CORPORATION is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence

DOCTRINE OF CORPORATE ENTITY: A corporation is a legal and juridical person with a personality separate and apart from its individual stockholders or members and from any other legal entity to which it may be connected.

DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY: This means disregarding the fiction of corporate entity. The law will not recognize the separate corporate existence with reference to a particular transaction. The rationale is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities (i.e., to defeat public convenience, justify a wrong, protect fraud or defend a crime).

NB: While the stockholders are protected by the corporate veil, the officers are not; thus, they may be held liable not as stockholders but as officers

ALTER EGO DOCTRINE: This happens when one corporation controls another corporation and that control was used to defraud, and as such, was the proximate cause of the damage. The veil of corporate fiction cannot be applied. Elements: Complete dominion or control not only to finances but of policy and business in respect of the transaction attacked Used by the defendant to commit fraud or a wrong The control and breach of duty is the proximate cause of the injury or unjust loss complained of

TRUST FUND DOCTRINE: This means that any part of the capital in the possession of the stockholders cannot be disposed of because it is merely being held in trust for the creditors of the corporation. In other words, the creditors of the corporation can still get such amount from the stockholders because it forms part of the capital although not in the coffers of the corporation; thus, the stockholders can be compelled to deliver such to the creditors. Simply stated, this doctrine implies that the stockholders are holding the assets of the corporation in trust for the creditors.

PARTNERSHIPCORPORATION

Created by mere agreement of the parties Created by operation of law

May be organized by only two persons Requires at least 5 but not more than 15 incorporators

Commences to acquire juridical personality from the moment the execution of the contract of partnership Begins to have corporate existence and juridical personality only from the date of the issuance of the certificate of incorporation by the SEC

May exercise any power authorized by the partners provided it is not contrary to law, morals, good customs, public policy and public order Can exercise only the powers expressly granted by law or implied from those granted or incident to its existence

When the management is not agreed upon, every partner is an agent of the partnership The power to do business or the management is vested in the BOD or BOT

A partner can sue a co-partner who mismanages The suit against a member of the board who mismanages must be in the name of the corporation

Has no right of succession Has right of succession

The partners (except limited partners) are liable personally and subsidiarily (sometimes solidarily) for partnership debts The stockholders are liable only to the extent of their investments as represented by the shares subscribed by them

A partner cannot transfer his interest in the partnership so as to make the transferee a partner without the consent of all the other existing partners A stockholder has the right to transfer his shares without the prior consent of the other stockholders

May be established for any period of time stipulated by the partners May not be formed for a term in excess of 50 years extendible to not more than 50 years in any one instance

A limited partnership is required by law to add the word Ltd. to its name May adopt any firm name provided it is nor incidental or deceptively similar to any registered firm name or contrary to existing law

May be dissolved at any time by the will of any or all of the partners Can only be dissolved with the consent of the State

Governed by the Civil Code Governed by the Corporation Code

SIMILARITIES BETWEEN A CORPORATION AND A PARTNERSHIP: Has a juridical personality separate and distinct from that of the individuals composing it Can act only through agents An organization composed of an aggregate of individuals (exc. Corporation sole) Distributes its profits to those who contribute capital to the business (exc. Non-stock corporation) Can be organized only where there is a law authorizing its organization Both are taxable as a corporation, subject to income tax

ADVANTAGES OF A BUSINESS CORPORATION:1. The corporation has a legal capacity to act and contract as a distinct unit in its own name.2. It has continuity of existence because of its non-dependence on the lives of those who compose it.3. Its credit is strengthened by such continuity of existence.4. Its management is centralized in the board.5. Its creation, management, organization and dissolution are standardized as they are governed under one general incorporation law.6. It makes feasible gigantic financial undertakings since it enables many individuals to invest their separate funds in the enterprise in order to furnish large amounts of capital upon which big business depends.7. The shareholders have limited liability.8. They are not general agents of the business.9. The shares of stocks can be transferred without the consent of the other stockholders.

DISADVANTAGES OF A BUSINESS CORPORATION:1. The corporation is relatively complicated in formation and management.2. It entails relatively high cost of formation and operations.3. Its credit is weakened by the limited liability of stockholders.4. There is ordinarily lack of personal element in view of the transferability of shares.5. There is a greater degree of governmental control and supervision than in any other forms of business organization.6. In large corporations, management and control are separate from ownership.7. The stockholders voting rights have become theoretical particularly in large corporations because of the use of proxies and widespread ownership.8. The stockholders have little voice in the conduct of the business.

CLASSES OF CORPORATIONS:

A. Under the Corporation Code

1. Stock Corporation is the ordinary business corporation created and operated for the purpose of making a profit which may be distributed in the form of dividends to stockholders on the basis of their invested capital. In this type of corporation, the capital stock must be divided into shares and the corporation is authorized to distribute shares dividends.

2. Non-stock Corporation is a corporation that do not issue stock and distribute dividends to their members. This type of corporation is created not for profit but for the public good and welfare.

B. Other Classifications

1. As to the number of persons who compose them

a. Corporation aggregate consists of more than one member or corporatorb. Corporation sole is a special form of corporation usually associated with the clergy; it is a religious corporation which consists of one member or corporator only and his successors

2. As to whether they are for religious purposes or not

a. Ecclesiastical corporation organized for religious purposes; they are classified into corporations sole and religious societiesb. Lay corporation organized for a purpose other than religion; may either be eleemosynary or civil

3. As to whether they are for charitable purposes or not

a. Eleemosynary corporation established for, or devoted to, charitable purposes or those supported by charityb. Civil corporation established for business or profit (i.e., with a view toward realizing gains to be distributed among its members

4. State under or by whose laws they have been created

a. Domestic corporation incorporated under the laws of the Philippinesb. Foreign corporation formed, organized or existing under any laws other than those of the Philippines

5. As to their legal right to corporate existence

a. De jure corporation existing in fact and in lawb. De facto corporation existing in fact but not in law

Section 20. De facto corporations. The due incorporation of any corporation claiming in good faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding.

6. As to whether they are open to the public or not

a. Close corporation one which is limited to selected persons or members of a familyb. Open corporation one which is open to any person who may wish to become a stockholder or member

7. As to their relation to another corporation

a. Parent or holding corporation one which is so related to another corporation that it has the power, either directly or indirectly, through one or more intermediaries, to control or to elect the majority of the directors of such other corporationb. Subsidiary corporation one which is so related to another corporation that majority of its directors can be elected, either directly or indirectly, by such other corporation which thereby become its parent corporationc. Affiliated corporation one related to another corporation by owning or being owned by common management or by a long-term lease of its properties or other control device.

