Corporation
Content
BY-LAWS I. By-laws,concept By-laws are the rules of action adopted by a corporation for its own government and for the government of its stockholders or members and those having the direction,management and control of its affairs. II. Requisites of valid by-laws 1. They must be consistent with the charter of the corporation,i. e., the law and articles of incorporation. 2. They must be consistent with public policy. 3. They must be uniform and general application and not directed against a particular individual. 4. They must be reasonable. 5. They must not impair the obligations of contracts. III. When by-laws are adopted and filed ; by whom adopted (Sec.46) 1. Prior to corporation a. Submitted together with the articles of incorporation,to the SEC and b. Approved and signed by all the incorporators. 2. After incorporation a. Submitted within 1 month after the receipt of the official notice of the issuance of certificate of incorporation,and, b. Approved by the stockholders representing atleast a majority of the outstanding capital stock,or by a majority of the members. IV.Certification by government agency of new by-laws or amendment bylaws required (SEC.46) The SEC shall not accept for filling the by-laws or any amendment thereto of an bank,banking institutions,building and loan association,trustcompany,insurance company,public utility,educational institutions or other special corporations governed by special laws,unless accompanied by a certificate of the appropriate government agency to the effect that the by-laws or amendments thereto are in the accordance with the law.
V. Effect of failure to file by-laws within the period required The SEC may revoke or suspend the certificate of registration of the corporation. (PD 902-A) VI. When by-laws effective (SEC.46) Upon the issuance of the SEC of a certification that the by-laws are not inconsistent with the Corporation Code. VII. Contents of by-laws (SEC.47) Subject to the provisions of the Constitution,the Corporation Code, other special laws, and the articles of incorporation,a private corporation may provide in its by-laws for; 1. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees. 2. The time and manner of calling and conducting regular or special meetings of the stockholders or members. 3. The required quorum in meetings of stockholders or members and the manner of voting therein. 4. The form for proxies of stockholders or members and the manner of voting them. 5. The qualifications, duties and compensation of directors trustees,officers and employees. 6. The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof. 7. The manner of election or appointment and the term of office of all officers other than directors or trustees. 8. The penalties for violation of the by-laws. 9. In the case of stock corporations,the manner of issuing certificates.Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. 10.Such other matters as may be necessary for thr proper or convenient transaction of its corporate business and affairs. VIII. Amendment, repeal, or adoption of new by-laws (SEC.48) 1. Vote required a. Majority vote of the board of directors or trustees,and
b. Majority of the outstanding capital stock or majority of the members (voting and non-voting) in a meeting called for the purpose. Delegation of power to amend or repeal by-laws or adopt new by-laws to board of directors or trustees a. Delegation of the power The owners of 2/3 of the outstanding capital stock or 2/3 of the members may delegate to the board of directors or trustees the power to amend or repeal by-laws or adopt new by-laws.In such a case ,the board of directors or trustees may amend or repeal the by-laws or adopt new by-laws by a majority vote of those present provided there is a quorum. b.Revocation of the power The owners of the majority of the outstanding capital stock or majority of the members may revoke the power previously delegated to the board. 2. When amendment or new by-laws effective Upon the issuance by the SEC of a certification that the amended or new by-laws are not inconsistent with the Corporation Code. IX. Distinctions between articles of incorporation and by-laws 1.Articles of incorporation constitute the charter of the corporation, while by-laws are the rules of action adopted by a corporation. 2.Articles of incorporation are executed before incorporation,while by-laws are adopted before or after incorporation. 3.Articles of incorporation are adopted by the incorporators, while by-laws if adopted before incorporation, are adopted by the incorporators and if after, by the stockholders or
members. 4.The filing of the articles of incorporation is a condition precedent for the acquisition by the corporation of a juridical personality, while the filing of the by-laws is a condition subsequent thereto.
MEETINGS of DIRECTORS or TRUSTEES STOCKHOLDERS or MEMBERS I. Necessity of meetings Meetings,whether those of the board of directors or trustess,or the stockholders or members,are necessary in order that any corporate act may be decided upon only after deliberation and consultation among themselves.Meetings will give them opportunity to deliberate and vote on matters affecting the corporation. II. Meetings of directors or trustees 1. Kinds of meetings a. Regular meeting 1.) Date of meeting This is held monthly, unless the by-laws provide otherwise. (SEC.53) 2.) Notice of contents Notice stating the date, time and place of meeting must be sent to every director or trustees at least 1 day prior to the scheduled meeting. A director or trustee may waive this requirement, expressly or impliedly. (SEC.53) b. Special meeting 1.) Date of meeting This may be held at any time upon the call of the president or as provided in the by-laws.(SEC.53)
2.) Notice and Contents Notice stating the date, time and place of meeting must be sent to every director or trustee at least 1 day prior to the scheduled meeting. A director or trustee may waive this requirement, expressly or impliedly.(SEC.53) 2. Place of meeting,whether regular or special Meetings may be held anywhere in or outside the Philippines,unless the by-laws provide otherwise. (SEC.53)
3. Quorum in meetings Majority of the number of directors or trustees stated in the articles of incorporation, unless such articles or the by-laws provide for a greater majority.(SEC.25) 4. Presiding officer The president shall preside at all meetings of the directors or trustees, unless the by-laws provide otherwise.(SEC.54) 5. Manner of voting; presence required Directors or trustees vote during meetings per head. Directors or trustees cannot attend or vote by proxy at board meetings.(SEC.25) III. Meetings of stockholders or members 1. Kinds of meetings a. Regular meeting 1.) Date of meeting This is held annually on a date fixed in the by-laws,or if not so, on any date in April every year as determined by the board of directors or trustees.(SEC.50) 2.) Notice and contents Written notice stating the place and time of meeting must be sent to all stockholders or members at least 2 weeks prior to the meeting ,unless a different period is required by the by-laws.(SEC.50,51)
Notice of any meeting may be waived, expressly or impliedly by any stockholder or member.(SEC.50) b. Special meeting 1.) Date of meeting This may be held at any time deemed necessary or as provided in the by-laws,(SEC.50) 2.) Notice and contents Written notice stating the place and time of meeting must be sent to all stockholders or members at least 1 week prior to the meeting, unless a different period I required by the by-laws. (SEC.50,51)
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.(SEC.50) 2. Place of meetings,whether regular or special They shall be held in the city or municipality where the principal office of the corporation is located and if practicable in the principal office of the corporation. For this purpose,Metro Manila shall be considered a city or municipality.(SEC.51) 3.Quorum in meetings Majority of the outstanding capital stock or majority of the members unless a greater majority is provided for in the Corporation Code or in the by-laws.(SEC.52) 4. Presiding officer The president shall preside at all meetings of the directors or trustees,unless the by-laws provide otherwise.(SEC. 54) 5. Who may call meeting a. The person authorized in the by- laws.(SEC.50) b. If none was authorized in the by-laws, they call may be made by the director, trustee or officer entrusted with the management of the corporation. c. A petitioning stockholder or member, on order of the SEC, may call a meeting, if for any cause, there is no
person authorized to call a meeting.(SEC.50) d. The secretary of the corporation or by a stockholder or member in case of a special meeting to remove directors or trustees.(SEC.28) 6. Requisites for a valid meeting. a. It must be held at the proper place.(SEC.51) b. It must be held at the stated date and time.(SEC.50,51) c. It must be called by the proper person. (SEC.50,28) d. Previous notice must have been given.(SEC.50,51) e. There must be quorum.(SEC.52) Effect if meeting is improperly held or called All proceedings had and any business transacted shall be valid provided the following requisites are present:
a. They must be within the powers or authority of the corporation.i,e.,not ultra vires. b. All the stockholders or members are present or duly represented at the meeting.(SEC.51) 7. Manner of voting a. Stockholders vote by shares.Members vote on a per head basis unless the laws provide otherwise. b. Right to vote ; how exercised 1. Directly or personally by the stockholder or member a.) If the shares are pledged or mortgaged, the stockholder pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly given such right in writing which is recorded in the appropriate corporate books by the pledgor or mortgagor.(SEC.55) b. In case of shares owned jointly by two or more persons, in order to vote the same, the consent of all coowners shall be necessary, except in the following : 1.)There is a written proxy, signed by all coowners authorizing one or some of them or any other person to vote such share or shares.
