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CORPORATION LAW PRE-WEEK LECTURE (PART ONE)

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A. CORPORATION, DEFINED
1. Definition
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(four corporate attributes)
a. an artificial being (has legal capacity to contract)
b. created by operation of law (creature of the law)
c. having the right of succession (strong juridical personality)
d. having the powers, attributes and properties expressly authorized
by law or incident to its existence (creature of liited powers)
2. !ri"level existence of a corporation
a. aggregation of assets and resources
b. business enterprise or econoic unit
c. juridical entity
#ote$ %portance in ac&uisitions, particularly assuption of liabilities
for obligations and labor contracts
'. !ri"level relationships involved in a corporate setting
a. juridical entity level (between the (tate and the corporation)
b. intra"corporate level (between)aong the corporation)its insiders)
i. between the corporation and its directors or officers (also
governed by law on agency)
ii. between corporation and its shareholders or ebers
iii. between the shareholders and the corporate directors and
officers
iv. between and aong the shareholders in a coon venture
c. extra"corporate level (between corporation and third"parties or
outsiders, governed by contract law or labor law)
*. +our advantages [disadvantages] of a corporate organization
a. strong and solen juridical person [high cost of maintenance,
double taxation]
b. centralized anageent [abuse of corporate management]
c. liited liability to investors and officers [abuse of limited liability
feature]
d. free transferability of shares
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Based on The Corporation Code (sections indicated refer to the Corporation Code, unless otherwise indicated) and
Cesar L. Villanueva, Philippine Corporate Law, 2010 dition.
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!ec. 2
,. -opared with other coon business edia
a. sole proprietorships
b. partnerships and other associations
c. joint ventures
d. cooperatives
.. /ntitleent of corporation to constitutional guarantees
a. due process
b. e&ual protection
c. unreasonable searches and seizures
d. #0 right against self"incriination
B. CLASSIFICATION OF CORPORATIONS
1. %n relation to the (tate (to deterine purpose, powers, supervision,
applicable law)
a. public corporation
i. those fored or organized for the governent of a portion of
the (tate, e.g., unicipal corporations
ii. has police power, einent doain, and taxation powers1
iii. has both public or governental character and private or
proprietary character
iv. #0! based on governent ownership
b. private corporation
i. those organized under the -orporation -ode for private ends
ii. those organized under the -orporation -ode as 20--s to
achieve certain purposes of the (tate (e.g., -lar3 Developent
-orporation
iii. those 20--s organized under their own charters (priarily
governed by their charter, but -orporation -ode suppletory
'
)
iv. #0! based on private ownership
c. &uasi"public corporation
i. those authorized to exercise powers, rights and privileges of
private corporations (e.g., school districts, water districts)
ii. entirely distinct fro corporations organized under -orporation
-ode
iii. not within jurisdiction of (/-
"
!ec. #
2
2. 4s to place of incorporation (to deterining nationality and capacity to
sue)
a. doestic corporation (incorporated under 5hilippine laws)
b. foreign corporation (incorporated under laws other than 5hilippine
laws and whose laws allow +ilipinos to do business therein)
*
'. 4s to legal status (to deterine juridical existence and liability)
a. de jure corporation (full or substantial copliance with legal
re&uireents1 incorporation not subject of attac3)
b. de facto corporation
,

i. 6e&uisites for application of doctrine
(a) existence of a valid law under which corporation ay be
incorporated (e.g., -orporation -ode)
(b) attept in good faith to incorporate, or existence of
7colourable copliance8 with provisions on incorporation
(e.g., defect in incorporation papers, but issuance of
certificate of incorporation by (/- is necessary)
(c) assuption by enterprise of corporate powers (e.g.,
adoption of by"laws, election of officers)
(d) #0! applicable to purely intra"corporate level issues
ii. (cope)effects of application of doctrine
(a) due incorporation cannot be attac3ed collaterally in any
private suit to which de facto corporation is a party
(b) due incorporation ay be in&uired into only by (olicitor
2eneral in quo warranto proceedings
(c) in contracts between de facto corporations and outsiders,
the de facto corporation is the entity that will be liable to
or that can hold liable the outsiders
(d) in contracts between de facto corporations and outsiders,
the coponent individuals of such corporation will neither
be liable to nor can hold liable the outsiders
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$
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c. corporation by estoppel
.

