POWERS OF CORPORATION
Incidental / Inherent Powers
Section 36. CORPORATE POWERS AND CAPACITY.
1. 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;
5. To adopt by-laws, not contrary to law, morals, or public
policy, and to amend or repeal the same;
6. Stock corporations to issue or sell stocks to
subscribers and to sell treasury stocks; Non-stock
corporations to admit members to the 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;
8. To enter into merger or consolidation with other
corporations;
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; and
11. To exercise such other powers as may be essential or
necessary to carry out its purpose/s as stated in its
articles of incorporation.
Powers of a Corporation capacity or right under its charter and
laws to do certain things.
Primary franchise right to exist as an entity for the purpose of
doing the things embraced within its powers.
Secondary franchise right granted to an existing corporation to
use public property for a public use, but with private profit.
Doctrine of Limited Capacity a corporation has only such powers
as are expressly granted and those that are necessarily implied
from those expressly granted or those which are incidental to its
existence.
Classification of Corporate Powers
1. Express Powers
Expressly conferred upon the corporation by law.
Can be ascertained from the special law creating the
corporation or the general incorporation law, general laws of
the land applicable to corporations, and its articles of
incorporation.
General powers conferred by section 36 are to be exercised
by the Board of Directors.
2. Implied Powers
Powers which are reasonably necessary to execute the
express powers and to accomplish or carry out the purposes
for which the corporation was formed.
i. Acts in the usual course of business
ii. Acts to protect debts owing to a corporation
iii. Embarking in different business
iv. Acts in part or wholly to protect or aid employees
v. Acts to increase business
EXPRESS IMPLIED
Have to do largely with the Largely with the means and
main business, objects and methods of attaining those
purposes of the objects and purposes.
corporation.
Determined once and for all May change according to time,
by the language of the place and surrounding
corporate character & the circumstances.
applicable law.
Test is whether they are Whether they are fairly
found in the words of the incidental to the former and
charter or the law. reasonably necessary to carry
them out in furtherance of the
corporations business.
3.
Powers which a corporation can exercise by the mere fact of
its being a corporation or are necessary to corporate
existence and are therefore, impliedly granted.
They exist independently of the express powers.
Can be exercised even in the absence of an express grant.
E.g. power of succession, to sue and be sued, have a corporate
name, purchase and hold real and personal property, adopt
and use a corporate seal, contract, make by-laws, etc.
Ratification of Corporate Acts
By stockholders or members they may ratify and render valid
acts done or authorized by the Board, but which were beyond the
powers of the directors, or acts done in an illegal meeting, or
unauthorized acts of others than the directors, provided the acts
done are such as may be done or authorized by the stockholders.
By board of directors or trustees A transaction, if within the
powers of a corporation, may be consented to or ratified by the
board if it could be authorized by them. If consented to or ratified
with full knowledge of the facts, it is finally and absolutely binding,
and neither the corporation nor stockholders nor strangers can
afterwards sue to set it aside or attack its validity.
Power to Sue and Be Sued
Must be brought by the board of directors or trustees
that exercises its corporate powers on behalf of the
corporation or by any of its duly authorized officer or
agent.
Shareholders are, in no legal sense, the owners of
corporate property which is owned by the corporation as
a distinct legal person, their interest being inchoate or
beneficial in nature, not direct and immediate; hence,
they have no right to intervene in an action for or against
a corporation.
Power to Adopt and Use a Corporate Seal
Seal is not required for the validity of any corporate act.
Presence of such seal establishes, prima facie, that the
instrument to which it is affixed is the act of the
corporation.
Power to Acquire and Convey Property
Power to Acquire Shares or Securities
Such act does not need the approval of the stockholders
if done in pursuance of the purpose/s of the corporation,
but when the purpose is done solely for investment, the
approval of the stockholders as required by Sec 42 is
necessary.
When a corporation subscribes to the capital stock of
another corporation, it is required as a rule, to pay its
subscription in full; this is based on its limited capacity
to pay.
A corporation may purchase its own stock, however, only
when it has unrestricted retained earnings to cover the
shares to be purchased or acquired.
