The Corporation Code II

7/29/2019 The Corporation Code II

1/26

THE CORPORATION CODE BP 68

BASIS:

Art. 46 Juridical persons may acquire and possess

property of all kinds as well as incur obligations and

bring civil or criminal actions, in conformity with the

laws and regulations of their organization.

- Corporations are NOT LIABLE but itsofficers may be held criminally responsible;

except when the employees violate Article

103 of RPC, and the corporate charter may be

subject to FORFEITURE.

Section 1: WHAT IS A CORPORATION:

/ATTRIBUTES OF A CORPORATION: (P-A-C-E)

1. has Powers, attributes and properties expressly

authorized by law or incident to its existence;

2. Artificial being;

3. Created by law;

4. Enjoys the right of succession;

Doctrine of Piercing the Corporate Entity

- Separate personality of the corporation maybe disregarded if the same was availed to

defeat public convenience, justify a wrong,

protect fraud or defend a crime.

CONSEQUENCES of the SEPARATE JURIDICAL

PERSONALITY of A CORPORATION:

1. Corporate debt is NOT the debt of the

stockholder

NOR is the stockholders debt that of the

corporation;

2. Stockholders are NOT OWNERS , but only have

INDIRECT INTEREST over corporate assets.

3. Shareholders have no right to recover possession

of property belonging to the corporation or to

recover damages for its injury;

4. In taxation, the income of the corporation is NOT

that of the shareholders , who may still be taxed on

dividends, that may be derived from such income.

ADVANTAGES OF A CORPORATION may be

summarized as follow (FE-LI-CON CAP-CENTS_

1. Feasibility of greater and bigger undertaking;

2. Limited shareholders liability;

3. Continuity of Existence;

4. Capacity to act as a Legal unit;

5. Transferability of shares;

6. Centralized management;

7. Standardized Method;

DISADVANTAGES of CORPORATION:

1. Credit is limited in view of the shareholders

limited liability;

2. Unity of incompatible and conflicting elements in

view of transferability of shares;

3 Minority stockholders usually become subservient

to majority stockholders.

4. Stockholders right to vote merely becomes

theoretical in view of the widespread of ownership,

disinterest in management, inertia and inaccessible

meeting places;

5. Management or control has been separated from

ownership as in large corporation.

6. Corporations are subject to many legal controls and

restrictions;

7. Corporate form involves double taxation on

corporate income.

CORPORATION vs. PARTNERSHIP

Corporation-created by law;

-shares are transferrable even without the

consent of other shareholders;

-managed by BOD;

-death of a SH does not dissolve a

corporation;

-SH is not liable to corporate creditors with

his separate property;

-may exist for 50 years subject to extension;-governed by the corporation code;

Partnership:-created by AGREEMENT of the parties;

-cannot transfer shares/interest without the

Consent of the other partners;

-managed by ALL of the parties except when

They appointed a Managing Partner;

-death of a GENERAL partner DISSOLVES

The partnership;-general partners are liable for Debts of the

Partnership BEYOND his capital investment;

-may exist indefinitely, beyond fifty years;

-governed by the CIVIL CODE;

SECTION 3: CLASSES OF CORPORATION:

General Classification:

a. STOCK CORPORATIONS with stocks divided into

shares;

-authorized to distribute to the stockholdersdividends or allotments of the surplus for profits on

the basis of the shares held.

b. NON-STOCK CORPORATIONS no stocks to be

divided; no dividends or allotments to be distributed;

Other classification:

a. Open or Close Corporations;

b. De Jure or De Facto;


2/26

c. By estoppels or by Prescription;

d. Foreign or Domestic;

e. Lay/Regligious/Eleemosynary;

DE FACTO CORPORATION

-can be attacked only by a quo warranto proceeding;

-may exist under the following conditions: (L-A-A-C)

1. valid LAW under which it was incorporated2.ATTEMPT to incorporate;

3.Assumption of corporate powers;

4.Certificate of Incorporation was issued

Despite defect in its incorporation.

SECTION 4: CORPORATIONS CREATED by

SPECIAL LAWS or CHARTERS:

-governed primarily by the provisions of the Special

Law or charter creating them or applicable to them,

supplemented by the provisions of the CorporationCode, insofar as they are applicable.

SECTION 5: CORPORATORS and

INCORPORATORS STOCKHOLDERS and MEMBERS

-Corporators those who come to the corporation

whether as stockholders or member.

Incorporators stockholders or members mentioned

in the articles of incorporation as finally forming and

composing the corporation and who are signatoriesthereof.

Corporators in a STOCK CORPORATION arecalled STOCKHOLDERS/SHAREHOLDERS;

-all incorporators in a STOCK

CORPORATION must now subscribe to or

own a stock in such corporation;

Corporators in a NON-STOCK CORP arecalled MEMBERS.

GENERAL RULE: - only capacitated NATURALPERSONS may be incorporators UNLESS

JURIDICAL PERSONS are otherwise

permitted.

Sunset View vs. Campos non-payment of the full

price of a condo unit is NOT as stockholder of a

condominium corporation, and thus will not give rise

to an intra-corporate conflict cognizable by the

Corporation Code.

SECTION 6: CLASSIFICATION OF SHARES:

GR shares may be divided into such classes

possessing rights, privileges or restrictions as the

articles of incorporation may provided, subject to

legal limitations;

LEGAL LIMITATIONS on CLASSIFICATION OF

SHARES:

1.Shares shall not be deprived of voting, except

PREFERRED or REDEEMABLE SHARES;

-non-voting shares must still be entitled to

vote on matters specified in the last paragraph of

the provision such as amendment of the AOI and

dissolution of the corporation.

2. There must always be a class or series of shares

with complete voting rights where non-voting shares

are provided for,

3. Non-issuance of no-par value shares for banks,

trust companies, insurance companies, Public utilities

and building, and loan associations.

4. PREFERRED stocks must be issued with stated Par

Value.

5. Terms and conditions of PREFERRED shares may

be fixed by the BOD only when so authorized and is

effectivity shall take place only upon filling with the

SEC;

6. No par value shares shall not be issued for a

consideration of less than 5.00;

7. Rights, Privileges or restrictions on the shares of

the SH must be stated in the AOI and in the

Certificate of Stock unless otherwise provided bylaw.

SITUS OF SHARES of STOCK generally at the

domicile of the owner.

-or at the DOMICILE of the CORPORATION for

purposes of Attachment, Garnishment or Execution;

-or at the PROVINCE in which the ciporation has its

principal place of business for purposes of registering

a chattel mortgage over shares of stock.

-or at the DOMICILE of the Corporation generallycontrolling for purposes of Taxation.

Shares of stock maybe pledged in accordancewith Art. 2095 of the New Civil Code which

provides:

Incorporeal rights, evidenced by

negotiable instruments, bills of lading, shares of

stock, bonds, warehouse receipts and similar

documents may also be pledged. The instrument

proving the right pledged shall be delivered to the

creditor, and if negotiable must be indorsed.

1. Merger or consolidation of the corporation with

another corporation or other corporation.

2. Amendment of the Articles of Incorporation;

3. Adoption and Amendment of by-laws;

4. Incurring, creating or increasing bonded

indebtedness;


3/26

5. Investment of Corporate funds with another

corporation;

6. Increase or decrease of capital stocks;

7. Dissolution of the corporation;

8. Sale, lease, exchange mortgage, pledge or other

disposition of all or substantially all of the corporate

property.

SECTION 7: FOUNDERs SHARES

-may give certain rights and privileges not enjoyed by

other owners of stock;

-may be given preference not only as to voting rights

but also to dividend payments;

-if the exclusive privilege is to vote and be voted for

as directors, this must be for a period of NOT

EXCEEDING 5 years subject to the approval of the

SEC.

SECTION 8: REDEEMABLE SHARES

-may be issued by the corporation when expressly so

provided in the AOI;

-may be PURCHASED or TAKEN UP by the

corporation upon the expiration of the fixed period,

REGARDLESS of the existence of unrestricted

retained earnings in the stocks of the corporation,

and upon such terms and conditions in the AOI, which

must also be stated in the Certificate of Stockrepresenting the said shares;

-Upon MATURITY of Redeemable Shares, they

should be PAID by the corporation, even if the latter

has no unrestricted retained earnings.

SECTION 9: TREASURY SHARES:

-are shares of stock which have been issued and fully

paid for, subsequently REACQUIRED by the issuing

corporation by PURCHASE, REDEMPTION,

DOATION or through some other Lawful means.

-some may be again disposed for reasonable price

fixed by the BOD;

-if the price is LOWER, there will be a

violation of the law, and the stockholder can

complain;

-cannot be VOTED upon;

-not entitled to dividends for it is absurd for a

corporation to pay dividends to itself.

INCORPORATION and ORGANIZATION OF

PRIVATE CORPORATIONS

Section 10: NUMBER and QUALIFICATIONS of

INCORPORATION:

-only NATURAL PERSONS can incorporate;

-not less than 5 nor more than 15 natural persons may

incorporate unless otherwise permitted by law.

-incorporators must own at least one share of the

corporations capital stock; therefore, a member can

no longer exist as incorporator in a stock corporation.

JURIDICAL PERSONS cannot be

incorporators, but can be CORPORATORS.