i. (cope)effects of application of doctrine
(a) all persons who assue to act as a corporation, 3nowing
it to be without authority to do so, shall be liable as
general partners for all debts, liabilities and daages
incurred or arising as a result thereof (liability as general
partner includes not only those who actually participated
in the contract, but also those who reaped the benefits)
(b) when any such ostensible corporation is sued on any
transaction entered into by it as a corporation or on any
tort coitted by it as such, it shall not be allowed to use
as a defense its lac3 of corporate personality
(c) one who assues an obligation to an ostensible
corporation as such, cannot resist perforance thereof on
the ground that there was in fact no corporation
(d) #0! applicable to purely intra"corporate level issues
d. corporation by prescription (i.e., 6oan -atholic -hurch)
*. 0ther classifications
a. as to purpose of incorporation (business, religious, educational,
charitable, scientific, vocational)
b. as to nuber of ebers (aggregate, corporation sole)
c. as to existence of shares
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(stoc3, non"stoc3)
d. as to relationship of anageent and control (holding, affiliate,
parent and subsidiary copanies)
C. NATIONALITY OF CORPORATIONS
1. !ests of nationality of corporations
a. place of incorporation test
:
(priary test)
b. control test (in addition to place of incorporation, to deterine
&ualification of corporation to engage in nationalized activities as
provided under the -onstitution and laws)
c. #0! principal place of business test (although applied to
deterine which state has jurisdiction over a corporation)
d. #0! applicable to corporation sole (which has no nationality to
dis&ualify it fro owning land)
%
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&
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#
(1) Control tet
1. 4pplication of control test
a. control test applies only if area of activity that the operating
corporation engages in is fully or partially nationalized as provided
for under the -onstitution and other nationalization laws, for
exaple$
i. exploitation of natural resources
ii. ownership of land
iii. owning and operating public utilities
iv. ass edia
v. advertising industry
vi. others as ay be provided by law
b. before applying control test, operating corporation ust first pass
place of incorporation test
c. to deterine if nationalization re&uireents are et, the ter
7capital8 as used in (ec. 11, 4rt. ;%% of the -onstitution refers only
to shares of stoc3 entitled to vote in the election of directors, and
thus in the present case only to coon shares, and not the total
0-( coprising both coon and non"voting preferred shares
<
d. #ote$ not applicable if purpose is purely to invest in the operating
copany, and not engage in (whether solely or as part of a joint
venture) the nationalized area of activity1 in such case, apply
grandfather rule as discussed below)
(!) "r#n$%#t&er r'le
1. 4pplication of grandfather rule
a. grandfather rule applies to copute +ilipino e&uity in a corporation
engaged in fully or partially nationalized areas of activities
provided for under the -onstitution and other nationalization laws,
b. in cases where corporate shareholders are present in the situation
c. by attributing the nationality of the second or even subse&uent tier
of ownership to deterine the nationality of the corporate
shareholder
d. for purposes of investent, a corporation organized under the
laws of the 5hilippines of which at least .=> of the capital stoc3
outstanding and entitled to vote is owned and held by citizens of
the 5hilippines, is considered a 5hilippine #ational
1=
(
Gamboa v. Teves, ).*. +o. 1&%$&(, 2' ,une 2011.
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!ec. ", -orei.n /nvest0ents 1ct of 1((1
$
D. CORPORATE (URIDICAL PERSONALITY
(1) Do)tr*ne o% e+#r#te ,'r*$*)#l +eron#l*t- (General ule!
1. ?egal conse&uences of application of separate juridical personality
a. separate obligations and liabilities
b. separate rights and privileges
c. separate properties
d. separate personalities for purposes of legal suits
(#) L*#.*l*t- %or tort #n$ )r*/e
1. ?iability for torts (jointly and severally liable with officer or agent)
a. liable if the tortuous act is coitted by officer or agent under its
express direction or authority fro the corporation
b. liable if the tortuous act arises as a necessary incident of the
business or transaction of the corporation
c. liable if tortuous act is subse&uently ratified by corporation
d. #0! liable if the tortuous act is outside the scope of authority of
officer or agent and is not subse&uently ratified by the corporation
2. #on"liability for cries (reasons)
a. no existing laws by which to support a criinal process against a
corporation
b. fiction of corporate entity cannot be applied to shield individual
actors in the criinal act
c. difficulty, if not ipossibility, of iposing penal sanctions (i.e.,
iprisonent)
d. @A! consider cases of laws specifically penalizing a corporation
(e.g., 4B?4, which iposes penalty of suspension or revocation of
license)
(.) Re)o0er- o% $#/#1e ("#$ entitled to moral damages, but
there are vacillating rulings!
%
(!) Do)tr*ne o% +*er)*n1 t&e )or+or#te 0e*l (%xception!