Power to Contribute to Charity
Amount must be reasonable;
Must not be in aid of any political party or candidate or
for purposes of partisan political activity.
Power to Establish Pension, Retirement and Other Plans
Power to Act as Guarantor
General rule: no corporation has the power, by any form
of contract or endorsement, to become a guarantor or
surety or otherwise lend its credit to another
person/corporation.
However, general rule will not apply, where the
guarantee tends to directly to promote the business
authorized by its articles or is an appropriate means by
which it may reasonably be expected that the business in
which the corporation is engaged will be advanced.
Section 37. POWER TO EXTEND OR SHORTEN CORPORATE
TERM.
A private corporation may extend or shorten its term as
stated in the articles of incorporation when approved by
a majority vote of the board of directors or trustees and
ratified at a meeting by the stockholders representing at
least 2/3 of the outstanding capital stock or 2/3 of the
members.
In case of extension of corporate term, any dissenting
stockholder may exercise his appraisal right (right of
stockholder in the cases provided by law to demand
 payment of the fair value of his shares) under the
conditions provided in this Code.
A voluntary dissolution of a corporation may be effected
by amending the articles of incorporation to shorten the
corporate term.
Section 38. POWER TO INCREASE OR DECREASE CAPITAL
STOCK; INCUR, CREATE, OR INCREASE BONDED
INDEBTEDNESS.
No corporation shall increase/decrease its capital stock
or incur, create, or increase any bonded indebtedness,
unless approved by a majority vote of the board of
directors and, at a stockholders meeting duly called for
the purpose, 2/3 of the OCS shall favour the increase or
diminution of the capital stock, or the incurring, creating
or increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the
incurring, creating or increasing of any bonded
indebtedness shall require the prior approval of the SEC.
No decrease of the capital stock shall be approved by the
SEC if its effect shall prejudice the rights of corporate
creditors.
Limitations on the power
1. A corporation cannot lawfully decrease its capital stock
if it will have the effect of relieving existing
subscribers from the obligation of paying for their
unpaid subscriptions without a valuable consideration
for such release, as such an act of the corporation
constitutes an attempted withdrawal of so much capital
upon which corporate creditors are entitled to rely.
2. Corporation must submit proof to the SEC that such
decrease will not prejudice the rights of creditors.
3. Corporation cannot issue stock in excess of the amount
limited by its articles of incorporation. (Such is ultra vires
and the stock so issued is void even in the hands of a bona
fide purchaser for value.) OVER-ISSUED STOCK or
SPURIOUS STOCK
4. Reduction or increase of the capital stock can take place
only in the manner and under the conditions prescribed
by law.
Unauthorized increase of capital stock
- Amounts to an over-issue and such stock is absolutely
void and cannot be validated by application of the
doctrine of estoppel.
Subscription requirement in case of increase of capital stock
- Treasurer of the corporation must file an affidavit
showing that at least 25% of the increase in capital stock
is subscribed and 25% of the subscription is paid.
Ways of Increasing (Decreasing) Authorized Capital Stock
1. By increasing (decreasing) the number of shares
authorized to be issued without increasing
2. (decreasing) the par value thereof;
3. By increasing (decreasing) the par value of each share
without increasing (decreasing) the number thereof;
4. By increasing (decreasing) both the number of shares
authorized to be issued and the par value thereof.
Reduction of Capital Stock
1. By decrease of number of authorized shares
a. By redeeming redeemable shares or
purchasing its shares and cancelling or
retiring the same, including treasury shares;
b. By accepting a surrender of shares & give the
holders in exchange therefor a proportionate
amount of its assets, provided no rights of
creditors are involved, or issue bonds for that
purpose or exchange another class of stock for
that retired, or exchange its outstanding shares
for a smaller number of shares; or
c. By cancelling shares which have not yet
been issued.
2. By decrease of par value of authorized shares
Effect of Reduction on Liability for Unpaid Subscription
1. As against Corporate Creditors No decrease of the
capital stock shall be approved by the SEC if its effect
shall prejudice the rights of the corporate creditors.