SECTION 11: CORPORATE TERM:

-shall exist for a period not exceeding 50 years from

the date of incorporation UNLESS sooner dissolved,

or unless such period is EXTENDED.

-extension of period can be made in any single

instance by Amendment of the Articles of

Incorporation, in accordance with the Code;

-no extension can be made EARLIER than 5 years

prior to the original or subsequent expiry date unless

there are justifiable reasons for an earlier extension

as may be determined by the SEC.

-no extension can be done AFTER EXPIRATION of

the corporate life because there is no life to be

extended in such case.

SECTION 12 MINIMUM CAPITAL STOCKREQUIRED OF STOCKS CORPORATIONS:

-Stock Corporations incorporated under this Code,

shall not be required to have any MINIMUM

authorized Capital Stock except as otherwise

specifically provided for by special law;

-as long as the paid-up capital should NOT BE LESS

than 5,000.00

SECTION 13 AMOUNT OF CAPITAL STOCK tobe SUBSCRIBED and PAID for purposes of

INCORPORATION

-at least 25% of the authorized capital stock (deemedto be the total capital stock in case of several shares with

different par values, or the total number of shares in the case

of no Par value shares)SHALL BE SUBSCRIBED

-at LEAST 25% of the subscribed ACS shall be paid

Upon subscription, the balance to be payable on the

dates fixed in the contract of subscription,WITHOUT NEED of CALL;

-in the absence thereof, upon CALL for payment by

the BOD;

-paid-up capital SHALL NOT be less than 5,000.00;

-Special Laws may provide for bigger paid-up capital.


4/26

ARTICLE 14 CONTENTS of ARTICLES of

INCORPORATION

-ALL Corporations organized under the Corporation

Code shall file with the SEC articles of

Incorporation, in any of the official language, signed

and acknowledged by all of the incorporators,containing the following, except as otherwise

prescribed by the Code or Special Law;

a. Name of the Corporation

b. Specific Purpose

-if there be more than one purpose, it shall

be indicated as primary, secondary

-non-stock corporation shall not include a

purpose which would contradict to its nature

as such;c. Place where the principal office of the Operation

is to be located, which must be within the

Philippines;

d. Term of Existence of the Corporation;

e. Names, nationalities and residences of the

incorporators;

f. Number of directors and trustees which MUST

NOT be less 5 nor more than 15 ;

g. names, nationalities, and residents of the person

who shall act as directors or trustees until the first

regular directors and trustees are duly elected andqualified in accordance with this Code;

h. If STOCK CORPORATION:

-amount of ACS in lawful Phil. Money;

-number of shares into w/c it was divided;

-in case of par value shares, the par value of

each;

-names and nationalities of the subscribers

and the amount subscribed and paid by each;

-if some of the shares are without par value,

it must be stated;

If NON-STOCK CORPORATION:

-amount of its capital;

-names, nationalities and residences of the

contributors and the amount contributed by

each;

i. other matters not inconsistent with law, and which

the incorporators may deem Necessary and

Convenient;

SEC shall not accept the AOI of any stockcorporation unless accompanied by a SS of the

Treasurer elected by the subscribers showing that at

least 25% of the ACS of the corporation has been

subscribed and the at least 25% of the total

subscription has been paid in actual cash or in

property, the fair valuation of which is equal to at

least 25% of the said subscription , where such paid-

up capital is NOT less than P5,000.00

SECTION 15: FORM OF ARTICLES OF

INCORPORATION

-substantial compliance is sufficient

SECTION 16: AMENDMENT OF THE ARTICLES

OF INCORPORATION

*When AMENDMENT can be done?

-unless otherwise provided by the Code;

-for legitimate purposes only;

*How AMENDMENT is DONE?

-by a Majority Vote of the BOD and Trustees

And the vote or written ASSENT of the stockholders

representing at least 2/3 of the outstanding capital

stock, without prejudice to the appraisal right of

dissenting stockholders in accordance with the

providsions of this Code;

-by the VOTE or written ASSENT of 2/3 of the

MEMBERS if it be a NON-STOCK CORPORATION.

*How to Identity the Amended Articles?

-indicated by UNDERSCORING the changes made;

-copy of the Amended AOI shall be certified under

oath by the Corp. Secretary and the majority of the

Directors and Trustee stating the fact that the said

amendment have been duly approved by the required

vote of the stockholders and members and shall besubmitted to the SEC.

*WHEN AMENDMENT shall take Effect?

-upon approval of the SEC ; With the Treasurers Affidavit; Accompanied by a Favorable recommendation from

the appropriate government agency to the effect

that the such AOI or the amendment thereof are in

accordance with law.

-from the date of filing with the SEC if NOT ACTED

upon within 6 months from the date of the filing for

a cause not attributable to the Corporation.

SECTION 17: GROUNDS for REJECTION or

DISAPPROVAL OF AOI: (R-A-P-A)

1. Required percentage of ownership of the capital

stock to be owned by the Citizens of the Phils. Has

not been complied;

2. Amendment is NOT SUBSTANTIALLY in

accordance with the prescribed form;

3. Patently unconstitutional, illegal and immoral

purpose;

4. Affidavit of the Treasurer concerning the amount

of the CS subscribed and/or paid is FALSE.

SEC- shall give incorporators reasonable time within

which to CORRECT or MODIFY the objectionable

portions of the Articles or Amendment.


5/26

Incorporators shall be given NOTICE of thegrounds or causes for rejection or disapproval;

SECTION 18: The CORPORATE NAME

-must not be Confusing, illegal, identical or similar to

an existing business or corporate name;

-done by amendment in compliance with Section 16;-when approved the Commission must issue an

AMENDED Certificate of Incorporation indicating

the Amended Name.

SECTION 19 COMMENCE OF COPORATE

EXISTENCE

-corporate or juridical existence

COMMENCES/BEGINS from the date of issuance of

the Certificate of Incorporation;

-from that time, the Corporation can exercisecorporate powers authorized by law or incident to its

existence;

-thereupon, the incorporators, stockholders and

members shall constitute a body politic and corporate

under the name stated in the AOI.

SECTION 20 DE FACTO CORPORATION

DE FACTO CORPORATION

-can be attacked only by a quo warranto proceeding;-may exist under the following conditions: (L-A-A-C)

1. valid LAW under which it was incorporated

2.ATTEMPT to incorporate;

3.Assumption of corporate powers;

4.Certificate of Incorporation was issued

Despite defect in its incorporation.

-shall NOT be inquired into COLLATERALLY in any

private suit to which such corporation may be a party.

-inquiry may be made by the SOLGEN in a QuoWarranto proceeding;

SECTION 21: CORPORATION by ESTOPPEL

-composed of persons who assume to act as a

corporation knowing it to be without authority to do

so;

-liability of incorporators of a CBE shall be that of

GENERAL PARTNERS, so that their separate

properties shall be answerable for valid claims

against them.

-defense on ground that no such corporation existed

is not a valid defense by the one who assumes such

ostensible corporation.

SECTION 22 EFFECTS OF NON-USE of

CORPORATE CHARTER and CONTINUOUS

INOPERATION of the CORPORATION

-failure to formally organize (elect new board of

directors, trustees or corporate officers) and commence

transaction of business or construction of corporate

works (purchase or sale of properties to be used as business

of the corporation and other preparatory acts) within 2

years from the date of incorporation will result to

the AUTOMATIC DISSOLUTION of the

CORPORATION.

-if corporation has commenced transaction of its

business, but subsequently becomes continuously

inoperative for a period of at

least 5 years, the same

shall be a ground for the SUSPENSION, or

REVOCATION Of its corporate franchise or

Certificate of Incorporation.

-not applicable if the failure to transact or operate is

due to causes beyond the control of the Corporation

as may be determined by the SEC.

BOARD OF DIRECTORS/TRUSTEES/ OFFICERS

SECTION 23 BOD/TRUSTEES:

-are the one who managed the corporation;

-BOD represents the corporate body, and the

DIRECTORS are the Executive Representative of the

Corporation;

-to be elected from the holders of stocks, or if there

is no stock, from among the members of the

corporation;

-shall hold office for 1 year and until their

successors are elected and qualified.

-must own at least one share of the capital stock of

the corporation of which he is the director;

-trustees of a non-stock corporation must be

members thereof.

-majority of the directors or trustees of all

corporations organized under this Code must be

residents of the Philippines.

NATURE of the POWERS OF THE BOD

-original and undelegated;

-not conferred by the stockholders, nor can be

revoked or be sterilized;

-exercised by the BOD according to their best

judgment ;

-stockholders DO NOT HAVE the management and

control of the affairs of the corporation as they are

deemed to have consented thereto.

-the Board may appoint an Executive Committee to

conduct ordinary business of the corporation which

must be members of the board;


6/26

-A director or officer of the corporation will not be

permitted to make private or secret profit out of his

official position;

-A director is NOT LIABLE for the acts or

omissions of co-directors or other officers

UNLESS:

a. he connives at or participate therein;b. he is NEGLIGENT in not discovering or

acting to prevent it;

QUALIFICATIONS OF A DIRECTOR: (O-R-M)

1. Owns at least one share of the capital stock of

the corporation in his name;

2. Residents of the Phils.

3. Must not have been convicted by final judgment

of an offense carrying an imprisonment exceeding

6 years, or an offense constituting a violation of

the Corporation Code.