1. 2uiding principles in application of doctrine
a. piercing is an e&uitable reedy (only when separate juridical
personality is abused or used for wrongful purposes) of last resort
(where no other reedies available) and not for purposes of
theorizing (creation of rights that otherwise have no basis)
b. piercing ust be based on clear evidence
c. piercing is a judicial reedy that is subject to due process
re&uireents (e.g., ipleading parties)
d. piercing only has res judicata effect (only for that case)
(#) "ro'n$ %or #++l*)#t*on o% $o)tr*ne
1. 2rounds for application of doctrine
a. defeat of public convenience or e&uity (when corporation is used
as a vehicle for evasion of an existing obligation)
b. fraud (when corporation is used to justify wrong, protect fraud,
defend a crie)
c. alter"ego (where corporation is a ere instruentality, agency,
conduit, or adjunct of another person or corporation)
d. #0! ere ownership or control, absent any of the aforeentioned
grounds
(.) Tet *n $eter/*n*n1 #++l*)#.*l*t-
1. (uary of probative factors (although no hard and fast rule)
a. stoc3 ownership by one or coon ownership of both
corporations
b. identity of directors and officers
c. anner of 3eeping corporate boo3s and records
d. ethods of conducting the business
2. 2uiding principles in fraud cases
a. there ust have been fraud or an evil otive in the affected
transaction
b. corporate fiction is used as a eans to coit the fraud or avoid
the conse&uences thereof
c. ain action should see3 enforceent of pecuniary clais
pertaining to the corporation against corporate officers or
stoc3holders, or vice"versa
d. #0! ere proof of control of the corporation
&
'. 2uiding principles in alter"ego cases
a. doctrine applies even in the absence of evil intent, because of
direct violation of corporate law principle separating ownership
fro anageent
b. doctrine is based on estoppel, i.e., if stoc3holders do not respect
the separate juridical entity, others cannot also be expected to be
bound by the separate juridical entity
c. doctrine ay apply even when no onetary clais are sought to
be enforced against the stoc3holders or officers of the corporation
d. #0! ere existence of parent"subsidiary, affiliate relationship
E. CAPITAL STRUCTURE
(1) N'/.er #n$ 2'#l*%*)#t*on o% *n)or+or#tor
1. #uber and &ualifications of incorporators
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a. natural persons
b. any nuber not less than five (,) but not ore than fifteen (1,)
c. all of legal age
d. ajority of who are residents of the 5hilippines
(!) 3*n*/'/ )#+*t#l to)4 #n$ '.)r*+t*on re2'*re/ent
1. Biniu capital stoc3 and subscription re&uireents
a. no iniu capital stoc3 except as otherwise specifically provided
for by special law
12
b. at least 2,> of 4-( as stated in 40% subscribed at tie of
incorporation
1'
c. at least 2,> of total subscription ust be paid upon subscription
(balance of unpaid subscription ust be paid on date fixed in
contract, or upon call for payent by @0D)
1*
d. paid"up capital shall not be less than 5,,===.==
1,
11
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12
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1"
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1#
/d.
1$
/d.
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(5) Cor+or#te ter/
1. -orporate ter
1.

a. not exceeding ,= years (unless dissolved or extended)
b. ay be extended for periods not exceeding ,= years (by
aending 40%)
c. no extension can be ade earlier than , years before expiry date
(except for justifiable reasons as deterined by (/-)
(6) Cl#*%*)#t*on o% &#re
1. @asic policies on classification of shares
19

a. freedo and power of a corporation to classify shares in classes
or series, or both, with rights, privileges, or restrictions as stated in
the 40%
b. presuption of e&uality of rights and features of shares, except as
otherwise provided in the 40% and stated in the certificate of stoc3
c. provision for a class or series of shares with coplete voting rights
d. provision for voting rights for all types of shares on fundaental
atters
2. Cinds of shares
a. coon shares (no special contractual rights or preferences)
b. preferred shares
1:
i. ay be given preference in distribution of assets upon
li&uidation, distribution of dividends, or such other preferences
as stated in the 40%
ii. ay be deprived of voting rights, except on fundaental
atters
iii. ay only be issued with a stated par value
iv. @0D ay fix ters and conditions thereof if authorized by 40%
c. redeeable shares
1<
(ay be purchased or ta3en up by
corporation upon expiration of a fixed period, regardless of
existence of unrestricted retained earnings in boo3s of the
corporation, upon such other ters as stated in the 40% and in the
certificates of stoc3, e.g., redeption ay be optional)
d. founders shares
2=
(ay be given rights, such as exclusive right to
vote and be voted for in election of @0D for period not exceeding ,
years)
1%
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1&
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1'
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20
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e. treasury shares
21
(issued and fully paid shares subse&uently
reac&uired by corporation by purchase, redeption, etc., which
ay again be disposed for reasonable price fixed by @0D)
f. no par value shares
22
(deeed fully paid and non"assessable, but
cannot be issued for consideration less than 5,.==)share, and
consideration treated as capital and cannot be distributed as
dividends)
F. INCORPORATION AND OR"ANI7ATION
(1) Pro/oter
(#) L*#.*l*t- o% +ro/oter
(.) L*#.*l*t- o% )or+or#t*on %or +ro/oter8 )ontr#)t
1. Dhat are prooterEs contractsF
a. contracts entered into in behalf of the corporation which is in the
process of organization and incorporation (e.g., pre"incorporation
subscription agreeents or pre"incorporation contracts with third
parties or corporate outsiders)
b, by a prooter, i.e., a person who, acting alone or with others,
ta3es initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor
2'
(as
distinguished fro investors who are not oving spirit behind the
organization of the corporation)
c. with both parties fully aware that the corporation is still in the
process of registration.