8. As to whether they are for public or private purpose

a. Public corporation formed or organized for the government of a portion of the State for the general good and welfareb. Private corporation formed for some private purpose, benefit or end

i. Government-owned or controlled corporation those created or organized by the government or of which the government is the majority stockholderii. Quasi-public corporation private corporations which have accepted from the State the grant of franchise or contract involving the performance of public duties but which are organized for profit

PUBLIC CORPORATIONPRIVATE CORPORATION

Being mere instrumentalities of the State, are subject to governmental visitation and control Not subject to visitation, control or change by the State, except in the exercise of police power

May be created without the consent of the locality to be affected The consent of the incorporators is necessary to the creation of a private corporation

Organized through a special law Organized under a general law

9. As to whether they are corporations in a true sense or only in a limited sense

a. True corporation one which exists by statutory authorityb. Quasi-corporation one which exists without formal legislative grant; it is an exception to the general rule that a corporation can exist only by authority of law

i. Corporation by prescription one which has exercised corporate powers for an indefinite period without interference on the part of the sovereign power and which by fiction of law is given the status of a corporationii. Corporation by estoppel one which in reality is not a corporation, either de jure or de facto, because it is so defectively formed, but is considered a corporation in relation to those only who, by reason of their acts or admissions, are precluded from asserting that it is not a corporation; this legal assumption is not good, however, as against the State but may arise only for purposes of private litigation.

Section 21. Corporation by estoppel. All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.

On who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.

COMPONENTS OF A CORPORATION1. Corporators those who compose the corporation, whether stockholders or members

2. Incorporators - those corporators mentioned in the Articles of Incorporation (AOI) as originally forming and composing the corporation and who executed and signed the AOI and acknowledged the same before a notary public Must be at least 5 but not more than 15 Must be a natural person Must be of legal age Majority of whom must be residents of the Philippines Each must own or be a subscriber to at least 1 share of capital stock

3. Stockholders owners of shares of stocks in a stock corporation; also known as shareholders

4. Members corporators of a corporation without capital stock (i.e., a non-stock corporation)

5. Promoters persons who bring about or cause to bring about the formation and organization of a corporation by bringing together the incorporators or the persons interested in the enterprise, procuring subscriptions or capital for the corporation and setting in motion the machinery that leads to the incorporation of the corporation; persons who undertake the formation of a corporation without their being incorporators

6. Subscribers persons who have agreed to take and pay for original, unissued shares of a corporation formed or to be formed

7. Underwriter a personal, usually an investment banker, who: has agreed, alone or with others, to buy at stated terms an entire issue of securities or a substantial part thereof; or has guaranteed the sale of an issue by agreement to buy from the issuing party any unsold portion at a stated price; or has agreed to use his best efforts to market all or part of an issue; or has offered for sale stock he has purchased from a controlling stockholder

CAPITAL STOCK the amount fixed in the AOI, to be subscribed and paid in or agreed to be paid in by the stockholders of a corporation, in money, property, services or other means at the organization of the corporation or afterwards and upon which it is to conduct its business, such contribution being made either directly through stock subscription or indirectly through the declaration of stock dividends

AUTHORIZED CAPITAL STOCK the amount of capital stock as specified in the AOI which is synonymous with capital stock where the shares of the corporation have par value; if the shares of stock have no par value, the corporation has no authorized capital stock but rather it has capital stock the amount of which is not specified in the AOI as it cannot be determined until all the shares have been issued; the maximum amount that the corporation may invest No minimum amount required Upon incorporation, at least 25% of the authorized capital stock must be subscribed

SUBSCRIBED CAPITAL STOCK the amount of capital stock subscribed, whether fully paid or not; the amount that the stockholders commit to invest in the corporation; the subscription of each shareholder represents the actual investment of the such shareholder Upon incorporation, at least 25% of the subscribed capital stock must be paid up The balance shall be payable upon the date fixed in the contract of subscription OR upon call for payment by the BOD, if no date for payment is fixed

OUTSTANDING CAPITAL STOCK portion of the capital stock which is issued and held by persons other than the corporation itself; the total shares of stock issued to subscribers or stockholders, whether or not fully or partially paid, except treasury shares

PAID-UP CAPITAL STOCK that portion of the subscribed or outstanding capital stock that is actually paid; it is synonymous to the term ACTUAL CAPITAL STOCK (i.e., the amount of capital stock actually subscribed and paid for In no case shall the paid-up capital stock be less than 5,000

UNISSUED CAPITAL STOCK that portion of the capital stock that is not issued or subscribed; it does not vote and draws no dividends

LEGAL CAPITAL the amount equal to the aggregate par value and/or issued value of the outstanding capital stock; it does not include the premium or excess payment made for a share issued above its par value; it includes the entire consideration received in case shares issued are without par value (i.e., the subscribed capital stock)

CAPITAL used broadly to indicate the entire property or assets of the corporation; includes the amount invested by the stockholders plus the undistributed earnings less losses and expenses.

CAPITALCAPITAL STOCK

is the actual corporate property; therefore, it is a concrete thing is an amount; therefore, is something abstract

it fluctuates or varies from day to day according as there are profits or losses or appreciation or depreciation of corporate assets; may be greater or lesser than the amount of capital stock is an amount fixed in the articles of incorporation (where shares are with par value) and is unaffected by profits and losses

belongs to the corporation belongs to the stockholders when issued

may either be real or personal property is always personal property

CAPITAL STOCKLEGAL CAPITAL

limits the maximum amount or number of shares that may be issued without formal amendment of the articles of incorporation sets the minimum amount of the corporate assets which for the protection of corporate creditors, may not be lawfully distributed to stockholders

NB: CAPITAL STOCK > LEGAL CAPITAL

CAPITAL STOCKSHARES OF STOCK

used in a collective sense to signify the whole body of shares of stock in the corporation used in distributive sense to refer to the stock in the hands of the stockholders; therefore, it belongs to them

STOCK or SHARE OF STOCK one of the units into which the capital stock is divided; it represents the interest or right which the owner has in the management of the corporation in which he takes part through his right to vote, in a proportion of the corporate earnings if and when segregated in the form of dividends, and in the property assets of the corporation remaining after the payment of corporate debts and liabilities to creditors upon its dissolution and winding up

CERTIFICATE OF STOCK: A written acknowledgment by the corporation of the interest, right, and participation of a person in the management, profits and assets or a corporation; a formal written evidence of the holders ownership of one or more shares and is a convenient instrument for the transfer of title. It is issued only upon full payment of the amount of the subscription together with interest and expenses (in case of delinquent shares). It is signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation. It is a personal property and can be transferred by delivery of the certificate endorsed by the owner.

NB: In the absence of provisions in the by-laws to the contrary, a corporation may apply payments made by subscribers on account of their subscriptions, either as full payment for the corresponding number of shares, the par value of which is covered by such payment, in which case, certificates of stock may be issued for the number of shares considered as fully paid; or as payment pro rata to each and all the entire number of shares subscribed for, in which case, certificates of stock will not be issued by the corporation.

