BUS ORG 2 (CORPO) SEC. 1 6 SEC. 7. Founders Shares.

siya; ipalit nako na or iinvest nako for expansion. In other sense is unrestricted earnings, dba? Meaning pag unrestricted earnings, free siya. Pwede siya igawas. Do you follow? -Question and Answer portion-

Now, here comes what we call as founders shares. When we say founders, they pertain to the persons who founded the corporation. From the word founder, they are the ones that founded the corporation, from the beginning up to its incorporation. So, as an incentive they are given the exclusive right to vote and be voted as directors of the corporation. But such privilege is only up to five (5) years. Ok? As a way of saying thank you to these persons for forming the corporation, they are given this privilege. The exclusive right to vote and be voted for a period of five (5) years. Ok? SEC. 8. Redeemable Shares. Ok. Redeemable Shares. Diba redeemable shares are shares wherein it has a fixed period? Dba? And upon the arrival of the period, the corporation can purchase or redeem the shares of such investors. Thats why they are called as redeemable shares. Take note that in _____ conditions, redeemable shares are non-voting shares. Dba? Same as the preferred shares. Can you still recall on our previous discussion? Preferred and redeemable shares are non-voting shares. Except for those General rule, they are non-voting shares. Now, there is mention about the owners of redeemable shares they are entitled to be paid even in the absence of unrestricted earnings. So, unrestricted earnings, sounds alien to you, right? What is unrestricted earnings? Dba sounds alien to you? Let us say today is year 2011, let us say the net income of the corporation is 1M. Today is 2011. Let us say, redeemable shares, dba, if you are the owner of redeemable shares, youll be entitled to payment despite the absence of unrestricted earnings. What do you mean by that? Pag 2012, i-carry forward nimu nang net income, so retained earnings na siya. Retained earnings. Dba unrestricted pa siya? If it is a retained earnings, it means that this is not an income earned on a current year. This is an income earned from prior years. Do you follow? Pag current year na revenue, that is income. Ha? Let us say, today is 2012, let us say the corporation earned a profit of 1M. That 1M is not retained earnings. That is net income. That is an income. Ha? Today is 2013, diba under the corporate books, we will carry over the 1M in your books, dba? We call that now as retained earnings; because these are incomes earned from prior years. Do you follow? What would be unrestricted retained earnings? Siyempre, this is retained earnings, sa ato pa, kita ninyo atong mga prior years? Cguro ikaw makabudget ka, mag-expand ka. Dba? Now let us say nay 1M, do you have any plans how are you going to spend that 1M? Do you have plans? Maybe you will buy a real property, halimbawa or you will buy new equipment. Dba, you will ill-mark that portion for future expenditures. Diba naka-ill mark siya? That is why pag ill-marked siya, restricted siya. Di nimu siya pwede kuhaon kay naka-ill mark siya, restricted. Dba? Kung restricted ayaw sulod, di mo pwede kay naka-ill mark ni

..Yes I have to pay for my obligations which will mature on restricted earnings siya because you cannot get back, you cannot spend that. Ok? So, if there is a restricted, there is an unrestricted. Meaning, unrestricted, free siya, dba? It can be disposed. So, in the redemption of redemption shares, the money will be taken from unrestricted earnings. Diba? Question! Just try to imagine dba pag redeemable siya, ikaw muorder kag redeemable shares, you will enjoy that privilege; because even if there is no unrestricted earnings, the corporation will pay you. Ok? Do you follow? Q: Pwede siyang kunin sa restricted earnings para pambayad dun sa redeemable shares? A: Maski walay unrestricted earnings because that is your privilege as shareholder of redeemable shares. That is why I find it necessary to discuss about restricted earnings; because as we move forward, we will encounter this term. So easy to say of course you will pay so, let us say noh, the corporation to declare dividend out of the corporate income. That would be your answer? That is wrong! The corporation cannot, because in the declaration of dividend, the money should be taken from unrestricted retained earnings; not from income. You cannot declare dividend out of the corporate income because accounting wise, income is different from retained earnings. Giexplain na nako. Any question? SEC. 9. Treasury Shares. Diba daghan na tag nastoryahan na shares noh? Dba? First we have common, common shares, dba? Common shares, these kinds of shares wherein the shareholders would be entitled to vote, would be entitled to receive dividends. Dba? Preferred shares, they will be given priority in the distribution of dividend. Dba? If the corporation will distribute its assets, the preferred stockholder will also be prioritized, right? But, generally speaking, he is not entitled to vote, except for those exceptions, dba? Generally speaking, he is not entitled to vote. Then we have redeemable shares. We also have founders shares. Founders shares, because I have founded the corporation, I should be enjoying this benefit that I have the exclusive right to vote and be voted in the Board. Ok? Now here comes, treasury shares. What is a treasury shares? Dba gipalit, for example, (redeemable shares once redeemed by the corporation?) Dba the redeemable shares, terminated na siya diba? Gikuha nimu siya? We call that now as treasury shares. For example, dba you would promise I will purchase 10,000 shares. Can you still recall subscribe capital stock? You promise 10,000 shares. Let us say ang 5,000 shares, paid. The remaining 5,000 shares, unpaid. So, the corporation will

benta; the unpaid shares. So, thats what we call as treasury shares. Just to give you an idea ha, because we will dissect this concept as we move forward. Ah so treasury shares, mao mani siyang mga shares nga gipangkuha balik. These are shares that have already been issued, dba? Gi-issue naman ni kaya lang ______, not necessary man na bayaran tanan dba? These shares, 10,000 shares had already been issued, but reacquired by the corporation. __________ Redeemable shares reacquired tapos expired na. So, these are treasury shares. TITLE II INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS SEC. 10. Number Incorporators. and Qualifications of

note that the Articles of Incorporation is the chapter ha, in the corporation. Dba? __ _____ with the SEC, name of the corporation, ___ laws of the corporation, shares of the corporation, pila ang capital, names of the incorporators, place of business, and so and so. SEC. 12. Minimum Capital Stock Required of Stock Corporations. Ok. So, the general rule is that there is no minimum requirements with regards to the amount of the authorized capital stock. Right? But, it MUST not be less than P5,000. So, any amount but it should not be less than P5,000. Ok? Dba there are some corporations wherein there is a need for that corporation to satisfy the capital requirement. For example, you would like to open a universal banking corporation, dba? You cannot open a universal bank with a mere capitalization of P1M. Dba? Naa manay requirement sa Central Bank na dapat mucapital, let us say, P60M. Commercial banks, ganyan. Rural banks, ganyan. Dba? But generally speaking, NO minimum capital stock requirement; but it should not be less than P5,000. SEC. 13. Amount of Capital Stock to be Subscribed and Paid for Purposes of Incorporation. Right, it should not be less than P5,000. Let us say, you would like to form a corporation. Who would want to be an incorporator? You! You! You! You! So, kamo tanan! Pila man mo kabuok? Oh! What kind of business? Oh car dealership. How much capital would you like.. the maximum amount of capital that you would like to raise? Maybe not now, but later, dba? P100M? Oh P100M! That is your authorized capital stock that must appear in your Articles of Incorporation. Dba you call this as your authorized capital stock. Dba? The maximum or ceiling amount that the corporation wishes to operate. So, out of P100M, that article says that at least 25% must be subscribed. So, P25M must be subscribed. Dba subscribed capital stock. Subscribed capital stock means katong sure uy, promise ko magkuha ko anang shares ha. Promise ko ana ha, bayaran gani nako karon eh. Dba? What do you call kanang magsubscribe ka ug cable, dba subscriber ka? Mo-subscribe kag magazine, subscriber ka dba? PLDT subscriber dba. So, lets apply that by way of analogy to subscribed capital stock, dba? 25% out of the subscribed capital stock must be paid. We call that as paid-in capital, dba? 25% sa P25M, pila? Butang nato, P6.5M nalang. Meaning, P6.5M must be paid in cash or property. So, this is your initial capitalization. This is your initial capitalization, dba? Dapat pag-operate sa business, pagsugod jud, dapat naa kay P6.5M, either in cash or in property. We call this as the 25-25 Rule. Okay? SEC. 14. Contents of Articles of Incorporation. Okay. So now we are talking here of an Articles of Incorporation, dba? The Articles of Incorporation is the chapter of the corporation. It enumerates all the details pertaining to the corporation. (Proceed reading the article)

Ok. We are talking here of incorporators. You know who are incorporators. Dba they are the persons who originally formed the corporation? They are the ones whose names appear in the Articles of Incorporation, right? At least five (5) but not more than fifteen (15). Ok? Take note, only natural persons can be incorporators. So, a corporation cannot be an incorporator, because the law is very clear that natural persons can only be incorporators. So, if you are a corporation, you cannot be an incorporator. So, at least 5 but not more than 15. Is citizenship required? NO. The law says that majority MUST be residents of the Philippines. This was asked during our time, 2006 bar exam. Is it required? (referring to citizenship) No. Majority must be residents of the Philippines. (Non-citizens pwede). And its also important that each incorporator MUST be an owner of at least one (1) share of stock. You cannot be an incorporator if you do not own even a single share, dapat naa jud kay one share of stock; otherwise, you cannot be an incorporator. You should know who are the incorporators ha? They are the persons who ________ the corporation. They are those persons whose names appear in the Articles of Incorporation. They must be at least 5 but not more than 15. They should only be natural persons and majority of them must be residents of the Philippines. SEC. 11. Corporate Term. ________________? Unlike a partnership, a corporation has a continuity of existence. Dba in partnership, the death of one of the partners dissolves the partnership; but, not in the case of a corporation. The death of a stockholder will not affect the corporate existence. But, with regards to corporate life, there is a limit. Only 50 years, renewable for another 50 years. Ok? But take note, under the last paragraph. It states there that, no extension shall be entertained if NOT made within five (5) years prior to so dapat within five (5) years from (dapat PRIOR to) the date of expiration. So, the SEC will not entertain if let us say, 10 years pa lang you will file na to extend your corporate life, that will not be entertained by the SEC. Dapat within five (5) years prior to the expiration. And how are you going to do that? By amending the Articles of Incorporation. Take

