

requiring stoc( offerings or minimum stoc( ownership =b* the

shares are issued in good faith with appro!al of stoc(holders

representing .9 2f the outstanding capital stoc( in e$change

for property needed for corporate purposes or in payment of a

pre!iously contracted debt

iii. If the preempti!e right is offered but not e$ercised, it does not

follow that it will be offered to other stoc(holders.i!. If restricted by an amendment, a stoc(holder may e$ercises his

appraisal right

+. The power the cause the sale, lease, e$change, mortgage, pledge or

other disposition of all or substantially all of corporate assets is

underta(en by a maority !ote of the board and 69 !ote of

/toc(holders are members, written notice ha!ing been gi!en.

i. In a nonstoc( corporation where there are no members with

!oting rights, the !ote of maority of the trustees will be

sufficient authorizationii. The disposition should not result in !iolation of laws or illegal

combination and monopolies. n e$ample would be when the

sale !iolates the 5ul( /ales Aaw.

iii. The contemplated disposition is when the orporation is

rendered incapable of continuing the business or accomplishing



its purpose. It does not apply to dispositions that are necessary

and in the regular course of business order proceeds of which

are to be appropriated for the conduct of its remaining business.

i!. uthorization, notwithstanding, the disposition may be

abandoned with the board and its corporate officers withoutfurther appro!al by stoc(holders or members

!. In case of dissent, the right of appraisal maybe e$ercised.

;. The power to acquire its own shares can only be underta(en if it is

for a legitimate corporate purpose6s pro!ided that it has unrestricted

retained earnings.

i. The conditions that must obtain to be able to e$ercise the power

are) =a* capital is not impaired =b* there must be unrestricted

retained earnings. bsent the conditions, there is a !iolation of the Trust >und ?octrine which holds that the assets of the

corporation as represented by its capital our trust funds that are

to be maintained unimpaired and to be used by the corporation

to pay its creditors and that no distribution of the same can be

made without pro!isions for the payment of corporate debt =c*

that it be for a legitimate and proper purpose =d* the orporation

in good faith and without preudice the stoc(holder rights =e*

ondition of corporate affairs where it.ii. The legitimate corporate purposes for acquisition are) =a*

elimination of fractional shares or those less than 1 share =b* to

collect or the compromise and indebtedness to the orporation

arising out of an unpaid subscription in a delinquency shares

and to purchase delinquent shares at the auction =c* to pay

dissenting or withholding stoc(holders entitled to the payment

of their shares.

iii. 2ther legitimate purposes are =a* %$ercise of the right of

appraisal when there is an amendment of the articles, shorteningor e$tending of the term, in!estment in other businesses, merger

or consolidations, sale or other disposition of corporate assets,

with no one in the close orporation =b* redemption of shares

=c* ?ecrease of capital stoc( =d* deadloc( in a close

orporation.



<. The power to in!est its funds in another corporation or business can

be underta(en by a maority !ote of the board and 69 !ote of

stoc(holders or members.

i. The in!estment contemplated by the pro!ision is an in!estment

in another orporation her business or for any other purposeother than stated as its primary purpose

ii. If the in!estment is reasonably necessary to accomplish its

purpose as stated in the articles, stoc(holder or member

appro!al is not necessary.

iii. In case of dissent, the right of appraisal may be e$ercise.

. stoc( corporation has the power to declare di!idends

i. ?i!idends referred to the part or portion of the profits of a

corporation, set aside, declared and ordered by the board to be paid ratably the stoc(holders. s distinguished from profits,

profits are the source of di!idends but not all profits are

di!idends until so declared or set aside

ii. The board may declare di!idends out of unrestricted retained

earnings or total assets less liabilities and total capital, payable

in cash, in property or in stoc( one stoc(holders on the basis of

outstanding stoc( held by them. The basis is the total

subscriptioniii. Pro!ided, howe!er, that any cash di!idend due on delinquent

stoc( shall first be applied to the unpaid balance, costs, and

e$penses or if it be a stoc( di!idend, it is withheld until the

unpaid subscription is paid.

i!. If a stoc( di!idend is declared, it may only be issued with

appro!al of the stoc(holders representing 69 of the outstanding

capital stoc( at meeting duly called for the purpose.

!. ?i!idends are usually declared at the end of a fiscal year as

earlier profits may be offset by losses.!i. 2nly stoc(holders our in!ite them to a di!idend as it is an

incidence or stoc( ownership. n e$ception is when it is made

to be about the stoc(holder on record at the specified date. If so,

it is the seller who is entitled to the di!idend, e$cept when there



is a contrary stipulation. The rule also applies to other

unrecorded dispositions.

!ii. The right of a stoc(holder the di!idend is immediate if it is a

cash di!idend. The corporation becomes a debtor of the

stoc(holder. If it is a stoc( di!idend, it is subect to stoc(holder !ote and an increase of capital stoc(, if it comes from a new

issuance.

!iii. ?i!idend declaration is generally discretionary but because

mandatory when its surplus profits are in e$cess of 133O of

paid in capital stoc(. Fowe!er, the mandatory character shall

not obtain) =a* when ustified by definite corporate e$pansion

proects or programs appro!ed by the board =b* @hen it is

prohibited by a loan agreement with any financial institution or creditor from declaring di!idends without its consent in the

consent is not yet obtained =c* when it can be shown that such

attention is necessary under special circumstances obtaining in

the orporation, as there is a need for a special reser!e for

probable contingencies

i$. No action can be brought against a corporation because it is not

a matter of right but of consensus.

$. Sinds of di!idends are) =a* cash di!idend =b* stoc( di!idend =c*Property di!idend =d* option a di!idend as the stoc(holder is

gi!en the option to recei!e cash 6 stoc( 6 property =e* composite

which is payable partly in stoc( 6 cash 6 property =f* preferred

when payable to one class of stoc( in priority o!er another =g*

commutati!e when contracted to be paid by the certain date at a

certain time =h* scrip if gi!en in the form of a writing issued the

stoc(holder to entitle him to payment for di!idend in cash as the

company has it as property and not in cash.

$i. ash di!idends as distinguished from stoc( di!idends) =a* cashdi!idend is a disbursement of accumulated earnings, while stoc(

di!idend is not a disbursement =b* a cash di!idend causes assets

to diminish while a stoc( di!idend process assets to increase =c*

a cash di!idend when declared becomes property of the

stoc(holder, wireless stoc( di!idend is still part of capital and



can still be reached by creditors. =d* a cash di!idend does not

increase capital, while a stoc( di!idend increases capital =e* the

declaration of a cash di!idend creates a corporate debt, while

that of stoc( di!idend does not create the debt =f* a cash

di!idend is declared by the board, why the stoc( di!idend isdeclared by the board with stoc(holders concurrence.

8. stoc( di!idend distinguished from stoc( split is that the former

increases capital while the latter does not increase capital.

i. The power to enter into a management contract can be

underta(en with the appro!al by a maority !ote of the board in

maority !ote of the stoc(holders our members or both by the

management and the managing orporation.

ii. Pro!ided, if stoc(holders representing the same interests of boththe managing in the manage orporation owned or controlled

more than 169 of the outstanding capital stoc( entitled to !ote of

the management orporation or a maority of the board of the

managing orporation li(ewise constitute the maority of the

board of the managed orporation, the contract must be

appro!ed by 69 !ote of the outstanding capital stoc( or of the

manage orporation.

iii. ny contract whereby a corporation underta(es to manage or operate on or substantially all of the business of another

corporation is a management contract e!en if called a ser!ice or

operating contract.

i!. The duration of the management contract cannot be for periods

longer than +years at any gi!en time. %J%PT when it relates

to e$ploitation, de!elopment or utilization of natural resources

which is to be go!erned by pertinent rules and regulations.

!. 5y way of limitation in a management contract, in interpreting

its pro!isions, it must be read as subecting its terms to the rightof the board of the manage orporation gi!es specific duties or

recall the delegation, as to hold otherwise !iolate section 9 of

the ode.

13. 0ltra Eires acts are acts that are in !iolation of the code as it

pro!ides that) no corporation shall possess or e$ercise corporate



powers e$cept those conferred by the code, it's articles and e$cept as

such are necessary or incidental to the e$ercise of the powers to

conferred

i. rectification it's possible pro!ided the act is not illegal.

ii. If the contract entered into by the orporation is 0ltra Eires,The following apply) =a* if merely e$ecutory on both sides, it

cannot be enforced by either =b* If fully performed, neither

party can set it aside =c* if performed on one side, reco!ery is

allowed as retention of benefits without performance cannot be

allowed

iii. If ultra !ires in part only and if separable, it is !alid as to the

part not ultra !ires, in!alid as to the other part.

11. The ultra !ires doctrine may be in!o(ed by) =a* the state is acorporation allows its e$istence to the state, its powers are limited by

the grant of authority by the state =b* /toc(holders as they ha!e a

right to e$pect and insist that the corporation adhere to the limits of

its granted powers =c* /trangers, if they are party to the contract =d*

competitors only if allowed by the statue =e* creditors, it acts are in

fraud of creditors.

P:% 1;

BY-LAWS"

1. 5K&A@/ are) the rules of action adopted by a corporation for its internal

go!ernment and for the go!ernment of its stoc(holders or members and

those ha!ing the direction, management and control of its&affairs in

relation to the corporation and among themsel!es

a. The nature of power to ha!e by&laws is inherent in a corporation.

b. ?istinguished from a resolution4 appro!ed by&laws is a permanentrule of action and mode' of conduct of corporate affairs while a

resolution ordinarily applies to g single act of the corporation.

. 5eforeIncorporation It is to be appro!ed and signed by all incorporators

and filed simultaneously with the rticles



1.1 Note that the adoption can ta(e place e!en after to, the actual

cai5firatiiFA

. fter incorporation within a month after receipt of the certificate or

incorporation.

9. 5y&laws are adopted by the affirmati!e !ote of stoc(holders or a. 7embers representing a4 maority of the outstanding capital stoc( or

its members. &

9.1 It is to be signed by stoc(holders or members and is (ept in the

principal office subect to inspection.

9. copy certified by a maority of the directors 6 trustees

countersigned by the corporate secretary is filed with the /%

and attached to the rticles.1+<

. The 5y&laws are rendered !alid upon the Issuance by the /% of acertification that it is not inconsistent with the ode.

.1 If the corporation is regulated by specific agencies, it requires a

Ucertification from said agency that the 5y&laws are in accord

with their VgqulsttSfns.

+. The non&adoption of by&laws does not result In the demise of the

corporation. This can be implied from the act that while it is gi!en the

power to adopt by&laws, it doesnGt ma(e It a matter of necessity to

e$ercise the power to ensure corporate life or to !alidate corporate+.1 Fowe!er, the non&adoption, ground for a suspension or a

re!ocation of its corporate franchise.

ELEMENTS OF 0ALID BY-LAWS

1. The elements of !alid by&laws are) =a* they must not be contrary to the

code, it is !oid if contrary to the code =b* not be contrary to moral or

public policy =c* must not impair obligations of contract & as a general rule

=d*Vthey must be general and uniform in application =e* they must beconsistent with the harter 6 rticles =f* they must be reasonable or

capable of compliance.