2. As between the Corporation and the Stockholders
Failure to give the prescribed notice (corporate meetings
to insure publicity and to warn the public of the intended
change) will not invalidate the reduction, if it is
otherwise valid as between the corporation and
stockholders where all the stockholders consent, subject
to the right of corporate creditors.
Distribution of surplus on reduction
- If capital has not been impaired by losses, there
necessarily occurs a surplus of assets to the extent of the
reduction. Directors may make an equitable distribution
of such surplus or so much thereof as may not be
required in carrying on the business, unless the rights of
creditors will be affected or capital impaired.
- General rule: where capital stock is impaired and a
reduction is made merely to meet that impairment, there
will be no distribution of assets among shareholders.
Persons entitled to question increase/decrease of capital
stock
- Corporation itself or by dissenting stockholders in the
absence of an estoppel; or by creditors of the
corporation; or by a receiver or assignee representing
them
- May be attacked by subscribers for or purchasers of such
stock, unless precluded as being in pari delicto.
Power to incur, create, or increase bond indebtedness
Corporate Bond an obligation to pay a definite sum of money at
a future time at fixed rate of interest; borrowing from the general
public; Certificate of Indebtedness
Notes and Bonds
- Indebtedness of the corporation may be evidenced by
notes or bonds as its primary security.
- Notes amount borrowed is small or if it is borrowed in
a single sum, or from a few persons, or for a short time.
- Bonds amount is large and obtained from a number of
people and extends over a period of years.
o Phrasing is usually more formal than that of
notes.
o Payment of bonds is usually secured as to both
principal and interest.
Corporate Bond Contract
- Parties:
- The borrowing corporation
- Bondholders
- Trustee a bank or trust company chosen and paid by
the corporation but serves mainly to protect the
bondholders.
Functions:
1. Countersigning the bond to assure authenticity
2. Collecting interest and principal payments and
distributing them to those entitled
3. Acting as mortgagee or collateral holder if bonds
are secured
4. Verifying the performance of debtor
corporations promises on behalf of the
bondholders
5. Taking legal action on behalf of the bondholders
if necessary
Bond indenture complete, lengthy legal document which
constitutes the agreement between the parties.
Section 39. POWER TO DENY PRE-EMPTIVE RIGHT
All stockholders of a stock corporation shall enjoy pre-
emptive right to subscribe to all issues or disposition
of shares of any class, in proportion to their respective
shareholdings, unless such right is denied by the articles
of incorporation or an amendment thereto;
Provided, that such pre-emptive right shall not extend to
shares to be issued in compliance with laws requiring
stock offerings or minimum stock ownership by the
public; or to shares to be issued in good faith with the
approval of the stockholders representing 2/3 of the
OCS, in exchange for property needed for corporate
purposes or in payment of a previously contracted debt.
Pre-emptive right the right of stockholders to
subscribe to a new allotment/issue of shares whenever
the capital stock is increased, by increasing the number
of shares that the corporation is allowed to increase,
before it could be issued to third parties.
Reason for the grant of right to safeguard the right of
a stockholder to preserve unaltered and unimpaired his
proportionate influence and interest in the corporation
and the relative value of his holdings.
Purposes of the Pre-emptive Right:
 1. Preserve the interest of the stockholder;
2. Protect from impairment and dilution the basic
rights of the stockholders;
3. For stockholders to be compensated or
rewarded for the risk they took by investing at
the beginning of the corporation.
Power to Deny Pre-emptive Right
May be denied by the articles of incorporation or an
amendment thereto or fall under any of the exceptions.
A stockholder whose pre-emptive right is violated may
maintain an action to compel the corporation to give him
that right. If the denial is by amendment of the articles,
he may exercise his appraisal right.
Shares to which right not available
1. Shares to be issued in compliance with laws requiring
stock offerings or minimum stock ownership by the
public;
2. Shares to be issued in good faith with the approval of
stockholders representing 2/3 of the OCS in exchange
for property needed for corporate purposes;
3. Shares to be issued in good faith with the approval of the
stockholders representing 2/3 of the OCS in payment of
previously contracted debt.