Okay. What name of the corporation? Oh unsay pangalan sa inyong corporation? Ha? Oh Agton Class Corporation. But, before you decide to come up with this name, you have to go to the SEC first to identify/verify if you have a similar corporate name. Ok. (Next) Corporate name, dba? If it is a corporation, its either CORP. or Incorporated. Usually, ana mana, how would you know, ha. XYZ Trading, usually single proprietorship. Dba? Pero makadungog, makakita gani mog Corp. or Inc., corporation jud na siya. So if you are transacting with these kinds of corporate names, you should ask for either a Board Resolution or Secretarys ______. Mao jud ni naa sa corporation. The corporation acts through its Board of Directors. Dba, dili bya ni ikaw ikaw lang. Kung partner ka, siguro pwede ikaw ray tag-iya. But dire sa corporation, no! You cannot! (Next) What is the purpose? What kind of business? Car dealership, right? What is the importance? Why is it important to determine the purpose? First, to know if this kind of business is legal or illegal. Second, to determine if the acts committed by the officers are ultra vires or not. Dba? The purpose is car dealership, but the corporate act is very alien to the car dealership business; that is ultra vires act. Dba? (Next) Place of principal office of the corporation. Why is it important? Because a corporation, the law means, must have one residence. Where will the court send its summons? __________ Dba? It is important to write down the place of business. For jurisdictional purposes. Dba? Dba before we will transact with a corporation, we inquire in the Articles of Incorporation where it is located, we will investigate; you have to go to the place where the corporation is situated. Dba? It is important. (Next) The term, the corporate life. Any years, but the maximum is 50 years, dba? The names and the nationalities and the residences of the incorporators. __________ It does not matter if majority are aliens. What is important is that majority of them must be residents. Ok? So, we determine the validity of the Articles of Incorporation with regards to the requirement, sa residences ng mga incorporators. Imuhang ibutang kung asa ka nagpuyo, sa Philippines o abroad; pag majority sa abroad, it violates the provision of the Corporation Code. (Next) Oh dba we already enumerated the names, residences and nationalities of the incorporators, right? Then afterwards, ibutang pud ninyo pila ang ilang shares, pila ka-shares ilang gi-acquire. Now, because you have to indicate how much would be your authorized capital stock. Dba? Pila siya, P100M? Pila ka shares inyong gusto tungaon na siya? Naa rana sa inyo. Butang nato, 1M shares, dba? Tunga-on ninyo. So, pila ang par value per share? P100/share. Mao nang tunga-tungaon ninyo. Dba? (Non-stock, members well discuss that later. We will concentrate on stock corporations first.)

Dba gina-repeat nako sa inyo; subscribed, paid-in, dba? At least when you browse the articles, you already have an idea kung unsa na sila authorized, subscribed, paid-in capital. SEC. 15. Form of Articles of Incorporation. So, usually tanan na siya na form noh. So, if you wishes to put up a corporation, actually you can go to SEC. Naa silay proforma didto eh. Bayaran lang nimu. You secure a copy from the SEC. Pati By-Laws naa na sila didto. Bayad ka lang. Ok. (Last year, naa koy removal exam sa corporate law, naa koy isa ka question. Gipa-draft nako silag Articles of Incorporation. Mao rana akong question.) Waaaaaa! ~.~ -ChitChat- Case: Wilson P. Gamboa vs. Finance Sec. Teves, Manny Pangilinan (PLDT Case; 60-40 Rule; PLDT voting shares)

SEC. 16. Amendment of Articles of Incorporation. (Important 1st par.) -Late :P 100 stockholders. So, individually, 2/3 of 100 is 67, right? ________. It depends on the weight of your stocks. It can be that there is only one person, but he owns 30% of the stock. Another person owns another 30%. Another person owns 7%. Just try to imagine, the vote of only 3 persons is required to amend the Articles of Incorporation. Do you follow? Ang voting is dili man individually, its not because you are a stockholder yes, I am a stockholder but I only own 1 share of stock. Meaning, I do not have a voice. I am a minority stockholder. Who has a voice in a corporation. Dba its only the controlling stockholder? These persons, even though they are only 3 persons, but they have a say in the corporation. Therefore, their votes are equivalent to (30%, 30%, 7%) 67%, that is 2/3 of the outstanding capital stock. (It can of course, be higher than 2/3; minimum ang 2/3) So, majority vote of the Board of Directors. (Okay lang sa BoDs siya) Youll be entitled to one (1) seat in the Board, dba ana man? Oh stockholder ko sa San Miguel, 30% ang akong share, I will be entitled to 3 seats. So individually jud na ______ dira, dba? Gibutang dira majority vote of the BoDs. Unlike sa stockholders, 2/3 of the outstanding capital stock. Do you understand? (Mmmmn) SEC. 17. Grounds When Articles of Incorporation or Amendment may be Rejected or Disapproved. Grounds for disapproval of the amendment of the Articles of Incorporation When you file an Articles of Incorporation, it may be disapproved, dba? Or let us say, it has already been approved before, dba maski naa na kay Articles of Incorporation, but you would like to amend it, you have to add an amended Articles of Incorporation; but

it was disapproved by the SEC. What are those instances? What are the grounds? Oh it does not comply with the requirements laid down under the Corporation Code. Unconstitutional, illegal, immoral. The purpose of the corporation must be lawful. Ok. Dba in the requirement is 25-25 Rule? 25% of the outstanding (authorized) capital stock must be subscribed; and 25% of the subscribed capital stock must be paid-in. Dba? So, magbuhat mana ug kanang Treasurers Affidavit, magbuhat ug affidavit ang Treasurer. Dba ideposit man jud na sa bangko, and you also ask for the banks certification that that is the amount of money that the corporation opened sa (enterprise). Let us say, kulang diay. Dba? That is, misrepresentation. Dba if it is a nationalized business, 60-40 is the rule? In the exploration, development and utilization of the national resources of the Philippines, 60% must be Filipino-owned, 40% foreign. Advertising business, dba 100% Filipino. Public Utility Vehicle, Filipino. So, if it is a banking institution, they must also be able to secure a certificate of authority coming from the Bangko Sentral ng Pilipinas. Dba pag mag-open mo ug bangko, dili lang man kani (Corporation Code) icomply nimu, dapat naa kay approval sa BSP. Ok? Because the Bangko Sentral is the government regulatory agency that will oversee all banks in the Philippines. Ok? Certificate of Authority from the BSP. SEC. 18. Corporate Name. Ok, corporate name. Before you will apply for the said (SEC) approval, you will be made to sign that verification sheet with/to the SEC. You will write your proposed corporate name, and then you search in the computer whether or not there is an existing corporate name that is similar to your proposed corporate name. Dba, that is to avoid duplication. To avoid confusion. Dba kung naa nay XYZ Corporation, you cannot use that, you use another name. SEC. 19. Commencement of Corporate Existence. So, simply put, that section only says that the birthday of a corporation is the day of the issuance of the Certificate of Incorporation. Mao na iyang birthday ha. SEC. 20. De Facto Corporations. What is a de facto corporation? Meaning, NOT all the requirements under the Corporation Code were complied. The opposite is de jure corporation; all of the requirements were complied. But, have not complied, de facto. But, they are already operating as a corporation. Dba nagtransact na silag business. For example, under the Corporation Code, dba it states that majority of the BoDs must be residents of the Philippines. What if the application was approved by the SEC; so the corporation commenced

business. And it was only found later on that majority of the incorporators are not residents of the Philippines; so that is a violation of the requirements under the Corporation Code. So meaning, there is a flaw. So, that is a de facto corporation. What if the 60-40 Rule was not complied with? That is a de facto corporation. Ok? For example, XYZ Corporation, de facto siya dba? XYZ Corp. lends money to Mr. Juan dela Cruz. Now, Mr. Juan dela Cruz says, No, I will not pay you because you are a de facto corporation. Is that tenable? No! because that is only Mr. Juan dela Cruz cannot attack the existence of the de facto corporation collaterally. Dba, collateral man siya. Meaning, pag collateral, actually ang imong principal is I will not pay you, obligation man dba. Ang iyang argument is, Kuan man gud ka, de facto corporation. That is a collateral attack. That is not a direct attack, dba? Because ONLY the Solicitor General can attack in a quo warranto proceeding the existence of a de facto corporation. (Do you understand? ) SEC. 21. Corporation by Estoppel. (Can you explain that? TOINX! That there can be a corporation known as a corporation by estoppel) Can there be a corporation such as a corporation by estoppel? That statement is NOT accurate! You know why? Corporation by estoppel, there is no corporation at all to speak of. No corporation. For example, you act, you operate as a corporation but you do not file your Articles of Incorporation with the SEC. So, there is no SEC approval. So, you operated as a corporation without mandate from the State. But, what would happen to those persons who transacted with that alleged corporation? Dba, if it is a corporation, you have a personality separate and distinct, dba? Si Mr. Juan dela Cruz filed a case against this corporation daw. Now, the corporation daw did not pay because ah dili mani corporation. How would these persons be able to collect? Di pa sila registered. Dba magdefense noh, ____ ___ corporation. So, in a corporation by estoppel, actually there is no corporation. But, persons who transacted with this corporation daw, will have to be protected. That is why the effect is, in this corporation, those persons will be treated as general partners. They will be treated as a mere association of persons. So, their liability is, pwede sila individually dba, up to the extent of their personal assets. They cannot hide under the mantle of the doctrine of separate entity. (Do you understand? ) Dba estoppel, is actually a principle based on equity. Dili mana sa law dba? ____ Doctrine of Apparent Authority; dba estopped kana, kay nagrepresent ka naman nga corporation ka dba, so, estopped ka na. You cannot invoke that, no you are not properly represented that you are a corporation, that is why, you are (given) labeled as a corporate/corporation by estoppel. You are treated as a mere association of persons. (Do you understand? ) SEC. 22. Effects of Non-Use of Corporate Charter and Continuous Inoperation of a Corporation. What is the birthday of the corporation? The date of the issuance of the Articles of Incorporation. So, let us say,