d. #0 overlap with de facto corporation or corporation by estoppel
since third party is aware that corporation is yet to be registered
2. 6ules on liability for prooterEs contracts with third parties
a, %f corporation not duly incorporated, prooter is personally liable
b. %f corporation is incorporated but does not ratify the prooterEs
contracts, prooter is liable (applying principle of agency)
c. %f corporation is incorporated but expressly or ipliedly ratifies the
prooterEs contracts, corporation is liable
d, Bere investor who is not a prooter incurs no liability because no
isrepresentation, ista3e, or fraud
21
!ec. (
22
!ec. %
2"
!ec. ".10, !*C
10
(!) S'.)r*+t*on )ontr#)t (contract for ac&uisition of unissued stoc& in
an existing corporation or corporation still to be fored,
notwithstanding that parties refer to it as a purchase)
2*
1. Dhen can there be a subscriptionF
a, original issuance fro 4-( at tie of incorporation
b. opening, during life of corporation, of portion of original 4-(
previously unissued
c. increase in 4-( through aendent of 40% registered with (/-
d. #0! if shares previously issued (including treasury shares), in
which case there is sale of shares (as opposed to subscription)
2. 6ules governing subscription contracts vis"G"vis stoc3 purchase
a. i. subscription (not payent of subscription) creates the legal
relationship between the stoc3holder and the corporation, such
that subscriber (provided subscribed shares are not delin&uent)
shall have all the rights of a stoc3holder
2,
ii. purchaser of stoc3 ust coply with registration re&uireents
to be considered stoc3holder of corporation
2.
b. i. subscription renders subscriber as debtor of corporation1
hence, subject to call for unpaid subscription
ii. purchaser not a debtor of corporation
c. i. in case of insolvency of corporation, unpaid subscription is
iediately due and deandable
ii. not applicable to stoc3 purchases
d. i. subscriber can only be released by corporation fro liability on
the subscription only with express or iplied consent of all
shareholders, and only when there is no prejudice to corporate
creditors (trust fund doctrine)
ii. not applicable to stoc3 purchases
2#
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2%
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11
(5) Pre-*n)or+or#t*on '.)r*+t*on #1ree/ent
1. 6ules governing pre"incorporation subscription agreeents
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a. applies to subscription for shares of stoc3 of a corporation still to
be fored
b. irrevocable for a period of at least six (.) onths fro date of
subscription
c. unless$ (i) all of the other subscribers consent to the revocation1 or
(ii) incorporation of said corporation fails to aterialize within the
said period or longer period stipulated in the subscription contract
d. provided, that it cannot be revo3ed after the subission of the 40%
to the (/-
(6) Con*$er#t*on %or to)4
1. -onsideration for shares of stoc3
2:
(applies to issuance, #0!
purchase1 if unlawful consideration, ay be watered stoc3
2<
)
a. actual cash paid to corporation (#0! proissory notes)
b. property, tangible or intangible, actually received by corporation
and necessary or convenient for its use and lawful purposes at a
fair valuation e&ual to par or issued value of stoc3 issued
(valuation by @0D subject to (/- approval)
c. labor perfored for or services actually rendered to corporation
(#0! future services)
d. previously incurred indebtedness of corporation (set"off)
e. aounts transferred fro unrestricted retained earnings to stated
capital (covers declaration of stoc3 dividends)
f. outstanding shares exchanged for stoc3s in the event of
reclassification or conversion
(9) Art*)le o% In)or+or#t*on (charter of corporation)
(#) Content
1. -ontents of 40%
'=
(jurisdictional such that law provides for
'1
)
a. nae of the corporation
b. purpose clauses (priary)secondary)1 for non"stoc3 corporations,
should not include a purpose contrary to its nature
c. place of principal office within the 5hilippines
2&
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"1
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d. ter of existence
e. naes, nationalities and residences of incorporators
f. nuber of directors or trustees (between , to 1,)
g. naes, nationalities and residences of persons who shall act as
directors or trustees until the first regular directors or trustees are
duly elected and &ualified
h. if stoc3 corporation, aount of authorized capital stoc3, nuber of
shares, par value or no par value shares, original subscribers,
aounts subscribed and paid by each
(.) Non-#/en$#.le *te/
1. #on"aendable ites (fait accompli at tie of incorporation)
a. naes of incorporators (as opposed to corporators, i.e.,
stoc3holders or ebers
'2
)
b. naes of incorporating directors)trustees
b. naes of original subscribers)ebers
c. the treasurer"in"trust elected by original subscribers
d. witnesses and ac3nowledgent thereof
(:) Cor+or#te n#/e
-- l*/*t#t*on on 'e o% )or+or#te n#/e
1. ?iitations on use of corporate nae
''
a. cannot be identical or deceptively or confusingly siilar to that of
any existing corporation (even if dissolved, there is '"year ban)
b. cannot be identical or deceptively or confusingly siilar to that of
any other nae already protected by law (e.g., Anited #ations)
c. cannot be patently deceptive, confusing or contrary to existing
laws (e.g., finance)investent, engineer)architects, ban3s, etc.)