2.)The shares are owned in an “and/or” capacity in which case, any one may vote the shares or appoint a proxy for the purpose. (SEC.56) 2.) Through representative voting a.) By means of proxy Proxy , concept Proxy is understood in 3 senses as follows: 1.)The formal authority given by the shareholder or member to another person to exercise the voting right. 2.)The person given the authority by the authority by the stockholder or member to exercise the voting right. 3.The written instrument evidencing the authority given by the stockholder or member for the exercise of the voting right.
Limitations on proxies (the formal authority) (SEC.58) stockholder corporate scheduled meeting. 1.) It must be in writing, signed by the or member, and filed with the secretary,before the
2.) It is valid only for the meeting for which it is intended, unless provided in the proxy, except in the case of a continuing proxy which shall be valid and effective for a period not exceeding 5 years at any one time. b.) By means of a voting trust agreement The trustee under the voting trust agreement shall exercise the voting right.(SEC.59) c.) Through legal representatives Executors, administrators, receives and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members,without need of any written proxy. (SEC.55) IV. Voting trusts
1. Voting trust, concept Voting trust is an agreement in writing whereby one or more stockholders of a corporation transfer their shares to a trustee or trustees, for the purpose of conferring in the latter,voting and other rights pertaining such shares. A voting trust is designed to enable stockholders to dispose their shares but still retain control over the corporation and thus assure continuity of policy and management. 2. Procedure on transfer of shares a. The certificate/s of stock covered by the voting trust agreement shall be cancelled. b. New certificates shall be issued in the name of the trustee or trustees stating that they are issued pursuant to the voting trust agreement.In the books of the corporation,it shall be stated that the transfer in the name of the trustee or trustees is made pursuant to the voting trust agreement.
c. The trustee or trustees shall execute and deliver to the transferors voting certificates, which shall be transferable in the same manner and with the same effect as certificates of stock. 3. Effects of the voting trust agreement a. The voting trustee acquires legal title to the shares. b. The stockholders making the transfer become mere equitable owners of their shares represented by the voting trust certificates.Accordingly, they are disqualified from being elected as directors unless they retain at least 1 share of stock in their name.However , they retain control over the management of the corporation. c. The trustee votes in accordance with the terms of the voting trust agreement.He may vote in person or by proxy as provided therein. d.Both the transferor and the trustees may exercise the right of inspection of all corporate books and records. e. Any stockholder may inspect the voting trust agreement
filed with the corporation in the same manner ,as all corporate books and records. f. Any other stockholder may transfer his shares to the same trustee upon the same terms and conditions stated in the voting trust agreement, and there upon shall be bound by all the provisions therein. 4. Requisites and limitations of the voting trust agreement a. It must be in writing and duly notarized. b. A certified true copy must be filed with the SEC; otherwise,it is ineffective and unenforceable. c.The voting trust shall not exceed 5 years at any one time, except if it is specifically required under a loan agreement,in which case, the period may be for more than 5 years but shall automatically expire upon full payment of the loan. d.Unless the voting trust is renewed, all right granted in the agreement shall automatically expire at the end of the agreed period, and the voting trust certificates and the certificates of stock
issued in the name of the trustee shall be deemed cancelled and new certificates of stock issued in the name of the transferors. e. No voting trust agreement shall be entered into to circumvent laws against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.(SEC.59) V. Distinctions between proxy and voting trust agreement 1. The proxy has no legal title to the shares, while a trustee acquires the title of the transferor. 2. A proxy is generally revocable, while a voting trust agreement is irrevocable for the duration of its term. 3. A proxy is valid only for the meeting for which it was intended except as provided therein and in the case of a continuing proxy .A voting trust agreement is not limited to a particular meeting. 4. A proxy votes in the absence of the stockholder , while a trustee can vote and exercise the rights of the transferor even in the latters presence in the meeting. VI.Summary of rules on voting by stockholders or members
1. Voting shares or members a. 2/3 of outstanding stocks capital stock or 2/3 of the members entitled to vote 1.)Removal of directors (SEC.28) 2.) Ratification of director's or trustee's contract with the corporation (SEC.32) 3.) Ratification of the act of a director who is disloyal. (SEC.34) 4.) Issuance of stock dividends (SEC.43) 5.) Entering into a management contract in certain cases of interlocking stockholders or interlocking directors, (SEC.44), where 2/3 of the outstanding capital stock or 2/3 of the members of the managed corporation is the required vote. 6.) Adoption of a plan of distribution of assets of a nonstock corporation upon dissolution. (SEC.95) b. Majority of the outstanding capital stock or majority of the members entitled to vote
1.) Election of directors (SEC.24) 2.) The granting of compensation to directors (SEC.30) 3.) Entering into a management contract,with respect to both managing and managed corporation.(SEC.44) 4.) The fixing of the issued price of no-par shares (SEC.62) 2. Voting and non-voting shares or members a. 2/3 of outstanding capital stock or 2/3 of the members 1.) Amendment of the articles of incorporation (SEC.16) 2.) Extension or shortening of corporate term (SEC.37) 3.) Increase or decreased of capital stock.(SEC.38) 4.) Incurring, creating or increasing bonded indebtedness. (SEC.38) 5.) Sale, lease, exchange,mortgage, pledge or other disposition of all substantially all of the corporate properly (SEC.40)
6.) Investment of corporate funds in another corporation or business or for other than the primary purpose (SEC.42) 7.)Delegation to the board of directors of the power to adopt, amend or repeal by-laws.(SEC.48) 8.) Ratification of merger or consolidation (SEC.77) 9.) Dissolution of the corporation (SEC.118,119) b. Majority of the outstanding capital stock or majority of the members 1.Adoption of by-laws (SEC.46) 2. Amendment or repeal of by-laws.(SEC.48) 3. Revocation of the authority to adopt, amend, or repeal bylaws.(SEC.48) STOCKS AND STOCKHOLDERS I. How one becomes a stockholder 1.By subscription of unissued shares. 2.By purchase of treasury shares – covers issued shares.
3.By transfer from a stockholder – covers issued shares. Some modes transfer are: a. Sale b. Barter or exchange c. Donation d. Succession 11. Subscription 1. Concept, form It is a contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed. The contract is called subscription not withstanding that the parties may refer to it as a purchase or some other contract.(SEC.60) No particular form is provided for in the Corporation Code for the contract of subscription. As it is not one of the contracts that must comply with the Statute of Frauds, it is enforceable
although not in writing. However, for the convenience of both the corporation and the subscribers, the subscription contract must be in writing, even a private one, if the amount involved exceeds P500.00. 2. Kinds of subscription a. Pre – incorporation subscription – subscription to the unissued stock of a corporation still to be formed. Revocability of pre – incorpoation subscription 1.) Before the filing of the articles of incorporation The subscription cannot be revoked for a period of not less than 6 months from the date of subscription, except in the following causes: a.) All the other subscribers consent to the revocation, or b.) The in corporation of the proposed corporation fails to materialize within 6 months from date of subscription or within a longer period as may be stipulated in the contract of subscription. 2.) After the filing of the articles of incorporation No pre – incorporation subscription may be revoked after the submission of the articles of incorporation to the SEC.(SEC 61)
the been formed.
b. Post – incorporation subscription – subscription to unissued stock of a corporation that has
Revocability of post – incorporation subscription The subcription may not be revoked after its acceptance by the corporation so as to release the subscriber from liability unless consented to by all stockholders. 3. Distiguished from purchase of stockholder a. Subscription may be made before or after incorporation, while purchase may be made only after corporation. b. The subscribers becomes a stockholder even if he has not paid his subscription, while the purchaser does not become a shareholder until he has paid the
purchase price in full. c. Subscription is not governed by the Statute of Frauds, while purchase of stock is governed by the Statute of Frauds if the price is at least P500.00 . d. The subscriber can vote on the shares even if he has not paid his subscription in full as long as the shares are not delinquent.The purchaser of stock can vote only on the shares ha has paid. III. Consideration for stocks 1. Concept Subscription to shares of stock, being a contract, must have all the requisites of a contract including cause or consideration. Since it is an onerous contract, the consideration with respect to the corporation is the prestation of the subscriber subject to the rules under.(SEC.62) 2. Amount of consideration a. Par value shares – The consideration should not be less than the par value. The par value is stated in the stock certificate. b. No - par value shares – The consideration should not be less than the issued price. The issued price o no-par shares may be fixed as follows : 1.)In the articles of incorporation. 2.)By the board of directors pursuant to authority conferred upon it by the articles of incorporation or by the by-laws. 3.)In the absence of both, by the stockholders representing
atleast a majority of the outstanding capital stock in the meeting called for the purpose. (SEC.62,last par.) 3. What may be the consideration for stocks Consideration for the issuance of stocks may be any or a combination of the following: a. Actual cash paid to the corporation. b. Property, tangible or intangible, which must be : 1.) actually received by the corporation, and
2.) necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued. c. Labor performed for services actually rendered to the corporation. d. Previously incurred indebtedness by the corporation. e. Amounts transferred from unrestricted retained earnings to stated capital. f. Outstanding shares exchanged for stocks in the event of reclassification or conversion. Determination of valuation where consideration is other than actual cash or consists of intangible property such as patents or copyrights, the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to the approved by the SEC. Note: The consideration for stocks may be used for the issuance of bonds insofar as they may be applicable Prohibited considerations a. Promissory notes b. Future services Note : Checks may be accepted by the corporation for the subscriptions.However, the shares shall not be considered paid until the checks have been cashed or when through the fault of the corporation they have been impaired. (See art.1249) IV. Certificate of stock 1. Concept It is the written acknowledgment by the corporation of the stockholder's interest in the management, profits and assets of the corporation.
