CORPORATION

CODE
ATTY. AARON BAILEY G. SANTOS
WHAT IS A CORPORATION

 A corporation is an artificial being created by operation of law,

having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence.

 Attributes of a corporation
 Artificial being with separate and distinc personality
 Created by operation of law
 It has the right of succession
 It has power attributes conferred by law or incident to its existence
Artificial being

 It is entitled to own property under its own name and it properties

are not property of its stockholders, directors or officers.
 It can incur obligations and its obligations are not obligations of its
stockholders, directors and officers
 Rights belonging to the corporation cannot be invoked by the
stockholders even if the latter owns substantial majority of the shares
in the corporation.
Does a corporation have a
constitutional right?
 yes, corporations are entitled to certain constitutional rights.
 It is considered as a person under the due process clause.
 Rights to unreasonable searches and seizure.
 Rights against self incrimination particularly the production of corporate
documents.

 Corporations are entitled to certain constitutional rights not just because

of its status as an artificial being but also as a creature of law.
 Being an artificial being it can only act through its directors, officers
and employees.
 It may not incur criminal liability because intent is material in
incurring criminal liability and crimes are personal in nature.
 It is liable for tort(damages), when the act was committed by the
officer or agent under express direction or authority from the board
of directors.
May the court grant moral
damages in favor of a
corporation?
 There are conflicting views
 Napocor vs. Philipp Brothers Oceanic Inc. ( GR. No. 126204)
 It cannot be awarded in favor of cororations because they do not have
feelings and mental state. They may not even claim moral damages for
besmirched reputation. Mental suffering can be experienced only by one
having a nervous system and it flows from real ill, sorrow, and griefs of life – all
of which cannot be suffered by an artificial person.
 Filipinas Broadcasting Network vs. Ago medical and Education Center
(GR. No. 141994)
 A corporation may recover moral damages under article 2217 of the New
civil Code if it was the victim of defamation.
Doctrine of piercing the veil of
corporate entity?
 It is a theory introduced for the purpose of convenience and to
serve the ends of justice. That when the veil of corporate fiction is
used to as a shield to perpetuate fraud, to defeat public
convenience, justify wrong or defend crime, this fiction shall be
disregarded and the individuals composing it will be treated
identically.
 What are the elements that must be present to justify piercing the
veil of corporate entity?
 Control – not mere stock control but complete domination.
 Such control is used to commit fraud or violate the statutory or legal
right of another.
 That the said control and breach of duty must have proximately caused
injury or unjust loss.
Concession theory

 It is a principle in the creation of corporations, under which a

corporation is an artificial creature without the existence until it has
received the imprimatur of the state acting according to law
through the SEC. the life of a corporation is a concession made by
the State.
How the are created?

 General Law – private corporations are generally created under the

provisions of the corporation code. This is done by filling appropriate
articles of incorporation with the SEC. the life of the corporations
starts from the issuance of the Certificate of Incorporation.
 Special Law – public corporations are created through special laws.
Exceptions – GOCC which are actually private corporations.
Right of succession

 Capacity to have continuity of existence despite the changes on

the persons who compose it. Thus, the personality continues despite
the changes of stockholders, members, board members or officers.
Power, attributes and properties

 No corporation, under the Code, shall possess or exercise any

corporate powers, except those conferred by law, its Articles of
incorporation, those implies from express powers and those as are
necessary or incidental to the exercise of the power so conferred.
The corporations capacity is limited to such express, implied and
incidental powers.
 If the act of the corporation is not one of those express, implied or
incidental powers, the act is ultra vires.
Classification of corporation as to
legal status
 De jure corporation – corporation organized in accordance with the
requirements of law
 De facto corporation – a corporation where there exist a flaw in its
incorporation. The requisites for its existence are;
 The existence of a valid law under which it may be incorporated
 An attempt in good faith to incorporate
 Use of corporate powers.
 Issuance of certificate
 De jure De facto

One created in strict or substantial One which actually exist for all
conformity with the statutory practical purposes as a corporation
requirements for incorporation but which has no legal right to
corporate existence as against the
state
Right to exist cannot be attacked Right to exist can be successfully
even in a direct proceeding by the attacked in a direct proceeding by
state the state (Quo warranto)
CORPORATION BY ESTOPPEL