. 5y&laws cannot affect 9rd persons that deal with the corporation unless

they ha!e full (nowledge of the pertinent portion of the by&taws affecting

their transaction.1+8 Notice to third persons will not be presumed.



contract signed by the chairman of the board, e!en if mentioned in the by&

laws as an authorized signatory is !alid.

9. No pro!ision in the 5y&Aaws may be adopted If it is contrary to law.

=Tolerance cannot be considered ratification. The practice no matter how

long continued cannot gi!e rise to !ested right if it is contrary to law.

CONTENTS <F BY-LAWS

1. The 5y&Aaws should contain the following) =a* Time, place, manner of

calling and conduct and regular or special meetings of ?irectors or

Trustees, stoc(holders or members =b* "equired quorum in meetings of

stoc(holders or members and the manner of !oting =c* >orm of pro$ies of

stoc(holders or members and the manner of !oting them =d*

Qualifications, duties and compensation of directors, trustees officers, andemployees =e* Time of the holding of elections of ?irectors6Trustees and

the manner of gi!ing notice thereof =e* 7anner of election or appointment

and the terms of officers other than ?irectors6Trustees =f* Penalties for

!iolation of 5y&laws =g* In stoc( corporation manner of issuing

certificates =h* /uch other matters as may be necessary for the proper

conduct or con!enient transaction of its corporate business and affairs.

. mendments to the by&laws can be underta(en by a maority !ote of& the

5oard and maority !ote of stoc(holders or members in a meeting dulycalled for that purpose. 5y !ote of the 5oard, if the power to amend has

been delegated by 69 !ote of the outstanding capital' stoc( or members.

a. Pro!ided that the delegated authority may be re!o(ed by maority

!ote of stoc(holders or members at a regular or special meeting.

Note the omission*of the place at a meeting duly called for the

purpose.

9. The amendment is then attached to the original by&laws in the.

a. 2ffice of the corporation and a copy thereof duly certified under oath

b. by the secretary and a maority of the 5oard is filed with the /%. Itis effecti!e upon issuance by /% of a certification that it is not

Inconsistent with the ode.

. 5y&laws are distinguished from the rticles as follows) =a* rticles Is the

fundamental law. 5y&laws pro!ide rules or regulations =b* rticles

e$ecuted before incorporation, 5y&laws are usually e$ecuted after



incorporation =c* The filing of rticles is a condition precedent to

incorporation, while the filing of 5y&laws is a condition

+. In case, of a conflict between the rticles and the 5y&laws, the former

shall pre!ail as the ode pro!ides that the contents of the y latter shall be

subect to the contents of the former. Fence, if the articles pro!ide for adefinite number of directors, a contrary pro!ision in the 5y&laws must

yield to the stated number In the former.

MEETINS

@F%N F%A?

1. "egular meetings of stoc(holders6members are held6annually on& the datefi$ed in the 5y&Aaws or any date In pril as determined by the 5oard

/pecial meetings are held at anytime as deemed necessary or as fi$ed in

the 5y&Aaws

. "egular meetings of directors6trustees are held monthly unless otherwise

pro!ided, /pecial meetings are held at anytime upon call of the president.

N2TI% ="%Q0I"%7%NT/

a. "egular meetings of stoc(holders6members require wee( notice,while special meetings require 1 wee( notice, unless .the 5y& Aaws

pro!ide otherwise.

b. "egular meetings of directors6trustees require one day notice unless

otherwise pro!ided.

c. Notice can howe!er be impliedly or e$pressly wai!ed.

@F%"% 7%%TIN: I/ T2 5% F%A?

1. /toc(holders6members are to be held in the city or municipality

where the principal office is located.. 5oard meetings can be held anywhere In or outside of the

Philippines unless the 5y&laws pro!ide otherwise.

@F2 P"%/I?%/

1. In oil instances, the president presides unless otherwise pro!ided.



. @here the meeting is called by a stoc(holder or a member upon

showing of good cause to the /%, the stoc(holder or member is

allowed to preside until a presiding officer is elected.

WHO CALLS1. Person designated in the 5y&Aaws & director6 trustee or officer

entrusted with managing petitioning stoc(holder or member, in

cases of remo!al, the corporate secretary or a stoc(holder or

member in proper instances.#

0ALIDITY OF ACTIONS

In stoc(holder or member consisting of a maority of the business so transacted

shall be corporation. meetings, there being a outstanding capital stoc( !alidwithin the powers

1. %!en if meeting is improperly called or held within the&powers of the

corporation and all stoc( holders or members are present or by their

representati!es

. Note the following instances when only a maority is required of

stoc(holders or members) =a* election of the members of the 5oard=b* remo!al of directors or trustees =c* appro!al of management

contracts =d* adopt by laws6amend6or repeal or re!o(e power

delegated to the 5oard =e* fi$ issued price of no par !alue shares1<8

=f* fi$ing compensation of directors

9. In directors or trustees meetings, there being a quorum, all acts are

!alid. 5ut if not underta(en in a duly con!ened meeting, they are

generally in!alid but may be ratified.

WHY ARE MEETINS NECESSARY

1. 7eetings are necessary because corporate powers are !ested in the

5oard or stoc(holders or members as a body and not as

indi!iduals.



. It ser!es as protection and assurance' to stoc(holders or members as

it affords them an opportunity to be heard and to discuss, the matter

at hand and !ote thereon.

Re?uisites )5 % ,%$id #eeting )5 st)*7h)$de&s )& #e#+e&sThe requisites are:

1. Feld at the proper place

. Feld at the stated date and time or at a reasonable time thereafter

9. alled by the proper person

. Pre!ious notice must be gi!en

+. There must be quorum.

WHEN ARE MEETINS NOT NECESSARY1. The instances when meetings are not necessary are =a* when a corporation

amends its articles and written assets is sufficient =b* when there is an

agreement to be bound despite the absence of a meeting =c* when the

rticles of a close corporation allows directors to ta(e action without a

meeting

CAN MEETINS BE POSTPONED

1. s a rule, meetings may be postponed but annual meetings be postponed ifthe purpose is to e$tend the term of office of directors or trustees.

COMPENSATION FOR ATTENDIN STOC6HOLDER OR MEMBER

MEETINS

1. They are not entitled )o payment for attending meetings as they are

e$ercising a right of rendering a ser!ice. Note that /ection <=+* only allows

compensation for directors, trustees or officers.

HOW ARE MATTERS TA6EN UP IN MEETINS PUT INTO FORMAL

FORM

1. They are formalized by the e$ercise of the right to !ote

WHO ARE ENTITLED TO 0OTE



1. /toc(holder or members are entitled to !ote as it is through the e$ercise of

the right to !ote that they are able to participate in management

a. The right to !ote Is inherent *in stoc( ownership or in membership.1

Pro!ided, they remain ds such In the boo(s of the corporation as of

the date fi$ed in the&notice. b. If the stoc( is co&owned, the consent oft all is necessary to !ote the

stoc(, e$cept where all of them have e$ecuted a pro$y.

c. If owned in an and6or capacity, any one can !ote the stoc(

. The right to !ote cannot be e$ercised if the) =a* shares are delinquent =b*

shares are non&!oting, unless the matter to be !oted upon allows them to

!ote =c* when the shares are In the treasury shares

9. lthough, not stoc(holders the following may e$ercise the right

to !oted =a* Pledgees or mortgagees when they are gi!en the right andsuch is recorded in the boo(s of the corporation1 =b* %$ecutors,

administrators, recei!ers and other legal representati!es appointed by

the ourt =c* heirs of the stoc(holder who ha!e e$ecuted a udicial or

e$tra&udicial settlement, registered with the "egistry of ?eeds upon

presentation of the settlement to the corporate secretary.

7NN%" 2> E2TIN:The right to !ote may be e$ercised in person or by pro$y

1. The right to !ote by pro$y cannot be e$ercised in board

meetings.

. pro$y is a formal authorization gi!en by the holder of the stoc( who has

the right to !ote, or by a member, to another person to e$ercise the !oting

right of former.

a. In another sense, it can also refer to the person who was authorized.

9. The requisites of a !alid pro$y as pro!ided by law are it

must be in writing and signed by the stoc(holder or member (b) filed before the scheduled meeting with& the corporate secretary =c* it

should not be !alid and effecti!e for a period of + years at anyone time it is

!alid only for the meeting for which it is intended unless

otherwise pro!ided. W



a. The 5y&laws may pro!ide for other requisites. The board cannot

prescribe other formalities besides that pro!ided by the ode if the

5y&

laws does not so pro!ide. bsent such pro!isions, compliance with

what is prescribed by the ode is sufficient b. s when, absent a requirement in the 5y&laws as to notarization,

the pro$y is !alid as the ode only requires it to be written.

c. The writing must show the intention to empower the person to

whom it is gi!en to act as agent in !oting the stoc(, and to enable the

corporate officers to (now that such authority is gi!en.

. The common (inds are (a) :eneral, which confers general

discretionary power that is continuing, or =b* Aimited, which limits the

power conferred.+. @hen a pro$y is gi!en to two or more persons, they must agree on the

!ote unless the pro$y pro!ides otherwise or discriminates. If there Is no

agreement, the maority will pre!ail

a. If only one of them will attend the meeting, he will be deemed

authorized to e$ercise the powers of a pro$y.

;. @hen the stoc(holder intends to designate se!eral pro$ies, the number of

shares of stoc( represented by each pro$y must be specifically indicated in

the pro$y form.a. If some forms do not indicate the number, the shareholdings as

indicated shall be tallied and compared with that appearing In the

boo(s, the balance, if any shall then be allotted to the holder of the

pro$y without a number indicated.

b. If all the pro$ies are blan(, the shareholdings shall be distributed

equally among all the pro$ies.

c. The number of pro$ies may be limited by the 5y&laws.,

<. re!ocation of the pro$y can be done e$pressly or impliedly, by writing,

orally or by conduct, with notice or without at anytime&e$cept if coupledwith an Interest, referring to an instance where the pro$y gi!er has

incurred liability and Is loo(ing at the grant of the right to !ote to another

as a means of reimbursement or indemnity



a. s regards /e!eral pro$ies) =a* last pro$y re!o(es all pre!ious

pro$ies =b* if undated, date of postmar( if matted or time of

presentation, If not mailed

. /ince a pro$y is a corporate control de!ice, solicitation of the same should

be underta(en In accordance with law, which requires among others, thesubmission to the /% of preliminary copies o the Information /tatement

and Pro$y >orm at least 13 business days prior to the date definiti!e copies

of such materials shall first be sent or gi!en to security holders.

a. The pro$y solicitation rules shall apply to) =a* an issuer which has

sold a class of its securities pursuant to a registration under /ection

1 =b* an issuer with a class of securities listed for trading on an

e$change =c* an issuer with assets of at least PFP +3,333,333.33 or

such amount as the ommission may prescribe, and ha!ing 33 or more holders each ha!ing at least 133 shares of a class of its equity

securities.