The certificate of stock when issued requires the following : a. It must be signed by the president or vice – president , countersigned by the secretary or assistant secretary. b. Sealed with the seal of the corporation.(SEC.63) 2. When issued
No certificate of stock shall be issued to a subscriber until the following is paid. a. The full amount of the subscription. b. The interest, and expenses (in case of delinquent shares),it any , is due.(SEC.64) Rule in case of partial payment General rule : The partial payment shall be applied prorata to all the subscribed shares. Accordingly , no certificate of stock shall be issued until the subscription is fully paid. This is based on the rule that a subscription contract is an invisible contract. (SEC Opinion , Sept.1989) Thus, if the subscription is for P10.00 par value, and P6,000.00 has been paid, such payment is applied pro-rata to the 1,000 shares at P6.00 each.No certificate of stock may thus be issued. Exception : The board of directors at its option and if not prohibited by the by – laws , may apply the payment to such number of shares as may be covered by the payment and issue corresponding certificate therefore. In the foregoing example , the payment may be applied to 600 shares at P10.00 par value for a total of P6,000.00.A certificate of stock may thus be issued for 600 shares. 3. Transfer of shares of stock Shares of stock issued are personal property and may be transferred by the delivery of the certificate indorsed by the owner of his attorney-in-fact or other person legally authorized to make the transfer.(SEC.63) Validity of unregistered transfer of shares a. As between the parties – The transfer is valid b. As against the corporation and third persons – the transfer is not valid until it is recorded in the books of the corporation so as to show the following:
1. 1. The names of the parties to the transaction. 2. The date of the transfer. 3. The number of the certificate or certificates. 4. The number of shares transferred.(SEC.33)
Unpaid shares not transferable in corporate books No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. (SEC.65) V. Liability of directors and officers for watered stock,(SEC.65) 1.Grounds for liability a. By consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form,other than cash, valued in excess of its fair value. b. By not expressing his objection in writing and filing the same with the corporate secretary despite having knowledge of such issuance. 2. Nature of liability Such director or officer shall be solidarily liable with the stockholder concerned for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. To whom liable To the corporation and its creditors. VI. Liability of stockholders 1. Liability to the corporation for unpaid stock subscriptions. (SEC.67-70) 2.Liability to the corporation for interest on unpaid subscriptions. (SEC.66) 3.Liability to corporate creditors for unpaid stock subscriptions. 4.Liability to the corporation and its creditors for watered stock. (SEC.65) 5.Liability for dividends unlawfully received.(SEC.43) 6.Liability for failure to incorporate.(SEC.10) VII. Liability of subscribers for unpaid subscription. Liability for balance of subscription (SEC.67) a. Date and amount of payment 1.)On the date specified in the contract of subscription. The amount to be paid is that stated to be paid on the fixed in the contract of subscription.
e
n board of
ment
the absence thereof , on the date stated in the call made by directors. The board may declare due and payable in its call the of either of the following : a.) The whole balance of the subscription or b.) A percentage of the unpaid subscription.(SEC.67) b. Effect of failure to pay subscription on due date 1.) The entire balance shall become due and payable 2.) The stockholder shall be liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by-laws,computed from such date until full payment. 3.) If within 30 days fro the said date, no payment is made, all stock covered by the subscription shall be delinquent and shall be subject to deliquency sale,unless the board of directors orders otherwise.(SEC.67) Effect of delinquency a. The delinquent stock shall not be voted b. It shall not entitled to vote or to representation at any stockholders meeting c. The holder shall not be entitled to any rights of a stockholder, except the right to dividends.(SEC.71) Remedies of the corporation to enforce payment of the contract of subscription. 1.) By applying the cash dividends due on the shares to the unpaid balance of the subscription plus costs and expenses or withholding the stock dividends until the subscriber pays his obligation.(SEC.43) 2.) By filing a court action to collect the amount due on the unpaid subscription, with accrued interests, costs and expenses.(SEC.70) 3.) By selling the shares at public auction (deliquency sale). Procedure of delinquency sale a.The board of directors, by a resolution, orders the sale of delinquent stock. b. Notice of the sale and a copy of the resolution are given to the
If
idders
delinquent subscriber. The same shall also be published in a newspaper of general circulation in the province or city where the principal office of the corporation is located. c. If the delinquent subscriber fails to pay on or before the date of the sale, the balance due on his subscription, accrued interest, costs of advertisement and expenses of sale, said delinquent stock shall be sold at public auction to the highest bidder. Highest bidder,meaning The highest bidder is the one who offers to pay the full amount of the subscription, accrued interest, cost of advertisement and expenses of sale for the smallest number of shares. 1.)If there is highest bidder The shares he declared in his bid shall be transferred to him in the books of the corporation and a certificate of stock issued in his favor.The remaining shares, if any, shall be credited n favor of the delinquent stockholder who shall liksewise he issued a certificate of stock covering such shares. 2.) If there is no highest bidder (as when there are but no one offers to pay the full amount due.) The corporation may bid for the delinquent shares, and the total amount due shall be credited as paid in full in the books of the corporation.Title to the shares shall be vested in the corporation as treasury shares. Right of subscriber to recover shares illegally sold a.) Grounds 1.) Irregularity or defect in the notice of sale of the delinquent stock 2.) Irregularity in the sale of the delinquent stock. b.) Requisites for recovery 1.) The party seeking recovery must pay or tender to the party holding the stock the sum for which the same was sold, with the interest from
the date of sale at the legal rate. 2.) The complaint must be filed within 6 months from t
2.Liability for interest 2. Subscribers shall pay interest on unpaid subscriptions from the date of subscription if so required by the bylaws.The rate of interest shall be at the : a. Rate fixed in the by-laws b. If no rate is fixed, at the legal rate which is 12% Rights of stockholders 1. The right to vote. 2. The right to dividends (SEC.43) 3. To right to inspect corporate books and records. (SEC.74,75) 4. The right to elect and remove directors.(SEC.24,28) 5. The right to a stock certificate.(SEC.64) 6. The right to pre – emption.(SEC.39) 7. The right to enter into voting trust agreements. (SEC.59) 8. The right to ask for the dissolution of the corporation in proper cases: 9. The right to bring derivative suit. Derivative suit – a suit filed by a stockholder in the name and in behalf of the corporation to protect corporate rights or redress wrongs,committed againts the corporation, whenever corporate officers refuse to bring such actions or such officers are the ones to be sued or held liable. Rights of unpaid shares Holders of shares not fully paid which are not delinquent shall have all the rights of the stockholder (SEC.72) except the right to a stock certificate. (SEC.64)
Lost or destroyed certificates (SEC.73) A new certificate may be issued in lieu of a lost or destroyed certicate. The procedure of brief for the issuance of a new stock certificate is as follows: 1. Execution of affidavit of loss by the stockholder. 2. Publication of the loss for 3 consecutive weeks by the corporation at the expense of the stockholder. 3. One year from last publication, a new certificate will be issued if no contest is presented. A new certificate may be issued before the lapse of the year period provided the stockholder files a bond or other security. Corporate Books and Records Books and records required to be kept (SEC.74) 1. Records of all business transactions. 2. Minutes of meetings of directors or trustees. 3. Minutes of meetings of stockholders or members which shall set forth in detail the following: a. Time and place of holding the meeting b. How authorized c. The notice given d. Whether the meeting was regular or special, and if special, its object or purpose e. Those present and absent f. Every act done or ordered at the meeting 4. Stock and transfer book showing the following ; a. Names of stockholders alphabetically arranged b. Installments paid and unpaid on all stock for which subscription has been made and date of payment of any installment. c. A statement of every a may alienation,sale or transfer of stock made and the date thereof,and by whom and to whom made d. Such other entries as the by-laws may prescribe. Place where books and records must be kept (SEC.74) 1. Records of business transactions and minutes of meetings – the principal office of the corporation. 2. Stock and transfer book – at the principal office of the corporation or in the office of the stock and transfer agent.
