Anda di halaman 1dari 15

PRELIMS

1. total subscription At least twenty-five percent (25%) of the authorized capital stock as stated in
the articles of incorporation must be subscribed at the time of incorporation, and at least
twenty-five (25%) per cent of the total subscription must be paid upon subscription, the
balance to be payable on a date or dates fixed in the contract of subscription without need of
call, or in the absence of a fixed date or dates, upon call for payment by the board of directors. In
no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos

2. award of moral damages Moral damages are granted in recompense for physical suffering,
mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and social injury. A corporation, being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it
cannot experience physical suffering and mental anguish. Mental suffering can be experienced
only by one having a nervous system and it flows from real ills, sorrows and grieves of life – all
of which cannot be suffered by respondent bank as an artificial person. However, under the
BEDROCK RULE, a corporation is entitled to moral damages for cases of libel, slander and other
forms of defamation.
3. de facto – liabilities etc same with de jure/The liabilities of a de facto corporation is the same as
that a de jure one. The distinction is only necessary to determine whether the corporation can
be attacked directly in a quo warranto proceeding by the state.
4. 7 man governing board – 3 absent – quorum requirementsSection 25.
5. sec 16 amendment of corporate namexxxA majority vote of the board of directors or trustees
and the vote or written assent of the stockholders representing at least 2/3 of the outstanding
capital stock, in case of a stock corporation or a vote or written assent of at least 2/3 of the
members if it be a non-stock corporation.xxx
6. requisites of stock corpo (Section 3) Stock Corporations must have capital stock divided into
shares and have the authority to distribute to the holders of such shares dividends or
allotments of the surplus profits on the basis of the shares held.
7. doctrine of secondary meaninga word or phrase originally incapable of exclusive
appropriation with reference to an article in the market, because geographical or
otherwise descriptive might nevertheless have been used so long and so exclusively by
one producer with reference to this article that, in that trade and to that group of the
purchasing public, the word or phrase has come to mean that the article was his produce
8. removal – notice requirement – sec 29 can there be filling up of vacancy at the same timeyes, if
the VACANCY is resulting from other than (1) by expiration of term; or (2) by removal, the
BOARD OF DIRECTORS, if still constituting a quorum, may fill the vacancy.
9. removal without noticeNot valid.
REQUIREMENTS FOR A VALID REMOVAL:
1. The removal should take place at a general or special meeting duly call for that purpose;
2. The removal must be by the vote of the stockholders holding or representing 2/3 of the
outstanding capital stock or the members entitled to vote in cases of non-stock corporations; and
3. There must be a previous notice to the stockholders or members of the intention to propose such
removal at the meeting either by publication or on written notice to the stockholders or members.
10. residency requirement only no citizenship reqTrue, there is no citizenship requirement. The
only requirement under the law is that majority of the BoD must be residents of the Philippines,
except those industries which are reserved solely for Filipino citizens, i.e. retail trade law and
educational institutions.
11. executive committee is created only by the by-lawTrue, the by-laws of a corporation may create
an executive committee, composed of not less than three members of the board, to be appointed
by the board. Said committee may act, by majority vote of all its members, on such specific
matters within the competence of the board, as may be delegated to it in the by-laws or on a
majority vote of the board, except with respect to: (1) approval of any action for which
shareholders' approval is also required; (2) the filing of vacancies in the board; (3) the
amendment or repeal of by-laws or the adoption of new by-laws; (4) the amendment or repeal
of any resolution of the board which by its express terms is not so amendable or repealable; and
(5) a distribution of cash dividends to the shareholders (Sec. 35, Corpo Code of the Phil)e.g
audit committee, risk management, corporate governance.
12. self dealing directoris one who deals or transacts business with his own corporation. Contract is
voidable at the option of such corporation unless all the following conditions are present:
a. presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
b. vote of such director or trustee was not necessary for the approval of the contract;
c. contract is fair and reasonable under the circumstances; and
d. in case of an officer, the contract has been previously authorized by the board of
directors.

13. interlocking directora director in one corporation who deals or transacts with another
corporation of which he is also a director. Contracts entered into where there is an interlocking
director is not voidable merely by reason of conflicting duties or interest as to corporations
represented, even when a majority or all of the directors are common to both corporations. It is
recognized that such will be upheld if there is no bad faith or unfairness or collusion.
14. sec 32 valid actsGR Contracts entered into by a director with his own corporation is voidable at
the latter’s option, except when all the conditions laid down in Sec. 32 are met (see abcd of
#12). However, where any of the first two conditions is absent, the contract becomes voidable
subject to the ratification of the stockholders representing 2/3 of the outstanding capital stock –
the requirements of which are: (1) there must be a meeting called for that purpose; (2) full
disclosure of the adverse interest of the director; and (3) the contract is fair and reasonable
under the circumstances.
15. tell whether voidable or valid: 20-20valid (both nominal), 20-13valid (both nominal), 25—
22valid(both substantial), 20- 25, voidable (one nominal the other substantial, Sec 32 shall
govern)18-22voidable (one nominal the other substantial, Sec 32 shall govern)
16. leevs, Ca - in his own rightUnder the old and new Corporation Code, the most immediate effect
of a VTA on the status of a stockholder who is a party to its execution is that he becomes only an
equitable or beneficial owner, from being the legal titleholder or owner of the shares subject of
the VTA.
Under the old code, the eligibility of a director, strictly speaking, cannot be adversely
affected by a VTA inasmuch as he remains the owner (although beneficial or equitable only) of the
shares subject of the VTA pursuant to which a transfer of the stockholder’s shares in favor of the
trustee is required. No disqualification arises by virtue of the phrase “in his own right” provided
under the Old Code, which has been omitted.

