Corporation Law Course Outline Revised

 

CORPORATION LAW REVISED COURSE OUTLINE Atty. Ferdinand V. Berongoy

I.

Introduction • • •

Batas Pambansa Blg. 68, Corporation Code of the Philippines Definition of Corporation (Sec. 2)  Theories on Corporate Existence and Powers -

Theor heory y of Co Conc nce essio ssion n Genossenchaft

(*search it from the internet ) • •

II. II.

Four (4) General Attributes of a Corporation Four (4) Basic Advantages of Corporate Organizations

Cl Clas ass sific ica ation ions o off C Co orp rpo ora rattion ons s •

Stock vs. non-stock corporations as to: − − − − − − − − − − − −

Definition (Sec. 3 & Sec. 87) Purpose (See Sec. 88) Distribution of profits Composition Scope of right to vote (Sec. 6 &. Sec. 89) Voting by proxy (Sec. 89 & Sec. 58) Voting by mail (Sec. 89) Who exercises corporate powers (Sec. 23 & 92)  Terms of director or trustee (Sec. 23 & Sec. 92) Election of officers (Sec. 25, Sec. 92 & Sec. 97) Place of meetings Director/truste Director/trustee e (Sec. 53) Place of meetings Stockholders/Members (Sec. 51 &

Sec. 93)  Transferability of interest or membership (Sec. 90) Distribution of assets in case of dissolution (Sec. 94) −

−

Case study: CIR vs. CLUB FILIPINO (5 SCRA 321; 1962) • • • • • • • •

Corporation Sole (Section 110) Eleemosynary Corporation Corporation de Jure Corporation de facto (Sec. 20) Corporation by estoppel (Sec. 21) Public Corporation Private Corporation Domestic Corporation

 

2 •

III. III.

Foreign Corporation (Sec. 123)

Fo Form rmat atio ion n an and dO Org rgan aniz izat atio ion n of Co Corp rpor orat atio ion n

(*secure from the Securities and Exchange Commission copies of    Artic Articles les of Inc Incor orpor poratio ation n of a sto stock ck cor corpor porati ation on and a non non-st -stock  ock  corporation)) corporation •

Who may form a corporation? (Sec. 10) -

•

Inco Incorp rpor orat ator ors s vs vs.. Co Corp rpor orat ator ors s (S (Sec ec.. 5) Characteristi stics of incorpo porrato ators and (natural or artificial) number rre equirement age rre equirement Re Resi side denc nce/ e/Ci Citi tize zens nshi hip p req requi uire reme ment nt

corporat orato ors:

Steps in Formation of Corporation 1. Prom Promotion otional al Stage (Se (Sec. c. 2, Rev Revised ised Sec Securit urities ies Act Act)) 2. Dr Draf afti ting ng of Ar Arti ticl cles es of Inco Incorp rpor orat atio ion n (Sec (Sec.. 14 an and d 15) 2.1.

Corporate n nam ame e

case study: LYCEUM OF THE PHILS. VS. CA

(219 SCRA 610)

2.2. Purpose Clause (Sec. 88) 2.3. Principal Office 2.4. Term of existence (Sec. 11) 2.5. Incorporators and Directors, number and qualifications 2.6. Other matters 2.7. Close corporations (Sec. 96)

3. Filing 1982).of Articles; payment of fees (SEC Circular # 4, 4. Ex Exam amin inati ation on of arti articl cles es;; ap appr prov oval al or re reje ject ctio ion n by SEC (Sec. 17) 5. Issuan Issuance ce of Cer Certific tificate ate of inc incorpor orporation ation (S (Sec. ec. 19 19))

•

Defective Attempt to Incorporate: De Facto Corporation (Sec. 20) Requisites for De Facto Corporation (* research in other sources e.g. internet ) 1. Use of c corp orpora orate te p powe owers rs 2. App Appare arentl ntly y vali valid d stat statute ute or llaw aw 3. Substa Substantial ntial or c color olorable able compl compliance iance Illustrative Cases:

 

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Ha Harr rril il vs vs.. D Dav avis is (to (to b be ep pro rovi vide ded) d) Be Berg rgen enon on v vs. s. Ho Hobb bbs s ((to to be pr prov ovid ided ed)) Ha Hall ll vs vs.. P Pic icci cio o ((to to be pr prov ovid ided ed))