Rights to records, minutes of meeting, and stock and transfer book,of directors or trustees or of stockholders or members (SEC.74) 1. Right to inspect the business records, minutes and stock and transfer book 2. Right to demand the following: a. The noting in the minutes when a director , trustee,stockholder or member entered or left the meeting. b. The careful recording in the minutes of the years and nays taken on any motion or proposition. c. The recording of the protest of any director , trustee, stockholder or member on any action or proposed action. d. A copy of excerpts from the records and minutes , on his written demand, at his expense. Time of inspection At reasonable hours on business days.(SEC.74) Liability of officer or agent who shall refuse to allow any director, trustee, stockholder or member to examine and copy excerpts (SEC.74) 1. He shall be liable to such director , trustee, stockholder or member for damages. 2. He shall be guilty of an offense punishable by a fine not less than P1,000.00 but not more than P10,000.00 or by imprisonment for not less than 30 days but not more than 5 years,or both, in the discretion of the court. Exception : If such refusal is pursuant to a resolution or order of the board of directors or trustees, the liability shall be imposed upon the directors or trustees who voted for such refusal. Grounds to disallow inspection and copying of excerpts 1. If the person making the demand has improperly used any information secured through any prior examination of the records of such corporation or of any other corporation. 2. If such person was not acting in good faith or for a legitimate purpose in making his demand. (SEC.74) Duty of the board of directors or trustees to present financial report At the regular meeting of stockholders or members, the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year, which shall include financial statements, duly signed by an
independent CPA. However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be certified under oath by the treasurer or any resposible officer of the corporation. (SEC.75) Right to financial statements Within 10 days from receipt of a written, request of any stockholder or member, the corporation shall furnish to him the most recent financial statements which shall include the following: 1. Balance sheet as at the end of the last taxable year showing in reasonable detail its assets and liabilities. 2. Profit and loss statement for said taxable year showing the result of the operations.(SEC.75) MERGER AND CONSOLIDATION Concept of merger are united, It is the union of two or more corporations whereby one or more but not all of the constituent corporations are absorbed by one which continues in existence and retains its name and corporate identity , called the surviving corporation. The rights, privileges , franchises, and property of the constituent corporations are merged into the surviving corporation. Concept of consolidation It is the union of two or more corporations whereby the existence of the constituent corporations are terminated and a new one, called the consolidated corporation , is created.The rights, priveleges, franchises and property of the constituent corporations become the rights, priveleges, franchises and property,of the consolidated corporation. Procedure for a merger or consolidation 1. The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of merger or consolidation setting forth the following : a. The names of the corporations proposing to merge or consolidate. b. The terms of merger or consolidation and the mode of carrying the same into effect. c. A statement of the changes, if any, n the articles of incorporation of the surviving corporation in case of merger ; and all the statements required to be set forth in the articles of incorporation for corporations organized under the Corporation Code, with respect to the consolidated corporation in case of consolidation. d. Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.(SEC.76) 2. The plan of merger shall be submitted for approval by the stockholders or members of each constituent corporation at separate meetings duly called for the purpose. The vote at least 2/3 of the outstanding capital stock or 2/3 of the members shall be necessary for the approval of such plan. (SEC.77) 3. Articles of merger or consolidation shall be executed by each of the constituent corporations, signed by the president or vicepresident and certified by the secretary of each corporation setting for the following: a. The plan of the merger or the plan of consolidation. b. The number of shares outstanding, or the number of members, as the case may be. c. As to each corporation, the number of shares or members voting for and against such plan,respectively.(SEC.78) The articles of merger or consolidation shall be submitted to the SEC for its approval.In case of special corporations governed by special laws, the favorable recommendation of the appropriate govenrment agent shall first be obtained. (SEC.79) The SEC shall issue a certificate of merger or consolidation at which time, the merger or consolidation shall be effective. (SEC.79) Effects of merger or consolidation 1. The constituent corporations shall become a single corporation,the surviving corporation in case of merger, and the consolidated corporation in case of consolidation. 2. The separate existence of the constituent corporations shall cease, except that of the surviving corporation or the consolidated corporation. 3. The surviving or consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and responsibilities of a corporation organized under the Corporation Code. The surviving or consolidated corporation shall possess all the rights, privileges, franchises, property and all interest of each of the constituent corporations. The surviving or consolidated corporation shall be liable for all the liabilities of each of the constituent corporations.(SEC.80) DISSOLUTION Dissolution , concept
Dissolution of a corporation is the termination of the existence of a corporation. Kinds of dissolution 1. Voluntary dissolution a. Voluntary dissolution where no creditors are affected.(SEC. 118) b. Voluntary dissolution where creditors are affected. (SEC. 119) c. Amending the articles of incorporation to shorten the corporate term. (SEC. 120) d. In the case of corporation sole by, submitting to the SEC a verified declaration of dissolution. (SEC. 115) 2. Involuntary dissolution a. By the expiration of the term provided in the articles of incorporation. (SEC. 11) b. By its failure to formally organize and commence the transaction of its business or construction of its works within 2 years from its incorporation. (SEC.22) c. By order of the Sec. (SEC. 121) d. By legislative dissolution. (SEC. 145) Voluntary dissolution where creditors are not affected 1. Vote required a. Majority vote of the board of directors or trustees. b. Resolution of 2/3 of the outstanding capital stock or 2/3 of the members in a meeting called for the purpose. 2. A copy of the resolution authorizing the dissolution duly certified by a majority of the board of directors or trustees and countersigned by the corporate secretary is filed with SEC. 3. Thereupon, the SEC shall issue the certificete of dissolution (SEC.118) Voluntary dissolution where creditors are affected 1. Vote required a.Majority vote of the board of directors or trustees. b. Resolution of 2/3 of the outstanding capital stock or 2/3 of the members in ameeting called for the purpose. 2. A verified petition is filed with the SEC for the dissolution of the corporation. 3. Thereafter, the SEC hears the petition and try any issue made by the objections filed.