By-Laws may validly provide that directors

must own at least five or more shares of the

Capital Stock;

By-Laws may validly provide that stockholder

is ineligible to be director is he be also a

director of a company who is in competition

with that of the other corporation.

SECTION 24: ELECTION OF DIRECTORS or

TRUSTEES-presence of the owners or their representatives or

proxy, of the majority of the outstanding capital

stock is required at all elections of directors or

trustees;

-if non-stock, presence of the members entitled to

vote;

-election is done by BALLOT, if requested;

-

FOR STOCK CORPORATIONS:

-every SH shall have the right to vote in person or byproxy according to the number of shares of stock

standing, at the time fixed in the by-laws, in his own

name, or at the time of the election;

-may vote such number of shares for as many persons

as there are directors to be elected or he may

CUMULATE said shares and give one candidate as

many votes as the number of directors to be elected

multiplied by the number of his shares shall equal;

-or may distribute them among as many candidates as

he may deem fit;-shall not exceed the number of his shares as shown

in the books of the corporation;

-NO DELINQUENT stock shall be voted.

NON-STOCK CORPORATIONS: - may cast as many

votes as there are trustees to be elected BUT MAY

NOT CAST MORE THAN ONE vote for one

candidate, unless otherwise provided in the AOI or

by-laws;

CUMULATIVE VOTING allowed only for

Stock Corporations, except if the AOI or by-

laws of non-stock corporations provide

otherwise.

-mandatory for stock corporation

and cannot be dispense with in the

by-laws;-SH cannot be deprived of

CUMULATIVE VOTING is being a

statutory right.

SECTION 25: CORPORATE OFFICERS/ QUOROM

-President

-Director

-Treasurer/may or may not be a Director;

-Secretary-such other officers as may be provided for in the

by-laws;

Any two or more positions may be held

concurrently by the same person, except that

no one shall act as a President and a

Secretary or as President-Treasurer at the

same time.

WHAT CONSTITUTES QUORUM?

-a majority of the number of directors or trustees as

fixed in the AOI shall constitute a quorum for the

transaction of corporate business and

-every decision of at least a majority of the

directors or trustees at a meeting at which there is

quorum shall be a valid CORPORATE ACT, except for

the election of officers which shall REQUIRE the

vote of a majority of ALL the members of the board.

-Directors or trustees CANNOT ATTEND or VOTE

by proxy at board meetings.

De Tavera vs. Phil Tuberculosis Society

-an appointment which does not contain a term, it was

held that the implication is that the appointee held an

appointment at the pleasure of the appointing

authority, which in essence is TEMPORARY in

NATURE, hence co-extensive with the desire of the

BOD.

-replacement of an incumbent appointed without a

term is not a REMOVAL but simply an EXPIRATION

of the term, which requires no prior notice , due

hearing or sufficient grounds before the incumbent

can be separated from office.

REQUISITES for a BOARD MEETING: (M-E-D)

1. Meeting of the Board duly assembled;


7/26

2. Existence of a quorum;

3.Decision of the majority of the quorum duly

assembled;

Directors are NOT ENTITLED tocompensation except:

a. when Authorized by the by-laws or

stockholders resolution before services arerendered

b.when the Directors render extraordinary or

unusual service to the corporation.

SECTION 26 REPORT OF ELECTION OF

DIRECTORS, TRUSTEES and OFFICERS

-to be submitted by the Secretary or any other

officer of the corporation within 30 days after the

election to the SEC;-death, resignation or cessation in the office of the

Directors, Trustees and Officers must likewise be

reported to the SEC.

SECTION 27 DISQUALIFICATION of

DIRECTORS, TRUSTEES or OFFICERS

GROUNDS:

1. Conviction by final judgment of an offense

punishable by imprisonment for a period exceeding 6years;

2. Violation of the Corporation Code committed within

5 years prior to the date of his election or

appointment;

It is the COMMISSION (not the conviction)

that must take place within 5 years prior to

the election or appointment under this

provision.

SECTION 28 REMOVAL of DIRECTORS orTRUSTEES:

*HOW:

-by a vote of the SH holding or representing

2/3 of the OCS;

-if non-stock corporation, by a vote of 2/3

of the members entitled to vote;

-shall take place either at a regular meeting

of the corporation or at a special meeting

called for such purpose;-after notice to the SH or members of the

corporation of the intention to propose such

removal at the meeting;

-special meeting shall be called by the

SECRETARY on :

order of the President written demand of the SHrepresenting or holding at least a

majority of the OCS;

if a non-stock corporation, onwritten DEMAND of the members

entitled to vote;

-should the Secretary fail or refuse to give

notice, the call of the meeting may be

addressed directly to the SH or members by

any SH or member of the corporation signingthe demand.

-removal may be with or without cause,

provided it will not be used to deprive

minority SH or members of the right of

representation to which they may be entitled

, otherwise, the REMOVAL is INVALID.

-Notice must be given by PUBLICATION or

by written notice as may be provided in this

Code.

*Effects of REMOVAL

-vacancy may be filled by election at the same

meeting without further notice or at any special

meeting called for such purpose, after giving notice

as provided in this Code.

SECTION 29 VACANCIES in the OFFICE OF

DIRECTOR or TRUSTEE

-Vacancies that may be filled by the remainingmembers of the Board if still constituting a quorum,

and only for the unexpired term of the predecessor:

1. death of a BOD

2. resignation

3. disqualification

-Vacancies due to the increase in the number of the

Directors or Trustees shall be filled only by an

election at a regular or special meeting called for

such purpose, or in the same meeting authorizing the

increase of directors or trustees.

-Vacancies to be filled by a vote of the SH or

members: (V-E-R-N)

1. Removal of a member of the BOD or

trustees;

2. No quorum as to the remaining Directors

and Trustees, and the vacancy was

created by the death, resignation or

disqualification of a director or a trustee;

3. Expiration of the term of the director;

4. Vacancy was created due to the increase

in the number of the BOD at any time of theyear.

SECTION 30 COMPENSATION OF DIRECTORS:

-no compensation, except reasonable per diems,

unless otherwise provided in the by-laws;


8/26

*When per diems are allowed?

1. when authorized by the by-laws;

2. by a vote of the SH representing at least

a majority of the OCS;

-total yearly compensation of the directors

shall not exceed 10% of the net incomebefore the income tax of the corporation

during the preceding year.

SECTION 31 LIABILITY of DIRECTORS,

TRUSTEES, or OFFICERS

*GROUNDS: (G-A-B-A)

1. Gross Negligence

2.Assenting to patently unlawful acts of the

corporation;

3. Bad faith;4. Acquire any personal or pecuniary interest in

conflict with their duty;

5. Tax evasion perpetrated through illegal

manipulation of devices or practices;

*Liability : joint and several for all damages resulting

therefrom;

SECTION 32 DEALINGS of DIRECTORS,

TRUSTEES, or OFFICERS with the Corporation-contract of corporation with one or more of its

directors or trustees is VOIDABLE at the option of

such corporation UNLESS ALL of the following

conditions are present:

1. Presence of such director or trustee in

the board meeting in which the contract was

approved was not Necessary to constitute a

quorum;

2. vote of such director or trustee was not

necessary for the approval of the contract;

3. contract is FAIR and REASONABLE underthe circumstances;

4. in case of an officer, the contract with

the officer has been previously authorized

by the BOD;

*That if the first two conditions are absent, such

contract can be ratified by the vote of the SH

representing at least 2/3 of the OCS or 2/3 of the

members in the meeting called for the purpose.

SECTION 33 CONTRACTS betweenCORPORATIONS with interlocking Directors:

-contracts between corporations with interlocking

directorates are valid as long as there is no FRAUD

and the contract is fair and reasonable, under the

existing facts.

-provided that if the interest of the interlocking

director in one corporation is merely NOMINAL;

-stockholdings exceeding 20% of the OCS shall be

considered substantial for the purpose of

interlocking director;

SECTION 34 DISLOYALTY of a DIRECTOR

-when director of a corporation competes in thebusiness in which his corporation is engage;

HOW?

-acquiring for himself business opportunity

which should belong to the corporation;

-obtain profits to the prejudice of the

corporation;

-must be accounted and refunded, unless

such acts have been ratified by at least 2/3 of the

outstanding capital stock.

-applicable notwithstanding the fact that the

director risked his own funds in the venture;

SECTION 35 EXECUTIVE COMMITTEE

-compose of not less than 3 members of the Board to

be appointed by Board;

-may act by majority vote of all its members on

specific matters within the competence of the Board

as may be delegated to it in the by-laws or on

majority vote of the board , except: (F-A-R-A-D)

Filling vacancies in the Board; Approval of any action which also requires the

approval of SH;

Repeal, or amendment of by-laws or theadoption of new by-laws;

Amendment of repeal of any resolution of theBoard which by express terms not so

amendable or repealable;

Distribution of cash dividends to theshareholders.

WHAT is the CONCEPT OF MODERN DAY

CORPORATION?

-the Board creates and delegates corporate

powers to an Executive Committee to meet immediate

problems and give prompt solutions, unfettered by

the need for directors meetings where some

directors could not be easily contacted.