Corporation by estoppel (Sec. 21) Illustrative cases: -

•

Cr Cran anso son nv vs. s. IB IBM MC Cor orp p (t (to o be pr prov ovid ided ed)) Sa Salv lvat atie ierr rra a vs. G Gar arli lito tos s (to b be e pro provi vide ded) d) Al Alber bertt vs vs.. Un Unive iversi rsity ty P Publ ublish ishing ing (to be p pro rovid vided) ed)

Internal Organization of Corporation 1. Adoption of by laws Sec. 36, Sec. 46, and Sec. 47 − − − − −

When adopted? Where kept? When effective? Additional requirements for special corporations? Contents of by-laws?

Case study: LOYOLA GRAND VILLAS v. CA (276 SCRA 681) GOVT. OF PHILIPPINE ISLANDS. V. EL HOGAR FLEISC FLEI SCHE HER R V. BO BOTI TICA CA NO NOLA LASC SCO O CO CO.. (4 (47 7 Ph Phil il.. 58 583; 3; 1925) 2. Election of directors and officers; commencement of business (Sec. 22 and Sec. 25)

IV.

  The C Co orporate Entity Theor ory y of Co Corp rpor orate ate En Enti tity ty (*re *resear search ch fro from m the 1.   The internet )

When doe When does s the cor corpor porati ation’s on’s ex exist istenc ence e as a leg legal al entity commence? (Sec. 19)

•

•

What rights does the corporation acquire? (Sec. 36)

Illustrative case:

-

SAN JU SAN JUAN AN ST STRU RUCT CTUR URAL AL & ST STEE EEL L FABRICATORS v. CA (296 SCRA 631)

2. Pi Pier erci cing ng the the ve veil il of Co Corp rpor orat ate e Fi Fict ctio ion n (*research from the internet )

 

When Ca When Can n the the Ve Veil il of Co Corp rpor orat ate e En Enti tity ty be Pierced?

•

Wha hatt are are th the e eff ffec ectts of disr disreg egar ardi ding ng the corporate veil? (research from the internet)

•

Illustrative cases: Laguna Transportation vs. SSS (to be provided) Palacio vs. Fely Transportation Company (to be provided)

3. Do Doct ctri rine ne

of “B “Bus usin ines esss-En Ente terp rpri rise se” ” search from the internet )

Tran Transf sfer er

(*

4. Parent-Subsidiary relationship (re (resea search rch fro from m the internet) •

What

•

subsidiary relationship? When may it be disregarded by the courts?

•

is

the

general

rule

governing

pare arent-

What are the criteria by which the subsidiary can be considered a mere instrumentality of the parent company?

Case study: YUTIVO VS. CTA

(1 SCRA 160; 1961)

V. FINANCING THE CORPORATION •

• •

Capital vs. Capital Stock distinguished (*search (*search from other  sources)) sources  TRUST FUND DOCTRINE (*search (*search from the internet ) Shares of Stock; Kinds 1. Co Comm mmon on S Sto tock cks s 2. Pref Prefer erre red d sto stock cks s 2.1. 2.1. Pref Prefer eren ence ce as to di divi vide dend nds s 2. 2.2. 2. Pr Pref efer eren ence ce as to vo voti ting ng 2.3. 2.3. Pref Prefer eren ence ce up upon on li liqu quid idat atio ion n 3. Pa Parr an and d no p par ar s sha hare res s 4. Tre Treasur asury y sh share ares s (Se (Sec. c. 9 9)) - CCP NO. 1 RULES GOVERNING REDEEMABLE AND TREASURY SHARES (1982) (to be provided) 5. Red Redeem eemabl able e shar shares es (Se (Sec. c. 8)

 

5 6. Fo Foun unde ders rs sh shar ares es •

Subscription Contracts (Sec. 66) 1. Pre-i Pre-incor ncorporati poration on subscr subscripti iption on (Sec. 13 an and d Sec. 61) 2. Post-i Post-incorp ncorporati oration on subscr subscripti iption on (Sec. 60 an and d Sec. 72)

•

Pre-emptive right to shares 1. Exten Extend d an and d li limitat mitation ion (Sec. 39)