SHARE OF STOCKCERTIFICATE OF STOCK

is an incorporeal or intangible property is a tangible property

represents the right or interest of a person in a corporation is the written evidence of a share of stock

may be issued even if the subscription is not fully paid, except in no par shares as a general rule, may not be issued unless the subscription is fully paid

its situs is deemed to be the State where the corporation has its domicile, which is ordinarily the State under whose laws it was created may have a situs at the place where it is located or at the domicile of the owner even though the corporation is domiciled elsewhere

PAR VALUE SHARE one with a specific money value fixed in the AOI and appearing in the certificate of stock the primary purpose of the par value is to fix the minimum subscription or issue price of the shares; thus, assuring creditors that the corporation would receive a minimum amount for its stock different par value shares may be issued by the corporation WATERED STOCK shares issued less than the par value (see page 11 for more discussion) The par value remains the same regardless of the market value or book value of the stock, except when there is a stock split

NO PAR VALUE SHARE one without any stated value appearing on the face of the certificate of stock; a stock which does not state how much money it represents it always has an ISSUED VALUE, which is the consideration fixed by the corporation for its issuance (i.e., any amount not less than 5.00) the entire amount received as consideration shall be treated as capital and shall not be available for distribution as dividends does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation may be issued only together with par value shares

MARKET VALUE the value at which the seller is willing to sell and the buyer is willing to buy ISSUED VALUE consideration given or fixed by the corporation for the issuance of a non-par value share BOOK VALUE determined by dividing the amount of the total assets over the total number of shares

VOTING SHARE a share with right to vote; is usually given to the common stock and withheld from the preferred stock or redeemable shares whenever a vote is necessary to approve a particular corporate act, such vote refers only to stocks with voting rights except in certain cases wherein shares with non-voting rights may also vote

NON-VOTING SHARE a share without the right to vote a stock originally issued with voting rights may thereafter be deprived of the right to vote without the consent of the holder if non-voting shares are provided for, there should always be a class or series of shares which have complete voting rights only preferred and redeemable shares may be denied the right to vote holders of this share may still vote on the following matters: amendment of the AOI adoption and amendment of the by-laws sale, lease, exchange, mortgage, pledger or other disposition of all or substantially all of the corporate property incurring, creating or increasing bonded indebtedness increase or decrease of capital stock merger or consolidation of the corporation with another corporation or other corporations investment of corporation funds in another corporation or business dissolution of the corporation

COMMON SHARE one which entitles the holder thereof to a pro rata division of the profits, if there are any, and in its assets upon dissolution, without any preference or advantage in that respect over other stockholders or class of stockholders but equally with all other stockholders except preferred stockholders; it is the basic class of stock; has complete voting rights and such cannot be deprived as provided by under the law; its stockholders are the residual owners of the corporation as they get only the assets left over in case of liquidation after all other securities holders are paid

PREFERRED SHARE one with a stated par value which entitles the holder thereof to certain preferences over the holders of common stock; this may be issued only with a stated par value; more than one class of preferred share may be allowed; usually synonymous with the term GUARANTEED STOCK

Preferred share as to the assets share which gives the holder thereof preference in the distribution of the assets of the corporation in case of liquidation Preferred share as to the dividends share the holder of which is entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of common stock

PROMOTION SHARE shares issued to promoters, or those in some way interested in the company, for incorporating the company, or for services rendered in the launching or promoting the welfare of the company

SHARE IN ESCROW share subject to an agreement by virtue of which the share is deposited by the grantor or his agent with a third person to be kept by the depository until the performance of a certain condition or the happening of a certain event contained in the agreement

CONVERTIBLE SHARE share which is convertible or changeable by the stockholder from one class to another class at a certain price and within a certain period

FOUNDERS SHARE share issued to the organizers and promoters of a corporation in consideration of some supposed right or property; usually share in the profits only after a certain percentage has been paid upon the common stock but are often given special privileges over other stock as to voting and as to division of profits in excess of a minimum dividend on the common stock

REDEEMABLE or CALLABLE SHARE share, usually preferred, which by their terms are redeemable at a fixed date or at the option of either the issuing corporation or the stockholder or both at a certain redemption price

TREASURY SHARE share which has been lawfully issued by the corporation and fully paid for and later reacquired by it either by purchase, redemption, donation, forfeiture or other lawful means The corporation must have unrestricted retained earnings to cover the shares to be purchased or acquired It should only be allowed in the following instances: To eliminate fractional shares arising out of stock dividends To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale To pay dissenting or withdrawing stockholders entitled to payment for their shares

ARTICLES OF INCORPORATION (AOI) is the document prepared by the persons establishing a corporation and filed with the SEC; it defines the charter of the corporation and the contractual relationship between the State and the corporation, the stockholders and the State, and between the corporation and the stockholders1. Corporate name Purpose: to identify the new juridical person for purposes of registration and sending notices, summons, etc. May adopt any firm name provided it is nor incidental or deceptively similar to any registered firm name or contrary to existing law SEC requires the submission of 3 alternative names2. Purpose To determine whether or not the corporation is engaged in activities within the purpose specified To limit the activities of the corporation Must indicate the primary and secondary purpose3. Place where the principal office is to be located4. Corporate term Must not be more than 50 years, extendible for not more than 50 years in any single instance The extension should not be made earlier than 5 years prior to the original or subsequent expiry date unless for justifiable reasons as determined by the SEC When the corporate term is shortened: The corporation does not formally organize and commence the transaction of its business or the construction fits works within 2yrs after the date of its incorporation DEEMED DISSOLVED If a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least 5yrs GROUND FOR REVOCATION OR SUSPENSION OF FRANCHISE When approved by majority BOD/BOT + vote of SH representing 2/3 of OS or vote of 2/3 members5. Names, nationalities and residences of the incorporators6. Number of directors or trustees7. Names, nationalities and residences of the persons who shall act temporary directors or trustees8. If stock corporation: a. the amount of capital stock in lawful moneyb. the number of shares into which it is dividedc. the par value in case of par value sharesd. the names, nationalities and residences of the original subscriberse. the amount paid by each subscriberf. the fact that some or all of the shares are without par value, if applicable9. If non-stock corporation:a. the amount of its capital stockb. the names, nationalities and residences of the contributorsc. the amount contributed by each10. Other matters as are not inconsistent with law and which the incorporators may deem necessary and convenient

TREASURERS AFFIDAVIT sworn statement of the Treasurer elected by the subscribers showing that at least 25% of the authorized capital stock has been subscribed and at least 25% of the subscribed capital stock has been fully paid to him in actual cash and/or in property, the fair valuation of which is equal to at least 25% of the said subscription, such paid-up capital being not less than 5,000; must be submitted together with the AOI to the SEC for the AOI to be accepted

GROUNDS IN REJECTING OR DISAPPROVING THE AOI OR ITS AMENDMENTS:1. It is not substantially in accordance with the form prescribed2. The purpose(s) are patently unconstitutional, illegal, immoral or contrary to government rules and regulations3. The Treasurers Affidavit concerning the amount of capital stock subscribed and/or paid is false4. The percentage of ownership of the capital stock to be owned by Filipinos has not been complied with

NB: AOI or amendment to AOI of bank, banking and quasi-banking institutions, building and loan associations, trust companies and other financial intermediaries must be accompanied by a favorable recommendation of the appropriate government agency to the effect that such documents are in accordance with law

BOARD OF DIRECTORS (BOD) or BOARD OF TRUSTEES (BOT) Is vested with the management of the corporation Hold office for 1yr until their successors are elected and qualified Every director must own at least one share of the capital stock Majority must be residents of the Philippines

Section 30. Compensation of directors. In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however, That any such compensation other than per diems may be granted to directors by the vote of the stockholders representing at least a majority of the outstanding capital stock at a regular or special stockholders meeting. In no case shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before income tax of the corporation during the preceding year.