d. (/- re&uires written underta3ing to change corporate nae in
case there is another person, fir or entity with a prior right to the
use of said nae or one siilar to it
(;) Re1*tr#t*on #n$ *'#n)e o% Cert*%*)#te o% In)or+or#t*on
(-oenceent of corporate existence and juridical personality
fro incorporation, i.e., date of (/- issuance of certificate of
incorporation
'*
)
(<) Ele)t*on o% $*re)tor or tr'tee
"2
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1"
1. 6ules on election of directors (or trustees)
',
a. there ust be present, either in person or by proxy, owners of a
ajority of the 0-( (or ajority of ebers entitled to vote)
b. election ust be by ballot if re&uested by any voting stoc3holder
(or eber)
c. in stoc3 corporations, stoc3holders entitled to vote have right to
vote the nuber of shares of stoc3 standing, at tie fixed in by"
laws (if silent, at tie of election), in his own nae on the stoc3
boo3s of the corporation (but no delin&uent stoc3 ay be voted)
d. in stoc3 corporations, stoc3holders entitled to cuulative voting
(=) A$o+t*on o% B--L#>
(#) Re2'**te o% 0#l*$ .--l#>
1. 6e&uisites of valid by"laws (for internal governance of corporation)
a. cannot be contrary to law and the 40%
'.
(in case of conflict,
provisions of by"laws cannot prevail over the law or 40%)
b. cannot be unreasonable or contrary to the nature of by"laws (i.e.,
cannot restrict right to transfer shares)
c. cannot discriinate (e.g., dis&ualifying specific person fro @0D)
(.) B*n$*n1 e%%e)t (@y"laws cannot affect or prejudice third
persons who deal with the corporation, unless they have
3nowledge thereof)
()) A/en$/ent
1. 6ules on aendents, repeals, and adoption of new by"laws
'9
a. by ajority vote of @0D (or @0!), and by vote of at least a
ajority of the 0-( (or ebers), at a regular)special eeting
called for the purpose
b. by @0D)@0! if power is delegated by owners of at least 2)' of
0-( (or 2)' of ebers), but power delegated considered
revo3ed whenever ajority of 0-( (or ebers) vote for
revocation at a regular)special eeting for the purpose
c. aended or new by"laws shall be attached to the original
d. aended or new by"laws effective only upon (/- approval
". CORPORATE POWERS
"$
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(1) "ener#l +o>er, t&eor- o% 1ener#l )#+#)*t-
1. 2eneral powers of a corporation
a. /xpress powers
':
i. to sue and be sued in its corporate nae
ii. power of succession by its corporate nae for duration of
corporate ter as stated in 40% and certificate of incorporation
iii. to adopt and use a corporate seal
iv. to aend its 40%
v. to adopt @y"laws, not contrary to law, orals, or public policy,
and to aend or repeal the sae
vi. in stoc3 corporations, to issue or sell stoc3s to subscribers
and to sell treasury stoc3s1 in non"stoc3 corporations, to adit
ebers
vii. to purchase, receive, ta3e or grant, hold, convey, sell, lease,
pledge, ortgage and otherwise deal with such real and
personal properties (including securities and bonds of other
corporations) as transaction of lawful business of the
corporation ay reasonably and necessarily re&uire
viii. to enter into erger or consolidation with other corporations
ix. to a3e reasonable donations (except in aid of any political
party or candidate or for purposes of partisan political activity
x. to establish pension, retireent, an other plans for the benefit
of its directors, trustees, officers and eployees.
b. %plied powers,
'<
i.e., such other powers as ay be essential or
necessary to carry out its purpose or purposes as stated in its 40%
c. %ncidental powers,
*=
i.e., powers, attributes and properties incident
to its existence
"'
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(!) S+e)*%*) +o>er, t&eor- o% +e)*%*) )#+#)*t-
(#) Po>er to e?ten$ or &orten )or+or#te ter/
1. 5ower to extend or shorten corporate ter
*1
a. Hote re&uireent$ ajority of @0D (or @0!), ratified by 2)' of 0-(
(or ebers) at eeting duly called for the purpose
b. 4ppraisal right of dissenting stoc3holders$ available only for
extension of corporate ter,
*2
not for shortening
*'
c. 0ther re&uireents)considerations$
i. 40% ust be aended
ii. (/- approval is re&uired
d. #ote$ (/- opined that teporary cessation of operations also
re&uires prior or subse&uent ratificatory vote by 2)' of 0-( (or
ebers)
(.) Po>er to *n)re#e or $e)re#e )#+*t#l to)4 or *n)'r,
)re#te, *n)re#e .on$e$ *n$e.te$ne
1. 5ower to increase or decrease capital stoc3
**
(for stoc3 corporations
only)
a. Hote re&uireent$ ajority of @0D, ratified by 2)' of 0-( at
eeting duly called for the purpose
b. 4ppraisal right of dissenting stoc3holders$ none
*,
c. 0ther re&uireents)considerations$
i. 40% ust be aended
ii. (/- approval is re&uired
iii. %f increase in 4-(, at least 2,> of increase ust be
subscribed, and at least 2,> of subscribed ust be paid
iv. %f decrease in 4-(, should not prejudice rights of corporate
creditors
2. 5ower to incur, create, increase bonded indebtedness
*.