VI. CONSIDERATION FOR ISSUANCE OF SHARES

• • •

• •

• •

Form of Consideration (Sec. 62) Liability on Watered stocks (Sec. 65) How payment of shares enforced (Sec. 13, Sec. 67, Sec. 68, Sec. 69 and Sec. 70) 1. Del Delinq inquen uency cy sale: re requi quisit sites es 2. Co Cour urtt Ac Acti tion on Effect of delinquency (Sec. 71) Rights and obligations of holders of unpaid but non-delinquent stocks (Sec. 72, 66, 63 and 64) Issuance of certificate (Sec. 64) Lost or destroyed certificate (sec. 73)

VII. CORPORATE POWERS • • •

• •

General Powers of Corporation (Sec. 36 and Sec. 45) Specific Powers of the Corporation ( Sec. 36 to Sec. 44) Implied Powers of the Corporation (*research from the internet)  The Ultra Vires Doctrine (*research from the internet) Legal Consequence of such “ultra “ultra vires” vires” acts: (*research from the internet)    

On the Corporation itself? On the immediate parties to the ultra vires contract? On the rights of stockholders? Rectifiable?

Case: Republ Repu blic ic of the the Ph Phil ilip ippi pine nes s February 28, 1963)

vs vs..

Ac Acoj oje e

Mi Mini ning ng (L-1 (L-180 8062 62,,

VIII. CONTROL AND MANAGEMENT OF CORPORATION •

Allocation of Power   Three

levels of Control

 

6 1. Bo Boar ard d of Di Dire rect ctor ors s 2. The Cor Corpor porate ate O Offi fficer cers s 3. Stock Stockholde holders rs or mem members bers (“ (“Resid Residual ual Po Power” wer”)) (*research it from the internet) What at ar are e thei theirr resp respec ecti tive ve “p “pow ower ers” s” in the the Question: Wh Corporation? •

Who exercises Corporate Powers? 1. Board o off Dire Director ctors s or Tru Trustees stees ((Sec. Sec. 2 23) 3) 1.1. 1.1. 1.2.. 1.2

Boa Board rd m must ust act as a b body ody in a m meet eeting ing (Se (Sec. c. 2 25) 5) Req Requir uireme ements nts o off a m meet eeting ing (Se (Sec. c. 5 53 3 an and d Sec Sec.. 49 49))

2. Corpo Corporate rate O Office fficers rs and agent agents s (Sec (Sec.. 25) 2.1. 2.1. 2. 2.2. 2. 2. 2.3. 3.

Pr Presi esiden dent; t; Fu Funct nction ion? ? (Se (Sec. c. 5 54) 4) O Othe therr fun functi ctions ons? ? Se Secr cret etar ary; y; fu func ncti tion on? ? Tr Trea easu sure rer; r; func functi tion on? ?

3. Boa Board rd Com Commi mitte ttees es (Se (Sec. c. 35 35)) 4. Sto Stockh ckhold olders ers o orr me membe mbers rs 4.1.. Req 4.1 Requir uireme ements nts o off stoc stockhol kholder ders’ s’ or me membe mbers’ rs’ m meet eeting ing and of voting 4. 4.2. 2. No Noti tice ce (S (Sec ec.. 49, Se Sec. c. 50 50,, Se Sec. c. 16 16,, Se Sec. c. 37 an and d Se Sec. c. 38) 4.3. 4.3. Pl Plac ace e of m mee eeti ting ng (S (Sec ec.. 51 a and nd S Sec ec.. 93 93)) 4.4. 4.4. Qu Quor orum um ((Se Sec. c. 52 52,, Se Sec. c. 58 an and d5 59) 9) 4. 4.5. 5. Vo Vote te (S (Sec ec.. 13 137, 7, Se Sec. c. 72 72,, Se Sec. c. 89 89,, Se Sec. c. 56 56,, an and d Se Sec. c. 55) 4.5. 4.5.1. 1. Vo Voti ting ng ri righ ghtt o off T Tre reas asur ury ys sha hare res? s? (S (Sec ec.. 9 9)) 4.5. 4.5.2. 2. Vo Voti ting ng ri righ ghtt o off u unp npai aid ds sha hare res? s? (S (Sec ec.. 72 72)) 4.6. 4.6. No Non-v n-vot otin ing g sto stock cks s or me memb mber ers s (Se (Sec. c. 6 6)) 4.7.. Whe 4.7 Where re all sto stockho ckholde lders rs pre presen sentt ((Sec Sec.. 5 51) 1) 4.8. Where no meeting called (Sec. 50 and Presidential Decree 902A Section 6 subparagraph “C” * research this law from the internet www.google.com.ph) 5. Instanc Instances es when stoc stockholde kholders’ rs’ or membe members’ rs’ acti action on is necessa necessary ry 5. 5.1. 1. 5.2. .2. 5. 5.3. 3. 5.4.. 5.4