 Group of persons which holds itself out as a corporation and enters

into a contract with a third person on the strength of such
appearance cannot be permitted to deny its existence in an action
under said contract.
 Those who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners. Those who are not
liable for the defect are liable only up to their investment
 Lim vs. Philippine fishing gear industries inc. – the supreme court held
that all those who derived benefit from the transaction made by
ostensible corporation despite knowledge of its legal defects may be
held liable for contracts they impliedly assented to or took advantage
of.
CORPORATION BY PRESCRIPTION

 A corporation that was not formally organized as such but has been
duly recognize by immemorial usage as a corporation, with rights
and duties maintainable at law.
 Ex; roman catholic church
CLASSIFICATION AS TO EXISTENCE
OF STOCKS
 STOCK CORPORATION - a corporation in which capital stock is
divided into shares and is authorized to distribute to holders thereof
such shares, dividends or allotments of the surplus profits on the basis
of shares held.

 NON-STOCK CORPORATION – a corporation which does not issue

stocks and does not distribute dividends to their members.
As to law of incorporation

 Domestic corporation – corporation formed, organized or existing

under Philippine laws.
 Foreign corporation – a corporation formed, organized or existing
under any laws other than those of the Philippines and whose laws
allow filipino citizens and corporation to do business in its country or
state.
Components of a Corporation

 Incorporators – those mentioned in the AOI as originally forming and

composing the corporation, having signed the articles and
acknowledged the same before a notary public.
 Must be natural persons
 At least 5 but not morethan 15
 Of legal age
 Majority must be residents of the Philippines
 Each must own or subscribe to at least one share
 Corporators – all stockholders and members of the corporation
including the incorporators.
 Stockholders and members – are person who hold or own shares in
a stock corporation while members are those who compose a non-
stock corporation
 Directors and trustees – the BOD or BOT is the governing body of the
corporation. They exercise the powers of the corporation.
 Corporate officers – officers who are identified as such in the
corporation code, the AOI or by-laws of the corporation
Formation of a corporation

 The life of a corporation commences from the issuance of the

certificate of registration by SEC upon filing of the AOI and other
documents.
Contents of the AOI under Section
14 of the Corporation Code
 Name of the corporation
 Purpose/s indicating the primary and secondary purposes
 Place of principal office
 Corporate term
 Names, citizenship and residence incorporators and directors
 Amount of authorized capital stock and number of shares, par value
of such shares(subscription shall not be less than 25% of the
Authorized capital stock)
 Amount paid by each subscriber the total of which shall not be less
than 25% of the subscription
 Name of treasurer elected
 If the corporation engaged in a nationalized industry, a statement
that no transfer of stock will be allowed if it will reduce the stock
ownership of filipinos to a percentage below the required minimum.
Documents that should be filed
with SEC for purposes of securing a
certificate
 AOI
 Treasurer’s affidavit certifying that 25% of the authorized capital
stock has been subscribed and at least 25% of the subscription has
been fully paid either in cash or property
 Bank Certificate (not anymore certain industry or corporation)
 Letter Authority (not anymore)
 Undertaking to change name
 Certificate of authority from proper government authority
 Authorized capital stock – the amount fixed in the AOI to be
subscribed and paid by the stockholders of the corporation
 Subscribed capital – that portion of the Authorized capital stock that
is covered by subscription agreement whether fully paid or not
 Paid-up capital – that portion of the authorized capital stock that
has been subscribed and actually paid
 Outstanding capital stock – the total shares of stock issued to
subscribers or stockholders, whether fully paid or not or partially paid
except treasury shares so long as there is a binding subscription
agreement
Amendments of AOI

 Majority vote of directors or trustees and written assent of the

stockholders representing 2/3 of the outstanding capital or 2/3 of
members of non-stock corporation
 Upon approval of SEC or if not within six months from date of filing
provided that delay cannot be attributed to the corporation

 Director’s certificate
 Secretary’s certificate
By-laws

 Relatively permanent and continuing rule of action adopted by the

corporation for its own government and that of the individuals
composing it and those having the direction,management and
control of its affairs, in whole or in part, in the management and
control of its affairs and activities
 Requisites for a valid by-laws
 Must be consistent with the corporation code, pertinent laws and
regulation
 Consistent with the AOI
 Reasonable and not arbitrary nor oppressive
 It must not disturb vested rights
Adoption and amendment of the
By-laws
 May accompany the AOI and the SEC will altogether approve the
same
 Filed within one month from notice of issuance of certificate of
incorporation in which case it must be – a; approved by
stockholders constituting at least the majority of the outstanding
capital and b; a copy thereof must be filed with SEC ( signed by
approving SH or members , certified by the majority of the directors
or trustees and counter signed by the corporate secretary.
 None compliance is a ground for forfeiture of franchise
 Amendment may be made by the stockholders together with the
board or by the board only
 Majority of the board and Majority of the SH representing the
outstanding capital stock
 By the board delegated by 2/3 of outstanding capital stock or 2/3 of
the members
 The delegated authority may be revoked by the majority of the SH or
members
POWERS OF THE CORPORATION