8. The right to appoint a pro$y, cannot be denied in a stoc( corporation. In a

non stoc( corporation it can be denied.

0OTIN TRUST AREEMENTS

1" !oting trust agreement is an agreement in writing whereby one or more

stoc(holders of a stoc( corporation transfers their share to any person6s or corporation ha!ing authority to act as a trustee or the purpose of !esting in

such person !oting or other rights pertaining to the shares for a certain

period not e$ceeding that fi$ed in the ode and upon terms and conditions

stated in the agreement.

%" The statute does not apply to agreements&whereby stoc(holders agree

to bind themsel!es to each other as shall !ote their shares. These are

called pooling agreements generally a stoc(holder e$ercises wide

liberality in !oting and his moti!es, while for personal profit, are not

obectionable #or may be determined by whims or caprices, so longas he does not !iolate a duty owed to other stoc(holders.

+" The limitations applying to !oting trust agreements are) =a* it should

not be e$ecuted for a period not e$cess of + years e$cept if e$ecuted

as a condition for a loan, in which case It should e$pire upon

payment =b* it should not be e$ecuted to circum!ent the law against



monopolies and Illegal combinations in restraint of trade or used for

purposes of fraud, such as fi$ing prices or a merger6consolidation to

create a monopoly

*" The other requirements are) =a* must be in writing, notarized

'containing and specifying all terms and conditions =b* it should must be filed with the /%, otherwise it is ineffecti!e or unenforceable

X =c* it should be subect to e$amination =d* It should automatically

e$pire at the end of the agreed period

d" /ome uses of !oting trust agreements are) =a* concentrate

stoc(holder control in one or few persons, who primarily through the

election of directors can control corporate affairs utilized by founders

or incorporators to retain control.

2" If a !oting trust agreement is validly e$ecuted, the shares of the trustor arecancelled and new ones are Issued to the trustee and noted in the corporate

boo(s that the transfer is pursuant to a !oting trust agreement

%" The trustee then deli!ers or e$ecutes !oting trust certificates, which

are transferable li(e shares, to e!idence the trustors' ownership and

right to di!idends.

+" 5oth the shares and !oting trust certificates are then cancelled upon

the e$piration of the term and new certificates are issued to the'

trustor.c. The !oting trustee shall then be allowed to) =a* possess the right to

!ote =b* e$ercise the right to !ote in person or by pro$y =c* has the

right of inspection =d* since he is the legal bidder, he can be elected

as a director

DISTINCTION BETWEEN PROXY AND A 0OTIN TRUST

1. The distinctions between a pro$y and a !oting trust are) =a* pro$y has no

legal title, a !oting trustee has legal title =b* the pro$y is generally

re!ocable, while a !oting trust generally is not re!ocable =c* pro$y canonly act at a specified meeting unless it is continuing, a trustee Is not so

limited =d* pro$y can only !ote if stoc(holder or member is not present

while a trustee !otes ne!ertheless =e* a pro$y is usually shorter in duration

than a !oting trust



. 2ther distinctions) =a* a !oting trustee can appoint a pro$y, while a pro$y,

as a rule, cannot further delegate his authority =b* a !oting trustee !otes in

his own name, while a pro$y is an agent of the shareholder. .

STOC6S AND STOC6 HOLDERS AC<UISITION OF STOC6S1. person may become a stoc(holder of a corporation by acquiring a share

through a purchase from the corporation or other shareholders.

. The purchase from the corporation is primarily effected by means of a

subscription contract if the obect are unissued shares

a. subscription contract is any contract for the acquisition of unissued

stoc( in an e$isting corporation or one that is still to be formed

regardless of whether It is referred to as a purchase or some other

contract.

This is so to pre!ent the a!oidance of pro!isions of the codeinsofar as pre&incorporation subscription contracts.

b. The (inds of subscription contracts are pre&incorporation and I Post

Incorporation contracts.

c. pre&incorporation is irre!ocable for a period of at least ; months,

counted from the date of subscription because there is a need to

ensure that the corporation shall ha!e capital to underta(e the

Ybusiness for which it was created. The irre!ocable nature of the

contract shall stand unless all subscribersG consent to the re!ocationor the corporation falls to materialize& within the period or such&

period fi$ed in the contract. Fowe!er, no pre&incorporation

subscription 6contract can be re!o(ed if the rticles ha!e already be

in submitted to 1 the /%.

d. ?istinguished from a stoc( option which refers to the pri!ilege

granted to a party to subscribe to a certain portion of unissued stoc(

within a certain period.

9. If the obect of the purchase are&Issued scares, they may be 6purchased

from other shareholders or from the corporation Itself when it disposes of treasury shares

PAYMENT FOR UNISSUED SHARES1. /hares are paid for by or any combination of) =a* cash =b* property &

tangible or intangible, actually recei!ed by the corporation and necessary



or con!enient for Its use and lawful purpose at a fair !aluation equal to par

or issued !alue =c* labor performed or ser!ices actually rendered =d*

pre!iously Incurred Indebtedness =e* amounts transferred from unrestricted

retained earnings to stated capital =f* outstanding shares e$changed for

stoc(s in the e!ent of a reclassification or con!ersion.a. "egarding items =b* to =f*, the !aluation must be determined by the

incorporators or the 5oard subect to appro!al by the /% b. /hares cannot be issued in e$change for promissory notes or future

ser!ices because they are supposed to and are intended to represent a

!alue recei!ed by the corporation to form part of its capitalc. The enumeration of acceptable consideration is also acceptable as

consideration for the issuance of bonds..

The amount to be paid is the par !alue, as fi$ed or if no par !alue, the!alue which may be fi$ed in the rticles or by the 5oard pursuant to the

authority conferred by the rticles 6 5y Aaws or in its absence by the

stoc(holders in a meeting duly called by a maority !ote of the outstanding

capital stoc(.

WHEN PAYMENT FOR SHARES MUST BE MADE

1. They are payable on) =a* date fi$ed the subscription contract, or upon call.

a. call is the act of the board in declaring due and payable unpaid4*subscriptions in full or such percentage, In either case, with accrued

interest, counted from date of subscription, If so required by the 5y&

laws and at the rate fi$ed thereon. If no interest rate is fi$ed, the legal

rate. bsent such pro!isions for the collection of Interest and a rate,

it cannot be collected

b. The purpose of the call is to fi$ the period of payment but is not

necessary if the, corporation is Insol!ent or payment is pro!ided for

in the contract.

. The requisites of a !alid callW are) =a* made in the manner pro!ided by law,it requires a resolution and notice =b* it must be made by the board =c*

operate uniformly among all shareholders

9. If no payment is made 93 days after due date or after the date stated in the

call, the shares shall be considered to foe delinquent,



. onsequently), =a* they shall not be !oted for or be entitled to !ote or

representation at a shareholders meeting =b* no rights may be e$ercised,

e$cept the right to recei!e di!idends.

a. This situation will obtain until the amount due, interest and e$penses

are paid.+. If the subscriber is hot delinquent, he e$ercises all rights of a shareholder.

REMEDIES TO ENFORCE A DELIN<UENCY

1. corporation may collect the unpaid subscription by udicial action.

Fowe!er, absent any date for payment in the subscription contract, a call is

still necessary.

2. nother option is to conduct a delinquency sale.

1. delinquency sale requires) =aZ "esolution by the 5oard orderingthe sale of delinquent stoc(s, specifying the amount due, interest, and

the date, time, place which shall not be less than 93 days nor more

than ;3 days from the date of delinquency =b* Notice is sent to the

subscriber personally or by registered mail and published in a

newspaper of general circulation in the pro!ince or city where the

corporation has its principal office once a wee( for consecuti!e

wee(s.

2. t the auction sale, the winning bidder shall be the one who shall paythe full amount of the balance and all e$penses for the least number

of shares. Note that there isV no deficiency because the winning bid

cannot be less than the amount due.

3. The stoc( so purchased Is transferred In the name of the purchaser,

the rest if any goes to the delinquent subscriber

3. If there is no bidder at the auction sale, the corporation may purchase the

shares. Note that the highest bidder's bid may be reected by the 5oard as

in a public auction sale, the corporation is not ma(ing an offer to sell but

rather the purchaser is offering to buy.4. If delinquent stoc( Is sold, It may be reco!ered orV the ground that) =a*

There is a defect or irregularity In the notice of sale =b* There is a defect or

irregularity in the sale itself. Pro!ided, the party bringing the action pays

to the person holding the stoc( the sum paid, plus legal interest from date

of sale and the action is brought within si$ [months from date of sale.



STOC6 CERTIFICATES

1. stoc( certificate6is the written instrument signed by the proper

officer of a corporation stating or ac(nowledging that the person

named therein is the owner of a designated number of shares of stoc( 2. It is issued once the consideration, plus interest and e$penses due

on a delinquency, if any, ha!e been paid.

3. Partial payments are pro&rated among all the shares. Note that in the

case of 5altazar !. Aingayen :ulf a certificate was issued for less

than the number subscribed pro!ided the par !alue of each of the

Xstoc(s represented by the certificate has been fully paid. The basis is

/ection 9< of the old law. Fence, 5y&laws of older corporations may

carry such a pro!ision4. The formal requirements for6the issuance of a stoc( certificate are)

=a* signed by the president or !ice&president =b* countersigned by the

corporate secretary or assistant secretary =c* sealed with the

X corporate seal =d* issued in accordance with the by&laws

5. Note that a stoc( certificate is not essential to the creation of a

stoc(holder relationship as regards the corporation In the absence of

a f statute or agreement.

WATERED STOC6

1. The definition of watered stoc( is stoc( issued not in e$change for its

equi!alent in cash, property, shares stoc( di!idends or 'ser!ices

a. Includes stoc( that is Issued =a* without consideration =b* issued as

fully paid when the corporation recei!es a sum less than par or issued

!alue =c* issued for a consideration other than cash, the fair !aluation

of which is less than par or issued !alue =d* stoc( di!idend without

sufficient returned earnings or surplus.

. The director or officer consenting or ha!ing (nowledge, and does note$press that same in writing and files it with the corporate secretary shall

be solidary liable with the shareholder to the corporation and its creditors

for the difference between the fair !alue recei!ed at the time of issuance

and its actual par or issued !alue



a. There is liability because a party gi!ing credit to a corporation is

entitled to rely upon its ostensible capitalization as the basis for the

*&edit gi!en. Thus if watered stoc( is issued, the ostensible capital is

in e$cess of real assets, thereby he reco!er less.

9. 2nly originally Issued stoc( may be watered, as a subsequent transfer is asale, the pro!ision says issuance

. subsequent increase in !alue will not eliminate the #water#, as the last

paragraph of /ection ;+ states that point of rec(oning of liability is

issuance

NATURE OF STOC6 CERTIFICATES

1" /toc( certificates are in the nature of personal property.