El Elec ecti tion on of Dir Direc ecto tors rs or tru trust stee ees s (S (Sec ec.. 24 24,, Se Sec. c. 92, and Sec. 93) Qu Quo orum req equi uirred Ma Mann nner er of vo voti ting ng;; cu cumu mula lati tive ve vo voti ting ng,, ha hand nd-r -rai aisi sing ng voting, or ballot voting Qua Qualif lifica icatio tions ns and dis disqua qualif lific icati ations ons of di dire recto ctors rs (Se (Sec. c. 23, Sec. 47(b), and Sec. 27) Case: Gokongwei vs. SEC

5.5. 5.5. 5.6. 5.6. 5.7. 5.7.

Ter Term m of d dire irecto ctorr or ttrus rustee tee (Se (Sec. c. 9 92 2 and Sec Sec.. 10 108) 8) Va Vaca canc ncie ies s iin n th the eb boa oard rd (S (Sec ec.. 2 29) 9) Re Remo mova vall o off D Dir irec ecto tors rs ((Se Sec. c. 28 28))

 

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6. Fun Fundam dament ental al cha change nges s 6.1.. 6.1 6.2. 6.2. 6.3. 6.3.

Ame Amendm ndment ent o off Art Articl icles es of Inc Incorp orpora oratio tion n (Sec (Sec.. 16, Se Sec. c. 103 and Sec. 96) Sal Sale e or othe otherr disp dispos osit itio ion n of sub substa stant ntia iall lly y all asse assets ts (Sec. 40) Inve Invest stme ment nt in an anot othe herr bu busi sine ness ss or co corp rpor orati ation on (Sec (Sec.. 42 and Sec. 36)

6.4. 6.4. 6. 6.5. 5.

Me Merg rger er a and nd C Con onso soli lidat datio ion n (Se (Sec. c. 7 77) 7) Ap Appr prai aisa sall Ri Righ ghtt (S (Sec ec.. 81 81,, 82 82,, 83 83,, 84 84,, 86 86,, an and d Se Sec. c. 105) 6. 6.6. 6. Ad Adop opti tion on,, am amen endm dmen entt an and d repe repeal al of By By-l -law aws s (S (Sec ec.. 48) 6.7. 6. 7. In Incr crea ease se an and d de decr crea ease se of ca capi pita tall st stoc ock k (S (Sec ec.. 38) 7. Other iinstanc nstances es req requiri uiring ng stockh stockholder olders’ s’ actio action n 7.1. 7.1. 7.2. 7.2. 7.3.. 7.3 7.4.. 7.4

Dec Declar larati ation on of sto stock ck div divide idends nds (Se (Sec.4 c.43) 3) Ma Mana nage geme ment nt Co Cont ntra ract cts s (S (Sec ec.. 4 44) 4) Fix Fixing ing con consid sidera eratio tion n for no p par ar s shar hares es ((Sec Sec.. 62 62)) Fix Fixing ing com compen pensati sation on o off di direc rector tors s (S (Sec. ec. 30 30))

8. Dev Device ices s affe affecti cting ng con contro troll 8.1. 8.1.

8. 8.2. 2. 8.3.. 8.3 8.4.. 8.4

IX.

