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DERIVATIVE ACTION OR SUIT

-A suit filed by a stockholder in the name and in behalf of the corporation to


protect corporate rights or redress wrongs committed against the corporation
whenever corporate officers refuse to bring such actions or such officers are the
ones to be sued or held liable.
REQUISITES OF DERIVATIVE ACTION OR SUIT
(Section 1, Rule 8 of the Interim Rules of Procedure Governing Intra-Corporate
Controversies)
a. He was a stockholder or member at the time the acts or transactions
subject of the action occurred and at the time the action was filed.
b. He exerted all reasonable efforts, and alleges the same with particularity in
the complaint, to exhaust all remedies available under articles of incorporation, bylaws, laws or rules governing the corporation (or partnership) to obtain the relief he
desires.
c. No appraisal rights are available for the act or acts complained of.
d. The suit is not a nuisance or harassment suit.
DISTINGUISHED FROM REPRESENTATIVE SUIT AND INDIVIDUAL SUIT
Derivative Suit- the wrong sought to be redressed is committed against the
corporation itself.
Representative Suit- the cause of action is a wrong committed against the
stockholders themselves, such as where a group of stockholders is denied the right
to receive dividends or to vote in certain stockholders meetings
Individual or Personal Suit- the wrong affects only particular stockholder, such
as when he is denied the right to inspect corporate books and he institutes the suit
in his own name to enforce such right
RIGHTS OF UNPAID SHARES
Holders of shares not fully paid which are not delinquent shall have all the rights of
a stockholder except the right to a stock certificate.
LOST OR DESTROYED CERTIFICATES
Anew certificate may be issued in lieu of a lost or destroyed certificate.
BRIEF PROCEDURE FOR THE ISSUANCE OF A NEW STOCK CERTIFICATE
1. Execution of affidavit of loss by the stockholder
2. Publication of the loss for 3 consecutive weeks by the corporation at the expense
of the stockholder.
3. One year from last publication, a new certificate will be issued if no contest is
presented.

A new certificate may be issued before the lapse of the 1 year period
provided the stockholder files a bond or other security.

CORPORATE BOOKS AND RECORDS


BOOKS AND RECORDS REQUIRED TO BE KEPT
1. Records of all business transactions
2. Minutes of meetings of directors or trustees
3. Minutes of meetings of stockholders or members which shall set forth in detail
the following:
a. Time and place of holding the meeting
b. How authorized
c. The notice given
d. whether the meeting was regular or special and if special, its object or
purpose
e. Those present and absent
f. Every act done or ordered at the meeting
4. Stock and transfer book showing the following:
a. Names of stockholders alphabetically arranged
b. Instalments paid and unpaid on all stock for which subscription has been
made and date of payment of any instalment
c. A statement of every alienation, sale or transfer of stock made and the
date thereof, and by whom and to whom made
d. Such other entries as the by-laws may prescribe
PLACE WHERE BOOKS AND RECORDS MUST BE KEPT
1. Records of business transactions and minutes of meetings At the principal office
of the corporation
2. Stock and transfer books At the principal office of the corporation or in the stock
and transfer agent.
RIGHTS TO RECORDS, MINUTES OF MEETING AND STOCK AND TRANSFER
BOOK, OF DIRECTORS OR TRUSTEES OR OF STOCKHOLDERS OR MEMBERS
1. Right to inspect the business records, minutes and stock and transfer book
2. Right to demand the following:

a. The noting in the minutes when a director, trustee, stockholder or member


entered or left the meeting
b. The careful recording in the minutes of the yeas and nays taken on any
motion or proposition.
c. The recording of the protest of any director, trustee, stockholder or
member on any action or proposed action.
d. A copy of excerpts from the records and minutes, on his written demand,
at his expense.
TIME OF INSPECTION OF CORPORATE RECORDS
At reasonable hours on business days.
LIABILITY OF OFFICER OR AGENT WHO SHALL REFUSE TO ALLOW ANY
DIRECTOR, TRUSTEE, STOCKHOLDER OR MEMBER TO EXAMINE AND COPY
EXCERPTS
1. He shall be liable to such director, trustee, stockholder or member for
damages.
2. He shall be guilty of an offense punishable by a fine of not less than P1,
000.00 but not more than P10, 000.00 or by imprisonment for not less than 30 days
but not more than 5 years, or both, in the discretion of the court.
Exception:
If such refusal is pursuant t a resolution or order of the board of directors or
trustees, the liability shall be imposed upon the directors or trustees who voted for
such refusal.
GROUNDS TO DISALLOW INSPECTION AND COPYING OS EXCERPTS
1. If the person making the demand has improperly used any information secured
through any prior examination of the records of such corporation or of any other
corporation.
2. If such person was not acting in good faith or for a legitimate purpose in making
his demand
DUTY OF THE BOARD OF DIRECTORS OR TRUSTEES TO PRESENT FINANCIAL
REPORT
At a regular meeting of stockholders or members, the board of directors or
trustees shall present to such stockholders or members a financial report of the
operations of the corporation for the preceding year, which shall include financial
statements, duly signed by an independent CPA. However. If the paid-up capital of
the corporation is less than P50, 000.00, the financial statements may be certified
under oath by the treasurer or any responsible officer of the corporation.