2" Transfers may be effected by deli!ery and indorsement.%" Fowe!er, no transfer shall be !alid between the parties unless it is

recorded in the boo(s of the corporation.

+" @hat is to be recorded are the names of the transferor and transferee,

date, number of shares and number of the certificate.

*" It must be recorded by the corporate secretary or the designated stoc(

and transfer agent, if one has been appointed. 2therwise, it is in!alid.

d" No share o!er which the corporation holds an unpaid claim or a

delinquency shall be transferable.8" If the 5y&laws do not pro!ide otherwise deli!ery and sale may also be

through another document but an indorsement is a mandatory requirement.

9" If what is transferred is a subscription, the corporation must consent by

resolution because the transfer constitutes a no!ation requiring the consent

of the creditor.

:" The registration of transfer to) =a* enable the corporation to (now at all

times who its shareholders are as mutual rights and obligation e$ists

between them =b* to afford the corporation a right or opportunity to obect

or refuse consent to a transfer in case it has a =c* to a!oid a fictitious or fraudulent transfer.

@" n unregistered transfer is) =a* !alid between transferor and transferee =b*

n!alid against the corporation e$cept ifC notice is gi!en in!alid against

corporate creditors when the&!eil of corporation fiction is pierced or there

is liability for watered stoc(s =d*in!alid against creditors of transferors =e*



transferor has the right to !ote and be !oted upon until challenged =f*

transferor can collect the di!idends

" /ince the law did not prescribe a period within which registration of

transfer should be affected, the action to enforce the right does not accrue

until a demand is made and such is refused. Fence, an action for mandamus can be made e!en after years.

PAE 1:

PHOTO 1

LOST CERTIFICATES

—The procedure tor the procurement of lost or replacements certificates are)

1 The registered owner or legal representati!e shall file an affida!it Intriplicate setting forth =a* circumstances of the loss, theft, or destruction

=b* number of shares, number of certificate and name of the corporation

=c* such other matter or e!idence he may deem if necessary

0pon !erification of the affida!it and boo(s, the corporation shall cause

notice of loss to be published at shareholder's e$pense for 9 consecuti!e

wee(s, stating the specifics of loss and that l year from date of

publication, should no contest be presented, it will cancel and issue new

certificates.9 The publication requirement can be dispensed with if the shareholder

files a bond or surety good for 1 year satisfactory to the board.

Pro!ided, in any case, if contest or suit is brought6presented, the

issuance of the certificate shall be suspended until a final decision of the

court or determination of ownership is made.

—%$cept in case of fraud, bad faith or negligence of the corporation, no

action can be brought against It for issuing a certificate6s pursuant to the

procedure laid down by law.

RIHTS OF STOC6HOLDERS

1. 0nder the orporation ode, stoc(holders e$ercise and enoy the

following rights =c* right to attend and !ote at meetings =b* elect or remo!e

directors =c* appro!e corporate acts =d* adopt amend by&laws =e* compel

the calling of a meeting =f* issuance of a stoc( certificate =g* recei!e



di!idends =h* recei!e property upon dissolution =i* Transfer stoc( =* pre&

emption =(* inspection of boo(s =I* secure financial statements =m*reco!er

stoc( at delinquency if unlawfully sold =n*enter into !oting trust

agreements =n* e$ercise the right of appraisal =o*participate in dissolution

=p* bring deri!ati!e suits.a. summary of rights can be had as, fallows) =a* right to di!idends =b*

right to participate in management =c* right to share in corporate

property upon dissolution.

. Note that a subscriber cannot e$ercise the right to demand the issuance of

a stoc( certificate.

DERI0ATI0E SUIT

1. deri!ati!e suit one brought by one or more stoc(holder6s or member inthe name of the corporation and in its behalf to redress wrongs committed

against It or to protect or !indicate corporate rights whene!er the officials

of the corporation refuse to sue, are the ones to be sued or hold control of

the corporation.

a. It is an a!ailable remedy In cases where the officers are o!er

compensated or there is a refusal to ta(e action without sufficient

e$planation.

. The requisites for its institution are =a* there must be ane$isting cause of action =b* That demand to sue has been made, unless

demand is useless =c* That he must ha!e been a stoc(holder or member at

the time the act was committed unless it be continuing =d* action is

brought In the corporate name.

a. dditional requisites are4 no appraisal rights are a!ailable for

acti!ity complained of and that it is not a nuisance or harassment

suit

b. The shareholder is a nominal party, the real party in interest is

the corporation. It is an indispensable party.c. The number of shares held is of no consequence. @hat is required

is that the party&bringing suit is a shareholder without regard

to the number of shares held.



9. n action brought in the name of the shareholder is an indi!idual

suit or if the act is committed against shareholders as a group, it is a

representati!e suit.

CORPORATE BOO6S

1. The following corporate boo(s and records must be (ept and preser!ed at its principal office

a. "ecord of all business transaction

b. 7inutes of stoc(holders or 5oard meetings, setting forth) time and

place, how authorized, notice gi!en, whether regular or special,

those present6absent, e!ery act done or ordered. 0pon demand, the

time that the a director, trustee or officer entered or left, the yeas

and Xthe nay, and any protest may be recorded in full

c. /toc( and Transfer boo( which should contain a record of allstoc(s, names of stoc(holders, installments paid6unpaid, statement

of alienation, date thereof and other matters prescribed by the 5y&

Aaws. Note though that the stoc( and transfer boo( can be e$cept

with the stoc( and transfer boo(s or one principally engaged In

the business of registering transfers of stoc(s in behalf of a

corporation.

. ll boo(s are a!ailable for inspection at reasonable hours on

business days, and in cases of records other than the stoc( and transfer boo(, ademand in writing for e$cerpts can be made.

9. ny officer or agent refusing inspection shall be liable for damages

and a !iolation of the ode.

a. Pro!ided, that if refusal is due to a resolution or order of the

board, liability will attach to the director or trustee !oting for it.

b. >urther, it is a !alid defense against party see(ing information or

Inspection that =a* he has Improperly used any information ser!ed

in a prior e$amination e!en of another corporation =b* not acting

in good faith =c* purpose is not legitimate.. stoc(holder may e$amine the boo(s and records of a wholly

owned subsidiary as long as it utilizes the same office and has identical

directors as the parent corporation.



RIHT OF SHAREHOLDER OR MEMBER TO FINANCIAL

STATEMENTS

a. stoc(holder has the right to request in writing a copy of

>inancial /tatements, which the corporation must comply with

within days from receipt, by furnishing the party ma(ing therequest with

copies of the corporation's balance sheet and profit or loss statement

showing in reasonable detail its assets and liabilities and the result of

its operations.

b. t the regular meeting of the stoc(holders, the 5oard must present a

financial report of operations for the preceding year, to

include financial statements duly signed and certified by a P

e$ceptwhen its paid up capital is less than PFP +3,333.33, in which case, a

certificate under oath by the treasurer or responsible officer is

sufficient.

MERERS %nd CONSOLIDATIONS

WHAT ARE MERERS AND CONSOLIDATIONS

1. 7ergers refer to the absorption by one corporation by another, which Is

#called the Bsur!i!ing corporation, while onsolidations refer to the

combination of two or more corporations to form a new corporation, called

the consolidated corporation,

2. The procedure for a merger or consolidation is as follows)

a. The 5oard of each corporation shall e$ecute a plan of merger or

consolidation setting forth) =a* names of the corporations proposing to

merge or consolidate =b* the terms of the merger or consolidation and

the manner of carrying it into effect =c* statement of changes, if any, inthe articles of the sur!i!ing corporation, in case of a merger or with

respect to the consolidated corporation, all statements required by

/ection 1 to be contained in the rticles of Incorporation =d* such

other pro!isions that may be deemed necessary



b. 0pon appro!al by a maority !ote of each of the 5oards, the plan of

merger6consolidation shall be submitted to the stoc(holders of each of

the corporations at separate meetings duly called, notice of which

ha!ing been gi!en at least wee(s prior to the date of the meeting,

personally or by registered mail Note that the !ote requirement is 69 of the outstanding capital stoc(, pro!ided a dissenting stoc(holder may

e$ercise the right of appraisal, the e$ercise of which can be

e$tinguished if the plan is abandoned.

c. ny amendment of the plan shall be subect to the same procedure.

d. fter appro!al, the rticles of 7erger6onsolidation will be e$ecuted

by each of the constituent corporations signed by the President or Eice

President, certified by the orporate /ecretary or Wssistant orporate

/ecretary stating) =a* the plan of merger or consolidation =b* in stoc( corporations, the number of shares outstanding and in non stoc(

corporations, the4 number of members =c* in each corporation, the

number of shares or members !oting for or against the plan.

e. rticles of 7erger6onsolidation signed and certified shall be

submitted to the /% for appro!al together with a fa!orable

recommendation in cases of ban(s, building and loan associations, trust

companies, insurance companies, public utilities and educational

institutions. f. The effecti!ity of the merger6consolidation is upon the issuance by the

/% of a certificate of merger6consolidation.

g. Note that it after in!estigation, the /% has reason to belie!e that it is

contrary to law, it may gi!e the corporations an opportunity to be heard

after notice of time, date, and place is gi!en to each corporation, at least

wee(s prior to the hearing.

EFFECTS OF A MERER OR CONSOLIDATION

1. The effects of a merger or consolidation area. The constituent corporations become the sur!i!ing corporation in

case of a merger, and the consolidated corporation in case of a

consolidation

b. The separate e$istence of the constituent corporations shall cease

e$cept that of the sur!i!ing or consolidated corporation



c. The sur!i!ing or consolidated corporation shall possess all the rights,

pri!ileges immunities and powers and shall be subect to al duties

and liabilities of a corporation organized by or under the corporation

code

d. The sur!i!ing or consolidate corporation shall thereupon andthereafter possess all the rights, pri!ileges franchise of each of the

constituent corporations and all property, real or personal, and all

recei!ables due on whate!er account. Including subscriptions of

shares and other chooses of action and all and e!ery Interest of or

belonging to or each of the constituent corporations shall be ta(en

and deemed transferred and !ested, in the sur!i!ing 6 consolidated

corporation without further act or deed.

e. The sur!i!ing or consolidated corporation shall be responsible andliable for all liabilities and obligations of each of the constituent

corporations in the same manner as the sur!i!ing or consolidated

corporation had itself incurred the liability or obligation. ny claim,

action or proceeding pending by or against the constituent

corporations may be prosecuted by or&against the constituted or

sur!i!ing corporation as the case may be. Neither shall the rights of

creditors or lien upon property of any of the constituent corporation

be Impaired by the merger or consolidation

. In a case, the issue resol!ed by the court was) #?oes the sur!i!ing

corporation ha!e a right to enforce a contract entered into by the absorbed

company subsequent to the date of the merger but prior ##to issuance of a

certificate of merger by the /%#. The court held in the affirmati!e as the

merger agreement contains a stipulation that all references to the absorbed

corporation shall be deemed a reference to the sur!i!ing corporation.