Offering of Remaining Unsubscribed Shares
- The remaining unsubscribed shares may be offered to
the public on first-come first-served basis or to any
person acceptable to the corporation without violating
the pre-emptive rights of such stockholders.
- SEC considers it a sound corporate practice to offer
always the remaining shares to the stockholders of
record whenever practical and feasible before offering
them to the public.
Time within which the right may be exercised
- Generally fixed in the resolution authorizing the increase
of capital stock.
Section 40. SALE AND OTHER DISPOSITION OF ASSETS
- A corporation may, by a majority vote of its board of
directors or trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or substantially all of
its property and assets, including its goodwill, upon such
terms & conditions and for such consideration, which
may be money, stocks, bonds, or other instruments for
the payment of money or other property or
consideration, when authorized by the vote of the
stockholders representing at least 2/3 of the OCS or
2/3 of its members.
- Any dissenting stockholder may exercise his appraisal
right under the conditions provided in this Code.
- A sale or disposition shall be deemed to cover
substantially all the corporate property and assets if
thereby the corporation would be rendered
incapable of continuing the business or
accomplishing the purpose for which it was
incorporated.
- The Board may nevertheless, in its discretion, abandon
such sale, lease, exchange, mortgage, pledge, or other
disposition of property and assets, subject to the rights
of third parties under any contract relating thereto,
without further action or approval by the stockholders
or members.
- Nothing in this section is intended to restrict the power
of any corporation, without the authorization by the
stockholders/members, to sell, lease, exchange,
mortgage, pledge or otherwise dispose of any of its
property and assets if the same is necessary in the usual
and regular course of business of said corporation or if
the proceeds of such be appropriated for the conduct of
its remaining business.
- Non-stock corporations where there are no members
with voting rights the vote of at least a majority of the
trustees in office will be sufficient authorization.
Power to Sell, Lease, etc. All or Substantially All Corporate
Assets
Requisites:
1. Sale, etc. must be approved by the Board;
2. The action of the Board must be authorized by
the vote of stockholders representing 2/3 of
the OCS including holders of non-voting shares,
or 2/3 of the members;
3. Authorization must be done at a stockholders
or members meeting duly called for that
purpose after written notice.
A corporation may sell all its assets without necessarily
dissolving or terminating its existence. If such sale is
made to another corporation without an intent to
combine, the selling corporation may continue in a state
of suspended animation.
The right of creditors must not be overlooked or
disregarded when a corporation sells its entire assets
and turns over its business to another.
Where one corporation sells or transfers all of its assets
to another, the latter (purchasing corporation) shall not
be liable for the debts and liabilities of the transferor,
provided the latter acted in good faith and paid adequate
consideration for such assets, except where any of the
following is present:
1. Purchaser expressly/impliedly agrees to
assume such debts;
2. Transaction amounts to a consolidation or
merger of the corporations;
3. Purchasing corporation is merely a
continuation of the selling corporation; and
4. Transaction is entered into fraudulently in
order to escape liability for such debts.
Authority of the Board
1. Right to decide upon the terms and conditions of the
transaction including the consideration for the property
disposed of;
2. Abandon the transaction, without further action or
approval by the stockholders or members but subject to
the rights of third parties under any contract relating
thereto;
3. Dispose of the same as it may deem convenient without
need of approval of the stockholders or members of the
corporation.
Section 41. POWER TO ACQUIRE OWN SHARES
- A stock corporation shall have the power to purchase or
acquire its own shares for a legitimate corporate
purpose/s, including but not limited to the following:
Provided, that the corporation has unrestricted retained
earnings in its books to cover the shares to be purchased
or acquired:
- To eliminate fraction shares arising out of
stock dividends;
Fraction share a share which is less
than one corporation share.
- 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; and
- To pay dissenting or withdrawing
stockholders entitled to payment for their
shares under the provisions of this Code.
Refers to instances when a dissenting
stockholder is given appraisal right
(Sec 81), and the right to withdraw
from the corporation (Sec 16
Amendment of articles), Section 37,
40, 42, 68, 77, and 105.