a. Hote re&uireent$ ajority of @0D (or @0!), ratified by 2)' of 0-(
(or ebers) at eeting duly called for the purpose
b. 4ppraisal right of dissenting stoc3holders$ none
*9
c. 0ther re&uireents)considerations$
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i. (/- approval is re&uired
d. #ote$ provision applies only to bonded indebtedness (corporation
issues bonds), but not ordinary loans1 also, distinguish fro
encubrance of all or substantially all of the assets of the
corporation to secure borrowings (which is subject to different
re&uireents)
*:
()) Po>er to $en- +re-e/+t*0e r*1&t
1. /xceptions to pre"eptive rights
*<
(for stoc3 corporations only)
a. %f denied by 40% or aendent thereto
b. %f shares issued in copliance with laws re&uiring stoc3 offerings
or iniu stoc3 ownership by the public
c. %f shares issued in good faith with the approval of 2)' 0-(, in
exchange for property needed for corporate purposes
d. %f shares issued in good faith with the approval of 2)' 0-(, in
payent of previously contracted debt
($) Po>er to ell or $*+oe o% )or+or#te #et
1. 5ower to sell, dispose of, lease or encuber corporate assets
,=
a. Hote re&uireent$
i. %f all or substantially all (if corporation rendered incapable of
continuing the business or accoplishing the purpose for which
it was incorporated) of its property and assets, including its
goodwill I ajority of @0D (or @0!), ratified by 2)' of 0-( (or
ebers) at eeting duly called for the purpose
ii. %f$ (a) necessary in the usual or regular course of its business1
or (b) proceeds of the sale or disposition is appropriated for the
conduct of its reaining business I @0D (or @0!) only
b. 4ppraisal right of dissenting stoc3holders$ available
,1
c. 0ther re&uireents)considerations$ subject to provisions of
existing laws on illegal cobinations and onopolies1 subject to
@ul3 (ales ?aw
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(e) Po>er to #)2'*re o>n &#re
1. Dhen power to ac&uire own shares exercisable
,2
a. for a legitiate corporate purpose(s)
b. to eliinate fractional shares arising out of stoc3 dividends
c. to collect or coproise an indebtedness to the corporation,
arising out of unpaid subscription, in a delin&uency sale, and to
purchase delin&uent shares sold during said sale
d. to pay dissenting or withdrawing stoc3holders entitled to payent
for their shares under the -orporation -ode
#ote$ corporation ust have unrestricted retained earnings in its
boo3s to cover the shares to be purchased or ac&uired (except
redeeable shares
,'
)
(%) Po>er to *n0et )or+or#te %'n$ *n #not&er )or+or#t*on or
.'*ne
1. 5ower to invest corporate funds (includes corporate property) in
another corporation or business
,*
a. Hote re&uireent$
i. %f investent by corporation of funds$ (a) in any other
corporation or business1 or (b) for any purpose other than its
priary purpose I ajority of @0D (or @0!), ratified by 2)' of
0-( (or ebers) at eeting duly called for the purpose
ii. %f investent by corporation of funds is reasonably necessary to
accoplish its priary purpose as stated in 40% I ajority of
@0D (or @0!) only
b. 4ppraisal right of dissenting stoc3holders$ available
,,
c. 0ther re&uireents)considerations$ 40% ust be aended
d. (/- approval$ re&uired
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(1) Po>er to $e)l#re $*0*$en$
1. 6ules on power to declare dividends
,.