9. The employees of the dissol!ed corporation shall be assumed by thesur!i!ing corporation. Their tenure should be treated as ha!ing started

when they started with the dissol!ed corporation.

DISTINUISH BETWEEN MERER OR CONSOLIDATION AND THE

SALE OF ASSETS



1. They can be distinguished as follows)

a. In a merger or consolidation, there is no contract of sale, while in a

sale of assets, a sale is always in!ol!ed

b. In a merger or consolidation, there is automatic assumption of liabilities, in a sale of assets, generally the buyer is not liable* e$cept

when =a* he e$pressly6impliedly assumes liability =by in a de facto 5.

merger or consolidation =c* where the purchasing corporation is

merely a continuation of the selling corporation that e!entually

dissol!es itself =d* where the transaction is fraudulently entered into

to a!oid liability for debts.

c. In a merger or consolidation, there is continuance of the enterprise, in

the sale of asset, a liquidation is usually contemplatedd. In a merger or consolidation, title to assets is transferred !irtue of

law, in a sale of assets, title is transferred by !irtue of contract

e. In a merger or consolidation, one or all the constituent corporation6s

are dissol!ed, in a sale of assets, there is no dissolution by the selling

corporation

TERMS RELATED TO A MERER OR CONSOLIDATION

1. ?ue ?iligence & is the process of in!estigation by a party,disinterested or otherwise, into a business transaction for the purpose of

pro!iding information with which to e!aluate the ad!antages and

disad!antages of the same

. orporate Ta(e & 2!er is the process of acquisition of

control or possession o!er a corporation

9. Poison Pill & is a financial tactic or pro!ision used by a

company to ma(e an unwanted ta(eo!er prohibiti!ely e$pensi!e or less

desirable. %$ample) /ale of assets at a discount to stoc(holders.

. Tender 2ffer \ a public officer to purchase a specifiednumber of shares from shareholders. 0sually the purchase is at a premium,

meaning at a price higher than the par !alue of the stoc(.

+. orporate "aiding \ gaining control of a company for

purpose of liquidating its assets at a profit.



RIHT OF APPRAISAL

?%>IN%?

1. The right of appraisal Is the right of stoc(holder to demand payment of thefair !alue of its shares after dissenting from a proposed corporate action

in!ol!ing a fundamental change in the corporation in the cases, pro!ided

for by law.

. It is a!ailable where =a* rticles are amended and such has the effect of

changing or restricting the rights of a shareholder or a class of shares or

authorizing preferences in any respect superior to those outstanding shares

of any class =b* e$tending or shortening the corporate term =c* In cases of sale, lease, e$change transfer, mortgage, pledge or disposition of all or

substantially all of corporate assets or property =d* In cases of

mergers6consolidations =e* in!estment by the corporation in another

corporation or business other than its primary purpose =f* a stoc(holder in

a close corporation for any reason may compel the said corporation to

allow the e$ercise of his appraisal rights.

HOW IS IT EXERCISED1. fter !oting against the proposed corporate action, a written demand must

be made on the corporation within 93 days after the date on which the !ote

was ta(en for payment of the fair !alue of his shares

a. If no demand is made within 93 days, he is deemed to ha!e wai!ed

the e$ercise of the right

. The stoc(holder must submit his certificate of stoc( within 13 days for

notation that such shares are dissenting shares

a. If the certificate is not submitted for notation within 13 days, the

corporation may consider the e$ercise of the right terminated at itsoption

9. 0pon a demand all rights accruing to the share are suspended including

!oting rights, only the right to recei!e the fair !alue is not suspended iiil,

if there is no payment within 93 days after the award, he is restored to all

his rights.



a. Fowe!er, the e$ercise of the right after demand is made shall cease

if) =a* stoc(holder withdraws his demand and the corporation

consents =b* proposed action is abandoned or rescinded =c* /%

disappro!es the action, if its appro!al is necessary =d* /%

determines that the stoc(holder is not entitled to the e$ercise of theright, in the effect is that he is restored to all rights and accrued

di!idends are paid to him.

. The corporation then pays the stoc(holder the fair !alue upon surrender of

the certificate.

a. The !alue paid is the !alue as of the day prior to the date on which

the4 !ote is ta(en, e$cluding any depreciation or appreciation in

anticipation of the corporate action.

b. If the fair !alue cannot be determined within ;3 days from the datecorporate action was appro!ed, it shall be appraised by 9

disinterested persons one chosen by the stoc(holder, one chosen by

the corporation and one chosen by both representati!es. decision of

a maority shall be final and the award paid within 93 days after such

award is made.

c. The cost of the !aluation shall be shouldered as follows) =a* the

corporation, unless the fair !alue as ascertained is equal to or

appro$imates that which it offered, then it will assessed against theshareholder =b* if suit is brought to reco!er payment, the corporation

shall be liable unless the shareholder Is found to ha!e an

unustifiable reason not to recei!e payment

d. Pro!ided, in all cases =a* no payment can be made if the corporation

has no unrestricted retained earnings, and =b* that the shareholder

shall forthwith transfer his shares to the corporation

+. transfer pending e$ercise of the right of appraisal shall cause the rights

of the transferor as a dissenting stoc(holder to cease and the transferee

shall ha!e all the rights of stoc(holder including the di!idends whichwould ha!e accrued to the /hares as by so buying, it indicates his desire to

be a stoc(holder

CLOSE CORPORATIONS



A2/% 2"P2"TI2N ?%>IN%?

1. close corporation is a corporation whose articles pro!ide that) ll the

corporation's issued stoc( of all classes, e$clusi!e of treasury shares, shall

be held of record by not more than a specified of persons not to e$ceed 3.a. ll issued stoc( of all classes shall be subect to one or more

specified restrictions on transfer permitted In this title. ny

restriction can be put pro!ided) =a* the restriction must appear in the

articles of incorporation by&laws as well as the certificate of stoc(,

otherwise it is not. binding on a purchaser in good faith =b* it or they

should not be more onerous than that granting the e$isting

stoc(holders or the corporation the option to purchase the shares with

such reasonable terms, conditions or periods stated therein. If at theend6e$piration of the period, a stoc(holder6s or the corporation falls

to e$ercise the option to purchase, the transferring stoc(holder may

sell his shares to any third person. %$ample) fi$ing a price below

actual6mar(et !alue, prescribing a longer holding period or a transfer

without consent of the board

b. The corporation must not list in any stoc( e$change or ma(e any

public offering of any of its stoc( of any class.

c. Notwithstanding, if, 69 of its !oting stoc( or !oting rights is ownedor controlled by another corporation which is not a close corporation

within the meaning of the ode, the corporation shall not be deemed

a close corporation.

. 2ther pro!isions of the ode shall ha!e supplemental effect in the absence

of e$press pro!isions found in the title on close corporations.

9. No close corporation can be formed if will be engaged in the following

business acti!ities) mining, stoc( e$change, ban(s, Insurance company,

public utility or educational corporations or are otherwise !ested with

public interest.. The number of shareholdersis mandatory.

a. In case of the death of a stoc(holder, if his heirs will cause the

number to e$ceed 3, their remedy Is to put only In the name of one

of them or they can create a corporation to hold the shares.



+. ?istinguishing a close corporation from an ordinary stoc( corporation) =a*

there is a limitation on shareholders in the former, none e$ists in the latter

=b* there are restrictions of transfer in the former, none e$ists in the latter

=c* there are qualifications that may be imposed for shareholders in the

former, qualifications are not normally imposed in the former =d* a publicoffering of shares is prohibited in the former, there can be a public

offering of shares in the latter =e* the former may be managed by,

shareholders, the latter is always managed by a board.

;. ?istinguished from a #closely held corporation# referring to the number of

shareholders at a particular time, indicating that they are ''few in number or

a corporation whose shares are owned by a relati!ely small number of

shareholders. Even corporation can be stockholders of a closed

corporation provided however that the corporation which is a stockholder is not a close corporation within the meanin of the code! it m"st not own

2#3 of the votin stock or votin rihts.

CONTENTS OF THE ARTICLES OF INCORPORATION OF A CLOSE

CORPORATE

1. In addition to what is required by /ection 1 of the ode, the rticles of

Incorporation of a close corporation may pro!ide for)

a. lassification of shares or rights and the qualifications for owning or holding then and restrictions on their transfer

b. lassification of directors into one or more classes each of which may

be !oted for or elected solely by a particular class of stoc(

c. :reater quorum or !oting requirements for stoc(holder or board

meeting

d. Pro!ide that the corporation's business shall be managed by the

stoc(holder rather than the board as long as =a* no meetings of

stoc(holders are necessary to be called to elect directors =b* unless the

conte$t clearly requires otherwise, stoc(holders shall be deemeddirectors for the purpose of applying the pro!isions of the code =c*

stoc(holders and the corporation shall be subect to all liabilities of

director

e. 7ay pro!ide that all officers or employees or that specified officers4

shall be elected or appointed by stoc(holders instead of the 5oard.



. Note that the term of directors for a close corporation is 1year as it is a

stoc( corporation, while those in non&stoc( corporations will ha!e a term

of 9 years and in an educational corporation the term is for + years.

RULES TO APPLY TO TRANSFERS OF STOC6 IN BREACH OF

<UALIFYIN CONDITIONS1. person holding stoc(s in a close corporation in conclusi!ely presumed to

ha!e notice of the fact of his Ineligibility to be a stoc(holder if he is not

entitled under any of its pro!isions in the rticles of Incorporation to be a

holder of record of stoc( and the certificate for such stoc( conspicuously

shows the qualifications of the persons entitled to be holders.

2. If the rticles of Incorporation state the number of persons not e$ceeding

3 entitled to be holders of stoc( and the certificate for such stoc( states

such fact, the person to whom stoc( is issued or transferred that wille$ceed the number is conclusi!ely presumed to ha!e (nowledge or notice

of such fact

9. If stoc( certificate conspicuously shows a restriction on transfer, the

transferee is conclusi!ely presumed to ha!e notice of the fact that he has

acquired stoc( in !iolation of the restriction, If such acquisition !iolates

the restriction.

. The effects of such is that the corporation may at its option refuse to

register the transfer of stoc( in the name of the transferee ha!e thecorporation may record if it is consented to by all the stoc(holders or if the

close corporation had amended its rticles and effect of such amendment

is to terminate the status of the corporation as a close corporation as long

as the purpose of the amendment Is either) =a* delete6remo!e pro!ision

required under the title to be contained in the rticles of Incorporation.

%$ample) restrictions =b* reduce quorum or !oting requirement.

+. It will require a 69 !ote of the outstanding capital stoc( or such higher

proportion as fi$ed In the rticles, whether with or without !oting rights.