- Other cases:
Section 9 (Treasury shares)
With respect to Redeemable shares
(Section 8)
To effect a decrease in the capital
stock (Section 38)
In close corporation, where there is a
deadlock respecting the management
of its business, SEC may order the
purchase at their fair value shares of
any stockholder regardless of the
availability of unrestricted retained
earnings (Sec 104,par.4)
Conditions for the exercise of the power
- The exercise of such right depends upon the contingency
of the condition of its affairs and its relation to creditors
at the time of the purchase.
- Limitations to the right to purchase its shares:
 - Its capital is not thereby impaired;
- Legitimate and proper corporate purpose;
- There shall be unrestricted retained earnings
to purchase the same and its capital is not
thereby impaired;
- Corporation acts in good faith and without
prejudice to the rights of creditors and
stockholders; and
- Conditions of corporate affairs warrant it.
TRUST FUND DOCTRINE
- Assets of the corporation as represented by its capital
stock are trust funds to be maintained unimpaired and
to be used to pay corporate creditors in the sense that
there can be no distribution of such assets among the
stockholders without provision being first made for the
payment of corporate debts and that any such
disposition of its assets to the prejudice of the creditors
of the corporation who extended credit to the
corporation on the faith of its outstanding capital stock is
null and void.
Effects of purchase on corporate creditors
- If at the time the purchase is made, the corporation does
not have unrestricted retained earnings or has negative
earnings, or if the amount paid for the shares exceeds the
surplus
- The purchase necessarily operates as a
distribution to the selling shareholders of a
part of the capital, and to that extent impairs
the capital.
- Intentionally permanent impairment where
the corporation thereafter treats the purchased
shares as retired but does not formally reduce
capital, or merely refrains from reselling the
shares.
- Unintentionally permanent impairment
where the corporation finds itself unable to
resell the shares at all, or to the extent of part
of the amount paid.
- If the corporation is solvent, the current creditors can
enforce their claims. But the long-term creditors take the
risk of future insolvency as they await maturity of their
claims.
Effects of purchase on remaining stockholders
- The purchase of shares by a corporation is objectionable
also in that it injures remaining shareholders rights,
although it may be advantageous also to those who do
not sell.
Section 42. POWER TO INVEST CORPORATE FUNDS IN
ANOTHER CORPORATION OR BUSINESS OR FOR ANY OTHER
PURPOSE.
- A private corporation may invest its funds in any other
corporation or business or for any purpose other than
the primary purpose for which it was organized when
approved by a majority of the board of directors/
trustees and ratified by the stockholders
representing at least 2/3 of the OCS or by at least 2/3
of the members, at a stockholders or members meeting
duly called for the purpose.
- Provided that any dissenting stockholder shall have
appraisal right.
- Provided, however, that where the investment by the
corporation is reasonably necessary to accomplish its
primary purpose as stated in the articles of
incorporation, the approval of the stockholders or
members shall not be necessary.
- Funds any corporate property to be used in furtherance
of the business.
- Rule where corporation with multiple purposes. the
corporation may intend to carry them out
simultaneously or to prosecute first the primary
business in which it is most interested and then embark
later in any one of the other purposes; so long as the
primary purpose is indicated in the articles.
- Secondary purpose must be among those enumerated
in the articles.
- A corporation is not allowed to engage in a business
distinct from those enumerated in the articles without
amending the purpose clause.
- A corporation may invest its funds in another business
which is incident or auxiliary to its primary purpose
without the approval of the stockholders or members.