17. “standing in his own name” the stock holder may still validly cast his vote as long as he
possesses the legal title to his shares because what is material is the legal title to, not beneficial
ownership, of the stock as appearing on the books of the corporation.
18. doctrine of limited capacityA corporation can only exercise corporate powers that are conferred
to it by the code or AoI, except those that are necessary or incidental to the exercise of the
powers so conferred.
19. define cumulative votingCVgives the stockholder, who is entitled to vote, the right to give a
candidate as many votes as the number of directors to be elected multiplied by the number of
his shares shall equal or he may distribute them among the candidates as he may see fit. So if
there are 10 directors to be elected, a holder of 1,000 shares will have 10,000 votes, which he
may cast in favor of one candidate or may apportion to any number of candidates he may wish.
20. is cumulative voting generally allowedIn stock corporations, this is granted by law to each
stockholder with voting rights. However, in non-stock corporations, cumulative voting is
generally not allowed, UNLESS allowed by the AOI or by-laws.
21. y is it said that a non-director (a sh who is not a dir) cannot be a member of execomBecause the
law requires that the by-laws of a corporation may create an execom composed of not less than
3 members of the board to be appointed by the board, otherwise it would be an invalid
delegation of power and would be tantamount to abdication of powers Because the BOD cannot
act by proxy.
22. amendmend of Aoi sec 16Steps to be followed for an effective amendment of the articles of
incorporation
a. Resolution by at least a majority of the board of directors or trustees;
b. Vote OR WRITTEN ASSENT of the stockholders representing at least 2/3 of the
outstanding capital stocks or members in case of a non-stock corporation. (Note: non-
voting shares are considered in determining the voting and quorum requirement in case of
amendments of the articles of incorporation as provided in Sec. 6);
c. Submission and filing of the amendments with the SEC as follows:
i. The original and amended articles indicating and underscoring the change or
changes made;
ii. copy thereof, duly certified under oath by the corporate secretary and a majority
of the directors or trustees stating the fact that such amendments have been
approved by the required vote of the stockholders or members;
iii. Favorable recommendation of the appropriate government agency concerned in
the case where the corporation is under its supervision.

23. common shares – denial to right to vote –common share usually carries with it the right to vote,
and frequently, the exclusive right to do so. However, common shares may effectively be denied
the right to vote if there are founder’s shares.
24. board defenses
25. limited shareholders liabilityAn individual sh may contribute as much or as little without
risking more and in the absence of the statute to the contrary, this is the limit of his liability
since sh are not personally liable for debts of the corporation
26. corporate opportunity doctrineCorporate officers are also not permitted to use their position of
trust and confidence to further their private needs, and the act done in furtherance of private
needs is deemed to be for the benefit of the corporation. This is called the doctrine of corporate
opportunity.
27. business judgment ruleQuestions of policy and management are left solely to the honest
decision of the board of directors and the courts are without authority to substitute its
judgment as against the former. The directors are business managers and as long as they act in
good faith, its actuations are not subject to judicial review.
28. ordinary and special amendment – ordinary amendment: Steps to be followed for an effective
amendment of the articles of incorporation
a. Resolution by at least a majority of the board of directors or trustees;
b. Vote OR WRITTEN ASSENT of the stockholders representing at least 2/3 of the
outstanding capital stocks or members in case of a non-stock corporation. (Note: non-
voting shares are considered in determining the voting and quorum requirement in case of
amendments of the articles of incorporation as provided in Sec. 6);
c. Submission and filing of the amendments with the SEC as follows:
iv. The original and amended articles indicating and underscoring the change or
changes made;
v. copy thereof, duly certified under oath by the corporate secretary and a majority
of the directors or trustees stating the fact that such amendments have been
approved by the required vote of the stockholders or members;
vi. Favorable recommendation of the appropriate government agency concerned in
the case where the corporation is under its supervision.
Special Amendments are provided under Secs. 37 and 38.For purposes of amending the corporate
term, the following procedure is to be observed (Sec. 37):
a. Approval by a majority vote of the board of directors or trustees;
b. Written notice of the proposed action and the time and place of meeting shall be served to
each stockholder or member either by mail or by personal service;
c. Ratification by the stockholders or members representing at least 2/3;
d. In case of extension of corporate term, it should be for periods not exceeding 50 years in
any single instance, and provided that no extension can be made earlier than 5 years prior
to the original or subsequent expiry date(s) unless there are justifiable reasons for an
earlier extension as may be determined by the SEC.
e. In cases of extension of corporate term, a dissenting stockholder may exercise appraisal
rightsunder the conditions prescribes by Sec. 81 and 82 of the Code.