No written assent is allowed.;. 2ther related matters) =a* the manner of transfer is the same as stoc(

corporations =b* transfers are not limited to transfers for !alue =c* it does

rot Impair6preudice the right of the transferee to rescind or reco!er on the

warranty e$press or implied



0ALIDITY OF STOC6HOLDER AREEMENTS

1. greements signed by and among all the stoc(holders e$ecuted before the

formation or organization of the corporation shall sur!i!e incorporation

and shall continue to be !alid and binding if such be their intent as long as

they are not Inconsistent with the rticles, irrespecti!e of whether or notthey are embodied in the rticles or not, but aspects requiring it to be

embodied must be so embodied. %$amples) =a* agreements between

stoc(holders to sell their shares to each other must be embodied =b*

agreement to stay in the corporation for a definite period

. greement between or more stoc(holders in writing and signed by them

may pro!ide that in e$ercising any !oting rights, the shares held by them

shall be !oted as pro!ided, as they may agree or as determined by the

procedure agreed between them. %$ample) !oting trust agreements.9. No pro!ision in any written agreement signed by a stoc(holder relating to

any phase of corporate affairs shall be in!alidated as between the parties

on the ground that its effect is to ma(e them partners among themsel!es.

%$ample) contracts as to the use of di!idends

. Neither will an agreement among some or all of the stoc(holders in a close

corporation be in!alidated on the ground that it relates to conduct of

business of the corporation as to restrict or interfere in the discretion of the

board. Pro!ided that such shall impose on stoc(holders who are partnersthereto liabilities for a managerial acts reposed on directors. %$ample,

consultation agreements not to deal with particular entities or deal with

particular entities only.

+. To the e$tent that a stoc(holder is acti!ely engaged in the management or

operation of the business affairs of a close corporation stoc(holder shall be

held to strict fiduciary duties to each other and among themsel!es, said

stoc(holder shall be personally liable for corporate torts unless the

corporation has obtained reasonably adequate insurance.

EFFECTS OF ACTIONS TA6EN WITHOUT BOARD MEETINS OR

TA6EN DURIN IMPROPERLY HELD ONES

1" The general rule is that all actions are !alid If) =a* signed and written

consent of all directors is obtained before or after the action =b* all



stoc(holder ha!e actual or implied (nowledge and no prompt obections In

writing Is made =c* directors are accustomed to ta(e informal action with

e$press or implied acquiescence of all stoc(holder =d* all directors ha!e

e$press or implied (nowledge of the action in question and no one ma(es a

prompt obection In writing and the by&laws do not pro!ide otherwise.2" If a directors meeting is held without call or notice, an action ta(en within

corporate powers is deemed ratified by the director who fail to attend

unless he promptly files a written obection with the secretary after ha!ing

(nowledge therefore.

PRE-EMPTI0E RIHTS

1. In a close corporation, pre&empti!e rights e$tend to all stoc( issued,

including a re&issuance of treasury shares, whether for money, property, personal ser!ices or in payment of corporate debts unless the rticles

otherwise pro!ide.

DEADLOC6S

1. ?eadloc(s occur if directors or stoc(holders are so di!ided regarding the

management of the corporation's business and affairs that the necessary

!ote cannot be obtained, the consequence of which is that the business and

affairs of the corporation can no longer be conducted to the ad!antage of stoc(holders

. ?eadloc(s are resol!ed by the /%, who upon written petition, may

arbitrate and in the e$ercise of Its powers =a* cancel or alter a pro!ision in

the articles, by&laws or agreements =b* cancel, alter or enoin any

resolution or act of the corporation or its board, stoc(holder or officers or

other parties to the action =c* prohibiting or greeting any art of the

corporation, its board, officers, stoc(holders or parties party o the action

=d* requiring the purchase at fair mar(et !alue of the shares a stoc(holder,

either by the corporation earning or by any other stoc(holder =e*appointing a pro!isional director who shall be impartial neither a

stoc(holder nor a creditor of the corporation, its subsidiaries or affiliates

and whose further qualifications, if any may be determined by the

corporation =f* dissol!ing the corporation =g* granting such other relief as

the circumstances may warrant.



a. Note that the pro!isional director) =a* Is not a recei!er and does the

right to notice, !ote until remo!ed by the /% or all stoc(holders his

compensation is determined by agreement with the corporation,

appro!ed by the /%, or fi$ed by agreement

b. The petition to resol!e a deadloc( is initiated by written petition by any stoc(holder notwithstanding any contrary pro!ision in the

article by&laws or agreements

WITHDRAWAL OR DISSOLUTION

1. @ithout preudice to other remedies, a stoc(holder may for any reason

compel the corporation to purchase his shares at their fair mar(et !alue,

which shall not be less than par or issued !alue when the corporation has

sufficient assets to co!er debts and liabilities, elusi!e of capital stoc(.. Pro!ided also, that a stoc(holder may by written petition to the /%

compel dissolution when) =a* the acts of director, officers or persons in

control are) =1* Illegal4 =* fraudulent4 =9* dishonest4 =* oppressi!e or

unfairly preudicial to the corporation4 =+* corporate assets are being

misapplied or wasted.

SPECIAL CORPORATIONS

EDUCATIONAL CORPORATIONS1" re stoc( or non&stoc( corporations organized to pro!ide facilities for

teaching or instruction and are go!erned by special laws and by general

pro!isions of the code.

2" Prior to its incorporation, a fa!orable recommendation must be obtained

from the ?epartment of %ducation.

%" Non&stoc( corporation is a corporation whose capital stoc( is not

di!ided into shares. No part of its income is distributable as di!idends

to its members, trustees or officers. ny income obtained as an incidentof its operations shall be used for the furtherance of the purpose to

which it has been organized.

MANAEMENT OF A NON-STOC6 EDUCATIONAL CORPORATION



1" The 5oard of Trustees shall not be less than + no more than 1+ members

but always in multiples of +, so classified so that 16+ of its members shall

ha!e terms that e$pire e!ery year and those subsequently elected shall

ser!e for a term of. fi!e years

2" ny !acancies are only filled up for the une$pired portion but if organizedas a stoc( corporation, the pro!isions applicable to stoc( corporations shall

go!ern

8" >or the conduct of its business, a maority of the board shall constitute a

quorum. RELIIOUS CORPORATIONS

1. re corporations incorporated by one or more persons and are classified as

either a corporation sole or religious society and is to be go!erned by thischapter and generally by other pro!isions go!erning non stoc(

corporations.

a. They are corporations composed of entirely spiritual persons and which

is organized for the furtherance of a religion or for perpetrating the

rights of the church or for the administration of church or religious

wor( or property

. orporation sole is one formed by the archbishop, bishop, priest,

minister, rabbi, 2r other presiding elder of a religious denomination sector

church for the purpose of administering and managing as trustee&the affairs

property and temporalities or money re!enues of such religious

denomination, sect, or church.

a. The rticles of Incorporation must pro!ide =a* that he is the

archbishop bishop, priest, minister, rabbi or presiding elder =b* rules

are not inconsistent with his becoming a corporation sole nor is it

prohibited ' =c* that he is charged with the administration of its

temporalities and the management of its affairs within its territorial

urisdiction =d* the manner !acancies are filled =e* place where the principal office is located.

b. corporation sole is deemed incorporated once the rticles are

submitted to the /% together with an affida!it of affirmation.

Fenceforth he becomes a corporation sole



c. Property may be bought or encumbered by a corporation sole.

uthority may also be obtained from the "T if no internal rules

go!ern the same.

d. Eacancies can, be filled by the, filing with the /% of his commission

or certificate of election or proof of assumption.e. The dissolution ta(es place by the filing with the /% of a !erified

declaration of dissolution setting forth) =a* name =b* reason for

dissolution =c* authorization for dissolution =d* name and address of

the persons who will super!ise dissolution or winding up of its affairs.

0pon /% appro!al, it ceases to carry on its operations.

9. "eligious /ociety is the same as a corporation sole as far as purposes are

concerned but Incorporation Is brought about by 69 !ote + or written

consent of its members, who then file its articles with the /%, !erified byaffida!it of the presiding elder, secretary, cler( or member stating that) =a*

that the society is a religious organization of some religious denomination,

sect or church =b* that 69 of its member ha!e gi!en their written consent

or !ote to incorporate at a D duly con!ened meeting of the body =c*, that its

incorporation is not forbidden by competent authority or by is constitution,

rules, regulations or discipline of the religious denomination, sect or

church to which it belongs =d* that its purpose is to manage or administer

its affairs, properties or estate =e* location of Its principal office ,which s Vmust be in the Philippines =f* names, nationalities and residences of I ] the

trustees elected to ser!e the first year or such other period as prescribed,

which board must not be less than + or more than 1+

. The rules or the law on non stoc( corporations will go!ern them if

applicable or in the absence of an e$press pro!ision of law.

DISSOLUTION

1. ?issolution is the e$tinguishment of its franchise to be a corporation at

the termination of its corporate e$istence.a. corporation formed under the code, may be dissol!ed !oluntarily

or in!oluntarily.

b. @hat is co!ered by de ure dissolution, or one that is adudged and

determined by udicial sentence, or brought about by an act of or

with the consent of the state, or which results from the e$piration of



the period of corporate life, as opposed to a fact dissolution that is

brought about by cessation of business insol!enc

. The steps in dissolution are) =a* termination of corporate e$istence as far as

the right to go on doing ordinary business =b* winding up of corporate

affairs, payment of debt, distribution of assets no creditors preudiceda. corporation is really dissol!ed after liquidation. corporation can

still e$ercise corporate powers while the liquidation phase is not yet

terminated.

MANNER OF 0OLUNTARY DISSOLUTION

1" With n) *&edit)&s &e(udi*ed"

%" It is Initiated by a maority !ote of the 5oard and a resolution

adopted by the outstanding capital stoc( or members at a meeting tobe held upon call of the 5oard after publishing notice of the time,

lace and obect >or 9 consecuti!e wee(s In a newspaper or general

circulation and notice to a shareholder or member gi!en by registered

mail or deli!ered personally 93 days prior to the meeting. copy of

the "esolution is then certified by a maority of the 5oard,

countersigned by the secretary submitted to the /%.

+" It will ta(e effect upon Issuance by the /% of a ertificate of

?issolution2" @ith creditors preudiced.

%" It is initiated by the filing of a petition with the /%, signed by a

maority of the 5oard or other officers ha!ing management, !erified

by President, /ecretary or one of its directors or trustees.

+" The petition willset forth) =a* all claims and demands against it =b*

that dissolution was resol!ed upon the affirmati!e !ote of 69 of

outstanding capital stoc( or members at a duly called meeting. If the

/% finds the petition to be in proper form, an order will be issued

fi$ing date on or before which obections may be made, which dateshall not be less than 93 days nor more than ;3 days after the entry of

the order. Publication will also required once a wee( for 9 wee(s and

posted in 9 public places. + days after the date fi$ed, the /% will try

all issues, obections and if all material allegations are true.



*" The dissolution ta(es effect upon udgment directing disposition of

assets and payment of debts, and if required, appoint a recei!er.;1

8" A#end#ent t) sh)&ten the te&#

a. It is initiated by a maority !ote of the 5oard and subect to theaffirmati!e !ote of 69 of the outstanding capital stoc( or members,

followed by the submission to the /% of the amended articles duly

certified by the secretary and a maority of the 5oard together with

an affida!it of publication.

b. The dissolution ta(es effect upon e$piration of the shortened term

without further proceedings.