that is January 1, 2013. So, what if after two (2) years from such date, the corporation did not commence business. What is the effect? That is a ground for automatic revocation of the license. Two (2) years from the date of the issuance of the certificate of incorporation, and the corporation did not commence business; that will result to an automatic revocation of the license. Q: Nagstart lang siya once Sir, tapos niundang na? A: Okay lang, okay lang at least nagstart na siya. Kani there is no you did not start, wala gyud. Let us say, nagstart siya, dba, nag-operate siyag business. Nagstart siya hantod nagstop siya. Nagstop siya January 1, 2012. Then karon ang January 1, 2017; so, for five (5) or that five (5) years, there are no activity. Then, that is now a ground for revocation. But this time, its different. The corporation will be entitled to Notice and Hearing. Dba, unlike sa two (2)-year period, no notice and hearing; automatic. Pag 5year inactivity, there is notice and hearing. Ok? SEC. 23. The Board of Directors or Trustees. We are talking about Board of Directors, right? Now, the corporation can only act through its BoDs. Dba? Take note that the corporation is an artificial being. It is an artificial being. So, let us say, any stockholder can represent a corporation. NO! That is not what it is supposed to be. It should be the BoDs. That is why, any decision should be decided dba, on that board room daw sa mga BoDs. Who are these BoDs? They are elected by the stockholders. ________________. Let us say, there are ten seats. Basically, those stockholders who have more stocks, they can have more say, dba? They can have more say, they can have more representation in the board. Ok? And take note that each BoD must own at least one (1) share of stock. At least one (1) share of stock. Let us say, Mr. dela Cruz is a BoD. And he sold all of his stocks. Will he be entitled to a seat as a BoD? No more, because he no longer owned the shares even a single share of stock. Ok? Simple lang man eh, only the BoDs can mind the corporation, because they are the ones who formulate the policies, and so on. (Any question? ) Q: (CF Sec. 22) With regards to the 5-year period, revocation, when will the 5-year period be counted; from the issuance of the certificate or the last time/period that the business stopped operating? A: Last time na nagstop ang operation sa business! SEC. 24. Election of Directors or Trustees. So, we are now on voting, noh? (Voting na ta? What section is that?) (Next Meeting na daw! ) Q: For example Sir, the corporation did not submit financial documents for 4 years, then on the 5 th year they submitted. So, would it stop the counting?

(Sa inactivity ni siya? Yes Sir!) A: Four (4) years maski two (2) years lang dili ka magpass sa imong financial statements pag require sa SEC, suspension! -ChitChat-

(Sec. 24) Election of the Board of Directors. Who elect the BoDs? Stockholders, dba. 2/3 of the outstanding capital stock. So, in the election of the BoDs, it is important that the Secretary of the corporation will call or will give notices to the stockholders and the required vote is 2/3 of the outstanding capital stock. So, let us say, ____ 2/3 ha, 2/3 of the outstanding capital stock. What is the minimum number of directors required under the Corporation Law? Five (5). A B C D E. Lima, 5 seats. Voting can either be (a) Straight Voting or (b) Cumulative Voting. Straight Voting. Let us say, you are a shareholder. How will you cast your vote? Dba it depends on the number of shares involved. Ok? (Ikaw Miss pila ka shares imong gusto? 100 shares?) 100 shares. How many positions are to be filled? How many directors are you going to elect? Five? Five. You multiply the number of your shares by 5. So, 500 shares. Dba daghan manag kandidato? So, let us say there are 7 candidates. But, only 5 will be elected. 500 shares. If it is a straight voting, you have 500 shares dba. So, you have to apportion this 500. So kinsa imong gusto i-elect? %#@ So, straight voting man siya, so equal. A 100, B 100, C 100, D 100, E 100. Ok? Cumulative Voting. Pag cumulative voting, you can concentrate on your vote sa isa lang ka-tao. So, if you want to make it sure that your candidate will win, you have to concentrate your vote to a particular person. Pwede kay A lang tanan ang 500, zero-zero na sila (B C D E). Or pwede nimu himuon, cguro 300 si A, 50 si B, 100 si C, 50 si D that is cumulative voting. (Do you understand? ) You know what is the advantage of having this kind of voting, cumulative voting? Because let us say, you are only a minority stockholder. So, how would you be able to elect a BoD? For example, Yamas, Apostol Cguro kamong duha naa moy 800 shares. The rest, kamong lima, mu-total lang mog 200 shares. Dba, at first glance, it seems to appear that outnumbered mo, dba? You might not even have a single seat. So, the beauty of cumulative voting is that, you concentrate your vote to a single person. Imagine, 200 x 5, that is 1000. Ibutang nimu ang 1000 dire (A), so si A naa nay 1000 dba? Let us say, si Apostol ug si Yamas, 800 x 5, 4000 shares. Gi-tunga2 nila, 1000 kay (B C D E). Pare-pareho dba? At least sigurado mo nga naa moy 1 seat. You will be assured that you will be represented in the Board. At least you have a voice, maski isa lang dba. Youre minority stockholders eh.

Q: Pwede siya Sir straight voting Atty: It depends on what is stated in the By-Laws. Kung sa by-laws nimu straight voting, iapportion nimu eh. Lugi mo, dba. Pag-cumulative voting, pwede ka mu-_____. S: At least kung cumulative voting, pwede ka mu-straight. Kung sa by-laws ba, cumulative ang nakabutang sa bylaws, pwede pud i-straight nimu siya. Pero kung straight voting na, dili na jud pwede ma------. Atty: Agree! (Do you understand?) SEC. 25. Corporate Officers, Quorum. (Explain the provision daw. TOINX! ) Let us say, there are now 5 directors elected. Kinsa inyong gusto? Si A B C D E. Lima dba? They were elected by the stockholders representing 2/3 of the outstanding capital stock. Now, there are 5 BoDs. What constitutes quorum in order to have a corporate act? There are 5, right? So, 3 votes will constitute a quorum, dba. What if, there are 5 BoDs, but absent si D. So, duha lang sila, kulang. Is there a quorum? No/None! Kelangan tulo (3). (HA?!?) Ang present lang kay si A B C, is there a quorum? Yes! What is the needed vote? Two (2)! Sa lima ka BoDs, makakuha lang nag 2 votes ang isa dira, pwede na ma-elect. Gets ninyo? There are 5 directors dba? What is the majority of 5? Three (3). Walay problema kung present tanan dba? Kuntahay absent ang duha, tulo lang. Quorum lang ba gihapon? Yes! Ang quorum sa lima, tulo! Let us say, absent ang tulo, nay quorum? WALA! Mag-election sila, void! Kelangan, tulo ang present. Ok? So, magbutuhanay sila, 2 votes lang, okay na. *except for the election of officers which shall require the vote of a majority of ALL the members of the board. So, if there are 5, majority is 3 votes. Ok. If there are five (5) BoDs, then 3 votes are required for the election of officers. So, let us say, 3 votes. Under the Corporation Code, there are only three (3) officers required to be elected. First, the President; who must be a BoD. Second, is the Treasurer; who may or may not be a director. Then we have the Corporate Secretary; who may or may not be a director BUT, must be a resident and a citizen of the Philippines. There are 3 officers ha. But, there is a limitation. You cannot be a President and a Secretary at the same time, di pwede in a concurrent capacity. You cannot be a President and a Treasurer at the same time. So, pwede ka Treasurer and a Secretary at the same time. Ok? (Any question? ) So afterwards, they can elect other officers; depending on what positions are mentioned in the corporate by-laws. The By-Laws is the governing law that will be observed by the stockholders among themselves. Let us say, sa ilang by-laws mag-elect pa ug prince charming, muse, PWEDE!

Basta naa sa inyong by-laws eh. Ok? Depende kung unsa nakabutang sa ilang by-laws; they can elect other officers. What if you are an employee in the corporation, what will the rank of manager Are you a corporate officer? It depends. If under the by-laws, it is stated there that the rank of manager is an officer, then you are an officer. But if it did not, even though you are a manager, you are not an officer. Ang basis nimu sa by-laws. Kung kana ba na position, officer ka ba or dili. -Q & A portion- What is the function of the Treasurer? The Treasurer takes good care of the corporate assets. What about the Secretary? The Secretary is in-charge of the corporate stock exchange transactions, etc. Siyempre, pag magmeeting mo, minutes of the meeting, etc. SEC. 26. Report of Election of Directors, Trustees and Officers. Ok. So, there was a ______ reporting. Once you already elected your set of officers, such fact will be reported to the SEC. Same if there is vacancy, may be of death, retirement; the same, that would be reported to the SEC. SEC. 27. Disqualification of Directors, Trustees or Officers. So, dba qualifications of a BoD. First, he must own at least 1 share of stock. Dba? Then, he must not be convicted of any crime which carries the penalty of imprisonment for more than six (6) years. Or he committed a violation under the Corporation Code within five (5) years from (PRIOR to) the date of election; prior to the date of his election. Those are the additional qualifications. Actually, they are dealing of or ask for disqualifications, answer that article. SEC. 28. Removal of Directors or Trustees. So, who elects the BoDs? The stockholders, right? So, if they will be removed, the power also lies on the acts of the stockholders; still 2/3. Dapat, dili na siya nga any time noh, that the BoDs could be removed. They will be surprised; they will be caught off-guard dba. Dapat, there is a date specified for that, either at the ordinary meeting or at the special meeting called for that purpose. Removal may be with or without cause. So, its actually up to the stockholders (if dili ganahan sa imo). The BoDs seat at the pleasure of the stockholders. Ok? But, if removal is without cause, and the intention is to deprive the minority stockholders of representation, then that would be questioned. Tanggalon nato noh kay mga minority stockholders sila; that would be questioned. SEC. 29. Vacancies in the Office of Director or Trustee.