4. If no such objection is sufficient, and the material allegations of the petition are true, the SEC : a. Shall render judgment dissolving the corporation and directing the disposition of its assets as justice required and b.May appoint a receiver to collect such assets and the debts of the corporation.(SEC.119) Voluntary dissolution by shortening corporate term 1. This is effected by amending the articles of incorporation to shorten the corporate term. 2. A copy of the amended articles of incorporation is submitted to the SEC. 3. Upon approval of the amended articles of incorporation or the expiration of the shortened term, as the case may be, the corporation shall be deemed dissolved without further proceedings.(SEC.120) Voluntary dissolution of a corporation sale 1. This is affected by submitting to the SEC a verified declaration of dissolution. 2. Upon approval of such declaration by the SEC, the corporation shall cease to carry on its operations except for the winding up/of its affairs.(SEC.115) Involuntary dissolution by the expiration of its term A corporation is dissolved upon the expiration of the term provided in its articles of incorporation unless such term is extended.(SEC.11,37) Involuntary dissolution by non-use of corporate charter If a corporation does not formally organize and commence the transaction of its business of its business or construction of its works within 2 years from the date of its incorporation, its corporate powers shall cease and the corporations shall be deemed dissolved.(SEC.22) Involuntary dissolution by order of the SEC The SEC, after notice and hearing, may dissolve a corporation upon filing of a verified patition for the dissolution,on grounds such as the following: of a close corporation whenever 1. In the case of deadlock in the management of the affairs and business of a close corporation, the SEC , upon written petition by any stockholder shall have the power to make such order as it deems appropriate, including an order dissolving the corporation.(SEC.104) 2. An stockholder of a close corporation may by written petition to the SEC, compel the dissolution of the corporation whenever any of the acts of its directions, officers or those in control of the corporation is illegal, fraudulent, or dishonest, or oppressive or unfairly prejudicial to
the corporationor any stockholder, or whenever corporate assets are being misapplied or wasted. 3. Violations of the provisions of the Corporation Code no. specifically penalized therein (sec. 144) 4. As provided in PD 902-A Sec. 6 Foreign Corporation Foreign Corporation, Concept It is a corporation formed, organized or existing under any laws other than othose of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. License required before a foreign corporation can transact business A foreign corporation must obtain a business license and a certificate of authority from the appropriate government agency before it can transact business in the Philippines. (Se. 123)
V. Effect of failure to file by-laws within the period required The SEC may revoke or suspend the certificate of registration of the corporation. (PD 902-A) VI. When by-laws effective (SEC.46) Upon the issuance of the SEC of a certification that the by-laws are not inconsistent with the Corporation Code. VII. Contents of by-laws (SEC.47) Subject to the provisions of the Constitution,the Corporation Code, other special laws, and the articles of incorporation,a private corporation may provide in its by-laws for; 1. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees. 2. The time and manner of calling and conducting regular or special meetings of the stockholders or members. 3. The required quorum in meetings of stockholders or members and the manner of voting therein. 4. The form for proxies of stockholders or members and the manner of voting them. 5. The qualifications, duties and compensation of directors trustees,officers and employees. 6. The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof. 7. The manner of election or appointment and the term of office of all officers other than directors or trustees. 8. The penalties for violation of the by-laws. 9. In the case of stock corporations,the manner of issuing certificates.Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. 10.Such other matters as may be necessary for thr proper or convenient transaction of its corporate business and affairs. VIII. Amendment, repeal, or adoption of new by-laws (SEC.48) 1. Vote required a. Majority vote of the board of directors or trustees,and
b. Majority of the outstanding capital stock or majority of the members (voting and non-voting) in a meeting called for the purpose. Delegation of power to amend or repeal by-laws or adopt new by-laws to board of directors or trustees a. Delegation of the power The owners of 2/3 of the outstanding capital stock or 2/3 of the members may delegate to the board of directors or trustees the power to amend or repeal by-laws or adopt new by-laws.In such a case ,the board of directors or trustees may amend or repeal the by-laws or adopt new by-laws by a majority vote of those present provided there is a quorum. b.Revocation of the power The owners of the majority of the outstanding capital stock or majority of the members may revoke the power previously delegated to the board. 2. When amendment or new by-laws effective Upon the issuance by the SEC of a certification that the amended or new by-laws are not inconsistent with the Corporation Code. IX. Distinctions between articles of incorporation and by-laws 1.Articles of incorporation constitute the charter of the corporation, while by-laws are the rules of action adopted by a corporation. 2.Articles of incorporation are executed before incorporation,while by-laws are adopted before or after incorporation. 3.Articles of incorporation are adopted by the incorporators, while by-laws if adopted before incorporation, are adopted by the incorporators and if after, by the stockholders or
members. 4.The filing of the articles of incorporation is a condition precedent for the acquisition by the corporation of a juridical personality, while the filing of the by-laws is a condition subsequent thereto.
MEETINGS of DIRECTORS or TRUSTEES STOCKHOLDERS or MEMBERS I. Necessity of meetings Meetings,whether those of the board of directors or trustess,or the stockholders or members,are necessary in order that any corporate act may be decided upon only after deliberation and consultation among themselves.Meetings will give them opportunity to deliberate and vote on matters affecting the corporation. II. Meetings of directors or trustees 1. Kinds of meetings a. Regular meeting 1.) Date of meeting This is held monthly, unless the by-laws provide otherwise. (SEC.53) 2.) Notice of contents Notice stating the date, time and place of meeting must be sent to every director or trustees at least 1 day prior to the scheduled meeting. A director or trustee may waive this requirement, expressly or impliedly. (SEC.53) b. Special meeting 1.) Date of meeting This may be held at any time upon the call of the president or as provided in the by-laws.(SEC.53)
2.) Notice and Contents Notice stating the date, time and place of meeting must be sent to every director or trustee at least 1 day prior to the scheduled meeting. A director or trustee may waive this requirement, expressly or impliedly.(SEC.53) 2. Place of meeting,whether regular or special Meetings may be held anywhere in or outside the Philippines,unless the by-laws provide otherwise. (SEC.53)
3. Quorum in meetings Majority of the number of directors or trustees stated in the articles of incorporation, unless such articles or the by-laws provide for a greater majority.(SEC.25) 4. Presiding officer The president shall preside at all meetings of the directors or trustees, unless the by-laws provide otherwise.(SEC.54) 5. Manner of voting; presence required Directors or trustees vote during meetings per head. Directors or trustees cannot attend or vote by proxy at board meetings.(SEC.25) III. Meetings of stockholders or members 1. Kinds of meetings a. Regular meeting 1.) Date of meeting This is held annually on a date fixed in the by-laws,or if not so, on any date in April every year as determined by the board of directors or trustees.(SEC.50) 2.) Notice and contents Written notice stating the place and time of meeting must be sent to all stockholders or members at least 2 weeks prior to the meeting ,unless a different period is required by the by-laws.(SEC.50,51)
Notice of any meeting may be waived, expressly or impliedly by any stockholder or member.(SEC.50) b. Special meeting 1.) Date of meeting This may be held at any time deemed necessary or as provided in the by-laws,(SEC.50) 2.) Notice and contents Written notice stating the place and time of meeting must be sent to all stockholders or members at least 1 week prior to the meeting, unless a different period I required by the by-laws. (SEC.50,51)
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.(SEC.50) 2. Place of meetings,whether regular or special They shall be held in the city or municipality where the principal office of the corporation is located and if practicable in the principal office of the corporation. For this purpose,Metro Manila shall be considered a city or municipality.(SEC.51) 3.Quorum in meetings Majority of the outstanding capital stock or majority of the members unless a greater majority is provided for in the Corporation Code or in the by-laws.(SEC.52) 4. Presiding officer The president shall preside at all meetings of the directors or trustees,unless the by-laws provide otherwise.(SEC. 54) 5. Who may call meeting a. The person authorized in the by- laws.(SEC.50) b. If none was authorized in the by-laws, they call may be made by the director, trustee or officer entrusted with the management of the corporation. c. A petitioning stockholder or member, on order of the SEC, may call a meeting, if for any cause, there is no
person authorized to call a meeting.(SEC.50) d. The secretary of the corporation or by a stockholder or member in case of a special meeting to remove directors or trustees.(SEC.28) 6. Requisites for a valid meeting. a. It must be held at the proper place.(SEC.51) b. It must be held at the stated date and time.(SEC.50,51) c. It must be called by the proper person. (SEC.50,28) d. Previous notice must have been given.(SEC.50,51) e. There must be quorum.(SEC.52) Effect if meeting is improperly held or called All proceedings had and any business transacted shall be valid provided the following requisites are present:
a. They must be within the powers or authority of the corporation.i,e.,not ultra vires. b. All the stockholders or members are present or duly represented at the meeting.(SEC.51) 7. Manner of voting a. Stockholders vote by shares.Members vote on a per head basis unless the laws provide otherwise. b. Right to vote ; how exercised 1. Directly or personally by the stockholder or member a.) If the shares are pledged or mortgaged, the stockholder pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly given such right in writing which is recorded in the appropriate corporate books by the pledgor or mortgagor.(SEC.55) b. In case of shares owned jointly by two or more persons, in order to vote the same, the consent of all coowners shall be necessary, except in the following : 1.)There is a written proxy, signed by all coowners authorizing one or some of them or any other person to vote such share or shares.
2.)The shares are owned in an “and/or” capacity in which case, any one may vote the shares or appoint a proxy for the purpose. (SEC.56) 2.) Through representative voting a.) By means of proxy Proxy , concept Proxy is understood in 3 senses as follows: 1.)The formal authority given by the shareholder or member to another person to exercise the voting right. 2.)The person given the authority by the authority by the stockholder or member to exercise the voting right. 3.The written instrument evidencing the authority given by the stockholder or member for the exercise of the voting right.