 EXPRESS – those expressly authorized by the corporation code and

other laws and its AOI or charter
 IMPLIED – those can be inferred from or necessary for the exercise of
the express powers
 INCIDENTAL – those that are incidental to existence of the
corporation
GENERAL POWERS (SECTION 36)

 SUE and be sued under its corporate name

 Succession
 Adopt and use a corporate seal
 Amend AOI
 Adopt, amend, repeal by-laws
 Issue stock and sell treasury share in case of Stock Corp.; admit
members in case of Non-stock corp.
 Purchase, receive,take etc. deal with real or personal property
pursuant to its lawful business
 Enter into merger and consolidation
 To make reasonable donations for public welfare, hospital,
charitable, cultural, scientific civil or similar purposes except for
partisan political activity
 To establish pension, retirement and other plans for the benefit of its
directors, trustees, officers and employees
 Other powers essential or necessary to carry out its purpose
SPECIFIC POWERS (SECTION 37 – 44)

 Power to extend or shorten corporate term

 Increase/decrease capital stock
 Incur or create bonded indebtedness
 Deny pre-emptive right
 Sell, dispose, lease, encumber all or substantially all of corporate
assets
 Purchase or acquire own shares
 Invest in another corporation business other than the primary
purpose
 Declare dividends
 Enter into management contract
ULTRA VIRES ACTS OF THE
CORPORATION
 An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and
therefore beyond the power conferred upon it by law
Who may exercise the powers of
the corporation?
 The BOD/BOT exercises the power of the corporation
 When not exercise; 1. there is a management contract 2. the power of
the board is delegated by majority vote of the board to the executive
committee

 Powers that cannot be delegated to the ExeComm

 Approval of action requiring the concurrence of stockholders
 Filling vacancies in the board
 Adoption, amendment and repeal of by laws
 Amendment or repeal of board resolutions
 Distribution of cash dividends
Instances where in the
concurrence of the SH are
necessary
 Majority of the board and 2/3 of the outstanding capital
 Power to extend or shorten corporate term
 increase/decrease capital stock
 Incure/create bonded indebtedness
 To deny-preemptive rights
 Sell, dispose, lease, encumber all or substantially all of corporate assets
 To invest in another corporation, business other than primary purpose
 To declare stock dividends
 To enter into management contract
 A stockholder or stockholders representing the same interest of both the
managing and managed corporations own or control morethan 1/3 of
the total outstanding capital entitled to vote of the managing
corporation
 A majority of the members of the BOD of the managing corporation also
constitute a majority of the members of the board of the managed
corporations
 To amend articles of incorporation
 Majority of the board and majority of the outstanding capital
 Enter into management of contract if any of the two instances
indicated before are absent
 To adopt, ament or repeal by-laws
 Without board resolution
 2/3 of the outstanding capital – deldegated power to the board the
power to amed the by-laws
 Majority of the outstanding capital – revoke the delegated power to
amend
Instances when corporation may
acquire its own shares?
 The corporation has unrestricted retain earnings in its books to cover
the shares to be purchased/acquired
 For a legitimate purpose
 To eliminate fractional shares
 To collect or compromise an indebtedness to the corporation arising out
of unpaid subscription in a delinquency sale to purchase deliquent
shares sold during the sale
 To pay dissenting or withdrawing stockholders entitled to payment of
their shares
Dividends

 Who may declare dividends?