METHODS OF INCREASING CAPITAL STOCK (Sec. 38):


a. Increase the par value of the existing number of shares without increasing the number of
shares;
b. Increase the number of existing shares without increasing the par value thereof;
c. Increasing the number of shares and at the same time increasing the par value of the shares

29. fait accompliPROVISIONS NOT SUBJECT TO AMENDMENT:


a. Names of the incorporations and the incorporating directors or trustees;
b. Name of the treasurer originally or first elected by the subscribers or members to act as
such;
c. Number of shares and the amount originally subscribed and paid out of the original
authorized capital stock of the corporation; and
d. Date and place of execution of the articles of incorporation and the signatories and
acknowledgment thereof.

30. sec 30GENERALLY: Directors are not entitled to receive any compensation, EXCEPT:
a. Reasonable per diems;
b. As provided in the by-laws or upon a majority vote of the stockholders; and
c. If they are performing functions other than that of a director.

31. sec 43The board of directors of a stock corporation may declare dividends out of the
unrestricted retained earnings which shall be payable in cash, in property, or in stock to all
stockholders on the basis of outstanding stock held by them Provided, That any cash dividends
due on delinquent stock shall first be applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be withheld from the delinquent stockholder
until his unpaid subscription is fully paid: Provided, further, That no stock dividend shall be
issued without the approval of stockholders representing not less than two-thirds (2/3) of the
outstanding capital stock at a regular or special meeting duly called for the purpose. Stock
corporations are prohibited from retaining surplus profits in excess of one hundred (100%)
percent of their paid-in capital stock, except: (1) when justified by definite corporate expansion
projects or programs approved by the board of directors; or (2) when the corporation is
prohibited under any loan agreement with any financial institution or creditor, whether local or
foreign, from declaring dividends without its/his consent, and such consent has not yet been
secured; or (3) when it can be clearly shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there is need for special reserve for
probable contingencies.
32. sec 29If the VACANCY is resulting from other than (1) by expiration of term; or (2) by removal,
the BOARD OF DIRECTORS, if still constituting a quorum, may fill the vacancy.otherwise, said
vacancies must be filled by the stockholders in a regular or special meeting called for that
purpose. A director or trustee so elected to fill a vacancy shall be elected only or the unexpired
term of his predecessor in office. Directorship or trusteeship to be filled by reason of an
increase in the number of directors or trustees shall be filled only by an election at a regular or
at a special meeting of stockholders or members duly called for the purpose, or in the same
meeting authorizing the increase of directors or trustees if so stated in the notice of the
meeting.
33. investment – ordinary course of businessWhere the investment by the corporation is
reasonably necessary to accomplish its primary purpose as stated in the articles of
incorporation, the approval of the SH or member shall not be necessary.
34. piercingAcorporation is an entity separate and distinct from its stockholders or member and
from other corporations to which it may be connected. But when the notion of legal entity is
used to defeat public convenience, Justify wrong, Protect fraud, Defend crime, the law will
regard the corporation as a mere association of persons, or in the case of two corporations,
merge them into one, the one being merely regarded as part or instrumentality of the other.
35. all or substantially allIf the self-dealing director owns all or substantially all of the shares of
stock, thereby making ratification easily possible, the last sentence of Sec. 32 should be made to
apply by determining reasonableness of the transaction to which there is no yardstick.
36. sec 6 last par and sefc 7 ‘exclusive”The former provides that preferred stocks are generally not
allowed to vote except on the following matters:
a. amendment of the AoI
b. adoption and amendment of the by-laws
c. sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property
d. incurring, creating or increasing bonded indebtedness
e. incease or decrease of capital stock
f. merger or consolidation of the corporation with another corporation or other corporations
g. investment of corporate funds in accordance with this code
h. dissolution of the corporation.