EXECUTIVE COMMITTEE (EC) To be created by the BOD/BOT At least three members of which must be members of the BOD/BOT; the other members of the EC need not be members of the BOD/BOTGR: May act on specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the boardEXC: In case of the following instances 1. approval of any action for which shareholders approval is also required; 2. the filing of vacancies in the board; 3. the amendment or repeal of by-laws or the adoption of new by-laws; 4. the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and 5. a distribution of cash dividends to the shareholders

ELECTION OF BOD/BOT: Presence of SH owning majority of the OS or presence of majority of the members (in person or by representative authorized to act by written proxy) Must be by ballot if requested by any voting stockholder or member No delinquent stock shall be voted. Any meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the meeting, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the members entitled to vote

STRAIGHT VOTING every stockholder may vote such number of shares for as many persons as there are directors to be elected. Example, if you own 100 shares and there are 5 directors to be elected, you are entitled to 500 (100 x 5) votes which you can give to the 5 candidates to be elected 100 votes each. Under this method the votes are distributed equally among the five candidates without preference. This method does not benefit minority stockholders.

CUMULATIVE VOTING FOR ONE CANDIDATE a stockholder is allowed to concentrate his votes and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal. This accords the minority stockholders representation in the board of directors by electing one or more directors but not held to insure minority stockholders of proportional representation or of representation in that board of directors under all circumstances. Example if you own 200 shares and there are 5 directors to be elected, you are entitled to 1,000 votes (200 x 5) all of which you may cast in favor of one candidate. The effectiveness of this type of voting varies with the number of directors to be chosen, the number of shares represented at the meeting, their distribution among the minority stockholders and the number of shares held by the minority stockholders.

CUMULATIVE VOTING BY DISTRIBUTION a stockholder may cumulate his shares by multiplying also the number of his shares by the number of directors to be elected and distribute the same among as many candidates as he shall see fit. Example, you have 100 shares of stocks and you are entitled to 500 votes with 5 directors to be elected; you may cast your vote in any combination desired provided that the total number of votes cast does not exceed 500.

NB: Cumulative voting is a statutory right and a corporation has no power to deprive the stockholders of its use or even to restrict the right to vote to only one way or method.

VOTING IN NON-STOCK CORPORATIONS: Unless otherwise provided in the articles of incorporation or in the by-laws, members stock may cast as many votes as there are trustees to be elected but may not cast more than one vote for one candidate.

OFFICERS:1. President should be a director2. Treasurer may or may not be a director3. Secretary should be a resident and citizen of the Philippines

NB: Any 2 or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time

QUOROMDefinition: it is the number of persons required to carry out business in a particular meetingGR: Majority of the population required to attend (e.g., SH/members, BOD/BOT) [simple majority]EXC: Unless the AOI or the by-laws provide for a greater majority [qualified majority]

Every decision of at least a majority of the directors or trustees present at a meeting at which there is a quorum shall be valid as a corporate act EXCEPT for the election of officers which shall require the vote of a majority of all the members of the board. Directors or trustees cannot attend or vote by proxy at board meetings. Section 26. Report of election of directors, trustees and officers. Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees, and officers elected. Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case of his death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall immediately report such fact to the Securities and Exchange Commission.

Section 27. Disqualification of directors, trustees or officers. No person convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation.

LIABILITY OF DIRECTORS, TRUSTEES OR OFFICERS (jointly and severally) Willfully and knowingly vote for or assent to patently unlawful acts of the corporation Gross negligence or bad faith in directing the affairs of the corporation Acquisition of any personal or pecuniary interest in conflict with their duty as such directors or trustees

NB: When a director, trustee or officer attempts to acquire or acquire, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation

DEALINGS OF DIRECTORS, TRUSTEES OR OFFICERS WITH THE CORPORATION GR: Contract is voidable at the option of the corporationEXC: (when all of the following conditions are present) That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; That the vote of such director or trustee was not necessary for the approval of the contract; That the contract is fair and reasonable under the circumstances; and That in case of an officer, the contract has been previously authorized by the board of directors.

NB: Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director or trustee, such contract may be ratified by the vote of the SH representing at least 2/3 of OS or of at least 2/3 of the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting: Provided, however, That the contract is fair and reasonable under the circumstances.

INTERLOCKING DIRECTORSGR: Contracts between two corporations having interlocking directors should not be invalidatedRequirements: Contract is fair and reasonable under the circumstances There is no fraudEXC: if the interest of the interlocking director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, the contract is voidable at the option of the latter corporationEXC to EXC: when all of the following conditions are present - That the presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; That the vote of such director or trustee was not necessary for the approval of the contract; That the contract is fair and reasonable under the circumstances; and That in case of an officer, the contract has been previously authorized by the board of directors.

NB: Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for purposes of interlocking directors

DISLOYALTY OF A DIRECTORSection 34. Disloyalty of a director. Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture.

CORPORATE POWERS1. To sue and be sued in its corporate name;2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation;3. To adopt and use a corporate seal;4. To amend its articles of incorporation in accordance with the provisions of this Code;5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code;6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation;7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;8. To enter into merger or consolidation with other corporations as provided in this Code;9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity;10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; and11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.

DECLARATION OF DIVIDENDS:GR: Discretionary on the part of the corporationEXC: When retained earnings or surplus profits are in excess of 100% of the paid-in capital stock, the declaration of dividends is mandatoryEXC to EXC: Even if the retained earnings are in excess of 100% of the paid-in capital stock, the BOD cannot be compelled to declared dividends in the following instances 1. when justified by definite corporate expansion projects or programs approved by the board of directors; or 2. when the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured; or 3. when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies

RIGHT OF FIRST REFUSAL: This is a contractual agreement among stockholders wherein the selling SH should first offer the shares to be sold to the existing SH before offering it to the public.

PRE-EMPTIVE RIGHT: This provides that newly issued shares must be offered to the existing SH before it can be offered to the public EXCEPT for the following instances: Shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public Shares to be issued in good faith with the approval of the SH representing 2/3 of OS in exchange for property needed for corporate purposes Shares to be issued in good faith with the approval of the SH representing 2/3 of OS for payment of a previously contracted debt In case of initial public offering In case the law requires certain shares to be issued to the employees

RIGHT OF FIRST REFUSALPRE-EMPTIVE RIGHT

It is not a statutory right but is a contractual agreement among SH; thus, it must be expressly provided for in the by-laws for it to be exercised by the SH Is a statutory right as it is granted by law; thus, it does not need to be indicated in the by-laws for it to be exercised by the SH

Waiver or denial of such right need not be expressly provided in the by-laws as this is not a statutory right Waiver or denial of such right must be expressly stated in the by-laws

DELINQUENT STOCKHOLDERS: If cash dividend is declared, it shall be applied to the unpaid subscription If stock dividend is declared, it shall be withheld until the unpaid subscription is fully paid

SCRIP DIVIDEND: A promissory note issued by the corporation to the SH for the SH to claim at a later time the cash or property that was declared by the corporation as dividend. This is issued when the corporation has no sufficient cash or property when it declared dividends.

STOCK WARRANTS: This is used as a way to settle fractional shares. This is an acknowledgment that the owner of the fractional share is entitled to payment of the amount of the fractional share. The SH can gather stock warrants until there is enough to buy one entire share.