Section. 43. POWER TO DECLARE DIVIDENDS. - The board of
directors of a stock corporation may declare dividends out of the
unrestricted retained earnings which shall be payable in cash, in
property, or in stock to all stockholders on the basis of outstanding
stock held by them: Provided, That any cash dividends due on
delinquent stock shall first be applied to the unpaid balance on the
subscription plus costs and expenses, while stock dividends shall
be withheld from the delinquent stockholder until his unpaid
subscription is fully paid: Provided, further, That no stock
dividend shall be issued without the approval of stockholders
representing not less than two-thirds (2/3) of the outstanding
capital stock at a regular or special meeting duly called for the
purpose. (16a)
Stock corporations are prohibited from retaining surplus profits
in excess of one hundred (100%) percent of their paid-in capital
stock, except: (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. (n)
Dividend/s
Part or portion of the profits of a corporation set aside,
declared and ordered by the directors to be paid ratably
to the stockholders on demand or at a fixed time.
Payment to the stockholders of a corporation as a return
upon their investment.
Sum which can be divided among stockholders without
touching the capital stock
Must come from a surplus or profits
Dividends, regardless of the form these are declared, that
is, cash, property, or stocks, are valued at the amount
declared dividend taken from the unrestricted retained
earnings of the corporation.
Profits
Usual or ordinary meaning: return to capital rather than
earnings from labor performed or services rendered
The excess of return over expenditure in a transaction or
series of transactions
Excess of an amount received over the amount paid for
goods and services
Excess of value over cost, acquisition beyond expenditures,
gain or advance
Dividends v. Profits
Dividends: portion of the profits or net earnings which
the corporation has set aside for ratable distribution
among the SHs; thus, dividends come from profits, while
profits are the source of dividends
Profits: not dividends until so declared or set aside by the
corporation; in the meantime, they are part of the assets
and do not belong to the SHs individually may be in cash
or in kind
Power to declare dividends
The Board of Directors of a stock corporation has the
power to declared dividends out of the unrestricted
retained earnings which shall be payable in cash, in
property, or in stock to all stockholders on the basis of the
outstanding shares held by them.
Stock dividends: shall not be issued without the approval
of SHs representing at least 2/3 of the OCS at a regular
 meeting of the corporation or at a special meeting duly
called for the purpose
Other dividends: mere majority of the quorum of the
Board is sufficient to declare other dividends
Payment of dividends
Paid to the registered owners of stock as of a record date
usually a date different from the date of declaration
Dividends payable out of unrestricted retained earnings
Rule: A corporation cannot make a valid contract to pay
dividends other than from retained earnings or profits
and an agreement to pay such dividends out of capital is
unlawful and void. The power of a corporation to acquire
its own shares is likewise subject to the condition that
there be unrestricted retained earnings. The capital or
capital stock which may not be impaired or depleted by
dividends is not the entire assets of the corporation;
rather, it is the legal of the corporation.
Reasons:
a. The OCS, including unpaid subscriptions, is a trust fund
for the security of creditors and cannot be distributed to
their prejudice to the SHs as dividends, the creditors
being precluded from holding the SHs personally liable
of their claims.
b. The CS cannot be diverted or withdrawn to the
prejudice of its creditors and SHs.
c. Each SH is entitled as a matter of right to have the
capital of the corporation unimpaired in order to carry
out the purpose for which the corporation has been
created.
As to no par value stock: the entire consideration received
form the same shall b treated as capital and shall not be
available for distribution as dividends
Unrestricted retained earnings
Retained earnings: the difference between the total
present value of its assets after deducting losses and
liabilities and the amount of its outstanding capital stock
RE = Assets Liabilities and Legal Capital
Difference between the total assets and liabilities net
worth or net assets or stockholders equity
Thus, the retained earnings will be the balance of the net
worth or net asset after deducting the value of the
corporations OCS.
Unrestricted free for dividend distribution to
stockholders, if they have not been reserved or set aside
by the board of directors for some corporate purpose or
for some other purpose
Existence of actual profits or earnings
To justify the declaration of dividends, there must be an
actual bona fide surplus profits or earned surplus over
and above all debts and liabilities of the corporation.
Dividends cannot be declared out of borrowed money,
for borrowed money is not profit.
Treasury shares not being part of earned or surplus
profits are not distributable as dividends but if there are
retained earnings previously held to support their
acquisition, they may be declared as property dividend
out of said earnings.