 Board of directors along – cash or property
 Majority of the board and 2/3 of SH
Requisites for declaration of
dividends
 Existence of unrestricted retained earnings
 Resolution of the board resolution which is duly concurred by the 2/3
of stockholders in case of stock dividends
Can the board be compelled to
declare dividends
 No, declaration of dividends is discretionary upon the board.
Exception stock corporations are prohibited from retaining surplus
profits in excess of their paid up capital
 However even if the retained surplus profits are in excess of 100% of
the paid capital, the board may still refuse to declare dividends if;
 Justified by a definite corporate expansion, projects, programs
approved by the board
 The corporation is prohibited under any loan agreement from declaring
dividends without its consent and such consent is not yet secured
 It can clearly show that such retention is necessary under special
circumstances obtaining in the corporation. Ex: special reserve for
probable contingencies
Sale of all or substantially all
properties
 Approval of majority of the BOD/BOT
 Assent of stockholders representing 2/3 of the OCS
 A sale or other disposition shall be deemed to cover substantially all
corporate property and assests if thereby the corporation would be
rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated
 Effect on creditors – the transferee/buyer of all or substantially all of
the assets will not be liable for the debts of the transferor. Except
 If there is express assumption of liabilities
 There is a consolidation or merger
 If the purchase was in fraud of creditors
 If the purchaser becomes a continuation of the seller
Increase/decrease of capital stock

 Ways of increasing the capital stock

 By increasing the number of shares and retaining the par value
 By increasing the par value of existing shares without changing the
number of shares
 By increasing the number of shares and increasing the par value

 Ways of decreasing the capital stock

 By decreasing the number of shares and retaining the par value
 By decreasing the par value of existing shares without changing the
number of shares
 By decreasing the number of shares and increasing the par value
Directors and officers

 Qualification
 Must own at least one share of the capital stock in his name – stock
corporation
 Must be a member – non-stock corporation
 Majority of the members of the board must be residents of the
Philippines
 He must not have been convicted by final judgement of an offense
punishable by imprisonment for a period of six years or a violation of the
corporation cede committed within five years before the date of his
election
 Of legal age
 Other qualifications set forth in AOI or by-laws
Business judgment rule

 Questions of policy or management are left solely on the honest

decision of officers and directors of a corporation and the courts
are without authority to substitute their judgment for the judgment of
the board of directors; board is business manager of the corporation
so long as it act in good faith, its orders are not reviewable by the
courts or SEC. the directors are also not liable to the stockholders in
performing such acts.
Election of directors

 Election shall be held at large in stock corporation and the

stockholders present must constitute a quorum. All shareholders
holding voting shares have the right to vote. There can be no voting
by district or region in a stock corporation.
 Non-stock corporation election may be held by region because the
right to vote in a non-stock corporation may be limited, broadened
or denied in the AOI or By-laws
Methods of voting

 Straight voting – every stockholder may vote such number of shares

for as many persons as there are directors
 Cumulative voting for one candidate – a stockholder is allowed to
concentrate his votes and give one candidate as many votes as
the number of directors to be elected multiplied by the number of
his shares shall equal.
 Cumulative voting by distribution – a stockholder may cumulate his
shares multiplying also the number of his shares as the number of
directors to be elected and distribute the same among as many
candidates as he shall see fit.
Removal and vacancies

REQUISITES FOR REMOVAL

 It must take place either in a regular or special meeting of the
stockholders called for the purpose.
 There must be previous notice to the stock holders or members of
the intention to remove.
 The removal must be by a vote of stockholders representing 2/3 of
the outstanding capital stock or 2/3 of members.
 The director may be removed with or without cause unless he was
elected by the minority in which case it is required that there is
cause for removal
FILLING OF VACANCIES IN THE
BOARD
 by SH or Members – if vacancy results because of removal;
expiration of term; the ground is other that removal or expiration of
term where the remaining directors do not constitute a quorum;
increase in the no. of directors
 By the BOD/BOT – cases not reserved to SH or members and the
remaining directors or trustees still constitutes a quorum.
Doctrine of corporate opportunity

If there is presented to a corporate director a business opportunity which;

a. The corporation is financially able to undertake
b. From its nature, is in line with corporations business and is practical
advantage to it
c. One in which the corporation has an interest or a reasonable
expectancy
By embracing the opportunity, the self interest of the director will be brought in
to conflict with that of the corporation. Hence the law does not permit him to
seize the opportunity even if he will use his own funds in the venture.
If the director seizes the opportunity thereby obtaining profits to the expense of
the corporation, he must account all the profits by refunding the same to the
corporation unless the act is ratified by a vote of stockholders owning or
representing 2/3 of the outstanding capital stock.
Interlocking director