EXECUTIVE COMMITTEE POWERS:

(P-E-A-A-A)

1. Protect debts owing to the Corporation;2.Embarking on different business for the

Corporation;

3. Acts in the usual course of business;

4. Acts designed partially or wholly to protect or aid

the employees;

5. Acts to increase the business;

ULTRA VIRES ACTS of a CORPORATION


9/26

-when it commits acts outside its express, incidental

or implied powers, but can be ratified under certain

conditions;

Corporations are now authorized to merge or

consolidate with other corporations, or to

make reasonable donations except for

political or partisan purposes.

SECTION 37 POWER TO EXTEND or SHORTEN

CORPORATE TERM

-when approved by the majority vote of the BOD or

trustees and ratified at a meeting of the SH

representing at least 2/3 of the OCS or by at least

2/3 of the members of a non-stock corporation.

-each SH or member must be notified;

-any dissenting SH may exercise his appraisal rightunder the conditions provided in this Code, although

written assent is NOT NECESSARY.

SECTION 38 POWER TO INCREASE OR

DECREASE CAPITAL STOCK; INCUR, CREATE or

INCREASE BONDED INDEBTEDNESS

-must be approved by a majority vote of the BOD,

and favored by 2/3 of the OCS;

-notice to all SH or members is necessary;

-there must be certification in duplicate to be signedby the majority of the BOD, countersigned by the

Chairman and Secretary, accompanied by sworn

statement from the Treasurer showing that at least

25 % of the increased CS has been subscribed and at

least 25% has been paid in actual cash or transferred

property equal to 25%;

-requires PRIOR APPROVAL from the SEC;

-no DECREASE of the capital stock shall be approved

by the SEC if it will prejudice the rights of the

corporate creditors.

FOR NON-STOCK CORPORATION:

-requires majority vote of the BOT and of at least

2/3 of the members in a meeting duly called for such

purpose.

-Bonds issued by a corporation shall be registered

with the SEC which shall have the authority to

determine the sufficiency of the terms thereof.

SECTION 39 POWER TO DENY PRE-EMPTIVE

RIGHT

-PRE-EMPTIVE RIGHT is the SH right to

subscribe to all issues or disposition of shares of any

class in proportion to their present stockholding, to

enable the SH to retain his proportionate control in

the corporation and to retain his equity in the

surplus.

-is a property right, that is, transferrable or

assignable ;

-enjoyed by all SH unless denied by the AOI,

-NOT AVAILABLE TO:

to shares to be issued in compliancewith the laws requiring stock offering

or minimum stock ownership by the

public;

to shares to be issued in good faithwith the approval of the SHrepresenting 2/3 of the OCS in

exchange of the property needed for

corporate purposes or ;

in payment of a previously contracteddebt.

To shares issued to obtain loans or toobtain the services of technical men;

SECTION 40 SALE OR OTHER DISPOSITION

OF ASSETS>(P-L-E-M-S)

How Pledge, Lease, Exchange, Mortgage,Sell

-shall be deemed to cover substantially allthe corporate property and assets if

thereby the corporation would be rendered

incapable of continuing the business or

accomplishing the purpose to which it was

established.

BOD/BOT may abandon such dispositionsubject to the rights of third parties,without further action or approval from the

SH or members.

When NO authorization of theSH/Members is necessary? (for stock

corporation)a. if the property or assets is

necessary in the usual and regular

course of business of the corporation;

b. if the proceeds of the disposition

be appropriated for the conduct

of the remaining business of the

corporation.;

for non-stock corporation:

-if there are no members with voting

rights, the vote of at least majority

of the trustees in office will be

sufficient;

-done by majority vote of the BOD/BOT;

-upon terms and conditions and for such

consideration which may be money, stocks, bonds or

other instruments for the payment of money or otherproperty or consideration as its BOD/BOT may deem

expedient;

-authorized by the vote of SH representing at least

2/3 of the OCS for stock corporation;

-for non-stock corporation, by the vote of at least

2/3 of the members in a meeting duly called for such

purpose.


10/26

-notice is necessary;

-any dissenting SH may exercise his right of

appraisal;

SECTION 41 POWER TO ACQUIRE OWN

SHARES

-a stock corporation shall have the power to purchase

or acquire its own shares for a LEGITIMATE

CORPORATE PURPOSE, subject to the condition that

there be unrestricted retained earnings to cover the

shares purchased or acquired, such as: (P-E-C)

1. Pay dissenting/withdrawing SH entitled to

payment for their shares under the Code;

2. Eliminate fractional shares arising out of

stock dividends;

3. Collect or compromise indebtedness to the

corporation arising out of the unpaid subscriptionin a delinquency sale, and to purchase delinquent

shares sold during the sale.

SECTION 42 POWER TO INVEST CORPORATE

FUNDS in another CORPORATION or BUSINESS

or for any other purpose.

-when approved by the majority of the BOD/BOT and

ratified by the SH representing at least 2/3 of the

OCS, or by at least 2/3 of the members in case of anon-stock corporation.

-there must be notice of investment to the SH or

members;

-any dissenting SH shall have the appraisal right as

provided in this Code;

-where the investment is reasonably necessary to

accomplish the primary purpose, Board action or

majority vote of the BOD/BOT is still necessary,

even without ratification by the SH or members.

SECTION 43: POWER TO DECLARE DIVIDENDS

-the BOD of Stock Corporation may declare dividends

out of the UNRESTRITED RETAINED EARNINGS;

-may be payable in cash, in property or in stocks to all

SH on the basis of the OCS held by them;

-Cash dividend is declared by the BOARD only; while

STOCK DIVIDEND is declared by the BOARD and

approved by the SH representing not less than 2/3 of

the OCS at a regular or special meeting called forsuch purpose.

-stock corporations are prohibited from retaining

surplus profits in excess of 100% of their paid-in

capital stock except: (J-A-R)

1. justified by a definite corporate expansion

projects approved by the BOD;

2.agreements on loans made with any

financial institutions prohibits the

corporation to do so without their consent;

3. retention is necessary under special

circumstances obtaining in the

corporation, as when there is a need for a

special reserve for probable

contingencies;

NOTES:

No dividends can be issued to Non-stock

corporation even for services rendered;

No dividends can be declared out of capital

except liquidating dividends and the so-called

dividends from investment in a wasting asset

corporation;

Cash dividends are REVOCABLE before

announcement to the SH;

Stock Dividends declaration may be REVOKEDprior to actual issuance ;

SEC may compel the corporation to declare

dividends of its SH if the same retains

surplus profits in excess of 100% of its paid-

up capital.

SECTION 44 POWER TO ENTER into

MANAGEMENT CONTRACT;

-must have been approved by the BOD and the SH

owning at least the majority of the OCS, or majorityof the members in a non-stock corporation, of both

the managing or the managed corporation, at a

meeting duly called for the purpose provided:

1.SH owning more than 1/3 of the total OCS

is entitled to vote of the managing

corporation;

2. Approval of the Management Contract by

the SH of the Managed Corporation owning at

least 2/3 of the total OCS, or at least 2/3

of the members in a non-stockcorporation, when majority of the BOD of the

Managing Corporation also constitutes

majority of the members of the BOD of the

Managed Corporation.

*No Management Contract shall be entered into for a

period longer than 5 years for any one term.

-provision is applicable to :

any contract whereby corporation

undertakes to manage or operate all orsubstantially all of the business of another

corporation, whether such contracts are

called service contracts, operating

agreements or otherwise;

SECTION 45 ULTRA VIRES ACTS of

CORPORATIONS


11/26

-Ultra Vires Act is an act which although NOT

PROHIBITED by law, the corporation cannot

perform because it is NOT WITHIN its

express, incidental or implied powers;

-not necessarily illegal although an

illegal act is always ultra vires;

*REQUISITES FOR THE RATIFICATION OF ANULTRA VIRES ACT: (C I C-A)

1. Consummated act; not executor;

2. Involved no public rights or of the State;

3. Creditors are NOT prejudiced or all of them have

given their consent;

4. All of the SH give their consent;

*Courts must be CAUTIOUS in dissolving a

corporation by quo warranto proceedings for doing

ultra vires acts except in two cases:

1. Willful or fraudulent violation by the

Corporation ;

2. Acts adversely affect public Interest.

*Well-settled RULES on the Effects of Ultra Vires

Acts:

1. A wholly executory contract which is Ultra Vires

cannot be enforced not can damages be recovered

for its breach, except on Principle of Unjust

Enrichment;2. A wholly executed ultra vires contract or act shall

NOT BE INTERFERRED with as between the

parties or persons whose rights are derived

therefrom; but the STATE can always question

such contract or act;

3. When Ultra vires act is executed on one side, but

executory on the other who received benefits

therefrom, RECOVERY can be had by the

FORMER.

4.The title of a corporation to property cannot be

questioned on the ground that it acquired theproperty through an Ultra Vires contract of

transfer.

TITLE V BY LAWS

SECTION 46 Adoption of by-laws

-must be done within one month after receipt of

official notice of its Certificate of Incorporation by

the SEC, consistent with the Code.

-may be filed and adopted PRIOR TO

INCORPORATION but shall be approved and signedby ALL INCORPORATORS and submitted to the SEC,

together with the AOI;

-affirmative vote of the SH representing the

majority of the OCS, or at least majority of the

members in a non-stock corporation shall be

necessary.