Limitations on proxies (the formal authority) (SEC.58) stockholder corporate scheduled meeting. 1.) It must be in writing, signed by the or member, and filed with the secretary,before the
2.) It is valid only for the meeting for which it is intended, unless provided in the proxy, except in the case of a continuing proxy which shall be valid and effective for a period not exceeding 5 years at any one time. b.) By means of a voting trust agreement The trustee under the voting trust agreement shall exercise the voting right.(SEC.59) c.) Through legal representatives Executors, administrators, receives and other legal representatives duly appointed by the court may attend and vote in behalf of the stockholders or members,without need of any written proxy. (SEC.55) IV. Voting trusts
1. Voting trust, concept Voting trust is an agreement in writing whereby one or more stockholders of a corporation transfer their shares to a trustee or trustees, for the purpose of conferring in the latter,voting and other rights pertaining such shares. A voting trust is designed to enable stockholders to dispose their shares but still retain control over the corporation and thus assure continuity of policy and management. 2. Procedure on transfer of shares a. The certificate/s of stock covered by the voting trust agreement shall be cancelled. b. New certificates shall be issued in the name of the trustee or trustees stating that they are issued pursuant to the voting trust agreement.In the books of the corporation,it shall be stated that the transfer in the name of the trustee or trustees is made pursuant to the voting trust agreement.
c. The trustee or trustees shall execute and deliver to the transferors voting certificates, which shall be transferable in the same manner and with the same effect as certificates of stock. 3. Effects of the voting trust agreement a. The voting trustee acquires legal title to the shares. b. The stockholders making the transfer become mere equitable owners of their shares represented by the voting trust certificates.Accordingly, they are disqualified from being elected as directors unless they retain at least 1 share of stock in their name.However , they retain control over the management of the corporation. c. The trustee votes in accordance with the terms of the voting trust agreement.He may vote in person or by proxy as provided therein. d.Both the transferor and the trustees may exercise the right of inspection of all corporate books and records. e. Any stockholder may inspect the voting trust agreement
filed with the corporation in the same manner ,as all corporate books and records. f. Any other stockholder may transfer his shares to the same trustee upon the same terms and conditions stated in the voting trust agreement, and there upon shall be bound by all the provisions therein. 4. Requisites and limitations of the voting trust agreement a. It must be in writing and duly notarized. b. A certified true copy must be filed with the SEC; otherwise,it is ineffective and unenforceable. c.The voting trust shall not exceed 5 years at any one time, except if it is specifically required under a loan agreement,in which case, the period may be for more than 5 years but shall automatically expire upon full payment of the loan. d.Unless the voting trust is renewed, all right granted in the agreement shall automatically expire at the end of the agreed period, and the voting trust certificates and the certificates of stock
issued in the name of the trustee shall be deemed cancelled and new certificates of stock issued in the name of the transferors. e. No voting trust agreement shall be entered into to circumvent laws against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.(SEC.59) V. Distinctions between proxy and voting trust agreement 1. The proxy has no legal title to the shares, while a trustee acquires the title of the transferor. 2. A proxy is generally revocable, while a voting trust agreement is irrevocable for the duration of its term. 3. A proxy is valid only for the meeting for which it was intended except as provided therein and in the case of a continuing proxy .A voting trust agreement is not limited to a particular meeting. 4. A proxy votes in the absence of the stockholder , while a trustee can vote and exercise the rights of the transferor even in the latters presence in the meeting. VI.Summary of rules on voting by stockholders or members
1. Voting shares or members a. 2/3 of outstanding stocks capital stock or 2/3 of the members entitled to vote 1.)Removal of directors (SEC.28) 2.) Ratification of director's or trustee's contract with the corporation (SEC.32) 3.) Ratification of the act of a director who is disloyal. (SEC.34) 4.) Issuance of stock dividends (SEC.43) 5.) Entering into a management contract in certain cases of interlocking stockholders or interlocking directors, (SEC.44), where 2/3 of the outstanding capital stock or 2/3 of the members of the managed corporation is the required vote. 6.) Adoption of a plan of distribution of assets of a nonstock corporation upon dissolution. (SEC.95) b. Majority of the outstanding capital stock or majority of the members entitled to vote
1.) Election of directors (SEC.24) 2.) The granting of compensation to directors (SEC.30) 3.) Entering into a management contract,with respect to both managing and managed corporation.(SEC.44) 4.) The fixing of the issued price of no-par shares (SEC.62) 2. Voting and non-voting shares or members a. 2/3 of outstanding capital stock or 2/3 of the members 1.) Amendment of the articles of incorporation (SEC.16) 2.) Extension or shortening of corporate term (SEC.37) 3.) Increase or decreased of capital stock.(SEC.38) 4.) Incurring, creating or increasing bonded indebtedness. (SEC.38) 5.) Sale, lease, exchange,mortgage, pledge or other disposition of all substantially all of the corporate properly (SEC.40)
6.) Investment of corporate funds in another corporation or business or for other than the primary purpose (SEC.42) 7.)Delegation to the board of directors of the power to adopt, amend or repeal by-laws.(SEC.48) 8.) Ratification of merger or consolidation (SEC.77) 9.) Dissolution of the corporation (SEC.118,119) b. Majority of the outstanding capital stock or majority of the members 1.Adoption of by-laws (SEC.46) 2. Amendment or repeal of by-laws.(SEC.48) 3. Revocation of the authority to adopt, amend, or repeal bylaws.(SEC.48) STOCKS AND STOCKHOLDERS I. How one becomes a stockholder 1.By subscription of unissued shares. 2.By purchase of treasury shares – covers issued shares.
3.By transfer from a stockholder – covers issued shares. Some modes transfer are: a. Sale b. Barter or exchange c. Donation d. Succession 11. Subscription 1. Concept, form It is a contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed. The contract is called subscription not withstanding that the parties may refer to it as a purchase or some other contract.(SEC.60) No particular form is provided for in the Corporation Code for the contract of subscription. As it is not one of the contracts that must comply with the Statute of Frauds, it is enforceable
although not in writing. However, for the convenience of both the corporation and the subscribers, the subscription contract must be in writing, even a private one, if the amount involved exceeds P500.00. 2. Kinds of subscription a. Pre – incorporation subscription – subscription to the unissued stock of a corporation still to be formed. Revocability of pre – incorpoation subscription 1.) Before the filing of the articles of incorporation The subscription cannot be revoked for a period of not less than 6 months from the date of subscription, except in the following causes: a.) All the other subscribers consent to the revocation, or b.) The in corporation of the proposed corporation fails to materialize within 6 months from date of subscription or within a longer period as may be stipulated in the contract of subscription. 2.) After the filing of the articles of incorporation No pre – incorporation subscription may be revoked after the submission of the articles of incorporation to the SEC.(SEC 61)
the been formed.
b. Post – incorporation subscription – subscription to unissued stock of a corporation that has
Revocability of post – incorporation subscription The subcription may not be revoked after its acceptance by the corporation so as to release the subscriber from liability unless consented to by all stockholders. 3. Distiguished from purchase of stockholder a. Subscription may be made before or after incorporation, while purchase may be made only after corporation. b. The subscribers becomes a stockholder even if he has not paid his subscription, while the purchaser does not become a shareholder until he has paid the
purchase price in full. c. Subscription is not governed by the Statute of Frauds, while purchase of stock is governed by the Statute of Frauds if the price is at least P500.00 . d. The subscriber can vote on the shares even if he has not paid his subscription in full as long as the shares are not delinquent.The purchaser of stock can vote only on the shares ha has paid. III. Consideration for stocks 1. Concept Subscription to shares of stock, being a contract, must have all the requisites of a contract including cause or consideration. Since it is an onerous contract, the consideration with respect to the corporation is the prestation of the subscriber subject to the rules under.(SEC.62) 2. Amount of consideration a. Par value shares – The consideration should not be less than the par value. The par value is stated in the stock certificate. b. No - par value shares – The consideration should not be less than the issued price. The issued price o no-par shares may be fixed as follows : 1.)In the articles of incorporation. 2.)By the board of directors pursuant to authority conferred upon it by the articles of incorporation or by the by-laws. 3.)In the absence of both, by the stockholders representing
atleast a majority of the outstanding capital stock in the meeting called for the purpose. (SEC.62,last par.) 3. What may be the consideration for stocks Consideration for the issuance of stocks may be any or a combination of the following: a. Actual cash paid to the corporation. b. Property, tangible or intangible, which must be : 1.) actually received by the corporation, and
2.) necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued. c. Labor performed for services actually rendered to the corporation. d. Previously incurred indebtedness by the corporation. e. Amounts transferred from unrestricted retained earnings to stated capital. f. Outstanding shares exchanged for stocks in the event of reclassification or conversion. Determination of valuation where consideration is other than actual cash or consists of intangible property such as patents or copyrights, the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to the approved by the SEC. Note: The consideration for stocks may be used for the issuance of bonds insofar as they may be applicable Prohibited considerations a. Promissory notes b. Future services Note : Checks may be accepted by the corporation for the subscriptions.However, the shares shall not be considered paid until the checks have been cashed or when through the fault of the corporation they have been impaired. (See art.1249) IV. Certificate of stock 1. Concept It is the written acknowledgment by the corporation of the stockholder's interest in the management, profits and assets of the corporation.