 There is an interlocking director in a corporation when one (or some

or all) of the directors in one corporation is (or are) a director in
another corporation.
 If the interests of the interlocking director in the corporation are both
substantial (stockholdings exceed 20% of the outstanding capital
stock)
 GR: a contract between or more corporations having interlocking
directors shall not be invalidated on that ground alone.
 Except if the contract is fraudulent or not fair and reasonable
 If the interest of the interlocking director in one of the corporation is
nominal while in the other is substantial, the contract shall be valid
provided that the following requirements are present
 The presence of such director in the board meeting in which the contract
was approved was not necessary to constitute a quorum
 That the his vote was not necessary for the approval of the contract
 That the contract is fair and reasonable under the circumstances
 Where any of the first two requirements is absent, the contract may be
ratified by a vote of 2/3 of SH representing the outstanding capital
stock. Provided further that;
 Full disclosure of the adverse interest of the directors involved is made on
such meeting
 That the contract is fair and reasonable
Are corporate agents such as directors or officers
of a corporation solidarily liable with the
corporation they represent?
 No, they are not solidarily liable with the corporation. Obligations
incurred by them acting as such corporate agents are not theirs but
the direct accountabilities of the corporation they represent.
 However there are instances where solidarity or personal liabilities
may be incurred
 When directors, trustees, or officers
 Vote or assents to patently unlawful acts of the corporation
 Act in bad faith or with gross negligence in directing the affairs of the
corporation
 Are guilty of conflict of interest to the prejudice of the corporation, its SH,
members or other persons
 When the directors has consented to the issuance of watered stocks
or who having knowledge thereof, did not forwith file with the
corporate secretary his written objection
 When the director, trustee or officer has contractually agrred or
stipulated to hold himself personally and solidarily liable with the
corporation
 When the director, trustee or officer is made by specific provisions of
law personally liable for his corporate actions
Who are self dealing directors?

 Those who personally contracts with the corporation in which they

are directors. It is discouraged because the directors, trustees and
officers have fiduciary relationship with the corporation and there
can be no real bargaining where the same is acting on both sides of
the trade.
 These contracts entered into by the directors with the corporation is
voidable unless the following requisites are present;
 The presence of such director in the board meeting in which the
contract was approved was not necessary to constitute a quorum
 That the his vote was not necessary for the approval of the contract
 That the contract is fair and reasonable under the circumstances
 In case of an officer, there was previous authorization by the BOD/BOT
 Where any of the requirements is absent, the contract may be
ratified by a vote of 2/3 of SH representing the outstanding capital
stock. Provided further that;
 Full disclosure of the adverse interest of the directors involved is made
on such meeting
 That the contract is fair and reasonable
Meetings of the Board

 Annual meeting – date specified in the by-laws

 Regular – monthly meeting unless otherwise specified in the by laws
 Special meeting – upon call of the president or as provided in the
by-laws
 Notice – one day prior to the scheduled regular or special meeting
unless a different period is fixed in the by-laws
 Quorum – majority of the directors/trustees as fixed in the articles of
incorporation
 Proxy – not allowed
 Board meeting through teleconferencing or video conference is
allowed - SEC Memorandum Circular no. 15 11/20/2011
Trust fund doctrine

 The capital stock, property and other assets of the corporation are
regarded as equity in trust for the payment of the corporate
creditors. The subscribed capital stock of the corporation is a trust
fund for the payment of the debts of the corporation which the
creditors have the right to look up to satisfy their credit. Corporation
may not dissipate this as the creditor’s may sue stockholders directly
fo r unpaid subscription.
Stockholders and shares

 Subscription contract – any contract for the acquisition of unissued

stock in an existing corporation or a corporation still to be formed.
 pre-incorporation
 Post-incorporation
 Valid considerations
 Cash
 Property
 Labor or services actually rendered to the corporation
 Prior corporate obligations
Doctrine of individuality and
indivisibility of subscription
 A subscription, is one, entire and indivisible whole contract even if
two or more shares are covered. The subscriber is not entitled to the
certificate for part or all of certificates covered until full payment of
the subscription price.
 SHARES OF STOCK CERTIFICATE OF STOCK

1. Unit of interest in a corporation 1. Evidence of the holder’s ownership

of the stock and of his right as a
shareholder up to the extent specified
therein
2. It is an incorporeal right or intangible 2. It is concrete and tangible
property

3. It may be issued by the corporation 3. May be issued only if the

even if the subscription is not fully paid subscription is fully paid
Classification of shares