Whereas the latter provides that founder’s shares may be given certain rights and privileges
not enjoyed by the owners of other stocks, like the exclusive right to vote and be voted in the election
of directors.
37. minors not qualifiedMinors cannot be incorporators. They may, however, become stockholders
provided they are legally represented by parents, guardians or administrators.
38. minors qualifiedsee immediately-above answer
39. de jure cannot be considered existing ifA de facto corporation is one that is so defectively
created as not to be a de jure corporation but nevertheless exists, for all practical purposes, as a
corporate body, by virtue of its bona fide attempt to incorporate under existing statutory
authority, coupled with the exercise of corporate powers.
40. non-voting shares are not included in votinfanf quorumfalse, the penultimate paragraph of Sec.
6.
41. exrentiion of term 0 just causeExtension must be taken, during the life of the corporation and
before the expiration of the term of existence as originally fixed by its charter or the general
law, since, as a rule, the corporation is ipso facto dissolved as soon as the time
expires.(Alhambra Cigar v SEC) No extension can be made earlier than 5 years prior to the
original or subsequent expiry date(s) unless there are justifiable reasons for an earlier
extension as may be determined by the SEC.(Sec. 11)
42. transferability of sharesshares of stock "are personal property and may be transferred by delivery
of the certificate indorsed by the owner. Thus the holder of shares, as owner of personal
property, is at liberty, under said section, to dispose of them in favor of whomsoever he
pleases, without any other limitation in this respect, than the general provisions of law.
43. cumulative voting in stock and non stock
44. doctrine of limited capacityA corporation can only exercise corporate powers that are conferred
to it by the code or AoI, except those that are necessary or incidental to the exercise of the
powers so conferred.
45. creationnlrc or cscWhile officer and employees of GOCCs created by special laws are governed
by the law of their creation, usually the CS Law, their subsidiaries, organized under the
provisions of the Corporation Code are governed by the Labor Code. The test in determining
whether they are governed by the CS Law is the manner of their creation.
46. corporate entity theoryAs a legal entity, the corporation is possessed with a juridical
personality separate and distinct from the individual stockholders or members and is not
affected by the personal rights, obligations or transactions of the latter. The properties it
possesses belongs to it exclusively as a separate juridical entity such that the personal creditors
of its stockholders or members cannot attach corporate properties to satisfy their claims.
47. cumulative voting may be denied rule and exception
48. term vs. tenure “term” is the time during which the officer may claim to hold the office as a
matter of right while tenure” represents the term during which the incumbent actually
holds office.
49. lee case in his own rigt and standing in his name
50. 25% total subscriptionThe law is not particular that each and every SH must pay 25% of his
subscription. It requires only that the least 25% of the total subscription must be paid
regardless of the amount of payment by the individual subscribers.
51. execom
52. if created by special law Corporations created by special laws or charters shall be governed
primarily by the provisions of the special law or charter creating them or applicable to them,
supplemented by the provisions of the Corp Code, insofar as they are applicable.
53. corporation sole existenceis upon filing of the verified AOI with the SEC and the documents
required under Sec. 112. This serves as an exception to the rule that a corporation acquires
juridical personality only upon the issuance of a certificate of incorporation by the said
government agency.
54. vacancy
55. incorporation testis applied in determining whether a corporation is domestic or foreign. If it is
incorporated in another state, it is a foreign corporation, while if it is registered under
Philippine laws, it is deemed a Filipino or domestic corporation irrespective of the nationality of
its stockholders
56. tramat case liability of dirPersonal liability of a corporate director, trustee or officer along
(although not necessarily) with the corporation may so validly attach, as a rule, only
when:
a. He assents (a) to a patently unlawful act of the corporation, or
(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest,
resulting in damages to the corporation, its stockholders or other persons;
b. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
c. He agrees to hold himself personally and solidarily liable with the corporation;
d. He is made, by a specific provision of law, to personally answer for his corporate action.

57. shareholders limited liabilitysee #25


58. doctrine of secondary meaningsee #7
59. importance of principal office(see kyla’s)
60. contract of self dealing directorssee #12
61. contract of interlocking directorssee #13
62. forbidden profit ruleForbidden in the sense that directors and officers are fiduciary representatives of the corporation
and as such they are not allowed to obtain any personal profit, commission, bonus or gain for their official actions. This
may also refer to those arising from transactions of directors with third persons which may involve misappropriation of
corporate opportunities and disloyal diverting of business. Directors and officers are corporate insiders and cannot,
therefore, utilize their strategic position for their own preferment or use their powers and opportunities for their personal
advantage to the exclusion of the interest which they represent.
63. corporate opportunity doctrinesee #26
64. transferabiltity of sharessee #42 and kyla’s
65. personal and seconsarily liable – director
66. corporate entity theorysee #46
67. when may be disregardedsee #34
68. corporation sole formationsee #53
69. sec 16see #28
70. nonstick – incidental so not prohibited to make profits
The fact that the Club derived profits from the operation of its bar and restaurant does not necessarily convert it into a profit
making enterprise. The bar and restaurant are necessary adjunct of the Club to foster its purpose and the profits derived therefrom
are necessarily incidental to the primary object of developing and cultivating sports for the healthful recreation and entertainment
of the stockholders and members. That a club makes profit does not make it a profit-making club.

For a stock corporation to exists, two requisites must be complied with: (1) a capital stock divided into shares; and
(2) an authority to distribute to the holders of such shares, dividends or allotments of surplus profits on the basis
of the shares held.

71. As long as the 3 members are present and 2 gives their affirmation, they can pass a vaolid
corporate acts except:
a. Election of officers, which shall require the majority of all the members of the board; and
b. Unless the AOI or the by-laws provide for a greater quorum/voting requirement.