-shall be signed by the SH/members , kept in the

principal office of the corporation , subject to the

inspection of the SH/members during office hours,;

-certified copy thereof by the majority of the

directors or trustees, countersigned by the

secretary shall be filed with the SEC, which shall be

attached to the original AOI;

*When By-Laws are effective?

-upon issuance by the SEC of a certification

that the by-laws are not inconsistent with the Code,

which must be accompanied by a certificate of an

appropriate government agency to the effect that

such by-laws or amendments are in accordance with

law.

*REQUISITES OF A VALID BY-LAWS:

(C-U-R-I)1. Consistent with Law, AOI, charter, or

public policy;

2. Uniform and general;

3. Reasonable[

4. Impairs no vested rights;

SECTION 47 CONTENTS of the BY-LAWS

1. Time, place and manner of calling and

conducting regular or special meetings of thedirector or trustees;

2. Time and manner of calling or holding

special meeting; (no place because the

regular meeting is in the place of the principal

office of the corporation);

3. Required quorum and the manner of voting

therein;

4. Form for proxies of SH and members and

the manner of voting them;

5. Qualifications, duties, ad compensation of

directors, trustees, officers andemployees;

6. Time of holding annual election of

directors or trustees, and the mode or

manner of giving notice thereof;

7. The manner of election or appointment

and the term of office of all officers other than

directors or trustees;

8. the Penalties for violation of the by-laws;

9. Manner of issuing certificates for stock

corporations;

10. other matters as may be necessary forthe proper or convenient transaction of its

corporate business and affairs.

*The remedy of MANDAMUS is generally available to

compel officers of a corporation to perform duties

imposed on them by the by-laws;


12/26

*Corporations have the power to waive provisions of

their by-laws introduced for the protection of the

company, expressly or impliedly;

*Corporate by-laws may be waived by a continued

disregard thereof, by the parties for whose benefit

they were enacted.

SECTION 48 AMENDMENTS to by BY-LAWS

-BOD/BOT may amend , repeal or adopt new by-laws

by a majority vote thereof, and that of the owners of

at least a majority of the OCS, or at least a majority

of the members if a non-stock corporation.

-power to amend or repeal may be delegated to the

BOD/BOT by the owners of 2/3 of the OCS, or 2/3

if the members of a non-stock corporation;

-delegated power may be REVOKED by the SH

representing majority of the OCS, or majority of the

members of the non-stock corporation;

-the vote for the delegation (2/3) is greater than the

vote for revocation which, in the case of stock

corporation, is now based on shareholding, not merely

a numeral majority, which the old Corporation Law

indicated.

-amended or new by-laws shall be attached to theoriginal by-laws in the office of the corporation;

- and a copy thereof, duly certified under oath by the

Corporate secretary and a majority of the directors

or trustees, shall be filed with the SEC;

-amended by-laws shall be effective only upon the

issuance of the SEC that it is not inconsistent with

the Corporation Code.

*The power to adopt the first ORIGINAL by-laws

cannot be delegated to the BOD/BOT;

SECTION 49 KINDS OF MEETINGS

a. REGULAR fixed in the by-laws; generally no notice

is required;

b. SPECIAL called specially other than the regular

meeting; notice is required.

SECTION 50 REGULAR or SPECIAL MEETINGS of

STOCKHOLDERS or MEMBERS

a. STOCKHOLDERS

-shall be held annually on the date fixed in the by-

laws, or if not fixed, on any date of April of every

year as determined by the BOD/BOT;

-notice: 2 weeks prior to the meeting, unless the

different period is required by the by-laws;

SPECIAL MEETINGS of SH shall be held at any time

deemed necessary or as provided in the by-laws,

provided that at least one week written notice shall

be sent to all SH or members , unless otherwise

provided in the by-laws;

-notice of any meeting may be waived expressly, or

impliedly, by any SH or members;

-for a GOOD CAUSE, a meeting may be called on by

order of the SEC upon petition by any SH or member,

and will be presided by the latter until at least a

majority of the SH or members present, have chosen

one of their members as presiding officer.

SECTION51 PLACE ANDTIME OF MEETINGS

OF SH or MEMBERS:

-shall be held where the PRINCIPAL OFFICEwhere the corporation is located whether it is

Regular of Special; or if practicable , in the principal

office of the corporation.

-notice of meetings shall be in WRITING;

-all proceedings or business transacted in

ANY meeting of the SH or members, within the

powers and authority of the corporation, SHALL BE

VALID even if the meetings is IMPROPERLY CALLED,

provided all SH or members have been properlynotified, present or properly represented, and that

the business transacted is not ULTRA VIRES.

SECTION 52 : QUORUM in the MEETINGS:

-shall consists of the SH representing the

majority of the OCS(2/3) or majority of the

members in case of non-stock corporation, unless

otherwise provided in this Code or the by-laws;

-for BOD, shall be majority of the ALL

members of the BOD/BOT;

SECTION 53 REGULAR and SPECIAL MEETINGS

OF THE DIRECTORS and TRUSTEES (no proxy

allowed; personal presence is necessary)

-shall be held MONTHLY unless the by-laws

provides otherwise.

-SPECIAL MEETINGS may be held ANYTIME upon the call of the president or as

provided in the by-laws;

-PLACE: -anywhere in or outside the

Philippines unless the by-laws provide

otherwise.

-NOTICES: - must be sent to every director

or trustee at least one(1) day prior to the

scheduled meeting, unless otherwise

provided by the by-laws.


13/26

-can be waived by the

Director or trustee expressly

or impliedly.

SECTION 54 WHO SHALL PRESIDE at

MEETINGS

-the PRESIDENT or the CHAIRMAN of theBOD/BOT unless otherwise provided in the by-laws.

SECTION 55 RIGHT TO VOTE OF PLEDGORS,

MORTGAGORS and ADMINISTRATORS:

-. Right to Attend and vote at the meetings,

unless the pledgee/mortgagee is given the right in

writing;

-Executors, Administrators or Receivers and

other legal representatives duly appointed by the

Court may ATTEND and VOTE in behalf of the SHor Members WITHOUT NEED OF ANY WRITTEN

PROXY.

SECTION 56: VOTING IN THE CASE OF JOINT

OWNERSHIP of STOCK

-consent of ALL the co-owners shall be

NECESSARY unless there is a WRITTEN PROXY

signed by all the co-owners authorizing one or

some of them or any other person to vote suchshare or shares;

-Shares owned by and/or can be voted by

anyone of the co-owners and anyone of them may

appoint a proxy for said shares so owned.

SECTION 57 VOTING RIGHTS for TREASURY

SHARES:

-NO voting rights as long as the treasury

shares remain in the treasury, for to ruleotherwise would be to enable the directors or the

trustees to perpetuate themselves in the office.

SECTION 58 PROXIES:

-voting of SH or members may be in

PERSON or by PROXY;

-proxies must be in writing and signed by

the SH or member and filed before the

scheduled meeting with the Corporate

Secretary.-proxies are valid only for the meeting for

which it is intended;

-not valid for period longer than five(5)

years at any time.

NOTE: But, Board Meetings of BOD or BOT,

cannot be voted by PROXIES.

SECTION 59 VOTING TRUSTS

-may be created by one or more of the

SH/Members;

-PURPOSE: to confer upon the trustee the

right to vote and other rights pertaining to

the shares for a period NOT EXCEEDING

five(5) years at any one time.

-EXCEPT: if the VOTING TRUST is made asa CONDITION in a loan agreement, Voting Trust may

be for a period exceeding five(5) years but shall

AUTOMATICALLY expire upon full payment of the

loan.

VTA must be in writing; notarized and

shall specify the terms and

conditions thereof.

-certified copy must be filed with the

Corporation and the SEC,

otherwise,it is INEFFECTIVE and

UNENFORCEABLE.

-designed to enable SH to dispose

their shares and still retain control

of the corporation.

EFFECT OF VTA:

-Certificates or shares of stocks

covered by the VTA shall be CANCELLED

and new ones shall be issued in the name

of the Trustee/Trustees stating that theyare issued pursuant to said agreement

in the books of the Corporation.

VTA shall be subject to examination by any SH

provided that both the transferor and trustee may

exercise the RIGHT of INSPECTION of all

corporate books and records in accordance with the

provisions of the Code.

-Unless expressly renewed, ALL rights

granted in a VTA shall automatically expire at theend of the agreed period.

*LIMITATIONS OF VOTING TRUSTS:

1. Period is only for five(5) years except if made as a

condition for a loan agreement.

2. Must be in writing and duly notarized;

3. Must not be entered into to circumvent laws

against monopolies and restraints of trade, nor

shall it be used for purposes of fraud.4. Certified true copy must be filed with the

Corporation and the SEC.

STOCKS and STOCKHOLDERS

SECTION 60 SUBSCRIPTION CONTRACT

-contract for the acquisition of unissued

stock in an existing corporation or a corporation that


14/26

still to be formed, even if the parties denominate the

same as a sale or purchase;

*WHAT is CONSIDERED as a SALE:

Disposal for consideration of treasury

shares is sale by the corporation;

Transfer of fully paid shares by onesubscriber to a third person

*Assignment by a subscriber of his UNPAID

SUBSCRIBED STOCK to another is equivalent to a

release from subscription and therefore, requisites

for a valid release from subscription must be

COMPLIED WITH.