Ok, let us say naay vacancy noh (other than removal by the stockholders or members or by expiration of term); other than removal or expiration of term. Example, resignation. The BoDs can select or elect another one and that person elected by the BoDs will only serve for the unexpired term of his predecessor. SEC. 30. Compensation of Directors. The general rule is that a BoD does not receive compensation; except for reasonable per diems. But, the BoDs (STOCKHOLDERS) by way of a Resolution, may grant compensation to the BoDs. But, it should not exceed 10% of the net income before tax of the income generated by the corporation during the prior year. Let us say, today is 2012. Income nimu atong 2011, P1M; net income before tax. So, 10% of 1M, is P100,000; it should not exceed P100,000. That is the ceiling. SEC. 31. Liability of Directors, Trustees, or Officers. So, if the director committed ____ by the stocks, he will be liable to the corporation. Now, out of that article, arises this Three-Fold Duties of a director. We have the (1) Duty of Obedience, (2) Duty of Loyalty, and (3) Duty of Diligence. Let us talk about the Duty of Loyalty. A BoD must be loyal to the corporation. So, he must not engage in business that will directly compete with the nature of the business of the corporation. Dba? Case: Gokongwei vs. SMB Corporation -That out of the duty of loyalty, you can come up with this what we call as the Doctrine of Corporate Opportunity. -Q & A portion- RECAP! Q: When you say that a corporation is an artificial being, what do you mean by that? A: It is an artificial being it is treated as a person, right? Meaning, it can incur obligations under its own name, it can acquire assets under its own name. By way of legal fiction, it is treated as a person. Under the Civil Code, it is a juridical personality. Theres a natural person and theres a juridical person. Of course, a corporation is not a natural person, it is a juridical person; that is why, it is an artificial being. Q: What do you mean by the Doctrine of Corporate Entity? A: It is a principle wherein a corporation has personality separate and distinct from its stockholders. So, let us say, X Corporation Have we discussed the Doctrine of Piercing the Veil of Corporate Entity ? NOT yet. Theres a corporation, X Corporation. Let us say, one of its employees inflicted damage to Mr. Y. Now, Mr. Y filed a case against X Corporation. Now, X Corp. says No, that is

not the liability of the corporation. That is the liability of my employee, Mr. S. Is that tenable? Dba a corporation has a personality that is separate and distinct from the stockholders? Can Y proceed against X? The answer is YES! Because under the Doctrine of Piercing the Veil of Corporate Entity, dba X Corporation is trying to evade liability by invoking its separate existence? (Do you understand?) Its trying to evade its liability. But, under the Doctrine of Piercing the Veil of Corporate Entity, you cannot use or invoke that ________. Piercing, dba piercing kanang ana-on ba oh (tusukon daw ) Dba, the Doctrine of Corporate Entity, separate man toh siya, dba, or Lifting the Mask of Corporate Identity (other term for piercing). So, this is the opposite of the Doctrine of Corporate Entity principle wherein the corporation has the personality that is separate and distinct from the stockholders. And what is the Doctrine of Piercing the Veil of Corporate Entity when a valid ground exists, the separate and distinct entity (personality) of the corporation is disregarded. Like when the corporation attempts to evade liability, or if there is fraud. (I think thats in your textbook! ) Q: The Corporation is created by operation of law. How do we differ this to a partnership? A: (The stockholders or the persons desiring to form a corporation must comply with all the requirements set by law; while partnerships are created by the mere agreements of the persons desiring to create the partnership) *Partnership consists of two or more persons who contribute money, property, or industry into a common fund, with the intention of dividing the profits among themselves. Q: How will you explain this right of succession of a corporation? A: (A corporation can still exist despite the death of its stockholder/s.) Q: What is the maximum period of a corporation? A: (50 years. / Can it be extended? / Yes, it can be extended for another 50 years.) Q: Can there be an advance extension? A: (Yes, within 5 years prior to expiration of original period) Q: Up to what extent is the liability of a stockholder? A: (A stockholder cannot be personally liable when it comes to obligations incurred by the corporation. / How about the partners in general partnership? / Partners in general partnership, as distinguished from stockholders, can be held personally liable as to obligations incurred by the partnership.)

Q: Who elects the BoDs? A: (The stockholders elect the BoDs.) Q: What is the required vote? A: (2/3 of the outstanding capital stock) Q: What is a de jure corporation? A: (A de jure corporation is one wherein all the requirements of law have been complied with. / de facto corporation opposite!) Q: With regards to the BoDs, is citizenship required? That they must all be citizens of the Philippines? A: (No, citizenship is not a requirement. /What is the requirement? / That majority of them must be RESIDENTS of the Philippines. If this requirement is not complied with, then we have a de facto corporation.)

directors, dba. XYZ Corp, dba engaged in the manufacturing business. Let us say, A has a catering business. Okay lang dba, because it is not competing with XYZ Corp. He would like to enter into a contract with XYZ Corp. Now, self-dealing director siya dba. He has his own business, and he entered into a contract with the corporation to whom he is a director. (Do you follow? ) The contract is voidable at the option of the corporation. Provided that the following requirements are present: First, that the presence of this director for the approval of the contract is not necessary to constitute a quorum. Second, the vote of Mr. A is not necessary to ____ the necessary votes to approve the contract. Next (third), the terms of the contract must be fair and reasonable. Lastly, what is the other condition? *(4) That in the case of an officer, the contract with the officer has been previously authorized by the board of directors. If he is not a director, but an officer, there must have prior board approval. What if the (ANY) first two requisites have not been complied with? That would be subjected to ratification by 2/3 votes of the outstanding capital stock. So, that would be resolved by the stockholders. SEC. 33. Contracts between Interlocking Directors. Corporations with

(Sec. 31) So, under that article it enumerates the three-fold duties of directors, officers. We have the Duty of Obedience, the Duty of Loyalty, and the Duty of Diligence. Ok, gross negligence; that is a violation of the Duty of Diligence. If you act, if you voted any positions, that is patently unlawful (act); that is a violation of the Duty of Obedience. If the director is engaged in a competing business, then that is a violation of the Duty of Loyalty. *When a director, trustee, or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a disability upon him to deal in his own behalf (Case of Gokongwei vs. SEC) Let us say, Mr. A is a BoD of XYZ Corporation; a corporation that is engaged in a manufacturing business. A invested in another business venture; competing with the kind of business of XYZ Corporation. He invested his own money. So, A earned profit. Dba this kind of transaction is adverse to the company; that is adverse to XYZ Corp. Same business eh. Instead that XYZ Corp would increase its sales, then the tendency is that, its sales will go down, because A ventured into the same kind/type of business. So, lesser sales on you, equals lesser profit. So, this is a violation of the Duty of Loyalty. Dba A now has divided interest? If you are a director, your relationship with the corporation is fiduciary. You must be loyal. In this case, he (A) is not. SEC. 32. Dealings of Directors, Trustees or Officers with the Corporation. We are talking here of SELF-DEALING Directors. In this section, the directors, officers, would like to enter into a contract with the corporation. So, they are self-dealing

We are talking here of INTERLOCKING DIRECTORATES. Interlocking directorates; for example, there are two corporations. A is a director of XYZ Corporation, and at the same time, A is also a director of 123 Corporation. He is a director of both corporations. Now, these corporations would like to enter into a contract. Their contract is valid. But let us say, Mr. A has substantial interest in XYZ Corp. Let us say, his share is 40%; very substantial. Dba under that article, 20% is already considered as substantial right? (*Stockholdings exceeding 20% of the OCS substantial) In 123 Corp., 2% lang. So, he has nominal interest. Now, in this case, who needs more protection? XYZ Corp. or 123 Corp.? 2%? Yes, because, if the contract is favorable to XYZ Corporation, take note that his participation is 40%. 40% ang iyang share sa income. Dba? Dire (123 Corp) kay 2% lang. So, the tendency is A will favor XYZ Corporation. Now, in order to erase that evil scheme, he has to comply with the requirements laid down under the preceding section (Sec. 32). Okay? That his vote (presence) is not necessary to constitute a quorum; and his vote is not necessary to approve the contract. SEC. 34. Disloyalty of a Director. It talks about the DOCTRINE OF CORPORATE OPPORTUNITY. Dba one of the three-fold duties of a director is the Duty of Loyalty. Now, heres an example. A is a director of XYZ Corporation and he entered into a business that is competing with the type of business of

XYZ Corporation. So, out of that new business venture outside of XYZ Corporation, a BoD may accumulate his ____ imaginable profit. So, grabe iyang income. Under that article, he must give that profit to the corporation (XYZ). Because that is a violation of his duty of loyalty. So, here now comes the Doctrine of Corporate Opportunity. (Case Gokongwei vs. SEC) Unless, (there is an exception ha) if that is ratified by 2/3 votes of the outstanding capital stock. SEC. 35. Executive Committee. Section 35 talks about Executive Committee. Sometimes, let us say, there are 15 BoDs and it would be so burdensome on their part to meet just to discuss matters which are not really that necessary. Or it may be necessary but they can delegate that to kato lang mga active, dba? Usually, mga BoDs, mga dagko nga officials, unsa man? Mga past president, dili na nimu mainvite always. Now, so under that article, the BoDs can form an executive committee which must not be less than 3 members. So, the minimum number is 3. Ok? They will be appointed by the BoDs; sila-sila lang. So, mupili sila; minimum number is 3. Okay? But, there are some issues that cannot be delegated to the executive committee. What are those? (Five exceptions enumerated in this section) TITLE IV POWERS OF CORPORATION SEC. 36. Corporate Powers and Capacity. So, this Section, states the EXPRESS POWERS of the corporation. Why express? Because they are expressly granted to them under the Corporation Code. Thats why they are called as the express powers. (1) Right to sue and be sued. So, they can file a case because they have a legal standing; a corporation has a personality that is separate and distinct. It is treated as an artificial person by way of legal fiction. The same breadth that they can sue, they can also be sued. (2) Succession. The corporation will continue to exist notwithstanding the death of any of its stockholders or directors. They will have to finish its term in accordance with the life given to them under the certificate of incorporation. (3) Corporate Seal. They can use a seal. (4) To amend its Articles of Incorporation. _________. For example, you would like to increase your capital stocks or extend the corporate life; you have to amend the Articles of Incorporation. (5) To adopt the By-Laws; to adopt or amend or repeal. It is the internal law that would govern the relationship of the corporation and its stockholders. With regards to ByLaws, this is only binding to within the organization. Third persons, they cannot be bound by the by-laws, unless they know the by-laws.