72. PVPar Value Shares are those whose values are fixed in the AOI. Its par value is the minimum subscription or original
issue price of the shares and indicates the amount which the original subscribers are supposed to contribute to the capital.

Watered Stocks are those issued at less than par value where the stockholders will remain liable for the difference between what
he paid and the actual par value thereof.

No Par Value Shares are those whose issued price are not stated in the certificate of stock but may be fixed in the AOI, or by the
BOD when so authorized the articles or the by-laws, or in the absence thereof, the stockholders themselves.
73. instrumentality rule and 3 test for its applicabilitysee kyla’s
74. why should the corporation classify its sharessee kyla’s
75. why is it important to knoe the type or classification of certain corporation
76.

MIDTERMS
1. Conditions under which a contract of a self- dealing director or officer will be valid per se are
the following: see #12 and 34 above
2. The instances when the purchasing corporation of all or substantially all of the assets or
properties of another corporation may be held liable for the debts or obligations of the selling
corporations are the following:
a. He assents (a) to a patently unlawful act of the corporation, or
(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in
damages to the corporation, its stockholders or other persons;
b. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
c. He agrees to hold himself personally and solidarily liable with the corporation;
d. He is made, by a specific provision of law, to personally answer for his corporate action

3. The instances when a stockholder may not be able to exercise his pre-emptive right are the
following:see #34 below
4. 4 instances when corporate directors or officers may be held solidarily or primarily liable for
corporate actsPersonal liability of a corporate director, trustee or officer along (although not necessarily)
with the corporation may so validly attach, as a rule, only when —
1. He assents (a) to a patently unlawful act of the corporation, or
(b) for bad faith, or gross negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;

2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation;

4. He is made, by a specific provision of law, to personally answer for his corporate action.

5. The two (2) exceptions to corporation by estoppel are the following:

1. The defenses available to the directors are the following:


2. Doctrine of Secondary meaning means
3. Corporate opportunity doctrine means

4. The non-filing of by-laws will not result to the automatic dissolution of the corporation
because

6. The distinction between a de facto corporation and a de jure corporation is necessary- for the
purpose of determining the applicability of the rules on collateral and direct attack against the
corporate existence
7. The test in determining whether a corporation has the implied power to do a certain act vis-à-
vis the doctrine of limited liability is
Those that are necessary or incidental to the exercise of the powers so conferred by the
Corporation Code or by its articles of incorporation
8. The shareholder’s limited liability is an advantage because/ disadvantage because
It is an advantage because the stockholder cannot be held personally liable for the debts of the
corporation.

The shareholders’ limited liability tends to limit the credit available to the corporation as a
separate legal entity
5. Application of instrumentality rule
Where on corporation is so organized and controlled and its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the corporate entity of the “instrumentality” may be disregarded.

6. Stockholder’s approval is required to invest


Sec. 42. Power to invest corporate funds in another corporation or business or for any
other purpose. - Subject to the provisions of this Code, a private corporation may invest its funds in
any other corporation or business or for any purpose other than the primary purpose for which it was
organized when approved by a majority of the board of directors or trustees and ratified by the
stockholders representing at least 2/3 of the outstanding capital stock or by at least 2/3 of the
members in the case of non-stock corporations.

Where the investment by the corporation is reasonably necessary to accomplish its primary purpose,
the approval of the stockholders or members shall not be necessary

7. right to dividends – who has the better right to the right of dividends when the dividends are
transferred
The right of the stockholders to be paid dividends vests as soon as they have been lawfully and
finally declared by the BOD
Any dividend already declared when shares are transferred belongs to the owner of the shares
at the time of the declaration. A subsequent transfer of such stock would, as a rule, not carry
with it the right to the dividends which have been declared but not yet paid. In other
corporations, it is provided that the dividends shall be payable to the stockholders of record on
a specified future date

8. not subject to ratification – duty of loyalty – Sec 31 par 2


When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall
be liable as a trustee for the corporation and must account for the profits which otherwise
would have accrued to the corporation
9. when subject to ratification – corporate opportunity doctrine
CORPORATE OPPORTUNITY DOCTRINE: it places a director of a corporation in the position of
a fiduciary and prohibits him from seizing a business opportunity and/or developing it at the
expense and with the facilities of the corporation. He cannot appropriate to himself
opportunity which in fairness should belong to the corporation.

RATIFICATION:
1. The second paragraph of Sec. 31 which makes a director liable to account for profits if he
attempts to acquire or acquires any interest adverse to the corporation in respect to any
matter reposed in him in confidence as to which equity imposes a disability upon him to deal in
his own behalf is not subject to ratification.
2. Whereas, in Sec. 34, if a director acquires a business opportunity which should belong to the
corporation, he is bound to account for such profits unless his act is ratified by the
stockholders owing or representing at least 2/3 of the outstanding capital stock.