Prox Proxy y de devi vice ce ((Se Sec. c. 5 58 8 an and d Se Sec. c. 8 89) 9) -> General proxy? (*research from the internet) -> Limited proxy? (*research from the internet) Vo Voti ting ng Tr Trus ustt ((Se Sec. c. 59 59)) Poo Poolin ling g an and dv voti oting ng a agre greem ement ents s (S (Sec. ec. 10 100) 0) Cum Cumula ulativ tive e vo votin ting g (*r (*rese esearc arch h fro from m the iinte nterne rnet) t)

DUTIES OF DIRECTORS AND CONTROLLING STOCKHOLDERS

1. Busin Business ess Judgm Judgment ent Rule ((rese research arch fro from m the inte internet) rnet) 2. Liabi Liability lity for br breach each o off dut duty; y; Se Sec. c. 31 31.. 3. Fiduc Fiduciary iary dutie duties; s; Con Conflict flict of Int Interest erests s 3.1. 3.1.

Th The e se self lf-d -dea eali ling ng di dire rect ctor or ((Se Sec. c. 3 32) 2) *res ese ear arc ch fr fro om the inter nterne nett th thiis understanding 3.2.. Fix 3.2 Fixing ing c comp ompens ensati ation on of di direc rector tors s and 3.3. 3.3. Se Seiz izin ing g Co Corp rpor orate ate Opp Oppor ortu tuni nity ty (Sec (Sec.. 31) *res ese ear arc ch fr fro om the inter nterne nett th thiis understanding 3.4. 3.4. Inte Interl rloc ocki king ng Di Dire rect ctor ors s (Se (Sec. c. 3 33) 3)

X.

RIGHT OF INSPECTION

con once cept pt for for

be bett tte er 

off office icers rs (Se (Sec. c. 30 30)) 34 in re rela lati tion on to Se Sec. c. con once cept pt for for

be bett tte er 

 

8

1. Ba Basi sis so off Righ Rightt *research from the internet for more knowledge 2. Reco Records rds co covere vered d (Sec (Sec.. 74 and Se Sec. c. 7 75) 5) 3. Exte Extent nt of and Limi Limitatio tations ns on Ri Right ght (Se (Sec. c. 74) 3.1. 3.1. Li Limi mita tati tion ons s as to time time an and dp pla lace ce 3.2. Purpose 4. Who m may ay ex exerc ercise ise s such uch R Righ ight? t? 5. Reme Remedies dies av availab ailable le if iinspect nspection ion is refus refused ed *research from the internet for more knowledge

XI.

DIVIDENDS AND PURCHASE B BY Y CORPORATION OF ITS OWN SHARES

1. 2. 3. 4.

Form of Div Dividend idends s (cash, prope property rty and stock) Sou Source rce o off divi dividen dends ds (Se (Sec. c. 43 43)) “unre “unrestric stricted ted ret retained ained e earnin arnings” gs” – mean meaning? ing? Divi Dividend dend Declar Declaration ation Disc Discreti retionary onary wit with h the Board – Limi Limitatio tations; ns; nd 4.1. 2 paragraph, Sec. 43. 4.2.. Sec 4.2 Sec.. 29, 1 199 997 7 Nat Nation ional al Int Intern ernal al Re Reven venue ue Co Code de (N (NIRC IRC)) *researc arch from the internet for more knowledge www.bir.gov.ph ( w ww.bir.gov.ph) 4.3. 5. When rright ight to di dividen vidends ds vest vests; s; rig rights hts of tran transfere sferee e *research from the internet for more knowledge 6. Purc Purchase hase by Co Corpor rporation ation of iits ts own Sh Shares ares (Se (Sec. c. 41) 6.1. Limitation on such power - Proper purposes - Existence of unrestricted retained earnings 

XII.

AMENDMENTS OF CHARTER

1. Amen Amendment dments s by Stockhol Stockholders ders (Sec (Sec.. 36[4] in rel relation ation to Sec. 16 16)) 2. 3. 4. 5.

Grou Grounds nds for rrejec ejection tion amend amendment ment ((Sec. Sec. 1 17) 7) . 81) Amen Amendment dment changi changing ngof stockh stockholde olders’ rs’ rig right ht (Sec (Sec. Eff Effect ectiv ivity ity o off Ame Amendm ndment ent Spe Specia ciall Am Amend endmen ments ts 5.1. 5.1. Incr Increa ease se o off Ca Capi pita tall St Stoc ock k (S (Sec ec.. 38 38)) 5.2. 5.2. Re Redu duct ctio ion n of Cap Capit ital al St Stoc ock k (Se (Sec. c. 1 122 22)) 5.3.. Chan 5.3 Change ge in C Corp orpora orate te Te Term rm (S (Sec. ec. 3 37 7 in re relat lation ion tto o Sec Sec.. 11)

XIII.