(6) They can issue stocks, dba? (7) So, they can acquire properties; they can incur obligations, right? In fact, they are also allowed to hold bonds in order to raise its capital.

(8) If they would like to expand their business, they can enter into a merger or consolidation. Or what we call as forms of business combinations. (9) So, they can donate to any socio-cultural or religious institutions. The only prohibition is that they cannot make any donations to any political parties or to any political personalities. *You know, when a corporation will donate, that is also advantageous on its part because it can trim/bring down its corporate tax for taxation purposes. (10)Pension plans, etc. (11)*To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in its articles of incorporation. NECESSARY OR IMPLIED POWERS of the corporation. -Q & A portion- SEC. 37. Power to Extend or Shorten Corporate Term. Shortening or Extending of corporate term. It needs an amendment of the Articles of Incorporation. And it requires the majority vote of the BoDs as well as the approval (ratification) of 2/3 of the outstanding capital stock. SEC. 38. Power to Increase or Decrease Capital Stock; Incur, Create or Increase Bonded Indebtedness. Now, if you would like to increase or reduce your outstanding capital stock, it also means the amendment of the Articles of Incorporation. Same if you would like to issue bonds. Bonds, kabalo namo unsa nang bonds ha. Kanang mangutang ka; dapat mag-issue ka ug mga PNs, bayaran nimu nga naa nay interests; thats bonds. So, if you will be asked what are the two ways of infusing additional capital to a corporation First, increasing the capital stock. Second, you issue new bonds. Ok? Duha na siya kabuok ha to infuse new capital. Or naa pay ikatulo; actually, corporate borrowings in the form of loans. Now, the first 2 requires the majority vote of the BoDs, ratified by 2/3 of the outstanding capital stock. Now, at this juncture, just remember, if you will be asked what is the required vote, dba it seems to appear that the required vote is the majority vote of the BoDs + 2/3 of the outstanding capital stock. Ang inyo nalang huna-hunaon

kung unsa tong majority lang na majority lang pud sa stockholder. (Take Note of the REQUIRED VOTES! ) SEC. 39. Power to Deny Pre-emptive Right. Section 39 talks about PRE-EMPTIVE RIGHT. What is a Preemptive Right? This is a right accorded to a stockholder; that he will be allowed to purchase new shares of stock in proportion to his shareholding; in order for him to maintain his share of participation in the corporation. For example, dba si A, 40%? Let us say, the corporation is now issuing new shares, mga 1M shares. Before these shares will be offered to others, these will first be offered to A, AS IF THERE IS A RIGHT OF FIRST REFUSAL. Why? Because if these will be sold to others, definitely, it is no longer 40%; mubaba siya eh. Dba let us say, 1M shares na ni daan, 40% siya. Naay lain na 1M, pila nalang siya, 30%, 20%? So, his controlling say in the corporation is diminished. So, nagdiminish iyang control, less iyang voice sa corporation. There is a likelihood that out of, let us say, he was able to elect 4 board members, he will now be entitled to 2 board members. Dba? So, less power on his part. So, in order for this stockholder to maintain his interest, his control in the corporation, these new shares to be issued should be first offered to him. Ok? Q: What if they dont like the controlling stockholder? A: They can object; at least it has first been offered to him. He has the right of first refusal. Q: What if i-offer sa tanan? A: That is a violation of his pre-emptive right; because that is a right accorded to a stockholder. *The existing shareholders shall also enjoy the same right; tanan sila. I-offer sa sa ilaha. Unless if the government will say that you have to sell these shares to the public. Dba naa man tay initial public offering? The public should have a representation, let us say, 30%. Ok? SEC. 40. Sale or Other Disposition of Assets. Section 40 talks about BUSINESS COMBINATIONS. We call that as _____ ________. What are those forms of business combinations? Merger and Consolidation. In Merger, the two corporations combine and one is dissolved, the other survives. In Consolidation, both corporations will be dissolved and a new corporation will emerge. Pag merger, for example, A + B = A or B. In consolidation, A + B = C. Ok? What is the effect? Usually there is a sale or transfer of all or substantially all of its assets. There are also times when usually all of its assets dba. Merge siya eh, dba. For example, merge si A and B, so let us say, ang surviving entity kay si A. So, A absorbed all of the assets as well as the liabilities of B. All its assets including its liabilities.

Consolidation; one would be dissolved, a new one is established. How about if not all assets are transferred? For example, si A gibaligya lang niya, gipalit ni B, 60% lang. We have this PARENT Company. We are talking about SUBSIDIARIES as well as AFFILIATES. Let us say, if it is 60%, gipalit 40%. If it is more than 50% (50% + 1), A is the parent company and B is the subsidiary. But if the percentage is only 50% or below, the ownership of A in B corporation is 50% or below, affiliate lang si B. But, if 51% up ang ownership of one corporation, the other corporation is a subsidiary; if 50% or less, that is an affiliate. For example, PS Bank, subsidiary of Metro Bank. Meaning, PS Bank is owned, more than 50% by Metro Bank. *Business combinations are good Atty. Agtons opinion.

SEC. 41. Power to Acquire Own Shares. So, the Corporation has the power to reacquire its own shares. Take note, dba in the previous section, the corporation can redeem redeemable shares. So, they can reacquire those shares already issued previously. Provided, that there must be unrestricted retained earnings. Can you still recall what is an unrestricted retained earnings? That is an income from the prior year carried over to the current year; and this income is not reserved for payment; so free siya. That is why it is called unrestricted retained earnings. So, the corporation has the power to reacquire its own shares. Under what instances? First, to erase fractional shares arising out of stock dividends. So, stock dividend is probably new for you. Am I correct? (Ah not new because I did not receive any response. Haha Not new, so you are already acquainted with stock dividends?) What is a stock dividend? If youre a stockholder, if the corporation will declare dividend, the first thing that will come to your mind is cash; cash dividend. So, if the corporation will declare dividend, you will be paid in cash, right? But this time, it is not cash, but stocks. You will be given additional stocks. So, instead of cash, what is given is stock. For example, you are a stockholder having 250 shares. And the corporation (has undistributed earnings) will declare, instead of declaring cash, for example kung cash na siya, mudeclare sila ug P10/share, how much money would you get? P2,500. So, you will receive P2,500.00 as your share in the profit. Now, instead of cash dividend, what is given to you is stocks. So, let us say, the corporation declares a 25% stock dividend, what is 25% of 250? 62.5. So you will be given additional shares of 62.5 shares. So total shares now is 312.5 shares. So, there is now an increase of 62.5 shares. So, nadungagan imong shares, dba? Imong shares of stock. (Do you understand? ) Tong una you invested only 250 shares, right? But, the corporation says, we will declare 25% stock dividend based on your existing number of shares. So, you will be given additional 62.5 shares. So, your total shares as of now is 312.5. Oh dba,

what if next year mudeclare napud sila ug another P10/share, so ang imo nang cash mareceive sunod is P3,125.00. Dba it is favorable on your part, because you have now more shares. *If it is stock dividend, it requires the 2/3 votes of the stockholders. So meaning, the stockholders like/prefer stocks instead of cash. So, the authority comes from them. First, to eliminate fractional shares, dba. Now, .5 is a fraction. Pwede ba ka maka-boto ug .5 share? No! Dapat buo na siya 1. Can you elect BoD? No! Dapat buo siya. So, the corporation, to eliminate this fractional share, will purchase/reacquire this fractional share, that .5. Next, delinquent shares. (It is now also new, dba? Delinquent shares ) Can you still recall about that authorized capital stock? You would like to invest; I will invest 100 shares, let us say, for P100,000. But, you are not required to pay the entire amount. Let us say, you only manage to pay 50 shares, so you have a balance of 50. Up to now, it is still unpaid. The corporation will demand that you pay for your unpaid subscription. There will be a demand. But despite demand, you still failed to pay the 50 shares, these will be treated as delinquent shares. So, delinquent siya, dba. (So, mubaba iyang subscribe? O, paliton na na siya sa corporation. That is why, the corporation will redeem that unpaid, the delinquent shares.) Thats the reason why. (Do you understand? ) Wala nimu gibayran eh, nagdemand ang corporation. Ok? Next, take note, dissenting stockholder. For example, you dont like the stock agreement, or you dont like the policy approved by the BoDs as well as by the majority of the stockholders; so, you would like to disassociate yourself from the corporation (as ___ money)??? That is what we call as APPRAISAL RIGHT right of a dissenting stockholder. Let us say, you are the owner of 100 shares, you would like to ____ from the corporation. So, you are a dissenting stockholder, so you have to sell your shares to the corporation because you are disassociating yourself from the corporation. Di nako gusto, kuhaa na na akong shares oh! Bayari ko ninyo. SEC. 42. Power to Invest Corporate Funds in Another Corporation or Business or For Any Other Purpose. A corporation can invest in another company. Dba in the Articles of Incorporation, it is stated the purpose. For example, poultry business. The corporation can invest, like a soundbox? . Dba that is an alien investment; too far from the primary purpose. But, that is allowed in the law. Provided that there is an approval of the majority of the BoDs plus 2/3 votes of the outstanding capital stock. That is allowed. How about if the investment is necessary or incidental to the primary purpose of the corporation? There is no more need for the approval of 2/3 votes of the stockholders; only the vote of the majority of the BoDs. No need of approval from the stockholders if the investment is related to the primary purpose of the investing corporation.