10.The valid reasons to decrease the capital stock are the following
REASONS FOR DECREASE:
1. To reduce or wipe out existing deficit where no creditors would thereby by affected;
2. When the capital is more than what is necessary to procreate the business or reduction of
capital surplus;
3. To write down the value of its fixed assets to reflect their present actual value in case where
there is a decline in the value of the fixed assets of the corporation.

11.the 3 modes of increasing capital assets


METHODS OF INCREASING CAPITAL STOCK:
1. Increase the par value of the existing number of shares without increasing the number of
shares;
2. Increase the number of existing shares without increasing the par value thereof;
3. Increasing the number of shares and at the same time increasing the par value of the shares

12. Application of individual suit -for direct injury to his rights, such as denial of his right to inspect
corporate books and records or pre-emptive rights;

13. Service of Summons discuss


*finals
14. 25% total subscription

15. declaration of stock dividends – capitalization of assets


Sec. 43 – no stock dividend shall be issued without the approval of stockholders representing
not less than 2/3 of the outstanding capital stock at a regular or special meeting duly called for
the purpose
Stock dividends do not have the effect of reducing corporate assets to the extent of dividends
declared; capitalization of unrestricted retained earnings; it will not increase proportionate
interest of the stockholders of the corporation although it will have the effect of increasing the
subscribed and paid-up capital
16. reasonable expenses – derivative suit

17. SEC 51 *Finals


18. ultravires act is not illegal per se
True. "Mere ultra viresacts", said this Court in Privano, "or those which are not illegal
and void ab initio, but are not merely within the scope of the articles of incorporation,
are merely voidable and may become binding and enforceable when ratified by the
stockholders.

19. effectivity of amendedment of by-laws


Shall only be effective upon the issuance by the SEC of a certificate that the same are not
inconsistent with the Corporation Code
20. SEC 4
21. SEC 41
Sec. 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 or purposes, including
but not limited to the following cases: Provided, That the corporation has unrestricted
retained earnings in its books to cover the shares to be purchased or acquired:

1. To eliminate fractional shares arising out of stock dividends;


2. To collect or compromise an indebtedness to the corporation, arising out of unpaid
subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale;
and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under
the provisions of this Code.xxx

The limitation that the corporation must at all times have “unrestricted retained earnings” is a
condition for the exercise of this power, EXCEPT:
1. Redemption of redeemable shares under Sec. 8;
2. Exercise of stockholders right to compel a close corporation to purchase his shares for
any reason under Sec. 105 when the corporation has sufficient assets in its book to cover its
debts and liabilities exclusive of capital stock;
3. In case of deadlocks under Sec. 104.

Once purchased, the shares are considered as treasury shares and while they remain so, they
have no voting rights and dividend rights. The corporation may (1) re-issue them even below
par; (2) issue them as stock dividends; (3) retire or cancel them and thereby remove from
issue effectively reducing the number of shares issued stated in the AOI.

22. Business Judgment rule


23. Alhambra cigar – extension of existence
ISSUE: WON the extension of corporate term should be allowed?

HELD: No. The privilege of extension is purely statutory. All the statutory conditions
precedent must be complied with in order that the extension may be effectuated.
And, generally, these conditions must be complied with, and the steps necessary to
effectuate an extension must be taken, during the life of the corporation, and before the
expiration of the term of existence as originally fixed by its charter or the general law,
since, as a rule, the corporation is ipso facto dissolved as soon as the time expires. So
where the extension is by amendment of the articles of incorporation, the amendment must
be adopted before that time.

24. Purpose of classification of shares (See Page 52 of Ladia’s book)


1. To specify and define rights and privileges of the SH
2. For regulation and control of issuance of sale of corporate securities of the corporation for
the protection of the purchasers and SH
3. As a management control device
4. Compliance with statutory requirements
5. Better insure ROI
6. Flexibility in price

25. Edward Neil vs. Pacific Farms, Inc.


Generally where on corporation sells or otherwise transfers all of its assets to another
corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1)
where the purchaser expressly or impliedly agrees to assumes such debts; (2) where the
transaction amounts to a consolidation or merger of the corporations; (3) where the
purchasing corporation is merely a continuation of the selling corporation; and (4) where the
transaction is entered into fraudulently in order to escape liability for such debts.

26. Sec 39
Sec. 39. Power to deny pre-emptive right. - All stockholders of a stock corporation shall enjoy
pre-emptive right to subscribe to all issues or disposition of shares of any class, in proportion
to their respective shareholdings

EXCEPTIONS (Under Sec. 39):


1. When shares to be issued is in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or
2. Shares to be issued in good faith with the approval of the stockholders representing 2/3
of the outstanding capital stock either:
a. In exchange for property needed for corporate purpose; or
b. In payment of a previously contracted debt.

The exceptions will not apply to stockholders of close corporation whose pre-emptive
right, is broader if not absolute. See Sec. 102.

The right may likewise be lost by waiver, express or implied or inability or failure to
exercise it having been notified of the proposed disposition of shares.