SECTION 61 PRE-INCORPORATION

SUBSCRIPTION

-is a contract that must be complied with

in good faith and therefore, withdrawal by a

SUBSCRIBER or REVOCATION of his subscription

can be done only UNDER the conditions set forth

in this provision.

-irrevocable for a period of at least 6

months from the date of subscription, if the

corporation is still be formed:

a. UNLESS all of the other

subscribers consent to therevocation, or

b. UNLESS the incorporation of

said corporation fails to

materialize within said period.

-revocation of Pre-Incorporation

Subscription cannot be revoked after the

submission of the AOI to the SEC.

SECTION 62 CONSIDERATION for STOCKS-shall NOT be less than the PAR (face

value of the stock in the corporation) or issued price

thereof.

*WHAT can be USED as

CONSIDERATION? (A-P-L-A-P-O)

1. Actual Cash

2.Property Tangible or Intangible, actually

received by the Corporation and necessary or

convenient for its use and lawful purposes at a

fair valuation equal to the par or issued value of

the stock issued;3.Labor Performed for or services actually

rendered to the Corporation.

4. Amounts transferred from unrestricted

retained earnings to stated capital;

5. Previously incurred indebtedness by the

corporation;

6. Outstanding shares exchanged for

stocks in the event of reclassification or

conversion.

**If Consideration is INTANGIBLE PROPERTY

(patents, copyright)

-valuation shall be initially determined by the

incorporators of the BOD subject to the approval of

the SEC.

**Issued price or no-par value shares may beFIXED in the AOI, or by the BOD as

conferred to them by in the AOI or the by-

laws; In the absence thereof, in a meeting

duly held for the purpose representing the

majority of the OCS.

PROMISSORY NOTES even if negotiable

CANNOT be used for paying SHARESexcept

when used to pay STOCKS subject to the

rules that they shall produce the effect of

payment only when they have been cashed.

SECTION 63 Certificate of Stock and Transfer

of shares:

-divided into shares;

-certificates are signed by the president or the VP,

countersigned by the secretary or the asst.

secretary, and sealed with the seal of the

corporation.

-are PERSONAL PROPERTY; transferred only by

delivery of the Certificates indorsed by the owner,

his atty-in-fact or other legally authorized person.

-TRANSFER is valid only when recorded in the Books

of the Corporation, except as between the parties;

-No shares of stock against which the corporation

holds any unpaid claim shall be transferrable in the

Books of the Corporation.

SECTION 64 ISSUANCE of STOCK

CERTIFICATES:

-COSS shall be issued only until full payment

of the amount of subscription together with the

interest and expenses, if any is due, has been paid.

SECTION 65 LIABILITY of DIRECTORS in

WATERED STOCKS;

-shall be SOLIDARILY LIABLE with the SHand its credits for the difference between the fair

value received at the time of its issuance of the

stock and the par or issued value of the stock;

WATERED STOCK

-consideration paid is less than the par or

issued value thereof;

-or the consideration is in any form other

than cash valued in excess of its fair value , which


15/26

was not objected to in writing by the Directors, and

filed the same with the Corporate Secretary.

-referred to the difference between the fair

market value at the time of the issuance of the stock

(NOT AT THE TIME OF DISCOVERY OF THE

INADEQUATE CONSIDERATION or AT THE TIME

PAYMENT IS DEMANDED), and the par or the

issued value of the said stock.

SECTION 66 INTEREST on UNPAID

SUBSCRIPTION

-payment of interest is from the date of

subscription, if so required and at the rate of

interest fixed in the by-laws; if NOT indicated,

interest shall be deemed in the legal rate (12%).

-may be waived if no creditors will be

prejudiced or in the absence of fraud.

SECTION 67 PAYMENT OF BALANCE OF

SUBSCRIPTION

-declared to be due and payable by the BOD

in the Stock Corporation and may collect the same or

such percentage thereof, in either case with interest

accrued , or if it may deem necessary;

-payment shall be made on the date specified

in the contract of subscription, or on the date stated

in the call made by the Board.

-failure to pay renders the entire balance dueand payable, with interest in the legal rate on such

balance, unless a different interest rate is provided

in the by-laws;

NOTE: Non-payment within 30 days shall make the

whole stocks covered by such subscription, become

DELINQUENT , and shall be subject to sale as

hereinafter provided, unless the BOD orders

otherwise.

SECTION 68 DELIQUENCY SALE

*HOW MADE?

-may be ordered by the BOD, which shall specifically

state the amount due on each subscription, plus

accrued interest, and the date, time and place;

-sale shall be made not less than 30 days nor more

than 60 days from the date the stock become

delinquent;

-can no longer be voted; but can still receive dividend;

-NOTICE of SALE will be sent to every delinquent

SH, either personally or by registered mail, which

shall be PUBLISHED once a week for two consecutive

weeks in a newspaper of general circulation in the

province or city where the principal office of the

corporation is located.

**The HIGHEST bidder is the one who pays the

subscription plus interest, cost and expenses for the

smallest number of shares;

**The remaining shares shall be credited in favor of

the DSH, who shall likewise be entitled to the

issuance of the CS covering such shares.

**NO BIDDER for the DS the Corporation may bid

for the same and the total amount due shall be

credited as paid in full in the books of the

corporation.; and title shall be vested in the

corporation as TREASURY SHARES and may be

disposed of by said corporation in accordance with

the provisions in this Code.

SECTION 69 WHEN SALE MAY BE

QUESTIONED

-when the party seeking such action first pays or

tenders to the party holding the stock the sum for

which it was sold, with interest from the date of sale

at the legal rate, within 6 months from the date of

the sale, otherwise, action can no longer be

maintained.

-POSSIBLE GROUNDS:

a. Irregularity or Defect in the Notice of

Sale or

b. in the sale of the Delinquent Stock itself;

SECTION 70 COURT ACTION TO RECOVER

UNPAID SUBSCRIPTION

*REMEDIES for the ENFORCEMENT of STOCK

SUBSCRIPTION:

1. Judicial Action- Collection of Sum of

Money;

2. by Call

3. Denying the Stock the right to Vote or to

be represented in meetings;

SECTION 71 EFFECT OF DELINQUENCY

-declared delinquent stock shall be deprived of:

-right to vote;

-right to be represented;

-right to examine books;

-pre-emptive right or any other right.

EXCEPTION: -right to dividends UNLESS he pays

the amount due on subscription and in such manner as

may be provided by law..

SECTION 72 RIGHTS of UNPAID SHARES

-unpaid shares but NOT DECLARED

delinquent shall have the right of a SH for the

subscriber did not violate any agreement with the

corporation, and he is expected to pay the unpaid

shares with interest at maturity or upon call.


16/26

SECTION 73 LOST/DESTROYED

CERTIFICATES

*Procedure:

1. Submission in triplicate of Affidavit stating

the circumstances of loss, destruction or stolen;

2. Publication of the affidavit afterVerification, in a newspaper of general circulation in

the place where the corporation has its principal

office, once a week for 3 consecutive weeks, at the

expense of the registered owners of the Cert. of

Stock which have been stolen, lost or destroyed.

-no contest within 1 year after the

last publication, the right to do so will be

barred and said corporation shall cancel the

same in the books of the corporation.

3. Issuance of new Cert. of Stock ;

-new CS can be issued even before one year if

the SH filed a bond or other security in lieu

thereof;

-if a CONTEST has been presented, or an

action is filed in Court, issuance of CS shall

be suspended until the final decision by the

Court regarding the ownership of such CS.

-No action can be filed against the issuing

corporation for the lost, stolen or destroyed

CS, except in case of FRAUD, BAD FAITH or

NEGLIGENCE.

CORPORATE BOOKS and RECORDS

SECTION 74 BOOKS TO BE KEPT; STOCK

TRANSFER AGENT

1. Records of ALL business transactions;

2. Minutes of ALL meetings;

3. Stock and Transfer Book (for stock corp)

-shall be kept in the Principal Office

-shall be open for Inspection to any

SH or director at reasonable hours on

business days

-shall be open to inspection of any director, trustee,

SH or member of the corporation at reasonable hoursof business;

-may demand copy of excerpts from said records in

Minutes at his expense.

-refusal to do so shall be punishable under Sec. 144

of this Code; compellable by MANDAMUS.

-if refusal is by Board Resolution, the liability shall

be imposed upon the Directors and Trustees who

voted for such refusal.

-DEFENSE: that the person demanding excerpts has

improperly used any information , or was not acting in

GOOD FAITH or has no LEGITIMATE PURPOSE in

making his demand.

STOCK TRANSFER AGENT

-engaged principally in the business of registering

transfer of stocks in behalf of stock corporation;

-must secure license with the SEC to be allowed to

operate which shall be renewed annually.

Provided, that a stock corporation shall not be

PRECLUDED from performing or making a transfer of

its own stock in which case, all the rules and

regulations imposed on STOCK TRANSFER AGENTS,except the payment for license fee shall be

applicable.

*Philpotts vs. PMC the right to inspect cannot

extend ot a formula or process not generally known

which has proved of utility to the corporation.

-it cannot extend to purely private communications

or correspondence of corporate directors or

officers.