STOCK SPLITREVERSE STOCK SPLIT

dividing up of the outstanding shares into a greater number of units without disturbing the stockholders original proportional participating interest in the corporation involves the reduction of the outstanding shares into smaller number of shares

increase in number of shares, decrease in par value decrease in number of shares, increase in par value

ULTRA VIRES ACTS: These are acts which are beyond the express, implied or incidental powers of the corporation. Implied powers those that are related to the corporations express powers; those that are reasonable necessary to achieve the express powers granted to the corporation Generally, these are not binding; otherwise, there would be no difference with intra vires acts (i.e., acts or transactions within the legitimate powers of a corporation or are related to its purposes). These can only be questioned by the State (i.e., the one who grants express powers of the corporation) Effects: If the contract is still executory - it cannot be enforced by either party If the contract is already executed let the parties where they are; neither party can maintain an action to set aside the transaction If the contract is executory for one party the party who has received must return what he has received in relation to the contract

NB: Generally, the courts will not intervene in case of ultra vires acts based on the following principles Business Judgment Rule the board is vested with the duty and function to determine what is best for the corporation Liberality of Contracts parties have the freedom to stipulate so long as not contrary to law, morals, good customs, public order or public policy

ILLEGAL ACTS, CRIMINAL ACTS & ULTRA VIRES ACTS: Illegal acts those that are contrary to law, morals, good customs, public order and public policy; cannot be ratified Criminal acts those that are punishable by law under the RPC or special penal laws; are necessary ultra vires acts Ultra vires acts may not be cured by ratification so long as not illegal

NB: All illegal acts are ultra vires acts but not all ultra vires acts are illegal acts.

BY-LAWS: The rules of action adopted by a corporation for its internal government and for the government of its stockholders or members and those having the direction, management and control of its affairs in their relation to the corporation and as among themselves including rules for routine matters such as calling meetings and the like. It must be kept in the principal office of the corporation and subject to the inspection of the SH or members during office hours. Functions: Supplements the AOI Defines the rights and duties of corporate officers and directors or trustees, and of stockholders or members towards the corporation and among themselves Acts as a source of authority for corporate officers and agents of the corporation Adoption: Prior to incorporation must be approved and signed by all the incorporators; submitted to SEC together with the AOI After incorporation must be adopted within one month after receipt of official notice of the issuance of its certificate of incorporation from SEC (see page 22 for the required vote and conditions); failure to file within the prescribed period will render the corporation liable to the revocation of its registration Requisites for validity: Must not be contrary to existing law and inconsistent with the Code Must not be contrary to morals and public policy Must not impair obligations of contract Must be general and uniform in their operation and not directed against particular individuals (i.e., not discriminatory) Must be consistent with the charter or AOI Must be reasonable Contents: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 and members and the manner of voting them;5. The qualifications, duties and compensation of directors or trustees, officers and employees;6. The time for holding the annual election of directors of 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 stock certificates; and10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs. Effect as to third persons: GR: Not binding EXC: if with knowledge

NB: The by-laws, or any amendment thereto, shall become effective only upon the issuance by SEC of a certification that the by-laws are not inconsistent with the Code. If the corporation is a bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution or other special corporations governed by special laws, the by-laws must be accompanied by a certificate of the appropriate government agency to the effect that such by-laws or amendments are in accordance with law.

BY-LAWSAOI

constitutes the rules and regulations adopted by the corporation for its internal government constitutes the charter and fundamental law of the corporation

may be executed before the incorporation by the incorporators or after the incorporation by the stockholders or members is executed before incorporation by the incorporators

its filing is a condition subsequent to corporate existence its filing is a condition precedent to corporate existence

KINDS OF MEETINGS:1. SH/Members a. Regular those held annually on a date fixed in the by-laws, or if not fixed, on any date in April of every year as determined by the BOD/BOT held principally held for the purpose of electing another set of BOD/BOT written notice must be sent at least two (2) weeks prior to the meeting unless a different period is required under the by-lawsb. Special those held at any time deemed necessary or as provided in the by-laws written notice must be sent at least one (1) week prior to the meeting unless a different period is required under the by-laws Place of meeting (regular or special): in the city or municipality where the principal office of the corporation is located, and if practicable, in the principal office of the corporation Quorum: SH representing majority of the outstanding capital stock or a majority of the members Call of the meeting: By the person(s) designated in the by-laws In the absence of such provision in the by-laws, by a director or trustee or an officer entrusted with the management of the corporation By a SH or member by virtue of the last paragraph in Section 50 In case of a special meeting for the removal of directors or trustees, by the corporate secretary or by a SH or member

Section 50 xxx xxx xxx Whenever, for any cause, there is no person authorized to call a meeting, the Secretaries and Exchange Commission, upon petition of a stockholder or member on a showing of good cause therefor, may issue an order to the petitioning stockholder or member directing him to call a meeting of the corporation by giving proper notice required by this Code or by the by-laws. The petitioning stockholder or member shall preside thereat until at least a majority of the stockholders or members present have been chosen one of their number as presiding officer.

2. BOD/BOT a. Regular those held monthly, unless otherwise provided in the by-lawsb. Special those held at any time upon the call of the president or as provided for in the by-laws Place of meeting (regular or special): anywhere in or outside of the Philippines unless otherwise provided in the by-laws Notice must be sent at least one (1) day prior to the scheduled meeting unless otherwise provided in the by-laws

Section 54. Who shall preside at meetings. - The president shall preside at all meetings of the directors or trustee as well as of the stockholders or members, unless the by-laws provide otherwise.

REQUISITES FOR A VALID MEETING: Must be held at the proper place Must be held at the stated date and at the appointed time or at a reasonable time thereafter Must be called by the proper person There must be previous notice There must be quorum

REQUISITES OF NOTICE OF MEETING: Must be issued by one who has authority to issue it Must be in writing Must state the date, time and place of the meeting, unless otherwise provided in the by-laws Must state the business to be transacted thereat Must be sent at a certain time before the scheduled meeting as fixed by law or by the by-laws Must comply with any other requisites prescribed by the law or the by-laws Notice of meeting for the approval of merger or consolidation must include a copy or a summary of the plan of merger or consolidation In case of voluntary dissolution with no creditors affected, the notice of meetings shall be made by publication, in addition to the written notice to be sent by registered mail or personal delivery

MANNER OF VOTING:1. Directly (in person)2. Indirectly (through a representative)a. By means of a proxyb. By a legal representative (i.e., executor, administrators, receivers or other representatives duly appointed by the court)c. By parents of a minor stockholderd. By the pledgee or mortgagee if expressly given by the pledger or mortgagor the right to vote, in writing and recorded in the corporate bookse. By the officer or agent of a corporation owning shares of stocks in another corporationf. By a trustee in a voting trust agreement

Section 55. Right to vote of pledgors, mortgagors, and administrators. - In case of pledged or mortgaged shares in stock corporations, the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, unless the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded on the appropriate corporate books.