What if you as a stockholder, would like to oppose such investment, but you are outnumbered. So, your remedy is to exercise your Appraisal Right. *Take Note: (Problem) The investment is necessary to the primary purpose. Here comes a stockholder; the stockholders opposed the investment. Are their oppositions tend to invalidate that? NO, because in that section, only the approval of the majority of the directors is required. For example, you are engaged in namaligya ka ug mineral. Tong una, nagapalit ka lang ug bote. Now, you think it is more convenient and cost efficient if you will manufacture your own bottles. That is related or necessary to the business. So, there is no need for securing approval from the stockholders; sa BoDs lang.

SEC. 43. Power to Declare Dividends. Where will you get dividends? Unrestricted retained earnings. So, dividends could either be in: (1) cash, (2) property dividend, or (3) stock dividend. For example, you have 100 shares. You only managed to pay 50, you have an unpaid subscription of 50 shares. Let us say, the corporation declared a cash dividend; P10/share. How much money will you get? P500; based on paid WRONG! You will be entitled to 100 shares even if you have not yet paid the 50 shares. Wala pa siyay giredeem ha, unpaid pa lang siya. Ok? Bayaran ka pati sa unpaid. Pero itapal sa nimu didto sa imong balance. So, take note unpaid shares are also entitled to cash dividends. But, if it is a stock dividend, mag-base lang siya sa 50 na paid; not entitled to the unpaid shares. If it is a stock dividend, 2/3 votes. Pag cash dividend, there is no mention, only the BoDs (majority vote). If stock dividend, it requires the approval of 2/3 votes of the outstanding capital stock. Paid-in capital, can you still recall? Actual amount of cash or property infused to the corporation. Katong nabayaran na, bayad na. The corporation is not allowed to retain profit (equivalent to 10% of the) Let us say, the paid-in capital is P1M. The corporation is not allowed to retain a profit of more than P1M. Why? What is the logic behind that? It is because the corporation should declare dividends. Alangan dili ka magdeclare ug dibidendo, dako na kayo kag income, right? Let us say, P2M, nagP200M na; walay dibidendo2; that is not allowed. You have to take/declare dividend. That is why, the surplus profit should not exceed of the 100% based on the paid-in capital. Dapat dili magcgeg income lang ang corporation; dapat iencourage siya na maghatag sila ug dibidendo.

Exceptions; pwede sila mag-expand. Provided, if te corporation is contemplating of expanding their business; because they will be using that money for expansion. To infuse capital for the expansion. For example, the corporation borrowed money from the bank. They have to pay their loan in the bank. So, they are allowed to retain profits. Next, dba naa man juy mga contingency; mga contingent liabilities. You will preserve that like when you have collectibles, and you will not be paid. That is bad debts. So, you reserve to answer for future possible losses. SEC. 44. Power to Enter into Management Contract. So, we are talking here of MANAGEMENT CONTRACT. Here comes two corporations; Corp A and Corp B. But, Corp B would like to hire Corp A to manage its affairs. So, mag-manage sa Corp B ang Corp A. So, they would like to enter into a management contract. There must be an approval from majority of the BoDs. But, what majority? (pati stockholders) Take note that mostly 2/3 of the outstanding capital stock. (So, you only take note of those where votes needed are only majority) and one of them is management contract; majority lang. SEC. 45. Ultra Vires Acts of Corporations. How will you know if it is an ultra vires act? When the acts committed by the BoDs, or officers are clearly alien to the primary purpose of the corporation. Layo kaayo; that is an ultra vires act; that will be your basis. That is the reason why there is mention about that in the Articles of Incorporation. So, if it is an ultra vires act, it is unenforceable. But, take note that if there is NO fraud, the act committed by the directors, can still be ratified by the stockholders. So, it can be cured; if theres ratification coming from the stockholders. TITLE V BY-LAWS SEC. 46. Adoption of By-Laws. By-Laws is the governing rules; it is the internal rules that would govern the relations of the stockholders. And usually, by-laws needs to be submitted to the SEC within 30 days from the submission of the Articles of Incorporation. So, usually, the submission of by-laws comes late. It is submitted after the submission of the Articles of Incorporation. And only those within the organizational structure are bound by the by-laws; third parties are not bound by the by-laws. So, what will you see in the by-laws? Well, the internal rules, who are the officers, what penalty will be meted if there would be violations committed by the officers, etc. SEC. 47. Contents of By-Laws.

So, those are the contents of by-laws. Internal rules eh, right? (So just read the provision ) SEC. 48. Amendments to By-Laws. Take note ha, another vote na majority lang, not 2/3 right? Remember: (only MAJORITY, not 2/3; So, majority BoDs and majority outstanding capital stock ang required) First, management contract; then, amendment of by-laws. The rest, 2/3 majority and 2/3) *(Never mind the 2/3 votes in the provision too burdensome daw. Thank you Sir! ) Amendment of by-laws. When you like to amend the Articles of Incorporation, even the By-Laws, you have to underscore the amendment. (T.N. copy the old one then make highlights and notes in the new/amended Articles of Incorporation or By-Laws) For example, in the by-laws, it is stated there that the election of officers is every three years, mao ni siya ang daan dba. You will be required to submit a new by-laws copying the old by-laws; but under the new by-laws, imuha siyang i-highlight, iunderscore nimu siya; so that dali lang siya makita. Then, butang dayon kag explanation; make a note. Ibutang nimu sa silong, (i.e.) previously the period is 3 years, etc.. TITLE VI MEETINGS SEC. 49. Kinds of Meetings. So, corporate meeting may either be a regular one or a special one. SEC. 50. Regular and Stockholders or Members. Special Meetings of

Regular meetings are held annually; so, every year, there must be a stockholders meeting. And usually, the date is that written on the by-laws. But, if theres no mention about that (date) in the by-laws, then it shall be held on any date in April. So, meeting, dba it is a stockholders meeting? It is essential that a notice must be sent to the stockholders at least 2 weeks prior to the intended date. So, that will give the stockholders sufficient time upon which to prepare for that meeting. So, if it is a special meeting; meaning, it is special dba. Aside from a regular meeting, a special meeting may be called. So, the special meeting may be held at any time of the year. And if at the regular meeting, 2-week notice is required, in special meeting, 1-week (at least 1 week written notice prior to the meeting). So, who is that person who will preside the meeting? First, you have to take a look at the by-laws. If it is stated there that it is the President who shall preside the meeting, then it should be the President; and if its any person other than

the Pres., then it should be that person. But, usually it is the President who shall preside the meeting. In case there is no mention under the by-laws as to who will be that person who will preside the meeting, there will be no meeting held for that purpose; any stockholder may petition. And that petitioning stockholder will be appointed to preside the meeting, until such time that majority of the stockholders will be able to choose one. To summarize, meetings may either be regular or special. The word regular simply states that stockholders meeting must be held annually. If it is stated in the bylaws that the meeting shall be held every January, then every January; but in the absence of any stipulation as to what date, then it shall be on any date in April. Whether it is a regular or special meeting, notice is an essential requirement to have a valid meeting. Without notice, there can be no valid meeting. So, if it is a regular meeting, the notice must be sent to the stockholders 2 weeks prior to the intended date. In case of special meeting, it should be sent to the stockholders at least 1 week prior to the intended date. SEC. 51. Place and Time Stockholders or Members. of Meetings of

SEC. 53. Regular and Special Meetings of Directors or Trustees. So, just like what I have told you a while ago, unlike the stockholders meeting, the BoDs meeting may be held anywhere, even outside the Philippines. Second, in the BoDs meeting, it is only required that the BoD be given that notice 1 day prior to the intended/scheduled meeting. It is also stated there that the BoDs meeting shall be held monthly unless the by-laws provides otherwise (i.e. quarterly). *A corporation can only have one residence, actually. (cf Rules of Court.. CHOS! ) SEC. 54. Who shall preside at Meetings. Who shall preside at the stockholders as well as at the BoDs meeting? That person should be that stated under the corporate by-laws. But in the absence of such designation/appointment, it is the corporate President who shall preside at both the stockholders meeting and the directors meeting. SEC. 55. Right to Vote of Pledgors, Mortgagors, and Adminitrators. Who are those persons who are entitled to vote? Stockholders of Record meaning, the corporate secretary is the custodian of that what we call as the Stock and Transfer Book; mura na siyag ledger. It is the list of the names of all the stockholders with their corresponding number of shares. Nakalista tanan ilang pangalan pati ilang shares. Only those persons whose names appear on the Stock and Transfer Book can vote. So, if your name does not appear in the Stock and Transfer Book, you are not entitled to vote. Take note: The shares of stock are considered as personal property. That is why, it can be a subject of pledge or chattel mortgage. So, let us say, shares of stock can be used as a collateral. It can be used as a security. If it is a pledge, we have the pledgor and the pledgee. So, the pledgor is the borrower, right? The pledgee is the creditor. Mortgagor is the borrower, mortgagee is the creditor. So, the stockholder is the debtor (borrower); he is also the pledgor or mortagagor. Now, the share of stock is now in the possession of if it is a pledge, it is now in the possession of the pledgee. Now, the pledgee can exercise the right to vote; provided, there is a written authorization. So, as if the pledgee or the mortgagee is voting by way of proxy. You know what a proxy means, right? Sub, proxy sa ninong, etc. Ok? Pledgee, mortgagee They can vote in behalf of the property of stockholders; provided, there is a written authorization. Thats by way of proxy.