SECTION 75 RIGHT TO FINANCIAL

STATEMENT

-shall be furnish within 10 days from receipt of a

written request of the SH, which shall include the

Balance Sheet, and the profit or loss statement,

assets and liabilities, and the result of operations.

-financial statement shall be duly signed and

certified by an independent CPA; if less than 50K

capital paid-up, can be certified by the CorporateTreasurer.

MERGER AND CONSOLIDATION

SECTION 76 - Plan of Merger or Consolidation

-initiated by the BOD/BOT

MERGER two or more corporations merged

into a single corporation which shall be one of

the constituent corporation;

CONSOLIDATION two or more

corporations will consolidate into a new

corporation

SECTION 77 STOCKHOLDERs or MEMBERs

APPROVAL


17/26

-requires notice to all SH/members, at least two

weeks prior to the date of the meeting, either

personal or registered mail.

-requires 2/3 votes of the majority of the

SH/members for approval. (same with Amendment)

-dissenting SH/member shall the right ofAPPRAISAL which will be extinguished should the

BOD/BOT abandon the plan.

SECTION 78 ARTICLES OF MERGER or

CONSOLIDATION

-executed by EACH of the constituent corporation,

to be signed by the President, or vice-President and

Certified by the Secretary or Asst. Secretary of

each corporation, setting forth:

a. Plan of Merger/Consolidation;b. Number of Shares outstanding/number of

members;

c. Number of shares, or members voting for

and against such plan;

SECTION 79 SEC APPROVAL and EFFECTIVITY

OF MERGER and CONSOLIDATION

-submission of AOM/AOC in quadruplicate to the

SEC;

-special corporations governed by Special Laws shallbe required to first obtain favorable recommendation

of appropriate government agency;

-upon satisfaction of SEC as to the compliance,

Certificate of Merger or of Consolidation shall be

issued, at which time the MERGER or

CONSOLIDATION shall be effective.

-if the merger or consolidation is inconsistent, SEC

shall set a hearing to give corporations opportunity to

be heard.;

-written notice is required at least two weeksbefore the said hearing;

Section 80 EFFECTS of

MERGER/CONSOLIDATION

#. Merger/Consolidation

a. Become a single corporation which shall

become the SURVIVING CORPORATION,

designated in the plan of merger;

b. Separate existence shall cease, exceptthat of the surviving corporation or

consolidated corporation;

c. Possession of rights, privileges immunities

and powers subject to the duties and

liabilities of a corporation under this Code;

d. Interests belonging to, or due to each

constituent corporations shall be deemed

transferred or vested in such surviving or

consolidated corporation

e. Claims or actions against Constituent

Corporation may be prosecuted against the

surviving corporation as the case may be.

f. Non-impairment of the rights of creditorsor any lien upon the property of any of each

of the constituent corporation.

Difference between Merger and Consolidation

-In Merger one of the CC survives, and is

referred as the Surviving Corporation; while in

Consolidation, the CC shall Disappear or is dissolved,

and a new corporation emerged and is known as

Consolidated Corporation.

APPRAISAL RIGHT

SECTION 81 INSTANCES of APPRAISAL

RIGHT

-is consist of the right to dissent and demand

payment of the fair value of his shares because of a

substantial change in organizational set-up of the

corporation, not contemplated by him, during the time

he made his investment in the corporation.

Availed in the following instances:a. Amendment of the AI which changes or

restricts the right of the SH;

b. In case of Sale, Lease, Exchange, Transfer,

Mortgage, Pledge or Disposition of corporate

property and assets;

c. Merger or Consolidation;

d. Investing funds with other corporations.

SECTION 82 HOW RIGHT OF APPRAISAL IS

EXERCISED:

-by a written demand, within 30 days after

the date on which the vote was taken for payment of

the fair market value of his shares.

*What is the Effect of the Failure to

Make a Demand?

-shall be deemed as a waiver of his appraisal

right;

*What is the DUTY of the Corporation ifthe Proposed corporate action is effected?

-pays the SH;

-upon surrender of the CS;

-w/c shall be based on the fair value

as of the day prior to the date on

which the vote was taken;


18/26

*What if the corporation and the SH cannot agree

to the fair value of the shares?

-shall be determined and appraised by 3

disinterested person, whose finding shall be

final;

-award shall be paid by the corporation w/in

30 days after such award was made;

-no payment shall be made, unless thecorporation has UNRESTRICTED RETAINED

EARNINGS to cover such payment;

-transfer shall be made upon payment of the

agreed price;

*What are the conditions for a Valid exercise of

Appraisal Right? (D-M-A-P-T)

1.Demand for Payment must arise;

2. made in writing by the Dissenting SH within

30 days from the date the vote is taken;3. appraised value is determined ;

4. payment of shares;

5. Transfer of Shares to the Corporation.

SECTION 83 EFFECT OF DEMAND and

TERMINATION OF RIGHT

-all rights accruing to the SH shares, including voting

and dividends rights shall be SUSPENDED, except

the right of the SH to receive payment of the fair

value thereof.

-if dissenting SH is not paid within 30 days after the

award, his voting and dividend rights shall be

immediately RESTORED;

SECTION 84 WHEN RIGHT OF PAYMENT

CEASES: D-A-D

1. demand for payment is withdrawn with the

consent of the corporation;

2. abandonment, rescission, or disapproval ofthe proposed Corporate action;

3. Determined by the SEC

SECTIOn 85 WHO BEARS THE COST OF

APPRAISAL

1. By the Corporation if the value determined by

the appraisers is HIGHER than what was offered by

the Corporation to the dissenting Stock Holder;

-and, if action to recover the fair value is

filed and the refusal of the SH to receivepayment is Justified.

2. By the Dissenting SH if the value offered by

the appraisers is APPROXIMATELY the same as the

price offered by the Corporation;

-and if an action to recover shares is filed

and the refusal of the SH to receive payment

is Unjustified;

SECTION 86 NOTATION on CERTIFICATE(s);

RIGHT OF THE TRANSFEREE;

-CS of the Dissenting SH shall be submitted for

Notation within 10 days after Demanding payment of

his shares;

-failure to do so shall TERMINATE his rights at theoption of the Corporation;

RIGHT OF TRANSFEREE becomes a regular SH and

the appraisal right of the Dissenting SH shall legally

CEASE>

NON-STOCK CORPORATION

SECTION 87: What is a NON-STOCK

CORPORATION?

-one where no part of its income is DISTRIBUTABLE

to the members , trustees, or officers subject to the

Provisions of this Code, on Dissolution.

-profits obtained shall be used for the

FURTHERANCE of the purposes upon which it was

organized.

SECTION 88 PURPOSES

-may be for Charitable, Religious, Educational,Professional, Cultural, Recreational, Fraternal,

Literary, Scientific, Social, Civic Service, or similar

purposes, like Trade, Industry, Agriculture, or any

combination thereof.

SECTION 89 RIGHT TO VOTE

-may be limited, broadened, or denied to the extent

specified in the articles of Incorporation or the by-

laws, otherwise, each member is entitled only to ONE

VOTE>

-VOTING By MAIL may be authorized under the

AOI or the By-Laws subject to the approval and

under the conditions prescribed by the SEC;

-Unless otherwise provided in the AOI/By-laws, a

member may vote by PROXY in accordance with the

provisions of this Code.

-CUMULATIVE VOTING if there are seven

trustees to be voted, a Member is entitled to Seven

Votes and he may cumulate the seven votes for OneCandidate or divide the same among several

Candidates.

SECTION 90 NON-TRANSFERABILITY of

MEMBERSHIP

-membership in NSCorp is a personal right and non-

transferable, Unless the AOI or the by-laws provide

otherwise.


19/26

SECTION 91 TERMINATION OF MEMBERSHIP

-in the manner and causes provided in the By-laws or

AOI;

-shall have the EFFECT of EXTINGUISHING all

rights of the member unless otherwise provided in

the AOI or the by-laws.

TRUSTEES and OFFICERS

SECTION 92 Election and Term of Trustees

-BOT of Non-stock Corporation may be more than 15

in number, as may be fixed in the AOI/By-laws;

-shall classify themselves that the term of office of

1/3 of the number of the BOT shall expire every

year;

-election shall be held annually and the term of the

trustees so elected will be 3 years;

-trustees thereafter elected to fill vacancies before

the expiration of the period shall hold office only for

the unexpired term.

-non-member of the corporation shall not be elected

as trustee;

-may be directly elected by the members unlessotherwise provided in the by-laws or in the AOI;

SECTION 93 Place of Meetings

-regular or special meetings may be held at any place

even outside the place where the principal office of

the corporation is Located;

-requires proper notice to all members and provided

that the meeting be within the Philippines;

DISTRIBUTION of ASSETS in a NON-STOCKCORPORATION

Section 94 RULES for the DISTRIBUTION

1. Liabilities and obligation shall be paid, satisfied and

discharged;

2. Assets held by the Corporation under a condition

of returning, transferring or conveying upon

dissolution shall be returned, transferred or

conveyed.