Section 56. Voting in case of joint ownership of stock. - In case of shares of stock owned jointly by two or more persons, in order to vote the same, the consent of all the co-owners shall be necessary, unless there is a written proxy, signed by all the co-owners, authorizing one or some of them or any other person to vote such share or shares: Provided, That when the shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.

Section 57. Voting right for treasury shares. - Treasury shares shall have no voting right as long as such shares remain in the Treasury

PROXY: It is the formal written authority given by the owner or holder of the stock, who has a right to vote it, or by a member, as principal, to another person, as agent, to exercise the voting rights of the former. It is a special form of agency. Purpose: To assure the presence of a quorum To allow SH or member to exercise the right to vote although such SH or member is absent For practicality reasons especially if the corporation is big and is composed of many SH or members As a management control device management will try to gather as many proxies so that their proposed plans will be approved Types: Special proxy valid only for the meeting for which it was intended Continuing proxy valid for any meeting for a fixed and definite period of time which should not exceed 5yrs. Rules: Must be written Must be valid only for the meeting indicated If not indicated, must be valid for a period not exceeding 5yrs. If two or more persons are named in one proxy for one SH or member, the vote must be unanimous; otherwise, the vote will not be counted. The persons assigned as proxies can agree in any manner as to how to come up with a vote. If two or more persons are named in two different proxies for the same SH or member, the following order of preference should be considered: Proxy bearing the later date If bearing the same date, proxy bearing the later time (if mailed) If not mailed and bearing the same date, proxy presented last If presented at the same time, the proxy committee will decide Revocation: GR: revocable EXC: if coupled with interest May be by formal notice orally by conduct as by the appearance of the SH or member giving the proxy or the issuance of a subsequent proxy or the sale of shares

MANAGEMENT CONTROL DEVICES:1. Proxy a special form of agency wherein a person is given by a SH or member the right to vote2. Voting Agreement the shareholders or members will come up on an agreement on how to vote during meetings3. Voting Trust Agreement the shareholder confers upon the trustee the legal title to the shares of stock including the right to vote, the right to inspect the corporate books and the right to be voted as a director; however, the beneficial ownership is retained by the stockholder (i.e., the right to receive dividends is still with the stockholder and is not conferred to the trustee) Objective: to achieve unified control of the affairs of the corporation

PROXYVOTING TRUST AGREEMENT

Legal title to the shares of stock is not transferred Legal title to the shares of stock is transferred to the trustee (except beneficial ownership)

Certificate of stock of the SH is not cancelled and no new certificate is issued A new certificate of stock is issued in favor of the trustee (In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.)

May be used only for a specific meeting unless otherwise provided The duration is usually or a longer period but not to exceed 5yrs. at any time

Revocable at any time except if coupled with interest Irrevocable

The person named as proxy shall not have the right to inspect corporate books The trustee has the right to inspect the corporate books

Does not need to be notarized or submitted to the SEC It should be notarized and submitted to the SEC; otherwise, the agreement is ineffective and unenforceable

Section 59. Voting trusts. One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any time: Provided, That in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding five (5) years but shall automatically expire upon full payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of stock covered by the voting trust agreement shall be canceled and new ones shall be issued in the name of the trustee or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.

The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which shall be transferable in the same manner and with the same effect as certificates of stock.

The voting trust agreement filed with the corporation shall be subject to examination by any stockholder of the corporation in the same manner as any other corporate book or record: Provided, That both the transferor and the trustee or trustees may exercise the right of inspection of all corporate books and records in accordance with the provisions of this Code.

Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in the voting trust agreement, and thereupon shall be bound by all the provisions of said agreement.

No voting trust agreement shall be entered into for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud.

Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees shall thereby be deemed canceled and new certificates of stock shall be reissued in the name of the transferors.

The voting trustee or trustees may vote by proxy unless the agreement provides otherwise.

VOTING TRUSTVOTING TRUST AGREEMENT

It is the SH who exercises the right to vote and casts his vote based on the agreement with other SH; there is merely pooling of interest The SH confers to another person, called a trustee, the right to vote as well as the right to be voted upon and the right to inspect the corporate books

SUBSCRIPTION CONTRACT: It is a contract for the acquisition of unissued stock in a corporation. Types: Pre-incorporation subscription entered into before incorporation; constitutes a binding contract among the subscribers Post incorporation subscription entered into after the incorporation for the acquisition of unissued stock GR: irrevocable for a period of at least six (6) months from the date of subscription EXC: if all the other subscribers consent to the revocation OR the incorporation fails to materialize within the said period or within a longer period as may be stipulated in the subscription contract Irrevocable after the submission of the AOI to SEC

CONSIDERATION FOR STOCKS: should not be less than the par value (in case of par value shares) or the issued price (in case of no par value shares); may be any or a combination of any two or more of the following:1. Actual cash paid to the corporation;2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued;3. Labor performed for or services actually rendered to the corporation;4. Previously incurred indebtedness of the corporation;5. Amounts transferred from unrestricted retained earnings to stated capital; and6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.

Section 62. Consideration for stocks. xxx xxxx xxxWhere the consideration is other than actual cash, or consists of intangible property such as patents of copyrights, the valuation thereof shall initially be determined by the incorporators or the board of directors, subject to approval by the Securities and Exchange Commission.

Shares of stock shall not be issued in exchange for promissory notes or future service. The same considerations provided for in this section, insofar as they may be applicable, may be used for the issuance of bonds by the corporation.

The issued price of no-par value shares may be fixed in the articles of incorporation or by the board of directors pursuant to authority conferred upon it by the articles of incorporation or the by-laws, or in the absence thereof, by the stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose.

WATERED STOCKS are stocks issued not in exchange for its equivalent either in cash, property, share, stock dividends, or services and includes: Those issued without consideration (bonus share) Those issued as fully paid when the corporation has received a lesser sum of money than its par or issued value (discounted share) Those issued for a consideration other than actual cash, the fair valuation of which is less than its par or issued value Those issued as stock dividends when there are no sufficient retained earnings or surplus to justify it

Section 65. Liability of directors for watered stocks. - Any director or officer of a corporation 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, or who, having knowledge thereof, does not forthwith express his objection in writing and file the same with the corporate secretary, shall be solidarily, liable with the stockholder concerned to the corporation and its creditors 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.