So, place and date (time) of meeting. Well, we have to distinguish if it is a stockholders meeting or a BoDs meeting. If it is a stockholders meeting, under the law, it must be held on the place where the principal office is situated. Let us say, for example, Metro Bank. Its principal office is located at Makati; and it has multiple branches scattered throughout the Philippines. Is it correct when we say that the stockholders meeting can be held at Davao City? NO! The law says it must be held on the place where the principal office is situated. But, there is an exception if ALL the stockholders are present at the meeting held in Davao City, then, there can be a valid meeting. But, if it is a BoDs meeting, their meeting can be held anywhere, even outside the Philippines. That is the distinction. Mas hayahay kung BoD, right? Labi na executive session, the meeting can be held anywhere, even outside of the Philippines. SEC. 52. Quorum in Meetings. What constitutes quorum in a stockholders meeting? MAJORITY. Majority of the outstanding capital stock. (So, you have to take note of that) Even though there are 50 individual stockholders, but their shares in the corporation pertain to the stocks are not uniform. One stockholder may own equivalent to 20%, the rest 1% - 1%; so even though there are only 20 individual stockholders present in the meeting, yet their aggregate shares are more than 50%, then, there will be a quorum. Majority of the outstanding capital stock. Of course, maski ikaw lang isa, 60% ang imong share, would that constitute as a quorum? Yes, majority of the outstanding capital stock eh.

But, if it is the executor, administrator, etc., there is no need for the showing of a written authorization. You know who is an administrator, right? He is the one managing the property left by the decedent. He is called an administrator because there is NO last will and testament. If there is a last will and testament, he is called an executor. SEC. 56. Voting in case of Joint Ownership of Stock. What if the holder of the stock is more than one? Meaning, X and Y are co-owners of 10 shares. Is it correct that only X ought to vote of those 10 shares? The answer is NO! X must be able to secure the consent of the other co-owner, Y. Because they are joint owners eh. But, if it is stated there that X AND/OR Y, owners of 10 shares; then that is an entirely different story. There is no need for X to secure the consent of Y. Because it is stated as if it is SOLIDARY. Dba pag AND/OR gani, let us say, mag-open mo ug account sa bangko, and/or ang treatment ana is solidary. SEC. 57. Voting Right for Treasury Shares. Can you still recall what a treasury share is? These are shares previously issued by the corporation and reacquired by the corporation. Dba gikuha balik sa corporation, tama ba na ang corporation mu-vote pud? DILI! These are shares previously issued and reacquired by the corporation.

What is a VOTING TRUST AGREEMENT? Let us say, there are 5 stockholders. And they reached an agreement wherein they will be represented by one person. Let us say, stockholders A B C D E, designated X as the trustee of their stocks. Why do stockholders resort to that? Dba specially you dont have a voice, you are a minority stockholder; in order for you to become stronger, you need to pool the rest of the minority stockholders, so that they can be stronger; so that they can have a voice. So, they will enter into a Voting Trust Agreement. So, there is also an expiration date. It must not exceed 5 years at any one time. Let us say, stockholders A B C D E contracted a loan with BDO. So, they designated a representative from BDO to exercise their right to vote. Why do these things happen? Dba, let us say, if the bank is trying to help a needing borrower, for example, kita mangutang ta sa ______, naa silay mga policy nga di ka basta-basta makahulam ug kwarta, etc., so you will have interest. So, banks will have interest pertaining to the assets of these stockholders; because stocks are considered as assets eh. You invest on stocks, that is considered assets. Investment on stocks in your financial statements, assets mana siya, mag-invest ka ug stocks. So, the banks and any other financial institutions are interested to the assets of the stockholders. So, it can exceed 5 years, until such time when the obligation is fully paid. So, the voting trust agreement must be reduced into writing and not merely in writing, it must be executed in a public instrument. Why a public instrument? Because it must be notarized. So, the voting trust agreement must be filed with the SEC. (and with the corporation) Take note, the old certificates of stock belonging to the stockholders are cancelled and new certificates of stock under the voting trust agreement are issued. The voting trust certificate is subject to scrutiny by the stockholders. So, the stockholders can (practically make a controversy of such document?) Dba one of the rights of stockholders is to inspect the corporate books; the trustee can also exercise such right. That is also a prohibition (No voting trust agreement shall be entered into for the purposes of circumventing the law against monopolies and illegal combinations in restraint of trade or used for purposes of fraud). If the entering into a voting trust agreement is for the purpose of monopoly, or any other illegal purposes or unfair practices, that will not be allowed. What if their purpose is actually to have a monopoly, that would be unfair to the other stockholders. Once the voting trust agreement has expired, the certificates of stock will be once again cancelled and new ones will be issued (reissued) to the transferors or stockholders.

SEC. 58. Proxies. So, here comes the PROXY VOTING. *Proxy designates 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. So, how are votes cast? First is PERSONAL; second is PROXY. There is no problem if the stockholder himself personally casts his vote. That is personal voting. But, when it comes to proxy voting another person is being called upon to exercise the right to vote of the stockholder of record. And it is evidence by a written authorization, signed by the stockholder of record. That written instrument/authorization must be furnished to the corporate secretary for recording (before the scheduled meeting). Of course, it has to be given/filed to the corporate secretary because he is the custodian of the Stock and Transfer Book. As a general rule, if it is just an ORDINARY PROXY VOTING, its lifespan is only one day; it is valid/intended only for that meeting. It is only a one-shot or single-shot voting. But, if it is a CONTINUING PROXY, its lifespan is only up to 5 years. SEC. 59. Voting Trusts.

*The voting trustee or trustees may vote by proxy unless the agreement provides otherwise. *I have to emphasize that right pertaining to a stockholder; the right to inspect corporate books. The trustees can also exercise such right. Q: Who will declare/determine that such agreement is fraudulent? A: Under R.A. 8799, the court (RTC). Before, under PD 902-A, it is the SEC who shall have jurisdiction; but under RA 8799, courts, the RTC. You have to file a case/action. -Q & A portion -

Stocks should not be issued for a consideration less than the par value or issued value. When you say par value, for example, P100/share; issued value, mao nang no-par (but, let us not just discuss that now, let us concentrate to stock corporations with par value) So, for example, the par value is you know what a par value is dba? Par value it is the value per share. Mao ni siya ang kantidad sa isa ra jud ka-share; unya ibenchmark. How will you be able to determine that? Simple! Let us say, I would like to raise the maximum capital to be raised in the future is P1M. And I will divide this into 1,000 shares. So, to get the par value, all you have to do is divide P1M from 1000 shares; that would be your par value. How much? P1,000. So, the value of each share is P1,000. So, let us say, how many shares would you like to purchase? 200 shares. How much is the value? P200,000 (P1,000/share x 200). The corporation should not issue stocks for lesser consideration than that of the par value. Meaning, pagbaligya sa 200 shares, dapat the corporation will receive P200,000. There is no such thing as discount. Okay, I will issue 200 shares for only P150,000. I will give you discount of P50,000. Is that allowed? NO! This is forbidden under that section. We call this as watered stock. Stocks issued for lesser consideration, that is a watered stock. How about instead of P200,000, you pay P250,000 for the 200 shares. Is that allowed? YES! What is forbidden is receiving a consideration less than the par value; not in excess. So, if it is P250,000, how much is the par, P200,000, there is an excess of P50,000; we call this as premium on capital stock. This is allowed. Okay magsobra, dili mag-kulang. (Do you understand? ) or the other term for this is additional paid-in capital. Excess is allowed; deficiency is not! Because if the consideration is less than its par value, that is a watered stock. But, if there is an excess, we call that as premium on capital stock. Take note (on the enumeration) - ANY or combination of any two or more First (1), actual cash paid to the corporation; (2) So, actually you can purchase stocks or subscribe stocks by delivering your property. Let us say, the corporation would like to put up its office in this particular land. But, the owner of that land would like to invest; would like to subscribe. So, since the corporation would be needing that property, then, that would be used. Mao na toh iyang ihatag, icontribute niya; pambayad niya sa stocks, land. (Sila na bahala mag-value) Take note: including intangibles. Dba land is tangible, furniture is tangible. When we say tangible something that can be seen; something that can be touched. When we say Intangible, you cannot see, you cannot touch, right? For example, patent, copyright, goodwill. Pwede na siya intangible man daw.

TITLE VII STOCKS AND STOCKHOLDERS SEC. 60. Subscription Contract. Ok, that is the definition of a subscription contract. Subscription may either be (1) Pre-incorporation, or (2) Post-incorporation. In pre-incorporation, meaning that future stakeholders (stockholders) can already subscribe even though the corporation has not yet been formally organized. Meaning, the corporation is still on the process of securing its Certificate of Incorporation. It has not yet formally received the mandate emanating from the State to operate as a corporation. Post-incorporation, of course, from the word post, means that after; the corporation has already received its Certificate of Incorporation. *Let us say, the corporation fails to materialize. Their investments have to be returned. You know why it is not condoned? Because when a stockholder infuses his money to the corporation, the money will form part of the capital. That is not a liability. SEC. 61. Pre-incorporation Subscription. The rule of thumb is that, during pre-incorporation phase, the subscription is irrevocable, within (six) 6 months from the date of subscription - IRREVOCABLE. Exception: if theres consent from the others. Now, the other exception is (no expiry date like that 6month period from date of subscription): if there was already submission of the Articles of Incorporation to the SEC, then the pre-subscription is already irrevocable. (cf provision ) (Personally speaking, I dont think these kinds of questions would be asked in the Bar) SEC. 62. Consideration for Stocks.