The certificate of stock when issued requires the following : a. It must be signed by the president or vice – president , countersigned by the secretary or assistant secretary. b. Sealed with the seal of the corporation.(SEC.63) 2. When issued
No certificate of stock shall be issued to a subscriber until the following is paid. a. The full amount of the subscription. b. The interest, and expenses (in case of delinquent shares),it any , is due.(SEC.64) Rule in case of partial payment General rule : The partial payment shall be applied prorata to all the subscribed shares. Accordingly , no certificate of stock shall be issued until the subscription is fully paid. This is based on the rule that a subscription contract is an invisible contract. (SEC Opinion , Sept.1989) Thus, if the subscription is for P10.00 par value, and P6,000.00 has been paid, such payment is applied pro-rata to the 1,000 shares at P6.00 each.No certificate of stock may thus be issued. Exception : The board of directors at its option and if not prohibited by the by – laws , may apply the payment to such number of shares as may be covered by the payment and issue corresponding certificate therefore. In the foregoing example , the payment may be applied to 600 shares at P10.00 par value for a total of P6,000.00.A certificate of stock may thus be issued for 600 shares. 3. Transfer of shares of stock Shares of stock issued are personal property and may be transferred by the delivery of the certificate indorsed by the owner of his attorney-in-fact or other person legally authorized to make the transfer.(SEC.63) Validity of unregistered transfer of shares a. As between the parties – The transfer is valid b. As against the corporation and third persons – the transfer is not valid until it is recorded in the books of the corporation so as to show the following:
1. 1. The names of the parties to the transaction. 2. The date of the transfer. 3. The number of the certificate or certificates. 4. The number of shares transferred.(SEC.33)
Unpaid shares not transferable in corporate books No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. (SEC.65) V. Liability of directors and officers for watered stock,(SEC.65) 1.Grounds for liability a. By consenting to the issuance of stocks for a consideration less than its par or issued value or for a consideration in any form,other than cash, valued in excess of its fair value. b. By not expressing his objection in writing and filing the same with the corporate secretary despite having knowledge of such issuance. 2. Nature of liability Such director or officer shall be solidarily liable with the stockholder concerned for the difference between the fair value received at the time of issuance of the stock and the par or issued value of the same. To whom liable To the corporation and its creditors. VI. Liability of stockholders 1. Liability to the corporation for unpaid stock subscriptions. (SEC.67-70) 2.Liability to the corporation for interest on unpaid subscriptions. (SEC.66) 3.Liability to corporate creditors for unpaid stock subscriptions. 4.Liability to the corporation and its creditors for watered stock. (SEC.65) 5.Liability for dividends unlawfully received.(SEC.43) 6.Liability for failure to incorporate.(SEC.10) VII. Liability of subscribers for unpaid subscription. Liability for balance of subscription (SEC.67) a. Date and amount of payment 1.)On the date specified in the contract of subscription. The amount to be paid is that stated to be paid on the fixed in the contract of subscription.
e
n board of
ment
the absence thereof , on the date stated in the call made by directors. The board may declare due and payable in its call the of either of the following : a.) The whole balance of the subscription or b.) A percentage of the unpaid subscription.(SEC.67) b. Effect of failure to pay subscription on due date 1.) The entire balance shall become due and payable 2.) The stockholder shall be liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by-laws,computed from such date until full payment. 3.) If within 30 days fro the said date, no payment is made, all stock covered by the subscription shall be delinquent and shall be subject to deliquency sale,unless the board of directors orders otherwise.(SEC.67) Effect of delinquency a. The delinquent stock shall not be voted b. It shall not entitled to vote or to representation at any stockholders meeting c. The holder shall not be entitled to any rights of a stockholder, except the right to dividends.(SEC.71) Remedies of the corporation to enforce payment of the contract of subscription. 1.) By applying the cash dividends due on the shares to the unpaid balance of the subscription plus costs and expenses or withholding the stock dividends until the subscriber pays his obligation.(SEC.43) 2.) By filing a court action to collect the amount due on the unpaid subscription, with accrued interests, costs and expenses.(SEC.70) 3.) By selling the shares at public auction (deliquency sale). Procedure of delinquency sale a.The board of directors, by a resolution, orders the sale of delinquent stock. b. Notice of the sale and a copy of the resolution are given to the
If
idders
delinquent subscriber. The same shall also be published in a newspaper of general circulation in the province or city where the principal office of the corporation is located. c. If the delinquent subscriber fails to pay on or before the date of the sale, the balance due on his subscription, accrued interest, costs of advertisement and expenses of sale, said delinquent stock shall be sold at public auction to the highest bidder. Highest bidder,meaning The highest bidder is the one who offers to pay the full amount of the subscription, accrued interest, cost of advertisement and expenses of sale for the smallest number of shares. 1.)If there is highest bidder The shares he declared in his bid shall be transferred to him in the books of the corporation and a certificate of stock issued in his favor.The remaining shares, if any, shall be credited n favor of the delinquent stockholder who shall liksewise he issued a certificate of stock covering such shares. 2.) If there is no highest bidder (as when there are but no one offers to pay the full amount due.) The corporation may bid for the delinquent shares, and the total amount due shall be credited as paid in full in the books of the corporation.Title to the shares shall be vested in the corporation as treasury shares. Right of subscriber to recover shares illegally sold a.) Grounds 1.) Irregularity or defect in the notice of sale of the delinquent stock 2.) Irregularity in the sale of the delinquent stock. b.) Requisites for recovery 1.) The party seeking recovery must pay or tender to the party holding the stock the sum for which the same was sold, with the interest from
the date of sale at the legal rate. 2.) The complaint must be filed within 6 months from t
2.Liability for interest 2. Subscribers shall pay interest on unpaid subscriptions from the date of subscription if so required by the bylaws.The rate of interest shall be at the : a. Rate fixed in the by-laws b. If no rate is fixed, at the legal rate which is 12% Rights of stockholders 1. The right to vote. 2. The right to dividends (SEC.43) 3. To right to inspect corporate books and records. (SEC.74,75) 4. The right to elect and remove directors.(SEC.24,28) 5. The right to a stock certificate.(SEC.64) 6. The right to pre – emption.(SEC.39) 7. The right to enter into voting trust agreements. (SEC.59) 8. The right to ask for the dissolution of the corporation in proper cases: 9. The right to bring derivative suit. Derivative suit – a suit filed by a stockholder in the name and in behalf of the corporation to protect corporate rights or redress wrongs,committed againts the corporation, whenever corporate officers refuse to bring such actions or such officers are the ones to be sued or held liable. Rights of unpaid shares Holders of shares not fully paid which are not delinquent shall have all the rights of the stockholder (SEC.72) except the right to a stock certificate. (SEC.64)
Lost or destroyed certificates (SEC.73) A new certificate may be issued in lieu of a lost or destroyed certicate. The procedure of brief for the issuance of a new stock certificate is as follows: 1. Execution of affidavit of loss by the stockholder. 2. Publication of the loss for 3 consecutive weeks by the corporation at the expense of the stockholder. 3. One year from last publication, a new certificate will be issued if no contest is presented. A new certificate may be issued before the lapse of the year period provided the stockholder files a bond or other security. Corporate Books and Records Books and records required to be kept (SEC.74) 1. Records of all business transactions. 2. Minutes of meetings of directors or trustees. 3. Minutes of meetings of stockholders or members which shall set forth in detail the following: a. Time and place of holding the meeting b. How authorized c. The notice given d. Whether the meeting was regular or special, and if special, its object or purpose e. Those present and absent f. Every act done or ordered at the meeting 4. Stock and transfer book showing the following ; a. Names of stockholders alphabetically arranged b. Installments paid and unpaid on all stock for which subscription has been made and date of payment of any installment. c. A statement of every a may alienation,sale or transfer of stock made and the date thereof,and by whom and to whom made d. Such other entries as the by-laws may prescribe. Place where books and records must be kept (SEC.74) 1. Records of business transactions and minutes of meetings – the principal office of the corporation. 2. Stock and transfer book – at the principal office of the corporation or in the office of the stock and transfer agent.