NB: In case of issuance of watered stocks, the following can file a case against the director or officer and stockholder Corporation it has the cause of action as its capital is directly impaired; approval by the BOD is necessary State can file a quo warranto proceeding as the issuance of watered stocks is an ultra vires act Creditors directly affected as the issuance of watered stocks is a violation of the Trust Fund Doctrine SEC has the power to regulate, supervise, administer and control the corporations organized under the Code Stockholder can file a case in behalf of the corporation, should the BOD refuse to file a case, through a derivative suit

DERIVATIVE SUIT an action brought by one or more stockholders or members in the name and on behalf of the corporation to redress wrongs committed against it or protest or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold control of the corporation Requisites for bringing a derivative suit:1. There is an existing cause of action belonging to the corporation2. The SH bringing the suit must have been such: a. at the time of the institution of the action; b. at the time of the subject act; andc. during the pendency of the action3. The SH must make a demand upon the BOD to file the case and the BOD refuses or fails to sue UNLESS the demand would be futile or useless (i.e., there must be exhaustion of intra-corporate remedies)4. The action must be brought in the name and for the benefit of the corporation

INDIVIDUAL SUIT an action brought by a stockholder against the corporation for direct violation of his contractual rights

REPRESENTATIVE SUIT an action brought, when a wrong is committed against a group of stockholders, by a stockholder in his behalf and all other stockholders who are similarly situated

PAYMENT OF UNPAID SUBSCRIPTION: should be done on the date indicated in the subscription contract OR upon call of the board Failure to pay will render the entire balance due and payable and shall make the SH liable for interest at the rate fixed in the by-laws, or if therein no such rate, at the legal rate If within thirty (30) days after such date no payment has been made, the stocks covered by the unpaid subscription shall be considered as delinquent and will be subject to delinquency sale Corporation can avail of the following remedies: judicial (through a court action for the payment of the balance) OR extrajudicial (through a delinquency sale) Effect of delinquent shares The right to vote and to be voted upon is suspended Cash dividends will be applied to the unpaid balance; while, the stock dividends will be withheld until full payment If the SH is part of the BOD, he remains to be part as such; however, a quo warranto proceeding may be filed against the SH

DELINQUENCY SALE Purpose: to recover the value of the unpaid shares (including accrued interest, costs of advertisements and expenses of sale); otherwise, capital will be impaired resulting to a violation of the Trust Fund Doctrine Shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent Notice of the sale and a copy of the resolution shall be sent to every delinquent SH either personally or by registered mail AND published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located The delinquent shares shall be sold to the highest bidder or to the bidder UNLESS the delinquent SH pays OR the BOD otherwise orders Upon sale, the certificates of stock of the delinquent SH will be cancelled and new certificates will be issued in favor of the highest bidder If there is no bidder, the corporation may bid for the shares, subject to the provisions of the Code (i.e., must have sufficient unrestricted retained earnings)

NB: The highest bidder is one who offers to full the highest amount for the least number of shares.

Section 69. When sale may be questioned. - No action to recover delinquent stock sold can be sustained upon the ground of irregularity or defect in the notice of sale, or in the sale itself of the delinquent stock, unless the party seeking to maintain such action first pays or tenders to the party holding the stock the sum for which the same was sold, with interest from the date of sale at the legal rate; and no such action shall be maintained unless it is commenced by the filing of a complaint within six (6) months from the date of sale.

LOST OR DESTROYED CERTIFICATES:1. SH will file with the corporation an affidavit in triplicate, setting forth: Circumstances as to how the certificate was lost, stolen or destroyed The number of shares represented by the certificate(s) The serial number(s) of the certificate(s) The name of the corporation which issued the certificate(s)2. After verification, the corporation will publish a notice in a newspaper of general circulation published in the place where the corporation has its principal office, once a week for three (3) consecutive weeks at the expense of the SH. The notice shall state the following: The name of the corporation The number of shares represented by the certificate(s) The serial number(s) of the certificate(s) That after the expiration of one (1) year from the date of the last publication, if no contest will be presented, the right to make such contest shall be barred and the corporation shall cancel in its books the lost, stolen or destroyed certificate(s) of stock and issue in lieu thereof new certificate(s) of stock3. After the expiration of the period of one (1) year, if no contest has been presented, the corporation will issue new certificate(s) of stock to the SH UNLESS the SH pays a bond or other security for an amount as may be satisfactory to the BOD, in which case, the corporation can issue new certificate(s) even before the expiration of the one (1) year period.4. If a contest has been presented or an action is pending in court regarding the ownership of the lost, stolen or destroyed certificate(s) of stock, the issuance of new certificate(s) will be suspended until the final decision by the court regarding the ownership.

NB: Section 73. Lost or destroyed certificates. xxx xxx xxx Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, no action may be brought against any corporation which shall have issued certificate of stock in lieu of those lost, stolen or destroyed pursuant to the procedure above-described.

CORPORATE BOOKS AND RECORDS: Composed of the following All records of the transactions of the business Minutes of the meeting of BOD/BOT and of Minutes of the meeting of SH or members Stock and Transfer Book book especially printed for the corporation which must be approved and stamped Received by the SEC to make it as the official record of the movements of the shares of stocks involving the corporation one portion indicates the alphabetical presentation of the name of the SH, the holdings and the dates when the certificates were issued; the other portion contains the individual entries of the SH Certificate Book a bound book of certificates of the corporation with its own design and logo has a stub portion; once issued, the certificate is detached and the stub is retained by the corporation The fundamental records: AOI, By-laws, Certificate of Incorporation Must be kept and preserved at the corporations principal office (except for the stock and transfer book which can be kept in the principal office of the stock transfer agent) The directors, trustees, SH or members have the right to inspect the corporate books and records at reasonable hours on business days; however, this does not necessarily include the right to be given a copy The director, trustee, SH or member may demand, in writing, for a copy of excerpts from the records or minutes, at his expense GR: an officer or agent of the corporation shall not refuse to allow any director, trustee, SH or member to examine and copy the records; otherwise, such officer or agent will be liable under Section 144 of the Code (see page 21) EXC: if the person demanding to examine or copy the records has improperly used any information secured through any prior examination of the records of the corporation or of any other corporation OR was not acting in good faith or for a legitimate purpose in making the demand

Section 75. Right to financial statements. - Within ten (10) days from receipt of a written request of any stockholder or member, the corporation shall furnish to him its most recent financial statement, which shall include a balance sheet as of the end of the last taxable year and a profit or loss statement for said taxable year, showing in reasonable detail its assets and liabilities and the result of its operations.

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 and certified by an independent certified public accountant.

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 responsible officer of the corporation.

FORMS OF BUSINESS COMBINATION: Sale of assets a corporation sells all or substantially all of its assets to another corporation in consideration for cash Lease of assets a corporation leases its property to another corporation for which the lessor merely receives rental paid by the lessee; there is no transfer of ownership since what is transferred is only the use of the assets Sale of Stocks a corporation purchases the stocks of another corporation wherein the former becomes the parent or holding company and the latter becomes the subsidiary company Stock Asset Swap a corporation transfers ownership of its assets to another corporation and in turn the latter will issue shares to the former; it is a combination of sale of stocks and sale of assets

NB: In the first four types of business combination, none of the corporations involved are dissolved; the corporations retain their corporate existence.