 Common Shares – the most common type of shares which enjoy no

preference
 Preferred shares – par value shares which enjoy preference as to
dividends or assets upon dissolution as stated in the AOI
 Cumulative – the shareholder is entitled to recover dividends in arrears.
 Non – cumulative – entitled to present dividends only
 Participating – participates with common shares after receiving its
dividends at preferred rate.
 Non-participating – when there is no such participation
 Preferred shares cannot have, as its preference, fixed demandable
annual interest because they represent investment to, rather than a
debt of the corporation.
 Redeemable shares – are those which permit the issuing corporation to
redeem or purchase its own shares
 May only be issued if expressly provided in the AOI
 The terms and condition affecting the shares must be stated in the AOI and
certificate of stock
 May be deprived of voting rights
 There must be a sinking fund to answer for the redemption price. Presence
of unrestricted retained earnings is not necessary
 When redeemed they are considered as retired unless otherwise provided in
the AOI
 Treasury shares – shares which have earlier issued as fully paid and
thereafter been acquired by the corporation by purchase,
donation, redemption or other lawful means
 Par value and no par value shares – par value shares have a
nominal value in the certificate of stock while no par value shares
are those which do not have nominal values
 Both par value and no par value have issued values.
 The issued value of the no-par value shares may be fixed in the AOI or
fixed by the board.
Limitation on issuance of no-par
value shares
 No par value shares cannot have an issued price of less than P5.00
 The entire consideration for its issuance constitutes capital so that
no part of it should be distributed as dividends
 They cannot be issued as preferred shares
 They cannot be issued by banks, trust companies, insurance
companies, public utilities and loan associations
 AOI must state the fact that it issued no par value shares as well as
the number of said shares
 Once issued, they are deemed fully paid and non-assessable
 Founders share – classified as such in the AOI which may be given
certain rights and privileges not enjoy by others. However, if the right
is exclusive right to vote and be voted for as director, it must be for a
period not exceeding for 5 years counted from the approval of SEC.
Instances when non-voting share
may vote?
 Amendments of AOI
 Adoption, repeal and amendment of the by-laws
 Increase/decrease of bonded indebtedness
 Increase/decrease of capital stock
 Sale or disposition of all or substantially all of the corporate assets
 Merger or consolidation
 Investment of funds in another corporation or another business
purpose
 Corporate dissolution
What are watered stocks?

 Are those issued not in exchange for its equivalent either in cash,
property, share, stock dividends, or services actually rendered. Thus
issuance of the shares are prohibited
 Bonus share – issued without consideration
 Issued fully paid when the corporation actually received a lesser
amount
 Issued other than actual cash ( property or services), the fair valuation of
which is less than its par or issued value
 Issued as stock dividends but the corporation have no unrestricted
retained earnings
Note: the directors who consented for its issuance are liable solidary to the
corporation for the difference in value
Transfer of shares

 If represented by a certificate of stock the following must be strictly

complied with;
 Delivery of the certificate
 Indorsement by the owner or his agent
 To be valid to third parties, transfer must be recorded in the books of the
corporation
 If not represented by a certificate
 By deed of assignment
 Duly recorded in the books of the corporation
Rights and obligations of
stockholders
 Direct or indirect participation in the management
 Voting rights
 Right to remove directors
 Proprietary rights
 Right to dividends
 Appraisal right
 Right to issuance of stock certificate for fully paid shares
 Proportionate participation in the distribution of assets in liquidation
 Right to transfer stocks
 Pre-emptive right
 Right to inspect books and records
 Right to be furnished with most recent financial statement or report
 Right to recover stocks unlawfully sold
 Right to file individual suit, representative suit and derivative suits
Derivative action

 Brought by one or more stockholders/members in the name of the

corporation for its behalf to redress wrongs done to the corporation
whenever officials of the corporation refuse to sue or the ones to be
sued or has control of the corporation
 Stockholder or member at the time the transaction subject of the action
transpired and at the time the action was filed
 Exerted all reasonable efforts, exhaust all remedies available under the
articles of incorporation
 No appraisal right are available for the acts complained of
 The suit is not nuisance or harassing suit
Pre-emptive right