27. EB Villarosa vs. Benito


A strict compliance with the mode of service is necessary to confer jurisdiction of the
court over a corporation. The officer upon whom service is made must be one who is
named in the statute; otherwise the service is insufficient. . . .

28. Sec 40, 2nd Par


A sale or other disposition shall be deemed to cover substantially all the corporate
property and assets if thereby the corporation would be rendered incapable of
continuing the businessor accomplishing the purpose for which it was incorporated.

29. common shares may be denied only when


When they are denied by the founder’s shares
30. Sec 29
Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a
regular or special meeting called for that purpose. A director or trustee so elected to fill a
vacancy shall be elected only or the unexpired term of his predecessor in office. xxx

31. Sec. 110


Sec. 110. Corporation sole. A corporation sole may be formed by the chief archbishop, priest,
minister, rabbi, or other presiding elder of such religious denomination, sect or church for the
purpose of administering and managing, as trustee, the affairs, property and temporalities of
any religious denomination, sect or church.

32. Statement of the location of the principal office is necessary because

The principal office serves as the residence of the corporation, and is thus important in: (1)
venue of actions; (2) registration of chattel mortgage of shares; (3) validity of meetings of
stockholders or members in so far as venue thereof is concerned

33. transferability of shares


unless reasonably restricted, shares of stocks, being personal properties, can be transferred by
the owner without the consent of the other stockholders;

34. Instrumentality rule


“Where on corporation is so organized and controlled and its affairs are conducted so that it is,
in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity of the
“instrumentality” may be disregarded. The control necessary to invoke the rule is not majority
or even complete stock control but such domination of finances, policies, and practices that
the controlled corporation has, so to speak, no separate mind, will or existence of its own and is
a business conduit of its principal. It must be kept in mind that the control must be shown to
have been exercised at the time the acts complained of took place. Moreover, the control and
breach of duty must proximately cause the injury or unjust loss for which the complaint is
made”

35. 3 test in determining the doctrine of piercing the veil


The test in determining the applicability of piercing the veil of corporate fictions is as
follows:
1. Control, not mere majority or complete stock control, but complete domination, not
only in finances but of policy and business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will or
existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty or dishonest and unjust act
in contravention of plaintiff’s legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust
los complained of.

36. compensation wit vs, salas


ISSUE: WON the resolution granting compensation to OFFICERS of the corporation is valid?

HELD: Yes. The proscription under Sec. 30, is against granting compensation to
directors/trustees of a corporation is not a sweeping rule. Worthy of note is the clear
phraseology of Sec 30 which states “… [T]he directors shall not receive any compensation, as
such directors, …” The phrase as such directors is not without significance for it delimits
the scope of the prohibition to compensation given to them for services performed
purely in their capacity as directors or trustees. The unambiguous implication is that
members of the board may receive compensation, in addition to reasonable per diems, when
they render services to the corporation in a capacity other than as directors/trustees. In
the case at bench, the Resolution granted monthly compensation to private respondents not in
their capacity as members of the board, but rather as officers of the corporation, more
particularly as Chairman, Vice-Chairman, Treasurer and Secretary of WIT.

Clearly Sec. 30 is not violated. Consequently, the last sentence limiting the compensation to
10% of the net income before income tax does not likewise find application in this case since
the compensation is being given to private respondents in their capacity as officers of WIT and
not as board members.

37. when compensation will not apply sec 30


sec 30 GENERALLY: Directors are not entitled to receive any compensation, EXCEPT:
d. Reasonable per diems;
e. As provided in the by-laws or upon a majority vote of the stockholders; and
f. If they are performing functions other than that of a director.

38. removal of director – with or without a cause


True. Removal may be with or without cause. Provided that removal without cause may not be
used to deprive minority stockholders or members of the right of representation to which they
may be entitled.

39. can the board be compelled to declare divs.


NO. They cannot be compelled to declare dividends, except: (1) When the unrestricted retained
earnings is in excess of 100% of the paid-up capital; and (2) In the case of Mandatory If Earned
Preference Shares.

40. when can they can be compelled


BOD can be compelled to declare dividends (1) When the unrestricted retained earnings is in
excess of 100% of the paid-up capital; and (2) In the case of Mandatory If Earned Preference
Shares.

41. held in trust means – vta and beneficial ownership


See LEE vs. CA:
The petitioners ceased to be the owners of at least one share standing in their names on the
books of Alfa as required under Sec. 23 of the new Code. They also ceased to have anything to
do with the management of the enterprise. The petitioners ceased to be directors.

Considering the VTA, DBP as trustee, became the stockholder of record with respect to the said
shares of stocks.