(for stoc3 corporations only)
a. Hote re&uireent$
i. %f$ (a) cash1 or (b) property dividends I @0D only
ii. %f stoc3 dividends I @0D, ratified by 2)' of 0-( at eeting duly
called for the purpose
b. should be declared out of the unrestricted retained earnings
c. payable to all stoc3holders on the basis of the outstanding stoc3
held by the
d. provided, if delin&uent stoc3$ (a) cash dividends due shall first be
applied to the unpaid balance on the subscription1 and (b) stoc3
dividends shall be withheld until subscription is fully paid
2. /xceptions to prohibition on retention of surplus profits in excess of
1==> of paid"in capital stoc3
,9
(for stoc3 corporations only)
a. when justified by definite corporate expansion projects or
progras approved by @0D
b. when corporation is prohibited under any loan agreeent fro
declaring dividends without the creditorEs consent, and such
consent has not been secured
c. when it can be clearly shown that such retention is necessary
under special circustances obtaining in the corporation, such as
when there is need for special reserve for probable contingencies
#ote$ stoc3holders ay deand declaration of dividends if not
covered by exception
(&) Po>er to enter *nto /#n#1e/ent )ontr#)t
1. 6ules on anageent contracts
,:
a. Definition of anageent contract$ contract whereby a corporation
underta3es to anage or operate all or substantially all of the
business of another corporation, whether such contracts are called
service contracts, operating agreeents, or otherwise
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b. Hote re&uireent$
i. %f anageent contract (i.e., with another corporation)
(a) ordinary ratification rule I @0D and ajority of 0-( (or
by ajority of ebers) of both anaging and anaged
corporations
(b) %f$ (i) stoc3holder(s) representing sae interest of both
anaging and anaged corporations own or control ore
than 1)' of the 0-( entitled to vote of the anaging
corporation1 or (ii) ajority of @0D of anaging
corporation also constitute ajority of @0D of anaged
corporation I @0D and ajority of 0-( (or ajority of
ebers) of anaging corporation, and @0D and 2)' of
0-( (or ebers entitled to vote) of anaged
corporation
ii. %f not anageent contract (e.g., with individual or partnership)
I @0D (or @0!) only
c. Baxiu ter$ , years for any one ter
(*) Ultra vires #)t
*. A++l*)#.*l*t- o% ultra vires $o)tr*ne
1. Dhen ultra vires doctrine applicable
a. if corporationEs act is not within its powers as conferred by the
-orporation -ode or its 40%, or are necessary or incidental to the
exercise of the powers so conferred
,<
(7classic8 ultra vires act)
b. if corporationEs act is executed by officer or agent who was not
duly authorized by the @0D
c. if corporationEs act is contrary to law (per se illegal)
d. #ote$ attitude of courts is liberal towards corporate acts and
contracts which are not per se illegal, and which are in direct and
iediate furtherance of the corporationEs business, fairly incident
to the express powers and reasonably necessary to their exercise,
because$ (i) need for stability1 (ii) business judgent rule.
**. Cone2'en)e o% ultra vires #)t
1. -onse&uences of ultra vires acts
a. if 7classic8 ultra vires act I subject to ratification1 estoppel
b. if unauthorized act of corporate officer or agent I subject to
ratification1 estoppel1 doctrine of apparent authority
c. if per se illegal I void and cannot be ratified
$(
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20
(,) Do)tr*ne o% *n$*0*$'#l*t- [indivisibility] o% '.)r*+t*on
1. Doctrine of indivisibility of subscription
a. @asis$
.=
no certificate of stoc3 shall be issued to a subscriber until
full aount of his subscription together with interest and expenses
in case of delin&uent shares, if any is due, has been paid.
b. Doctrine$ for partially paid subscriptions, corporation ay refuse
any clai by a subscriber to issue certificates of stoc3 covering the
extent of the shares that have been paid"up
c. 5urpose$ to prevent partial disposition of a subscription which is
not fully paid
d. #ote$ while no prohibition in -orporation -ode for corporation (at
its option, not at option of subscriber) to 7divide8 the subscription
by considering a portion thereof as fully paid and issuing a
corresponding certificate over the paid"up shares, (/- has
applied doctrine of indivisibility of subscription to prohibit the sae
(4) Do)tr*ne o% e2'#l*t- o% &#re (@ased on presuption of
e&uality of rights and features of shares, except as otherwise
provided in the 40% and stated in the certificate of stoc3
.1
1 (ee
discussions under %te /J*K above on -lassification of (hares)
(l) Tr't %'n$ $o)tr*ne
1. -overage of 7trust fund8 for benefit of creditors
a. all shares issued and subscribed (0-(), except treasury shares
b. does not cover unrestricted retained earnings (which ay be used
to pay out dividends, but if stoc3 dividends declared, covered)
c. does not cover advances in payent of future subscription (which
ay be withdrawn until actual subscription is ade)
d. %f corporation insolvent, covers all assets of insolvent corporation
2. -ases where trust fund doctrine applies
a. where there has been a distribution or attept to distribute