 A pre-emptive right is the shareholders right to subscribe to all issues or

disposition of shares of any class in proportion to his present
stockholdings, the purpose being to enable the shareholder to retain his
proportionate control in the corporation and retain his equity in the
surplus.
 Not available in the following circumstances;
 Shares to be issued to comply with laws requiring stock offering or minimum
stock ownership by the public
 Shares issued in good faith in exchange for property needed for corporate
purpose
 Shares issued for previously contracted debt
 In case the right is denied in the AOI
 The right is personal to the shareholder
Appraisal right

 Right to withdraw from the corporation and demand payment of

the fair value of his share after dissenting from certain corporate
acts involving fundamental changes in corporate structure.
 Instances when may be exercised
 Extension/shorten coporate terms
 Change in the rights of SH or restrict such rights
 Invest in another business
 Sale or disposition of all or substantially all of corporate assets
 Merger and consolidation
 Upon demand, all rights accruing to the shares shall be suspended
Rule on exercise of appraisal right

 Must be a dissenting SH
 Written demand within 30 days after the vote was taken
 Th price to be paid is the fair market value of the shares on the date
before the vote was taken
 The right is extinguished when; he withdraws with the consent of the
corporation; the proposed action is abandoned; the SEC
disapproves the action
Effects of stock delinquency

 Deprives the stock holder the right;

 To be vote and be voted for
 To representation in any stockholders meeting
 Shall not be entitled to any rights of a stockholder except the right to
dividends
 Delinquent stocks shall be subject to delinquency sale
MERGER or CONSOLIDATION

 Merger is one where a corporation absorbs the other and remain in

existence while the others are dissolved.
 Consolidation is one where a new corporation is created, and
consolidating corporations are extinguished
 Effects;
 Constituent corporations becomes a single corporation
 Their separate existence of shall cease except to the surviving
corporation in case of merger and the new corporation in case of
dissolution
 The surviving or consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all liabilities
and duties of a corporation
 All liabilities of the constituent corporations shall pertain to the
surviving or consolidated corporation
 BPI vs. BPI Employees union G.R. No. 164301 august 10, 2010
Non-use of corporate charter or
continuous inoperation
 When the corporation does not fully organize and commence the
transaction of its business or the construction of its works within 2
years from date of its corporation, its corporate powers cease and
the corporation shall be deemed dissolved.
 When the corporation has commenced transaction of its business
buy subsequently becomes continuously inoperate for a period of
at least five years, the certificate of registration may be suspended
or revoked. Suspension or cancellation of corporate franchise is not
automatic.
Dissolution

 Modes;
 Voluntary dissolution
 Involuntary dissolution
 Shortening of term
 Expiration of term
Voluntary dissolution where no
creditors are affected
 Meeting of directors
 Notice of meeting 30 days prior to the date of meeting
 Notice of meeting published for 3 consecutive weeks
 Meeting of SH
 Resolution to dissolve by majority of the directors, approved by 2/3
votes of SH representing the outstanding capital stock
 File with SEC the resolution certified by majority of the Director and
countersigned by the Corporate Secretary
 SEC will issue certificate of dissolution
Voluntary where creditors are
affected
 Resolution of the board
 2/3 vote of the stockholders
 Filing the petition with SEC signed by majority of the directors and
secretary. Claims and demands must be stated in the petition.
 If the petition is sufficient in form, SEC will issue an order fixing a hearing
date for objection
 Copy of order shall be published once a week for 3 consecutive weeks
 Objections must be filed not less than 30 days nor more than 60 days
after entry of order.
 A hearing is conducted
 Judgment shall be rendered dissolving the corporation with
appointment of a receiver in proper cases
Shortening of corporate term

 This is done by amending the articles of incorporation. The

amended articles of incorporation shall be filed in SEC and the
corporation is deemed dissolved upon approval or upon expiration
of the new term.
Involuntary dissolution

 Failure to organize and commence business in two years

 Continuosly inoperation for 5 years
 Failure to file by-laws within 30 days from issue of certificate
 Continuance of business not feasible as found by the management
committee or rehabilitation receiver
 Fraud in procuring certificate of registration
 Serious misrepresentation
 Failure to file reports
Liquidation

 Process by which all the corporate assets are converted to cash in

order to facilitate the payment of obligations to the creditors and
the remaining balance to the stockholders
 The corporation is given three years to still have a body corporate for
the purpose of liquidation and winding up.
 if full liquidation can only be effected after the three year period and
there is no trustee, the directors may be permitted to complete the
liquidation by continuing as trustee by legal implication