3. Assets received and held by the Corporation with

the use limited for purposes of charitable, religious,educational, or similar purposes, but not held upon a

condition requiring return, transfer or conveyance

upon dissolution, SHALL be TRANSFERRED OR

CONVEYED to one or more corporations, engaged in

similar activities in the Philippines;

4. Other assets shall be distributed in accordance

with the provisions of the AOI or the By-laws;

5. Other assets may be distributed to persons,

societies , organizations, or corporations whether or

not organized for profit as may be specified in a plan

of distribution as provided in the Code.

SECTION 95 PLAN OF DISTRIBUTION of

ASSETS

*Manner of Adopting the Plan of Distribution of

Assets:

1. Recommended by the majority of the BOT

through a resolution;

2. To be voted by the members in a regular or

special meeting;

3. Written Notice is required and given to

each member entitled to vote.

4. Adoption of the PDA upon approval of at

least 2/3 of the members having votingrights present or represented by proxy

in a meeting called for the purpose.

CLOSE CORPORATIONS

SECTION 96 DEFINITION and APPLICABILITY

of TITLE

-are those whose AOI provides that:

1. Issued stocks shall be held of record by

not more than 20 members;2. Stocks are subject to specified

restrictions on transfer;

3. No public offering of stocks;

*When at least 2/3 of the Voting Stock/Right is

owned or controlled by another corporation which is

NOT a close corporation, it shall be deemed to be

NOT a CLOSE CORPORATION>

*Any corporation may be incorporated as CLOSE

CORPORATION, except: (M-E-P-S-B-I-C)a. Mining/oil Companies;

b. Educational Institutions;

c. Public Utilities

c. Stock Exchanges;

d. Banks;

e. Insurance Companies;

f. Corporations declared vested with Public

Interest

SECTION 97 ARTICLES OF INCORPORATION

-shall provide:a. Classification of Shares or rights and the

Qualifications of owning or holding the

same;

b. Classifications of Directors into one or

more classes,; may be voted for and elected

solely by a particular class of stock;

c. Greater Quorum or voting requirements in

meetings of SH or directors;


20/26

d. May provide that the SH may elect or

appoint officers or employees instead of

the BOD;

-may provide that business of the

Corporation may be managed by the SH

rather than the BOD, with the following

provisions:

1. No meeting of SH need be called toelect directors;

2. SH shall be deemed to be

DIRECTORS unless the context

requires otherwise.

3.SH shall be subject to all liabilities

of Directors;

SECTION 98 VALIDITY of RESTRICTION on

TRANSFER of SHARES

-restriction on the right to transfer shares MUSTAPPEAR in the AOI, otherwise shall not be binding

for any purpose in GOOD FAITH.

-shall not be more ONEROUS than granting the

existing SH the option to purchase;

-if upon the expiration of a period, the Existing SH

or the corporation fails to exercise the option to

purchase, the Transferring SH may sell the his

shares to ANY THIRD PERSON>

SECTION 99 ISSUANCE OR TRANSFER OF

STOCK OF A CLOSE CORPORATION in BREACH

OF QUALIFYING CONDITION

1. If issued to a person NOT ENTITLED:

-is conclusively PRESUMED to be notified of

the fact of his ineligibility to be a SH;

2. If the AOI states that the Corporation should not

exceed 20 members:

-person is conclusively presumed to beNOTIFIED of such fact;

3. If Restriction of Share Transfer is shown:

-the transferee is conclusively presumed that

his acquisition of stock is in violation of the

restriction;

4. By reason of the above-mentioned, the

Corporation

may REFUSE to REGISTER the

transfer of the stock in the name of the

transferee.

-except if the causes are CONSENTED To by

all of the Stockholders of the Close

Corporation or if the Close Corp. has

amended the AOI in accordance with this

Title.

*Transfer is NOT LIMITED to a transfer for Value;

*Right of Transferee to rescind the transaction or to

recover under applicable warranty, express or implied

shall not be IMPAIRED>

SECTION 100 AGREEMENTS by the

STOCKHOLDERS

1. Agreements before the Formation/Organization of

a Close Corporation:

-survives the incorporation of the CCorp;

-continues to be valid and binding if such be

their intent, provided it is not inconsistent with the

AOI;

2. Agreements may be made by two or more SH in

writing and signed by the parties;

3. The following agreements cannot be

INVALIDATED:a. Written agreements to the effect that the

parties will make each other partners among

themselves;

b. agreements which relate to the conduct or

affairs of the corporation as to restrict or

interfere with the discretion of the BOD;

4. SH shall be held to strict FIDUCIARY DUTIES

among each other in the management of the business

of the Corporation;

-shall be personally liable for corporate tortsunless the corporation has obtained

reasonably adequate liability insurance.

SECTION 101 WHEN BOARD MEETING IS

UNNECESSARY or IMPROPERLY HELD?

(B-A-A-D)

1. Before or after such action is taken, written

consent is signed by all of the BOD;

2. Actual or implied knowledge by all of the SH and noprompt objection was interposed;

3. Accustomation of the BOD of informal action with

express or implied acquiescence of all of the SH;

4. Directors have express or implied knowledge of

the action questioned but did not make any prompt

objection thereto;

*IN CASE of ABSENCE OF PROPER NOTICE OR

CALL:

-actions are deemed RATIFIED by the

absent DIRECTOR, unless he promptly filed anobjection with the secretary of the Corporation

after having knowledge thereof.

SECTION 102 PRE-EMPTIVE RIGHT In CLOSE

CORPORATION

-shall extend to ALL STOCKS issued , including the

reissuance of treasury shares whether for money,


21/26

property or personal services or in payment of

corporate debts, unless the AOI provides otherwise.

SECTION 103 AMENDMENT OF THE AOI

-purposes:

1. delete or remove any provision;

2. to reduce the quorum or votingrequirement;

-AMENDING requires the approval of at least 2/3

of the OCS, with or without voting rights; OR of

such greater proportion of shares as may be

specifically provided in the AOI, in the meeting

called for such purpose.

SECTION 104 DEADLOCK

-business and affairs of the corporation can no longerbe conducted to the advantage of the SH;

-SEC shall have the power to arbitrate upon

written petition by any SH, and may order to:

(C-A-R-D-D-A-G)

a. Cancel/Alter the provisions in the AOI;

b. Altering/Cancelling or Enjoining any

Resolutions;

c. Requiring the purchase at the fair value of

shares of any SH either by the Corporationor other SH, regardless of the availability

of the unrestricted retained earnings

d. Directing or Prohibiting any act of the corp

e. Dissolving the Corporation;;

f. Appointing a Provisional Directorg. Granting such other relief as the

circumstances may warrant.

PROVISIONAL DIRECTOR:

-an impartial person who is neither a SH or acreditor of the corporation, and whose other

qualifications may be determined by the SEC;

-not a RECEIVER;

-shall have all the RIGHTS and POWERS of a

duly elected director of the Corporation,

until such time he shall be removed by the

SEC or by all of the SH.

SECTION 105 WITHDRAWAL OF THE

STOCKHOLDER OR DISSOLUTION OF THECORPORATION:of a close corporation!

*Withdrawal of the SH:

-by COMPELLING the corporation to

purchase his shares at their Fair Value, which shall

not be less than their par or issued value, and when

the Corporation has SUFFICIENT assets in its books

to cover its debts and liabilities Exclusive of the

Capital Stock.

*Dissolution of the Corporation

-may be compelled by any SH by a written

petition to the SEC, when:

a. the acts of the Directors, et.al, who

controlled the corporations is illegal,

Fraudulent, Dishonest, oppressive orUnfairly Prejudicial to the Corporation or

the SH;

b. the corporate assets are misapplied or

wasted.

SPECIAL CORPORATIONS

SECTION 106 EDUCATIONAL CORPORATIONS

Incorporation governed by Special Laws (EducationAct of 1982, BP 232) and the Corporation Code.

SECTION 107 PRE-REQUISITES to

INCORPORATION

-Favorable Recommendation of the Secretary of

Education;

SECTION 108 BOARD of TRUSTEES

Educational Corporation

-shall not be less than five(5) , nor more than 15 ;

provided that the number of trustees

shall be in

MULTIPLES of five.

-shall classify themselves that the term of office of

1/5 of their number shall expire every year.

-term of office is five(5) years;

-A majority of the trustees shall CONSTITUTE a

quorum for the transaction of business.

SECTION 109 RELIGIOUS CORPORATION

KINDS:

-sole

-religious societies governed by the Chapter II

Sec. 109 of the Corporation Code.

-formed by religious society, group or any

religious denominations, sect or church after getting

an approval of 2/3 of its members.

-must be composed of 60% religious flock, if

the incorporator is an alien, he being a mere

administrator of the temporalities of the church.

SECTION 110 Corporation Sole

-usually associated with the clergy, consists

of one person ONLY and his successors, incorporated

by law to give some legal capacities and advantages.


22/26

-may be formed by the Archbishop, Bishop, or

priest of other presiding elder to administer or

manage the affairs, property and temporalities of the

church.

-NATIONALITY OF CORPORATION SOLE:

-determine by the Nationality of itsmembers constituting the Sect.

-can acquire land if its members are

60% Filipinos.

*Effect of Separation of Members:

-not entitled to any right over the properties;

*HOW CONVERSION be MADE

-by amending its AOI, with the concurrence

of 2/3 of the members of the corporation sole;

*DISSOLUTION?

-by filing

Documents

The Corporation Code II