corporate properties, or a return of the capital or portion thereof, to
stoc3holders, without providing for payent to creditors
b. where corporation has released subscribers to the capital stoc3
fro their subscriptions without valuable consideration
c. where corporation has transferred the corporate property in fraud
of its creditors
d. where corporation is insolvent
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21
(5) @o> e?er)*e$
(#) B- t&e &#re&ol$er (indirectly by virtue of right to elect @0D
and directly by ratification of acts of @0D in cases specified by
law1 to be further discussed under %te L below)
(.) B- t&e Bo#r$ o% D*re)tor (by virtue of fundaental corporate
character of centralized anageent1 to be further discussed
under %te % below)
()) B- t&e O%%*)er (by virtue of functions as provided by law, the
corporationEs by"laws, or as authorized by @0D1 to be further
discussed in conjunction with %te % below)
22
@. STOCK@OLDERS AND 3E3BERS
(1) +undaental rights of a stoc3holder
(2) 5articipation in anageent
(a) 5roxy
(b) Hoting trust
(c) -ases when stoc3holdersE action is re&uired
i. @y a ajority vote
ii. @y a two"thirds vote
iii. @y cuulative voting
(') 5roprietary rights
(a) 6ight to dividends
(b) 6ight of appraisal
(c) 6ight to inspect
(d) 5reeptive right
(e) 6ight to vote
(f) 6ight to dividends
(*) 6eedial rights
(a) %ndividual suit
(b) 6epresentative suit
(c) Derivative suit
(,) 0bligation of a stoc3holder
(.) Beetings
(a) 6egular or special
i. Dhen and where
ii. #otice
(b) Dho calls the eetings
(c) Muoru
(d) Binutes of eetings
I. BOARD OF DIRECTORS AND TRUSTEES
(1) 6epository of corporate powers
(2) !enure, &ualifications and dis&ualifications of directors
(') /lections
(a) -uulative voting
(b) Muoru
2"
(*) 6eoval
(,) +illing of vacancies
(.) -opensation
(9) Disloyalty
(:) @usiness judgent rule
(<) (olidary liabilities for daages
(1=) ?iability for watered stoc3s
(11) 5ersonal liabilities
(12) 6esponsibility for cries
(1') (pecial fact doctrine
(1*) %nside inforation
(1,) -ontracts
(a) @y self"dealing directors with the corporation
(b) @etween corporations with interloc3ing directors
(1.) /xecutive coittee
(a) -reation
(b) ?iitations on its powers
(19) Beetings
(a) 6egular or special
i. Dhen and where
ii. #otice
(b) Dho presides
(c) Muoru
(d) 6ule on abstention
(. CAPITAL AFFAIRS
(1) -ertificate of stoc3
(a) #ature of the certificate
(b) Ancertificated shares
(c) #egotiability
i. 6e&uireents for valid transfer of stoc3s
(d) %ssuance
i. +ull payent
ii. 5ayent pro"rata
(e) (toc3 and transfer boo3
i. -ontents
2#
ii. Dho ay a3e valid entries
(f) ?ost or destroyed certificates
(g) (itus of the shares of stoc3
(2) Datered stoc3s
(a) Definition
(b) ?iability of directors for watered stoc3s
(c) !rust fund doctrine for liability for watered stoc3s
(') 5ayent of balance of subscription
(a) -all by board of directors
(b) #otice re&uireent
(*) (ale of delin&uent shares
(a) /ffect of delin&uency
(b) -all by resolution of the board of directors
(c) #otice of sale
(d) 4uction sale
(,) 4lienation of shares
(a) 4llowable restrictions on the sale of shares
(b) (ale of partially paid shares
(c) (ale of a portion of shares not fully paid
(d) (ale of all of shares not fully paid
(e) (ale of fully paid shares
(f) 6e&uisites of a valid transfer
(g) %nvoluntary dealings
K. DISSOLUTION AND LIAUIDATION
(1) Bodes of dissolution
(a) Holuntary
i. Dhere no creditors are affected
ii. Dhere creditors are affected
iii. @y shortening of corporate ter
(b) %nvoluntary
i. @y expiration of corporate ter
ii. +ailure to organize and coence business within 2 years
fro incorporation
iii. ?egislative dissolution
iv. Dissolution by the (/- on grounds under existing laws
2$
(2) Bethods of li&uidation
(a) @y the corporation itself
(b) -onveyance to a trustee within a '"year period
(c) @y anageent coittee or rehabilitation receiver
(d) ?i&uidation after three years
L. OT@ER CORPORATIONS
(1) -lose corporations
(a) -haracteristics of a close corporation
(b) Halidity of restrictions on transfer of shares
(c) %ssuance or transfer of stoc3 in breach of &ualifying conditions
(d) Dhen board eeting is unnecessary or iproperly held
(e) 5reeptive right
(f) 4endent of articles of incorporation
(g) Deadloc3s
(2) #on"stoc3 corporations
(a) Definition
(b) 5urposes
(c) !reatent of profits
(d) Distribution of assets upon dissolution
(') 6eligious corporations
(a) -orporation sole
i. #ationality
ii. 6eligious societies
(*) +oreign corporations
(a) @ases of authority over foreign corporations
i. -onsent
ii. Doctrine of 7doing business8 (relate to definition under the
+oreign %nvestents 4ct, 64 9=*2)
(b) #ecessity of a license to do business
i. 6e&uisites for issuance of a license
ii. 6esident agent
(c) 5ersonality to sue
(d) (uability of foreign corporations
(e) %nstances when unlicensed foreign corporations ay be
allowed to sue
2%
" %solated transactions
(f) 2rounds for revocation of license
3. 3ER"ER AND CONSOLIDATION
(1) Definition and concept
(2) -onstituent v. consolidated corporation
(') 5lan of erger or consolidation
(*) 4rticles of erger or consolidation
(,) 5rocedure
(.) /ffectivity
(9) ?iitations
(:) /ffects
2&