IN0OLUNTARY DISSOLUTION1. It is underta(en by the /% upon the filing by a real party in

interest of a !erified complaint, after proper notice or bearing on the

following grounds or instances contemplated by law

a. %$piration of the term pro!ided in the rticles of Incorporation.

Note that this can !oluntary if the corporation will, dissol!e upon

e$piration.

b. Aegislati!e enactment as the enactment of laws carry with it the

power to amend or repeal but is limited by the non&impairmentclause of the onstitution.

c. >ailure to formally organize and commence transaction of

business within 2 years from date of incorporation

d. Diss)$uti)n +. (udi*i%$ de*&ee )n the g&)unds )5'

a. the corporation has offended against a pro!ision of an act for its

creation or renewal. Note) de facto corporations

b. when It has forfeited its pri!ileges and franchises by non&user

c. when it has committed an act or omitted an act which amounts

to a surrender of corporate rights, pri!ileges or franchised. when It has misused a right pri!ilege or franchise or used it In

!iolation of the law by order of the /% in cases of a !iolation

of the code deadloc(s and mismanagement in a close

corporation, suspension, or re!ocation of the ertificate of

"egistration6Incorporation when)



i. there is fraud In its procurement

ii. serious misrepresentation as to1 its acti!ities

iii. refusal to comply or willful defiance of /% orders

i!. continuous cooperation for + years

!. failure to file 5y&laws!i. failure to file required reports

POWER OF A SHAREHOLDER TO BRIN ABOUT DISSOLUTION

1. s a general rule, a shareholder cannot, sue to demand dissolution unless

they are unable to obtain redress and protection for their rights or

!iolations warrant quo warranto proceedings.#3

EFFECTS OF DISSOLUTION1. The effects of dissolution are)

a. legal title to corporate property is !ested in shareholders

b. corporation ceases as a body politic to continue the business for which

it was organized

c. it cannot be re!i!ed

d. dissolution does not, by itself imply the diminution or e$tinguishment

of rights

e. upon e$piration of the winding up period of 9 years, the corporationceases, it can no longer sue or be sued

LI<UIDATION

This is the nd phase of dissolution.

1. It pertains to the winding up of the affairs of the corporation by reducing

its assets in money, settling with creditors, and apportioning the amount of

profit and loss.

. ?uring liquidation, a corporation continues to e$ist as a body corporate for

the purpose ofa. prosecuting and defending suits by or against it

b. enable it to settle and close its affairs

c. enable it to dispose of and con!ey property and distribute assets but it

should not be for the purpose of continuing the business



MANNER OF LI<UIDATION

1. The corporation can underta(e liquidation by =a* itself =b* a duly appointed

recei!er under /ection 118, =c* a trustee, where the property is con!eyed to

the trustee holding the same In trust for the benefit of shareholders,members, creditors and other Interested parties.

. Note that recei!ers or trustees can act as such beyond the statutory 9 year

period of liquidation.

a. Pending suits upon e$piration of the three year period may still he

prosecuted by the handling lawyer who will then be constituted as a

trustee for such purpose

DISTRIBUTION OF ASSETS IN A STOC6 CORPORATION'1. The preference will apply only if assets are Insufficient to pay the claims.

. It is as follows) =a* creditors =b* shareholders, members, directors', officers

who are also creditors =c* shareholders in proportion to shareholdings in

the absence of a contrary pro!ision.

a. If the shares are di!ided into classes, preferred shareholders before

common shareholders.

a. Shareholders may get more than the fair market value. If assets are

just enough, they get the par value or Issued value, or less if the

assets are insufficient

3. If creditors or shareholders cannot be found, the assets will be escheated in

favor of the municipality or city where the assets are found.

4. Note that assets can only be distributed upon lawful dissolution and

payments of debts/liabilities.

a. The e$ceptions are) =a* ?ecrease of capital stoc( under /ection 1

=b* "edeemable shares under /ection =c* Treasury shares under

section $ (d) cquisition by the corporation of its own shares under

section 1 =e* ?i!idends under /ection 9 =f* ?eadloc(s under

/ection 13 =g* @ithdrawal under /ection 13+.

DISTRIBUTION OF ASSETS IN A NON-STOC6 CORPORATION



1. The assets of a non stoc( corporation are to be distributed in accordance

with the following rules)

a. Aiabilities and obligations of the corporation shall be paid, satisfied

or discharged, or adequate pro!isions made therefore ssets held

under a condition requiring return, transfer, con!eyance and whichcondition occurs by reason of dissolution shall be returned,

transferred and con!eyed

b. ssets recei!ed and held by the corporation subect to limitations

permitting use only for charitable, religious, bene!olent, educational

or similar purposes, but not subect to return, transfer or

recon!eyance by reason of dissolution shall be transferred to

cor porations underta(ing similar acti!ities pursuant to the plan of

dissolutionc. 2ther assets shall be distributed in accordance with the rticles of

Incorporation or 5y&Aaws determining the distributi!e rights of its

members or as pro!ided

d. In any other case, assets shall be distributed to such persons,

societies or organizations whether organized for profit or not as

pro!ided in the plan of distribution.

. The P$%n )5 Dist&i+uti)n as outlined abo!e must be consistent with/ection 8

a. This is adopted pursuant to a maority !ote of the 5oard of Trustees,

then is submitted for the affirmati!e !ote of 69 of the members

ha!ing !oting rights at a regular or special meeting, prior notice

ha!ing been gi!en.

FOREIN CORPORATIONS

1. foreign corporation is one formed or organized or e$isting under any

laws other than the Philippines whose laws allow >ilipino citizens andcorporations to do business in its own country or state.

. These corporations can transact business after it has obtained a license and

a certificate of authority from the appropriate go!ernment agency.

orporations already doing business in the Philippines with licenses can



continue operating but must comply with the pro!isions of the ode within

years.

PROCEDURE IN THE APPLICATION FOR A LICENSE

1. /ubmit to the /% the following documents)a. rticles and 5ylaws, certified In accordance with law and translated

to an official language if necessary

b. pplication containing

i. date and term of incorporation

ii. address of the principal office of the corporation in the country

or state of Incorporation

iii. name and address of a resident agent authorized to accept

summons and process in all legal proceedings and pendingestablishment of the office, all notices affecting the corporation

i!. place in the Philippines where it intends to operate

!. the purpose which it intends to pursue in transacting business

which should be stated in the authority, for which it is to be

issued a license under /ection 1;

!i. name and address of present directors

!ii. statement of authorized capital stoc( and the number of shares

issued duly itemized!iii. statement of outstanding capital stoc( and the aggregate

number issued

i$. statement of amount actually paid in

$. such other information that may be necessary or appropriate to

determine whether corporation is entitled to a license

. ttached to the application are)

a. ertificate under oath of the officials of the urisdiction of Its

Incorporation attesting that its laws allow >ilipino citizens andcorporations to do business thereon

b. /tatement under oath by the president or authorized officer showing

to the satisfaction of the /% that it is sol!ent and in sound financial

condition) setting forth its assets and liabilities as of its date not

e$ceeding 1 year prior to the filing of its application



c. ompliance with laws applicable to particular corporations and

obtain the necessary authority from the appropriate regulating agency

d. Power of ttorney designating a resident agent.

9. The "esident gent can be an indi!idual or a corporation who is a residentof and is transacting business in the Philippines.

a. If it be an indi!idual, he must be of good moral character and of

sound financial standing.

b. The power of attorney must contain a pro!ision that the foreign

corporation consents to ser!ice of summons and legal notice and that

ser!ice on the resident agent is admitted and held as !alid as if

ser!ed on the duly authorized officer at its gi!en address. It should

also be accompanied by an agreement e$ecuted by the proper authority of the corporation that if there be cessation of business or if

they shall be without a resident agent, ser!ice may be made on the

/% as if ser!ice has been made upon it, the /% in turn must

transmit the same by mall to the head office within 13 days, ser!ice

is then complete.

SER0ICE OF SUMMONS ON A FOREIN CORPORATION

1. The rules on ser!ice of summons on a foreign corporation area. 2n the resident agent. If made on another If it has a resident agent is

inefficacious. It is also e$clusi!e.

b. 2n the /%, if the corporation ceases to do business or there is no

resident agent

c. ny of its officers or agents in the Philippines if the foreign

corporation has neglected or refused to appoint a resident agent.

d. If the foreign corporation Is not doing business, ser!ice may be made

upon any agent, as pro!ided for by the 188< "ules on i!il

Procedure

WHEN IS THE LICENSE ISSUED

1. The license is Issued when the /% Is satisfied that the foreign corporation

has complied with all requirements of the code and other laws and will be



!alid as long as it remains a corporation under the country6state of

Incorporation or the license is surrendered, re!o(ed, suspended or annulled

. fter the license has been issued)

a. The corporation must deposit within ;3 days @ith the /% for the

benefit of present and future creditors securities satisfactory' to the/% consisting of bonds, e!idences of indebtedness of the

go!ernment or any of its political subdi!ision, shares of registered

companies with the 5oard of In!estments, shares in domestic

corporations listed in the stoc( e$change, insurance companies or

ban(s, or any combination thereof with a mar(et !alue of PFP

133,333&33, e$cept, If it is a ban(, insurance company, foreign non&

stoc(, foreign corporation with a representati!e office or regional or

area FQ in the Philippines. b. The deposit is to increase by 3O of the licensee's income in e$cess

of PFP +,333,333.33 within si$ months from the end of a fiscal year

and if the !alue decreases by 13O but the /% may release part of

the securities if it increases by 13O. The /% may also allow

substitution.

c. The deposit is subect to return after cessation of business and

satisfactory showing that it has no liabilities to Philippine residents

or the go!ernment9. The corporation shall transact business only for the purpose6s for which it

was granted a license.

a. In the conduct of its business it will now be go!erned by laws,

regulations or rules applicable to the same class of corporations in

the Philippines e$cept, those related to its creation, formation,

organization, dissolution or to fi$ the relations and responsibilities of

shareholders.

b.

TRANSACTION OF BUSINESS )n$. 5)& the u&)se 5)& 4hi*h the

*)&)&%ti)n 4%s issued % Li*ense"

1. 0pon the grant of a license, foreign corporations can now transact

business. license is no longer absolutely necessary. It matters only when

access to the course is the issue.



a. If it is without a license, it can still transact business but the

difference is that if it is transacting business with a license it is

permitted to maintain or inter!ene in any action suit or proceeding in

any court or administrati!e agency with the Philippines, otherwise it '

cannot maintain suit but may be proceeded against before Philippinecourts on any !alid cause of action.

b. Therefore if the foreign corporations Is) =a* transacting business with

a license, it has access =b* not transacting business and has no

license, it has access =c* transacting business without a license, it has

no access =d* transacting business without license but subect

qualifications6e$ceptions, it has access. @hat Is thus necessary is to

determine what constitutes transacting business

. The "ule is that there is no general rule as each case must be determined inthe light of the obtaining circumstances or the below guidelines)

a. Is the foreign corporation continuing the business or enterprise for

which it was organized or whether it has retired from it and turned it

o!er to anotherZ

b. re the acts of the foreign corporation indicati!e of a purpose on its

part to engage in some part of its regular businessZ

c. Transacting business is not determined by number of transactions or

!olume. single act is not merely incidental or casual but is of sucha character as to distinctly indicate a purpose to do other business in

the state or the performance of act6s for which it was created

d. The !olume or amount of business is not entirely determinati!e of

whether it is transacting business or not.

e. ontinuity of conduct and intention to continue or establish a

continuous business such as the appointment of an agent will

constitute doing business.