Merger two or more corporations combine where one corporation, which retains its corporate existence, absorbs the other corporations; the absorbed corporation is, in effect, dissolved Consolidation two or more corporations combine to form a new corporation

PROCEDURE FOR EFFECTING A PLAN OF MERGER OR CONSOLIDATION:1. The BOD/BOT of each corporation shall approve, by a majority vote, a plan of merger or consolidation, indicating the following: The names of the corporations (i.e., the constituent corporations) The terms of the merger or consolidation and the mode of carrying the same into effect A statement of changes, if any, in the AOI of the surviving corporation, in case of merger; and, with respect to the consolidated corporation in case of consolidation, all the statements required to be set forth in the AOI Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable2. The plan shall be submitted for approval by the SH or members of each of the constituent corporations at separate corporate meetings duly called for the purpose with proper notice. Notice shall be given to all SH or members, either personally or by registered mail, at least two (2) weeks prior to the said meeting Affirmative vote of SH representing at least 2/3 outstanding capital stock or at least 2/3 of the members is required A dissenting SH may exercise his right of appraisal Any amendment to the plan of merger or consolidation should be approved by majority vote of the BOD/BOT and ratified by the SH representing at least 2/3 outstanding capital stock or at least 2/3 of the members3. After the approval by the SH or members, the articles of merger or of consolidation, which is must be signed by the president or vice-president and certified by the secretary or assistant secretary of each corporation, shall be executed by each of the constituent corporations, indicating the following: The plan of merger or of consolidation As to stock corporations, the number of shares outstanding, or in the case of non-stock corporations, the number of members; and As to each corporation, the number of shares or members voting for and against such plan4. The articles shall be submitted for approval to the SEC in quadruplicate In the case of merger or consolidation of corporations governed by special laws (i.e., banks or banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions and other special corporations), the favorable recommendation of the appropriate government agency shall first be obtained.5. The SEC will conduct a hearing with proper notice if, upon investigation, it has reason to believe that the proposal is contrary to or inconsistent with the provisions of the Code or existing laws, to give the constituent corporations the opportunity to be heard. Written notice of the date, time and place of the hearing shall be given to each constituent corporation at least two (2) weeks before such hearing6. The SEC will issue a certificate of merger or of consolidation, if it is satisfied that the same is not inconsistent with the provisions of the Code and existing laws. It is upon the issuance of the certificate of merger or of consolidation that the merger or consolidation will become effective.

EFFECTS OF MERGER OR CONSOLIDATION: The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;

The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;

The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;

The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges, immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and

The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation.

Other effects (based on WWW): Labor union will not be terminated and will be carried over by the surviving corporation Insurance covering the property transferred the policy will continue since the surviving corporation or the consolidated corporation acquires insurable interest over the property; upon the merger or consolidation, the insurance company should be notified of the change in ownership

APPRAISAL RIGHT It refers to the right of a dissenting SH to demand payment of the fair value of his shares. Instances when available: In case of any amendment to the AOI which has the effect of Changing or restricting the rights of any SH or class of shares Authorizing preferences in any respect superior to those of outstanding shares of any class Extending or shortening the term of corporate existence In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets In case of merger or consolidation In case the corporation decides to invest its funds in another corporation or business for any purpose other than its primary purpose For any reason, in case of a close corporation Procedure:1. The dissenting SH shall make a written demand on the corporation within thirty (30) days after the date on which the vote was taken; otherwise, if the SH fails to make a written demand within such period, it shall be deemed as a waiver of his appraisal right.2. Within ten (10) days after demanding payment, the dissenting SH shall submit the certificates of stock representing his shares to the corporation for the notation thereon that such shares are dissenting. If the shares with such notation is transferred, the rights of the transferor as a dissenting SH shall cease and the transferee acquires the rights of a regular SH. All dividend distributions which would have accrued on such shares shall be paid to the transferee.3. If the proposed corporate action is implemented or effected, the corporation shall pay to the SH, upon surrender of the certificate(s) of stock, the fair value of the shares as of the day prior to the date on which the vote was taken, excluding any appreciation or depreciation in anticipation of such corporate action.4. If within a period of sixty (60) days from the date the corporate action is approved by the SH, the dissenting SH and the corporation cannot agree on the fair value of the shares, it shall be determined and appraised by 3 disinterested persons (one person chosen by the SH, one person chosen by the corporation and the other chosen by both). The findings of the majority of the appraisers shall be final and their award shall be paid by the corporation within thirty (30) days after the award is made.5. All the rights accruing to the shares (including voting and dividend rights) shall be suspended. The suspension shall be from the time of demand for payment until either the abandonment of the corporate action or the purchase of the shares by the corporation. If the dissenting SH is not paid within thirty (30) days after the award, the voting and dividend rights shall be immediately restored.

NB: No payment shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to cover such payment.

Section 84. When right to payment ceases. - No demand for payment under this Title may be withdrawn unless the corporation consents thereto. If, however, such demand for payment is withdrawn with the consent of the corporation, or if the proposed corporate action is abandoned or rescinded by the corporation or disapproved by the Securities and Exchange Commission where such approval is necessary, or if the Securities and Exchange Commission determines that such stockholder is not entitled to the appraisal right, then the right of said stockholder to be paid the fair value of his shares shall cease, his status as a stockholder shall thereupon be restored, and all dividend distributions which would have accrued on his shares shall be paid to him.

Section 85. Who bears costs of appraisal. - The costs and expenses of appraisal shall be borne by the corporation, unless the fair value ascertained by the appraisers is approximately the same as the price which the corporation may have offered to pay the stockholder, in which case they shall be borne by the latter. In the case of an action to recover such fair value, all costs and expenses shall be assessed against the corporation, unless the refusal of the stockholder to receive payment was unjustified.

NON-STOCK CORPORATION It refers to a corporation where no part of its income is distributable as dividends to its members, trustees, or officers. May be formed or organized for any of the following purposes: charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry, agricultural and like chambers, or any combination thereof Any profit which a non-stock corporation may obtain as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized.

ASSOCIATIONNON-STOCK CORPORATION

SEC registration is not required SEC registration is required

STOCK CORPORATIONNON-STOCK CORPORATION

The capital stock is divided into share of stocks and it is authorized to distribute profits to SH in the form of dividend No part of its profit is distributable to its members, trustees or officers; thus, division of capital is not necessary

Is intended for profit Is not intended for profit

The officers must be chosen by the BOD The members may directly choose the officers

The BOD is elected for a term of one year The BOT is elected for a term of 3 years

The BOD must be at least 5 but not more than 15 individuals The BOT may be more than 15 individuals

Generally, a SH is given the right to vote A member may not have the right to vote as the right to vote may be limited, broadened or denied if specified in the AOI or by-laws

Uses the cumulative method of voting If given the right to vote, a member is entitled to one vote

Meetings of the SH must be in the city or municipality where the principal office is located or, if practicable, in the principal place of business of the corporation Meetings of the members may be held anywhere in the Philippines

Shares of stock may be transferred to other persons Membership is personal and non-transferrable unless the AOI or by-laws provide otherwise

Section 90. Non-transferability of membership. - Membership in a non-stock corporation and all rights arising therefrom are personal and non- transferable, unless the articles of incorporation or the by-laws otherwise provide.

Section 91. Termination of membership. - Membership shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws. Termination of membership shall have the effect of extinguishing all rights of a member in the corporation or in its property, unless otherwise provided in the articles of incorporation or the by-laws.

DISTRIBUTION OF ASSETS IN A NON-STOCK CORPORATION:In case of dissolution, the assets of a non-stock corporation shall be applied and distributed as follows 1. All liabilities and obligations of the corporation shall be paid, satisfied and discharged, or adequate provision shall be made therefore;2. Assets held by the corporation upon a condition requiring return, transfer or conveyance, and which condition occurs by reason of the dissolution, shall be returned, transferred or conveyed in accordance with such requirements;3. Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious, benevolent, educational or similar purposes, but not held upon a condition requiring return, transfer or conveyance by reason of the dissolution, shall be transferred or co