Rights to records, minutes of meeting, and stock and transfer book,of directors or trustees or of stockholders or members (SEC.74) 1. Right to inspect the business records, minutes and stock and transfer book 2. Right to demand the following: a. The noting in the minutes when a director , trustee,stockholder or member entered or left the meeting. b. The careful recording in the minutes of the years and nays taken on any motion or proposition. c. The recording of the protest of any director , trustee, stockholder or member on any action or proposed action. d. A copy of excerpts from the records and minutes , on his written demand, at his expense. Time of inspection At reasonable hours on business days.(SEC.74) Liability of officer or agent who shall refuse to allow any director, trustee, stockholder or member to examine and copy excerpts (SEC.74) 1. He shall be liable to such director , trustee, stockholder or member for damages. 2. He shall be guilty of an offense punishable by a fine not less than P1,000.00 but not more than P10,000.00 or by imprisonment for not less than 30 days but not more than 5 years,or both, in the discretion of the court. Exception : If such refusal is pursuant to a resolution or order of the board of directors or trustees, the liability shall be imposed upon the directors or trustees who voted for such refusal. Grounds to disallow inspection and copying of excerpts 1. If the person making the demand has improperly used any information secured through any prior examination of the records of such corporation or of any other corporation. 2. If such person was not acting in good faith or for a legitimate purpose in making his demand. (SEC.74) Duty of the board of directors or trustees to present financial report At the regular meeting of stockholders or members, the board of directors or trustees shall present to such stockholders or members a financial report of the operations of the corporation for the preceding year, which shall include financial statements, duly signed by an
independent CPA. However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be certified under oath by the treasurer or any resposible officer of the corporation. (SEC.75) Right to financial statements Within 10 days from receipt of a written, request of any stockholder or member, the corporation shall furnish to him the most recent financial statements which shall include the following: 1. Balance sheet as at the end of the last taxable year showing in reasonable detail its assets and liabilities. 2. Profit and loss statement for said taxable year showing the result of the operations.(SEC.75) MERGER AND CONSOLIDATION Concept of merger are united, It is the union of two or more corporations whereby one or more but not all of the constituent corporations are absorbed by one which continues in existence and retains its name and corporate identity , called the surviving corporation. The rights, privileges , franchises, and property of the constituent corporations are merged into the surviving corporation. Concept of consolidation It is the union of two or more corporations whereby the existence of the constituent corporations are terminated and a new one, called the consolidated corporation , is created.The rights, priveleges, franchises and property of the constituent corporations become the rights, priveleges, franchises and property,of the consolidated corporation. Procedure for a merger or consolidation 1. The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of merger or consolidation setting forth the following : a. The names of the corporations proposing to merge or consolidate. b. The terms of merger or consolidation and the mode of carrying the same into effect. c. A statement of the changes, if any, n the articles of incorporation of the surviving corporation in case of merger ; and all the statements required to be set forth in the articles of incorporation for corporations organized under the Corporation Code, with respect to the consolidated corporation in case of consolidation. d. Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.(SEC.76) 2. The plan of merger shall be submitted for approval by the stockholders or members of each constituent corporation at separate meetings duly called for the purpose. The vote at least 2/3 of the outstanding capital stock or 2/3 of the members shall be necessary for the approval of such plan. (SEC.77) 3. Articles of merger or consolidation shall be executed by each of the constituent corporations, signed by the president or vicepresident and certified by the secretary of each corporation setting for the following: a. The plan of the merger or the plan of consolidation. b. The number of shares outstanding, or the number of members, as the case may be. c. As to each corporation, the number of shares or members voting for and against such plan,respectively.(SEC.78) The articles of merger or consolidation shall be submitted to the SEC for its approval.In case of special corporations governed by special laws, the favorable recommendation of the appropriate govenrment agent shall first be obtained. (SEC.79) The SEC shall issue a certificate of merger or consolidation at which time, the merger or consolidation shall be effective. (SEC.79) Effects of merger or consolidation 1. The constituent corporations shall become a single corporation,the surviving corporation in case of merger, and the consolidated corporation in case of consolidation. 2. The separate existence of the constituent corporations shall cease, except that of the surviving corporation or the consolidated corporation. 3. The surviving or consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and responsibilities of a corporation organized under the Corporation Code. The surviving or consolidated corporation shall possess all the rights, privileges, franchises, property and all interest of each of the constituent corporations. The surviving or consolidated corporation shall be liable for all the liabilities of each of the constituent corporations.(SEC.80) DISSOLUTION Dissolution , concept
Dissolution of a corporation is the termination of the existence of a corporation. Kinds of dissolution 1. Voluntary dissolution a. Voluntary dissolution where no creditors are affected.(SEC. 118) b. Voluntary dissolution where creditors are affected. (SEC. 119) c. Amending the articles of incorporation to shorten the corporate term. (SEC. 120) d. In the case of corporation sole by, submitting to the SEC a verified declaration of dissolution. (SEC. 115) 2. Involuntary dissolution a. By the expiration of the term provided in the articles of incorporation. (SEC. 11) b. By its failure to formally organize and commence the transaction of its business or construction of its works within 2 years from its incorporation. (SEC.22) c. By order of the Sec. (SEC. 121) d. By legislative dissolution. (SEC. 145) Voluntary dissolution where creditors are not affected 1. Vote required a. Majority vote of the board of directors or trustees. b. Resolution of 2/3 of the outstanding capital stock or 2/3 of the members in a meeting called for the purpose. 2. A copy of the resolution authorizing the dissolution duly certified by a majority of the board of directors or trustees and countersigned by the corporate secretary is filed with SEC. 3. Thereupon, the SEC shall issue the certificete of dissolution (SEC.118) Voluntary dissolution where creditors are affected 1. Vote required a.Majority vote of the board of directors or trustees. b. Resolution of 2/3 of the outstanding capital stock or 2/3 of the members in ameeting called for the purpose. 2. A verified petition is filed with the SEC for the dissolution of the corporation. 3. Thereafter, the SEC hears the petition and try any issue made by the objections filed.
4. If no such objection is sufficient, and the material allegations of the petition are true, the SEC : a. Shall render judgment dissolving the corporation and directing the disposition of its assets as justice required and b.May appoint a receiver to collect such assets and the debts of the corporation.(SEC.119) Voluntary dissolution by shortening corporate term 1. This is effected by amending the articles of incorporation to shorten the corporate term. 2. A copy of the amended articles of incorporation is submitted to the SEC. 3. Upon approval of the amended articles of incorporation or the expiration of the shortened term, as the case may be, the corporation shall be deemed dissolved without further proceedings.(SEC.120) Voluntary dissolution of a corporation sale 1. This is affected by submitting to the SEC a verified declaration of dissolution. 2. Upon approval of such declaration by the SEC, the corporation shall cease to carry on its operations except for the winding up/of its affairs.(SEC.115) Involuntary dissolution by the expiration of its term A corporation is dissolved upon the expiration of the term provided in its articles of incorporation unless such term is extended.(SEC.11,37) Involuntary dissolution by non-use of corporate charter If a corporation does not formally organize and commence the transaction of its business of its business or construction of its works within 2 years from the date of its incorporation, its corporate powers shall cease and the corporations shall be deemed dissolved.(SEC.22) Involuntary dissolution by order of the SEC The SEC, after notice and hearing, may dissolve a corporation upon filing of a verified patition for the dissolution,on grounds such as the following: of a close corporation whenever 1. In the case of deadlock in the management of the affairs and business of a close corporation, the SEC , upon written petition by any stockholder shall have the power to make such order as it deems appropriate, including an order dissolving the corporation.(SEC.104) 2. An stockholder of a close corporation may by written petition to the SEC, compel the dissolution of the corporation whenever any of the acts of its directions, officers or those in control of the corporation is illegal, fraudulent, or dishonest, or oppressive or unfairly prejudicial to
the corporationor any stockholder, or whenever corporate assets are being misapplied or wasted. 3. Violations of the provisions of the Corporation Code no. specifically penalized therein (sec. 144) 4. As provided in PD 902-A Sec. 6 Foreign Corporation Foreign Corporation, Concept It is a corporation formed, organized or existing under any laws other than othose of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. License required before a foreign corporation can transact business A foreign corporation must obtain a business license and a certificate of authority from the appropriate government agency before it can transact business in the Philippines. (Se. 123)