9. Transacting business can thus be Inferred from) =a* continuous business

acts or transactions =b* isolated transaction or business act If an inferencecan be drawn or of such a character as distinctly to indicate a purpose or

the part of the foreign corporations to do business and to ma(e the state the

base of its operations for the conduct of its ordinary business

. E3*eti)ns t) the gene&%$ &u$e %&e'



a. @hen the foreign corporation is suing to see( redress for an isolated

business transaction, which is a transaction or a series of transactions

set apart from the common business of a foreign enterprise in the sense

that there is no Intention to engage in the progressi!e pursuit of the

obect6purpose of the business organization. This is an e$ception as it Isnot the intention of the law to fa!or a domestic corporation who

later on repudiate obligations on account of the foreign corporation's

lac( of a license

i. The requisites for its application are =a* It must disclose that it

is not doing business in the Philippines and is suing under the

Isolated a 5usiness Transaction "ule =b* It must pro!e its

uridical personality as a foreign corporation =c* It must name

its duly authorized representati!es or resident agent. b. The foreign corporation is suing to protect its name, reputation and

goodwill. If the foreign corporations are well (nown through products

bearing its corporate and trade names, it has a legal right to maintain an

action and it is also allowed by treaties to which the Philippines is a

party to.

c. The foreign corporation is suing to enforce a right not arising out of

business transaction with a party in the Philippines. %$ample) failure of

a shipping corporation to deli!er goods shipped by the foreigncorporation or an insurer&subrogee sues to reco!er from a Philippine

carrier for the amounts paid to an insured.

d. To hold it liable for acts and omissions. on!ersely, if a foreign

corporation is allowed to sue without a license, it may also be sued in

the Philippines for acts done to persons in the Philippines. It means that

it cannot a!oid suit due to the lac( of a license. foreign corporation

shall not be allowed to impugn urisdiction due to the lac( 3f a license.

+. That notwithstanding the abo!e&situations, the /upreme ourt has ruled

a. That the contract that is entered into is not !oid ab ignition. Thus, whena foreign corporation which is doing business without a license

contracts with a third party, any defect will subsequently be cured if it

obtains a license to transact business

b. If a foreign corporation is doing business In the Philippines without a

license, the mo!e of the defendant to dismiss the complaint that said



foreign corporation filed might still be neutralized by in!o(ing the

doctrine of estoppel.

c. The /upreme ourt adopted the in pari delicto rule holding that no

remedy could be afforded to the parties because of their presumpti!e

(nowledge that the transaction was tainted with illegality. The ourtsaid that equity couldn't lend its aid to the enforcement of an alleged

right claimed by !irtue of an agreement entered into in contra!ention of

law.

d. The prohibition against doing business without a license is subect to

penal sanctions under /ection 1 of the ode.

HOW IS A SURRENDER EFFECTED

1. /ubect to e$isting laws and regulations, It may file a petition for withdrawal of the license but no certificate of withdrawal can be granted if

the following requirements are not met)

a. ll claims that ha!e accrued in the Philippines ha!e beVn paid,

compromised or settle

b. ll ta$es, imposts, assessments, penalties, If any, lawfully due the

Philippine :o!ernment, any of its agencies or political subdi!isions

ha!e been paid

c. The petition for withdrawal has been published in a newspaper of general circulation in the Philippines once a wee( for 9 consecuti!e

wee(s

. The formal requirements are =a* letter petition of the resident agent =b*

payment of filing fee =c* resolution of the 5oard authorizing the closure of

the Philippine office =d* latest balance sheet =e* proof of publication =f*

surrender of the license.

a. ourts can re!iew the action of the /% appro!ing withdrawal as the

law should not be interpreted to mean that the foreign corporations is

now permitted to escape the results of a pending action before thecourts with all the deposited securities if it gets /% appro!al.

b. @ithdrawal subects the corporation to the pro!isions of /ection 1

as to liquidation as it operates as quasi&dissolution.

HOW IS A RE0OCATION SUSPENSION OR ANNULMENT EFFECTED



1. @ithout preudice to the other grounds, a suspension or re!ocation of the

license may arise when the foreign corporation)

a. >ails to pay fees or file annual reports

b. >ails to appoint and maintain a resident agentc. >ails, after change of a resident agent or his address, to submit to the

/% a statement of such change

d. >ails to submit an authenticated copy of any amendment of its

rticles65y& Aaws or any articles of merger or consolidation within

the time prescribed

e. 7isrepresentation of any material matter in the application, report,

affida!it or other document submitted pursuant to the required

documentsf. >ailure to pay any and all ta$es, Imposts, assessments, penalties

g. Transacting business outside the purpose6s for which it was issued a

license

h. Transacting business in the Philippines as an agent of or acting in

behalf of a foreign corporation or entity not duly licensed In the

Philippines

i. ny other ground that would render it unfit to transact business.

. 0pon a re!ocation, the /% shall Issue a certificate of re!ocation

furnishing the appropriate go!ernment agency and it shall also mail to the

corporation at its registered office in the Philippines a notice of re!ocation

with a corresponding certificate of re!ocation.

9. E55e*t )n *)nt&%*ts entered into =a* If prior to re!ocation, they are !alid

=b* If after re!ocation, they are In!alid and unenforceable as far as the

foreign corporations.

AMENDMENTS OF THE ARTICLES OR BY-LAWS

1. mendments are to be go!erned by the laws of the country of

incorporation but it must within ;3 days after the effecti!ity of the

amendment file with the /% and appropriate go!ernment agency, a duly

authenticated copy of the rticles or 5y&Aaws clearly underscoring the

changes, duly certified by the authorized official of the state of



incorporation Diil the filing thereof shall not of Itself enlarge or alter the

purpose for which foreign corporations was granted a license

. If so enlarged or amended it must obtain an amended licensed or if it

changes its corporate name by submitting an application with the /%

fa!orably enclosed by the appropriate regulating agency.

MERERS=CONSOLIDATIONS

1. If the foreign corporation merges or consolidates with a domestic

corporation, it will be allowed if such is permitted by Philippines laws and

law] of the state of incorporation, pro!ided it complies with the laws of

the Philippines on merger or consolidation

. If it merges or consolidates with another corporation in the country or state

of incorporation, it shall file a duly certified copy of the rticles of 7erger or onsolidation with the /% and appropriate regulating agency within

;3 days from its date of effecti!ity.

9. Pro!ided, that if the absorbed orporation Is the foreign corporation, the

corporation must file a petition to withdraw its license because it is in

effect dissol!ed. Not a change of name as its identity ceases to e$ist.

/%%). %uropean "esources /% 9+ /" ; re doing business.

RULES TO OBSER0E WHEN SUIN A FOREIN CORPORATION OR

0ICE 0ERSA

1. The burden of proof to show that it is a foreign corporation transacting

business or suing under any of the e$ceptions is) on the foreign

corporations by affirmati!ely pleading such fact

. The defendant must specifically deny the allegation of a foreign

corporation's capacity to sue

9. Proof of doing business is not necessary before urisdiction is acquired

. >or purposes of suit, a foreign corporation is a resident of the Philippineson account of their being found and operating In the Philippines

"%/I?%N% is where the corporation prosecutes the corporate enterprise. /ee

/TT% INE%/T7%NT !. ITI5NS, 39 /" 8



#is*e$$%ne)us PRO0ISIONS

Se*" 18 & 2/ & total number shares of stoc( issued to subscribers or /6F

whether fully or partially paid e$cluding Treasury shares ?istinguished from &

issued & all 2/ Issued but not all Issued from 2/ =Treasury shares*/ubscribed & all subscribed are outstanding but not all 2 are subscribed =paid*

Se*" 18 - N6/ and /pecial orporation may designate another ha!e for the

boards

Se*" 18 - authority for the /% to collect fees

Se*" 19 & right of N%? to congress regarding limits for /6F in corporations

!ested with public Interest

Se*" 191 & annual reports together with financial statements for stoc( corporation

Se*" 192 - confidentiality of by the /% e$cept when the law requires

disclosure or are necessary as e!idence /ec. 19 & right of the /% to ma(e rules

Se*" 199 & !iolations of the code fine of 1,333 no more than 13,333 93 days

imprisonment no more than + years or both If committed by a corporation it may

be dissol!ed without preudice to filing of a proper action

Se*" 19: & amendments or repeal

Se*" 19@ & repealing clauseSe*" 19 & separability

Se*" 19 & application to e$isting corporation & years

Se*" 19 & %ffecti!ity

n agreement of co&shareholders to mutually grant a right of first refusal to each

other, by itself, does not constitute a !iolation of the pro!isions of the

onstitution limiting land ownership to >ilipinos or >ilipino corporations. If the

foreign shareholdings e$ceeds 3O, It is not their ownership that is ad!ersely

affected, but rather the capacity if the corporation to own land. The fact of landownership by the corporation cannot depri!e the stoc(holders of the right of first

refusal. No law disqualifies a person from purchasing shares in a landholding

corporation e!en if the latter will e$ceed the allowed foreign entity. This right

belongs to the stoc(holders, while the right to the land belongs to the

corporation. They are separate and distinct.



INT"2"P"T% ?I/P0T%/)

1. ontro!ersies arising out of intra&corporate or partnership relations,

between and among stoc(holders, members, or associations between any

or all of them ad the corporation, partnership or association of which theyare stoc(holders, members, or association of which they are stoc(holders,

members or association respecti!ely between such corporation, connected

with the regulation of the internal affairs of the corporation.

. Durisdiction

a. urisdiction to hear an Intracorporate dispute is determined by =a* the

status of the relationship between the parties, and =b* nature of the

question that Is the subect of the contro!ersy.

b. If the contro!ersy In!ol!es the contractual rights and obligations of the parties6stoc(holders and not the enforcement of rights and obligations

under the orporation ode, Durisdiction belongs to the regular courts.

c. /pecial ommercial ourt li(ewise has Durisdiction o!er) =a* de!ices

and schemes employed by or any acts of the board of directors and6or

the stoc(holder, partners, members of association and organization,

business associates, Its officers or partners amounting to fraud, and

misrepresentation which may be detrimental to the Interest of the

public =b* contro!ersies In the election or appointment of directors,trustees, officers, or managers of such corporation, partnership or

association =c* petitions for suspension of payments or corporate

rehabilitation.

Documents

atty cajucom-corporation notes.docx