Chapter XIV – Amendments to Charter — authorizes preferences superior to those of

outstanding shares or
Amendment by Legislature — extends or shortens corporate term
(4) Extension of corporate term cannot exceed 50 years in
— Charter of a private corporation: any one instance
o AOI (5) Certified copy of amended articles be filed with the SEC
o Corpo Code (6) Original and amended AOI should contain all matters
o Special laws (ex General Banking Act, Insurance Code, etc) required by law
— Corporate charter is a contract between SHs and also between the State (7) Amendment to increase/decrease capital stock or
and the corporation extend/shorten corporate term cannot be made under
— The legislature has the power to make changes in existing corporations Sec 16, but under Sec 38 and 37—requires a meeting
through an amendment to the Corpo Code (8) Amendment must be in the prescribed form
o Subject to the limitation that no accrued rights or liabilities be
— Sec 16 in relation to Sec 42 implies power to add a purpose
impaired (AMS: and non-impairment of contracts in Consti)
entirely different from the original one
o Amendment to AOI + approval of SHs required
Sec 145

Amendment by Stockholders 2. Grounds for rejection of amendment

— Power expressly granted by law to all corporations Sec 17

— Grant of power to 2/3 of capital stock to change the basic agreement
between the corporation and its SHs 3. Amendment changing SHs rights
o Including those who vote against it subject to right of appraisal
Sec 81
where proper
o Subscribers are deemed to have accepted this power to amend as
— Power of self-amendment is quite extensive and has been held to
part of their contract
include the power of changing, restricting, or abrogating preemptive
rights as well as voting rights
Sec 36
o must be exercised in GF and not merely to defraud or prejudice
the minority
Sec 16
o must be for a legitimate purpose
— Sec 16 clearly implies that SH meeting is not necessary to effect an o burden of proving BF on the dissenting SH
amendment of AOI; mere referendum sufficient — No vested rights of SHs are impaired by the power of self-
— In all other corporate matters where ultimate decision rests with the amendment: one who becomes a SH is presumed to have accepted
SHs, a meeting is required his contract with the corporation subject to the power of self-
— 2/3 vote is on outstanding capital stock which INCLUDES non-voting amendment
stock — Remedy: exercise appraisal right

1. Limitations on power Marcus v. RH Macy & Co Inc. F: Marcus is registered owner of 50

(1) Must be for a legitimate purpose
(2) Must be with vote or written assent of 2/3 of capital stock or
members. No meeting is required
(3) Appraisal right must be recognized if amendment
— changes rights of SHs or class of shares or
shares of common stock of RH Macy.
--Resp had auth capitalization of 500K shares of cumulative PS ($100 pv)
and 2.5M CS no par. Issued: 165K PS and 1.656M CS
--PS had no voting rights except for specified contingencies.
--A proposal was approved during the SHs meeting that the articles be
amended as to add voting rights—equal share for share—as enjoyed by
holders of the common stock, to the rights of preferred SHs.