Distribution of paid-in surplus as cash dividends
Whether dividends can now be declared out of premium
surplus under sec. 43 of the new Corporation Code is a
legal question and, consequently, is not to be resolved by
whatever may be the present accounting practice on the
matter.
Paid-in surplus as cash dividends may be distributed:
o Dividends form other gains not arising from
business- sec. 43 does not require that
dividends distributable by a corporation be
from the surplus profits arising from its
business; hence, unrestricted retained earnings
from which dividends may be declared are not
limited to the accumulated earned surplus of
the corporation but may also include other
gains not arising from its business.
o Absence of provision on treatment of paid-in
surplus form issue of PV shares
o Credit of paid-in surplus to profit and loss
o Treatment of paid-in surplus as premium for
privilege of subscribing The amount which the
corporation is authorized to raise by the issue
of shares should not exceed the authorized
capital stock which can only be increased by
complying with the formalities prescribed by
sec. 38. It follows that when shares are issued
above par, the excess is not to be treated as
capital but merely as a premium given for the
privilege of subscribing to such shares, and
hence, not as a part of the trust fund for the
benefit of the creditors who have no cause for
complaint, provided the corporation is solvent
and sufficient assets remain to pay their claims.
o Treatment of capital stock as referring to legal
capital
Legal capital: the capital stock which
must not be reduced by the payment
of the dividends, i.e. the portion of the
corporate assets equivalent to the
total par value of all the outstanding
PV shares of the corporation
o Increase of capital account without issuance of
additional shares
o Issuance of stock at PV but less than market
value if the difference or premium must be
treated as part of the capital stock for the
benefit of the creditors, then a corporation
should not be permitted to issue stock for a
consideration less than its market value,
although it may be above the par value.
Declaration of dividends
Requires the concurrence of the following:
o Existence of unrestricted retained earnings
o Corporate resolution by the board declaring
the payment of a portion or all such earnings to
the SHs
Additional requirements:
o Cash dividends: only approval of the board is
required
o Stock dividends: resolution of the board and
approval of thereof by the SHs, and a sufficient
number of authorized unissued shares for
distribution
Time for declaration of dividends
At the end of the year fiscal year to determine the
results of its operation during the year whether profits
or losses
Before the end of the year a corporation should not
declare dividends out of profits earned during an interim
period or before the ned of the fiscal year. However, a
corporation may declare dividends even before the end
of the fiscal year, provided it has sufficiently earned
surplus for the purpose which will not be impaired by
losses, whether expected or not, during the remaining
period of the fiscal year.
Classes of dividends
Cash dividend payable in cash
o Dividends on PV shares are made at a stated
percentage of the PV although they may also be
paid as a fixed amount per share
Property dividend distributed to SHs in the form of
property, real or personal, such as warehouse receipts,
or shares of stock of another corporation
 o Actually a cash dividend; the SH can take
property, sell it, and realized the cash
Stock dividend payable in unissued or increased or
additional shares of the corporation instead of in cash or
in property out of the unrestricted retained earnings
o Only issued in lieu of undistributed profits
o If not and are issued in exchange for cash or
property, they do not fall under the category of
stock dividends
Optional dividend gives the SH an option to receive
cash or stock dividend
Composite dividend partly in cash and partly in stocks
Preferred or preferential dividend payable, by virtue of
contract, to one class of SHs in priority to that to be paid
to another class
Cumulative dividend contracted to be paid at a certain
rate at stated times
Scrip dividend in the form of writing or certificate
issued to a SH entitling him to the payment of money,
stock or other benefit at some future time inasmuch as
the corporation at the time such dividends are declared
as profits not in cash or has no sufficient cash
Bond dividend dividends in bonds; bondholder
becomes a creditor of the corporation to the extent of the
amount of the bond
Liquidating dividends actually distributions of the
assets of the corporation upon dissolution or winding up
of the same; not paid on account of earnings or profits,
but as a return of capital invested
Participating and non-participating
Distinction between cash dividend and stock dividend
CASH DIVIDEND STOCK DIVIDEND
Involves a disbursement to Does not involve such
the SH of accumulated
earnings
Once declared and paid, Still part of corporate
becomes the absolute property, may be reached by
property of the SH and cannot corporate creditors