(3) Labor, services rendered for the corporation. So, pwede labor. Naa man gani tay industrial partner in the partnership, dba? Somehow, by way of analogy, there is also such thing as that in the corporation. You work in the corporation; you will receive some shares of stock. Instead of being paid in cash by the corporation, he will be paid by stocks. (4) Previous indebtedness incurred by the corporation. Let us say, the corporation is obligated to Mr. X. and the corporation has no money. So, instead of paying in cash, the corporation pays by way of stocks. (5) Amounts transferred earnings to stated capital. from unrestricted retained

(Ikaw, pwede kana ba ma-issuehan ug certificate of stock sa 50 shares na wala nimu nabayaran? NO! Ma-issuehan ka lang pag pila imong nabayran.) -Q & A portion SEC. 64. Issuance of Stock Certificates. So, until fully paid siya. *Certificate of Stock NOT issued until full amt. of subscription has been paid. SEC. 65. Liability of Directors for Watered Stocks. We are now talking here of WATERED STOCK (stock issued not in exchange for its equivalent either in cash, property, share, stock dividends, or services). So, you are now familiar with what is watered stock, right? Take note that the director, officer concerned shall be liable to the corporate creditors, to the extent of the difference. Since, granting of watered stock is forbidden, then, the person responsible could be liable. *SOLIDARY LIABILITY director or officer of the corporation and the stockholder concerned SEC. 66. Interest on Unpaid Subscription. So, theres an interest from the date of subscription; commencing from the date of subscription. Based on the interest that may be agreed upon between the subscriber and the corporation. But, if there is no stipulation to that effect, the legal rate of interest now is 12% per annum under Sec. 5, Circular 905. SEC. 67. Payment of Balance of Subscription. So, that section talks about DELINQUENT STOCKS. Meaning, these are unpaid subscriptions. And they are supposed to pay the balance but despite the arrival of the maturity date, they failed to pay the remaining balance. So, the BoDs will issue a demand, demand letters. So, there will be a call.

(6) Outstanding shares exchanged for stocks in the event of reclassification or conversion. Dba intangibles such as patents or copyrights. So, there will be valuation first to be determined by the BoDs subject to the approval of the SEC. Shares of stock cannot be issued in exchange for PNs or future services. SEC. 63. Certificate of Stock and Transfer of Shares. So, those are the signatures that you will sign in the Certificate of Stock. Take note that the Certificate of Stock is the evidence of ownership of the stockholder. Certificate of Stocks (Shares of stock) are personal property. They can be sold. So, certificates of stock are personal property. So, they can be sold, right? Let us say, stockholder A sold his shares to Mr. X. But, this Deed of Sale was not recorded in the Stock and Transfer Book of the corporation. Let us say, the corporation, declared a dividend. Is A entitled to receive the dividend? The answer is YES! Because the sale was not recorded in the Stock and Transfer Book. So, under the records of the corporation, its still A who is the owner of the shares of stock. Ok? As to the corporation, it is still A who is the owner. But, between the parties, A and Mr. X, the sale was valid. But, in the eyes of the corporation, it is still A who is the owner. (Mr. X should have the Deed of Sale recorded in the Stock and Transfer Book; so that the name of A would be deleted and it is now Mr. X, whose name shall appear in the Stock and Transfer Book) (Last par.) Meaning, dba in your subscription, you are not required to pay the amount in full. Let us say, Mr. A subscribed 100 shares, but he only managed to pay 50 shares, the remaining 50 shares are unpaid. A can only be issued 50 certificates of stocks. So meaning, dili pwede nga 50 shares irecord nga ikaw ang owner ana in the Stock and Transfer Book. Meaning, under the Stock and Transfer Book, pagrecord fully paid. (check! )

SEC. 68. Delinquency Sale. So, this section talks of the procedure as to how delinquent stocks are disposed or sold. Now, out of the subscription contract, may be paid shares or unpaid shares, right? Delinquent stocks are only applicable to unpaid shares. For example, you subscribe for 100 shares. You paid for the 50 shares; the remaining 50 unpaid. There must be an official declaration, by way of a resolution coming from the BoDs, demanding for the payment of these unpaid shares. Now, it will state there WHEN the stocks should be paid. So, there is an OFFICIAL DEMAND for payment. Let us say, after the lapse of that period, the unpaid shares of stock

will be sold at a public auction. Then, the public will be allowed to bid and the shares shall be given to that person who will bid for the smallest number of shares. Let us say, the unpaid shares the par value is P100,000 unpaid. Dba there is a procedure laid down in that article that it will be published in a newspaper, correct? (Yes, the notice of the sale, with a copy of the resolution) There will be advertising cost, (i.e.) P5,000; of course, it is unpaid, so there will be an interest let us say, interest of P2,500; and there are series of expenses related to the sale (i.e) misc. expenses P2,500. So, total is P110,000. So, this is the MINIMUM AMOUNT of the bidding price. So, pila ka shares ang unpaid? 50 shares UNPAID. Let us say, Mr. A will bid for P110,000 for 30 shares; Mr. B will bid for P110,000 for 40 shares. Who is the winner? Mr. A, because he bidded for the smallest number of shares. To illustrate: A P110,000 30 shares winner(smallest # of shares) B P110,000 40 shares (BOTH are qualified) Let us say, Mr. A bidded for P100,000 for 20 shares; Mr. B bidded for P109,000 for 15 shares; Mr. C bidded for P110,000 for 40 shares. Who is the winner? Mr. C, because only Mr. C is qualified. (Minimum amount is P110,000; A100,000 and B-109,000; so, only Mr. C is qualified) To illustrate: A P100,000 20 shares B P109,000 15 shares C P110,000 40 shares winner (the only one qualified; min. amt. is P110,000) Let us say, there is no qualified bidder, or no bidder, the corporation can now bid. Take note, if the question is this: *Can a corporation bid for delinquent stocks? Generally, NO! Why? Because it shall be sold to the highest bidder through a public sale. (Exception) If there is no bidder, or no qualified bidder, then that would only be the time that the corporation can bid for the delinquent shares. Once ang corporation na ang nag-bid sa ilang shares, what will happen to these delinquent shares? They will now become TREASURY SHARES. Can you still recall what treasury shares are? Dba shares previously issued but reacquired by the corporation. (Do you understand? ) So, the delinquent shares will now become treasury shares once reacquired by the corporation. *Can delinquent stocks be voted? NO! How about unpaid shares, can they be voted? YES! Unpaid shares can be voted. The owners of these shares can exercise the rights of stockholders; the right to vote and be voted. They can receive dividend. How about delinquent stocks? Can they vote? NO!

SEC. 69. When Sale may be questioned. Let us say, the winning bidder is Mr. A. Now, Mr. B (the loser) questions the regularity of the sale; on the ground of irregularity, or fraud, etc. Will that kind of suit be entertained? The answer is YES; provided, that the complainant must tender the amount bidded; the cost plus interest, so on. There must be a tender corresponding to the bid amount and the suit must be instituted within six (6) months from the date of sale. SEC. 70. Court Subscription. Action to Recover Unpaid

Dba with regards to unpaid subscription delinquent stocks, they can be sold at a public auction, right? That is one of the remedies granted to the corporation. But, another remedy is also available to the corporation. That is to file an ORDINARY ACTION FOR COLLECTION; that is another alternative. Take Note: It is also important to know that delinquent stocks can be voted; is that correct? NOOOOOO! They cannot be voted; CANNOT! Are the stockholders (holders of delinquent shares) entitled to receive dividends? YEEEEES! SEC. 71. Effects of Delinquency. (So, that is the answer to our hanging question; arrow up! :D) *Delinquent Stocks: -CANNOT be voted and NOT entitled to vote or to representation at any stockholders meeting -NOT entitled to any of the rights of a stockholder; EXCEPT Right to Dividends; CAN receive dividends SEC. 72. Rights of Unpaid Shares. Unpaid shares - provided they are not yet delinquent; the owner of unpaid shares can exercise the rights (ALL) of a stockholder. He can vote and be voted and can receive dividends. SEC. 73. Lost or Destroyed Certificates. This is procedural. There is a lost or destroyed certificate. Dba you will execute an affidavit of loss and submit that to the secretary of the corporation; so that would be recorded. Then, afterwards there would be publication. Then after one (1) year from the last date of publication, that would be the time that a new certificate will be issued. But, even before the lapse of the 1-year period, you will be issued a new certificate in lieu of the lost one; provided, that you will FURNISH A BOND.

TITLE VIII CORPORATE BOOKS AND RECORDS SEC. 74. Books to be kept; Stock Transfer Agent. What are those books that the corporation must keep? (1) Financial Statements When we talk about financial statements, we refer to the Balance Sheet and Income Statement. Balance Sheet (cash, receivables, assets, liabilities, capital); it reflects the financial position of the corporation as of a given date Income Statement it reflects the operation of the corporation on a given period of time; Profit and Loss Statement (2) Corporate By-Laws (it should also be kept)

(3) Minutes of the meeting of the BoDs; stockholders meeting

(4) Stock and Transfer Book book that lists the names of the stockholders together with their corresponding number of shares

(5)

Journals, Ledgers

Ok? Those are the corporate books! (cf provision) SEC. 75. Rights to Financial Statements. So, the requesting stockholder shall be furnished with a copy of the financial statement (most recent financial statement). When you say financial statement, it is subdivided into two (2): Balance Sheet reflects the financial position of the corporation (pertaining to its assets, liabilities, as well as its capital) and Income Statement reflects the operations of the corporation. As a matter of fact, the BoDs should also present these financial statements to the stockholders during their general annual meeting (regular meeting). *If it is (paid-up capital) more than P50,000, it must be certified by a CPA. If less than P50,000, may be certified under oath by the treasurer or any responsible officer of the corporation. -END of PreLim- Good Luck and GOD BLESS!!