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--Marcus objected to the proposed amendment and notified the corporation.
She also demanded payment for the common stock then owned by her.
During the said meeting, her common stock was voted against such
amendment.
--She then sues to determine the value of her stock as a basis of the
enforcement of payment therefor. Her application for the appointment of
appraisers having denied, and affirmed by the Appellate court.
I: WON Marcus can invoke her appraisal right and to enforce payment of the
value of her stock.
H: YES.
--The amendment granted to the PS additional rights which increased their
voting privileges from a right to vote only in specified contingencies to
voting rights equal share for share to those which CS are entitled. The result
was that the aggregate number of shares having voting rights equal to those
of the CS was substantially increased and thereby the voting power of each
common share outstanding was altered or limited by the resulting prorata
diminution of its potential worth as a factor in the management of the
corporation.
--Such alteration or limitation in the voting power of the CS held by Marcus,
considering that she objected to the amendment, notified the company, and
the corporation caused her shares to be voted against the proposal to
amend, was sufficient to qualify her to invoke the statutory procedure which
is the basis for her present action.
-- By thus limiting the voting power of Marcus’ common shares to a
proportionate extent, the corporate action to which she objected was of such
a character as to afford her a legal basis to invoke the procedure as a means
to accomplish the appraisal of her stock and payment therefor.
--Even if she owns only 50 shares, which the corporation argues as de
minimis compared to the entire universe of shares of the corporation, and
even if it is claimed that she is not in GF, as argued that if she did have a
bona fide desire to sell her CS she could have done so during the said
meeting for 3X the amount of her investment, the court ruled that since the
law does not mention a minimum percentage or value of stock which must
be owned by a non-consenting SH to qualify him to invoke the statutory
procedure, it should be applied as is.
4. Effectivity of amendment
— GR: Amendment takes effect only upon approval by the SEC
o Made within 6 months from filing of amendment
o Exception: beyond 6 months, it takes effect even without approval,
on the date of filing
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 Exception to exception: delay is due to some cause
attributable to the corporation
5. Special amendments (four kinds)
— Meeting is required in all these cases
— SEC approval is required
— Grounds for rejection applicable
(1) Increase of capital stock
— Corporation may be organized with an authorized capital stock in
excess of what may be intended to cover shares presently issued
(Sec 97[2])
o Board may dispose of unissued shares to obtain more capital
o But amendment needed if authorized capital stock is fully
subscribed and corporation needs to issue shares for more capital
o Overissuance or issuance of shares beyond authorized limit is
void
— Power to increase capital stock must be substantially in accordance
with the grant of power in the Code
Sec 38
— Increase/decrease cannot retroact to the date of SH approval but
takes effect only upon issuance of certificate
o Subscription to the increase does not vest subscriber with right to
vote
— Certificate of increase or decrease + Treasurer’s affidavit must be
attached to original AOI; no need to file copy of amended AOI
o At least 25% of increased capital stock subscribed
o At least 25% of subscription to increased capital stock paid in
— SH meeting required: 2/3 OCS
o Includes transfer of profits to capital stock for distribution as
stock dividends
 Consideration in this case must be in cash or property
 No increase allowed on the basis of mere revaluation of
corporate assets
— Three ways to effect the increase in capital stock:
o Increase in par value of each share, but no increase in number of
shares
o Increase in number of shares, but no increase in par value
o Increase in both par value and number of each share
— GR: No appraisal right in any of the three
 o Except: where preferences were subsequently created superior to
the existing shares, SHs have appraisal right
 Covers special amendments under Sec 38, and general
amendment to create new classes of shares in Sec 16
 Requirements in both must be met
 SH meeting indispensable
— Existing SHs have pre-emptive right to the new shares issued
(2) Reduction of capital stock
— No reduction will be approved by the SEC if it will prejudice the rights of
corporate creditors
— Can an over-reduction of capital, resulting in a capital surplus, be
declared and distributed as dividends?
o No. a distribution of corporate assets other than actual profits, is
prohibited until after dissolution of the corporation.
o Exception: decrease of capital stock
— Reasons for decreasing capital stock:
o Prevent or arrest a capital deficit
o Creation of a capital surplus, against which declines in the value of
fixed assets may be charged
o Retire of eliminate treasury shares instead of reissuing them
o When the corporation does not need any more additional capital
— Appraisal right is available if the reduction has the effect of altering the
rights of any SH/SHs
Philippine Trust Co. v. Rivera. F: PhilTrust is the assignee in the
insolvency case of La Cooperativa Naval Filipina. It sues Marciano Rivera,
an incorporator who subscribed for 450 shares of the insolvent, to recover
the balance of P22,500, alleged to have been due on his subscription to the
stock of the insolvent. (Orig capitalization of Naval = P100,000, at P100 par
or 1,000 shares.
Rivera subscribed to 450 shares ((P45K)
--Rivera claims that during a SHs mtg, it was agreed that the capital of the
company be reduced by 50% and the subscribers released from the
obligation to pay any unpaid balance of their subscription in excess of 50%
of the total subscribed shares.
--There was no compliance with the formalities of the statute relative to the
reduction of capital stock. TC ruled that the resolution was without effect and
that Rivera was still liable for his unpaid subscription.
H: Resolution invalid. subscriptions to the capital of a corporation constitute
a fund to which creditors have a right to look for satisfaction of their claims
and that the assignee in insolvency can maintain an action upon any unpaid
stock subscription in order to realize assets for the payment of debts.
3
A corporation has no power to release an original subscriber to its capital
stock from the obligation of paying for his unpaid shares without a
valuable consideration for such a release. Strict compliance with the
requirements of law is necessary.
The resolution releasing the SHs from their obligation to pay 50% of their
respective subscriptions was an attempted withdrawal of so much capital
from the fund which the company’s creditors are entitled to rely and,
having been effected without statutory compliance, was wholly
ineffective.
CAMPOS: As a practical matter, even if requirements to reduce
capitalization are complied with, if creditors would be prejudiced by the
reduction, it is most unlikely that the SEC will approve it.
— Resolution releasing the SHs from their obligation to pay the 50% of
their subscriptions was an attempted withdrawal of so much capital
from the fund upon which the company’s creditors were entitled
ultimately to rely on and having been effected without compliance
with the statutory requirements, was wholly ineffectual.
— The subscription to the capital of a corporation constitute a fund to
which creditors have a right to look for satisfaction of their claims and
that the assignee in insolvency can maintain an action upon any
unpaid stock subscription in order to realize assets for the payments
of its debts
— Subscriptions payable can be cancelled if there is a reduction in
capital stock:
o Which is possible if done with the consent of the creditors, or…
o If they will not prejudiced by such move, in which case their
consent is not necessary
(3) Change in corporate term
— Shortening of term:
o When corporation desires to dissolve itself before expiration of
term
o as soon as shortened term expires, corporation is ipso facto
dissolved
— Extension of term:
o When business is prosperous
— Procedural requirements: Sec 37
— Conditions required: Sec 11
Sec 37
Sec 11
— Any change in corporate term must be approved at SH meeting
— Dissenting SH has appraisal right
— Sec 37: appraisal right in extension of term
— Sec 81: appraisal right both in extension and shortening
— When does change take effect?
o Must be governed by general provisions on amendment in Sec 16
 Certified copy of amended AOI filed with SEC, etc…
 Takes effect upon SEC approval
 Does not act within 6 mos: approved as of date of filing
o Amendment to extend must be approved and filed prior to expiration
of original term
 But cannot be made earlier than 5 mos prior to expiration