42. quorumreq in election


For election of officers: Majority of all the members of the board

43. sec 25other corporate acts re quorum reqt


Sec. 25. Majority of the number of directors or trustees as fixed in the AOI shall constitute a
quorum for the transaction of corporate business.
For a valid corporate act, quorum reqt: At least a majority of the directors or trustees present
at a meeting at which there is a quorum shall be valid as a corporate act,

For election of officers: Majority of all the members of the board

44. noticereq in a board meeting *Finals


45. 2 reqs of stock corpo
Stock Corporations must have (1) capital stock divided into shares and (2) have the authority
to distribute to the holders of such shares dividends or allotments of the surplus profits on the
basis of the shares held.

46. fait accompli


PROVISIONS NOT SUBJECT TO AMENDMENT:
e. Names of the incorporations and the incorporating directors or trustees;
f. Name of the treasurer originally or first elected by the subscribers or members to act as
such;
g. Number of shares and the amount originally subscribed and paid out of the original
authorized capital stock of the corporation; and
h. Date and place of execution of the articles of incorporation and the signatories and
acknowledgment thereof.

47. business judgment rule


Questions of policy and management are left solely to the honest decision of the board of
directors and the courts are without authority to substitute its judgment as against the former.
The directors are business managers and as long as they act in good faith, its actuations are not
subject to judicial review.

48. cash dividend should be applied first to the unpaid subscription


True. Under Sec. 43, : It is provided that any cash dividends due on delinquent stock shall first
be applied to the unpaid balance on the subscription plus costs and expenses.

49. if the declaration consist of stock divs who will received


All SH are entitled to receive stock dividends declared by BOD, except in cases of delinquent SH
wherein his stock dividends shall be withheld until his unpaid subscription is fully paid (Sec.
43. Power to declare dividends)
50. power to invest funds
Sec. 42. Power to invest corporate funds in another corporation or business or for any
other purpose. - Subject to the provisions of this Code, a private corporation may invest its
funds in any other corporation or business or for any purpose other than the primary purpose
for which it was organizedxxx

REQUIREMENTS FOR A VALID INVESTMENT OF CORPORATE FUNDS:


1. Resolution by a majority of the BOD/T;
2. Ratification by the stockholders representing 2/3 of the outstanding capital stock (or
2/3 of members);
3. The ratification must be made at a meeting duly called for that purpose;
4. Prior written notice of the proposed investment and the time and place of the meeting
shall be made, addressed to each stockholder or member by mail or by personal service;
and
5. Any dissenting stockholder shall have the option to exercise his appraisal right.
51. removal of directors sec 28
REQUIREMENTS FOR A VALID REMOVAL:
1. The removal should take place at a general or special meeting duly call for that purpose;
2. The removal must be by the vote of the stockholders holding or representing 2/3 of the
outstanding capital stock or the members entitled to vote in cases of non-stock
corporations; and
3. There must be a previous notice to the stockholders or members of the intention to
propose such removal at the meeting either by publication or on written notice to the
stockholders or members.

52. vacancy sec 29


Sec. 29. Vacancies in the office of director or trustee. - Any vacancy occurring in the board of
directors or trustees other than by removal by the stockholders or members or by expiration of
term, may be filled by the vote of at least a majority of the remaining directors or trustees, if
still constituting a quorum; otherwise, said vacancies must be filled by the stockholders in a
regular or special meeting called for that purpose. A director or trustee so elected to fill a
vacancy shall be elected only or the unexpired term of his predecessor in office. xxx

53. doctrine of piercing the veil


It is a fundamental principle in Corporation law that a corporation is an entity separate and
distinct from its stockholders or member and from other corporations to which it may be
connected. But when the notion of legal entity is used to defeat public convenience, Justify
wrong, Protect fraud, Defend crime, the law will regard the corporation as a mere association
of persons, or in the case of two corporations, merge them into one, the one being merely
regarded as part or instrumentality of the other. The same is true where a corporation is a
mere dummy and serves no business purpose and is intended only as a blind, or an alter-ego or
business conduit for the sole benefit of the stockholders.

54. effectivity of aoi


Upon approval by the SEC or from the date of filing with the said Commission if not acted upon
within six (6) months from the date of filing for a cause not attributable to the corporation
investment when necessary to the ordinary course of business when? *For finals
MIDTERMS
9. Conditions under which a contract of a self- dealing director or officer will be valid per se are
the following:
10. The instances when the purchasing corporation of all or substantially all of the assets or
properties of another corporation may be held liable for the debts or obligations of the selling
corporations are the following:
a. where the purchaser expressly or impliedly agrees to assumes such debts;
b. where the transaction amounts to a consolidation or merger of the corporations;
c. where the purchasing corporation is merely a continuation of the selling corporation; and
d. where the transaction is entered into fraudulently in order to escape liability for such debts.

11. The instances when a stockholder may not be able to exercise his pre-emptive right are the
following:
12. 4 instances when corporate directors or officers may be held solidarily or primarily liable for
corporate acts
13. The instances when a director or officer may be held personally liable are the following:
14. The two (2) exceptions to corporation by estoppel are the following:a. where fraud takes part
in the said transaction
b. whenpetitioner is not trying to escape liability from the contract but rather is the one
claiming from the contract.