TRANSFER OF SHARES

1. Manne Mannerr and Ef Effecti fectivity vity o off Trans Transfer fer (S (Sec. ec. 63 63)) 1.1. 1.1. Indo Indors rsem emen entt of st stoc ock k cer certi tifi fica cate te;; 1.2. 1.2. Re Regi gist stra rati tion on iin n co corp rpor orat ate e st stoc ocks ks 1.3. 1.3. Effe Effect ct of lack lack of re regi gist stra rati tion on 1.4.. 1.4

No rregi egistr strati ation on o off tr transf ansfer er of u unpa npaid id s shar hares es

 

9 2. Non Non-tr -trans ansfer ferabi abili lity ty and Ter Termin minaio aion n of Me Membe mbersh rship ip in Non Non-st -stock ock corporations (Sec. 90 and Sec. 91)

XIV.

DISSOLUTION

1. Cau Causes ses of Dis Dissol soluti ution on 1.1. 1.1.

Ex Expi pira rati tion on of orig origin inal al term term eit eithe herr ex exte tend nded ed or sh shor orte tene ned d

(Sec. 120) Vol Volunt untary ary di dissol ssoluti ution on whe when n no cred credito itors rs aff affect ected ed (Se (Sec. c. 11 118) 8) Vo Volu lunt ntar ary y di disso ssolu luti tion on wh wher ere e cred credit itor ors s are are aff affec ecte ted d (Sec (Sec.. 119 and Sec. 122) 1.4. 1.4. Fa Fail ilur ure e to org organi anize ze and co comm mmen ence ce busi busine ness ss;; ce cess ssat atio ion n of  business for 5 years (Sec. 22) 1.5. 1.5. Invo Involu lunt ntar ary y dis dissol solut utio ion n (Se (Sec. c. 12 121) 1) 1. 1.5. 5.1. 1. Se Sect ctio ion n 6, P Pre resi side dent ntia iall De Decr cree ee 9 902 02-A -A *research this law from the internet  1.2. 1.2. 1.3. 1.3.

2. Effec Effects ts of Dissol Dissolutio ution; n; Windin Winding g Up and Liquid Liquidation ation (Se (Sec. c. 122 122)) 2.1. 2.1. 2.2. 2.2. 2. 2.3. 3. 2.4.. 2.4

Lo Loss ss of Juri Juridi dica call p per erso sonal nalit ity y Ex Exec ecut utor ory y Co Cont ntra ract cts s (S (Sec ec.. 1 145 45)) Me Meth thod ods so off L Liq iqui uida dati tion on Dis Distr tribu ibutio tion n of a asse ssets ts a afte fterr pa payme yments nts o off deb debts ts

3. Di Dist stri ribu buti tion on of As Asse sets ts of No Nonn-st stoc ock k Co Corp rpor orat atio ions ns (Sec (Sec.. 94 an and d Sec. 95)

XV.

CORPORATE COMBINATIONS

1. Mer Merger ger a and nd Co Conso nsolid lidati ation on 1. 1.1. 1. 1.2. 1.3.

Na Natu ture re an and dd dis isti tinc ncti tion on Express authority to merge granted by the Code; Requirements (Sec. 76, 77, 78, 79 and 80) Remedies of creditors and diss sse enting stockholders; Appraisal Right (Sec. 81[3])

2. Sal Sale e of Subs Substan tantia tiall lly y all ass assets ets 2.1. 2.1.

Le Legal gal re requ quir irem emen ents ts (Sec (Sec.. 4 40) 0) 2.2. No ass assump umptio tion n of li liabi abilit lities ies;; exc except eption ions s (*rese *research arch this from the internet ) 2.3.. Rem 2.3 Remedi edies es of diss dissent enting ing st stock ockhol holder ders; s; Appr Apprais aisal al rig right ht (Sec (Sec.. 81[2] 2.4. Comparison with merger and consolidation (*research ( *research this from the internet )