6. Amendments in close corporations

— Secs 16, 17, 37, 38 also apply to close corporations

—Appraisal
Sec 103:Right (81)
applies only to close corporations
— Nature of right
o Refers to a SH’s right to demand payment of the fair value of
Sec 103
his shares, after dissenting from a proposed corporate action
involving
— Provisions a fundamental
required to be in the change
AOI ofina the corporate
close corp: setting Look at Sec 6 vis-à-vis Sec 81
Granted
oo All issuedwhere
stock ofthere is a radical
all classes heldchange in thethan
by not more contractual
20 persons If the change is under 81, it becomes mandatory
o Allrelationship
issued stockpresumably
subject toagreed
one or upon
morebet the SH
specific and corp on
restrictions for the corporation to grant/recognize SHs
— Entitled to exercise appraisal right
transfer — Existence of unrestricted retained earnings
A prejudicedshall
SH is one Appraisal right: “my investment covered by a
oo Corporation not bewho dissented
listed in stock in the meeting
exchange where
or make the
any public o 81: no payment contract,
shall be thus
made tochange
a dissenting SH unless
proposal or proposed amendment was approved; mere any would affect SHs rights,
offering
— If anyabsentation
of the above or are
silence, doesitnot
deleted, willentitle
cease such
to be SH to exercise
a close corp andthewill corp has unrestricted retained earnings; if not paid, 83 would
giving rise to appraisal rights or pre-emptive
right privileges in Title XII then apply rights
lose special
37, 42, 81:stocks
instances If amendment
ceases: impairs SHs rights, 81 grants a
—— Non-voting are when
given aprraisal
a voice inright may be exercised:
the decision — when right to payment
o any amendment to the AOI that changes/restricts rights of SHs o GR: dissenting SH remedy
cannot withdraw demand for payment
— 2/3 OCS vote is required
o any authorization of preferences 81 also includes corporate acts not covering
— deadlocks, such that business can no superior
longer betoconducted
outstanding shares
to the Exceptions:
of any class amendments to charter
advantage of SHs generally: SEC may arbitrate the dispute and order  Corporation
o extending/shortening if SHconsented
dissents, 81toprovides
withdrawalan exit
cancellation or alteration ofofAOIcorporate term
or by-laws if necessary  Proposedbut corporate action isare
abandoned
o sale, lease, exchange, transfer, mortgage, pledge, disposition note which rights affected or rescinded
of all or substantially all corporate assets
 Proposeddoescorporate
the changeaction is disapproved
affect SH rights? by SEC
o investment of funds in another corp or business outside its  SEC rulesappraisal
that SHrights
is notin:entitled to the right
primary purpose — Who bears cost?changing primary purpose? Yes
Corporation
o merger or consolidation — Denial/waiver ofdecreasing
right no. of directors ? yes. Affects
cumulative voting;
o GR: corporation cannot deny/deprive appraisal right of SH in
— how exercised
changing classification of shares? Yes. Economic
o written demand within 30 days after date of vote AOI or by-laws
rights
o failure to make demand is deemed waiver o Exception: SH can waive,
increasing no ofbut individually
directors? and inand
Yes. Control some cases
o surrender stock certificate for notation as dissenting stock; for consideration
management
otherwise, corporation may terminate appraisal right — Exercise of appraisal right has the
increase/decrease in direct
capitaleffect
stock?of diverting
Yes!
— Effect of demand resources from corporate coffers and may have serious financial
o All rights of dissenting SH suspended
implications
o 83: If not paid fair value within 30 days after award, voting and
dividend rights must be immediately restored
4 — An alternative remedy would be to dispose of SHs shares
— But appraisal right is preferred over suits to enjoin corporate
acts