be reached by the creditors of
the corporation in the absence
of fraud
Declared only by the board of Declared by the board with
directors, at its discretion the concurrence of the SHs
representing at least 2/3 of
the OCS at a regular or special
meeting
Does not increase the Increases the corporate
corporate capital capital
Declaration of which creates a No such debt, except in the
debt from the corporation to sense t hat capital stock
each of its SHs who then hold constitutes liability
such stock
Taxable as income to the SH Not subject to income tax
Section. 44. POWER TO ENTER INTO MANAGEMENT
CONTRACT. - No corporation shall conclude a management
contract with another corporation unless such contract shall have
been approved by the board of directors and by stockholders
owning at least the majority of the outstanding capital stock, or by
at least a majority of the members in the case of a non-stock
corporation, of both the managing and the managed corporation,
at a meeting duly called for the purpose: Provided, That (1) where
a stockholder or stockholders representing the same interest of
both the managing and the managed corporations own or control
more than one-third (1/3) of the total outstanding capital stock
entitled to vote of the managing corporation; or (2) where a
majority of the members of the board of directors of the managing
corporation also constitute a majority of the members of the board
of directors of the managed corporation, then the management
contract must be approved by the stockholders of the managed
corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, or by at least two-thirds
(2/3) of the members in the case of a non-stock corporation. No
management contract shall be entered into for a period longer
than five years for any one term.
The provisions of the next preceding paragraph shall apply to any
contract whereby a corporation undertakes to manage or operate
all or substantially all of the business of another corporation,
whether such contracts are called service contracts, operating
agreements or otherwise: Provided, however, That such service
contracts or operating agreements which relate to the exploration,
development, exploitation or utilization of natural resources may
be entered into for such periods as may be provided by the
pertinent laws or regulations. (n)
Power to enter into management contract
With another corporation. a corporation is allowed,
without the need of amending its AOI, to enter into a
management contract with another corporation, which
refers to any contract whereby a corporation
undertakes to manage or operate all or substantially all
of the business of another corporation, whether such
contracts are called service contracts, operating
agreements or otherwise. It is an agreement under
which a corporation delegates the management of tis
affairs to another corporation for a certain period of
time.
With parent corporation. Absent a finding of fraud or
bad faith, contracts entered into by a parent corporation
with a subsidiary or affiliate may be held legal where the
purpose is to provide more efficient operation and
greater convenience to both
With a natural person. Section 44 only refers to a
management contract with another corporation. Hence,
it does not apply to management contracts entered into
by a corporation with natural persons.
Limitations on the power
Ratification of contract the contract must be approved
by a majority of the quorum of the board of directors or
trustees and ratified by the prescribed vote of the OCS
entitled to vote, or of the members, as the case may be, if
both the managing and he managed corporations, at a
meeting duly called for the purpose.
Period of the contract must not be longer than five (5)
years for any one term except those contracts which
relate to the exploration, development, exploitation or
utilization of natural resources
Managerial power under the contract A management
contract cannot delegate entire supervision and control
over the officers and business of a corporation to another
as this will contravene section 23, which lays down the
fundamental rule that the corporate powers of all
corporations shall be exercised by the board.
Sec. 45. Ultra vires acts of corporations. - No corporation under
this Code shall possess or exercise any corporate powers except
those conferred by this Code or by its articles of incorporation and
except such as are necessary or incidental to the exercise of the
powers so conferred. (n)
A corporation is not restricted to the exercise of powers
expressly conferred upon it but has the implied or
incidental powers to do what is reasonably necessary to
carry out its express powers and to accomplish the
purposes for which it was formed.
Ultra vires: an act not within the express, implied, and
incidental powers of the corporation conferred by the
Corporation Code or the AOI
Intra vires: acts or transactions within the legitimate
powers of a corporation or are related to its purposes
Ultra vires distinguished:
From illegal act
o UV: an act which is beyond the conferred
powers of a corporation or the purposes or
object for which it is created as defined by the
law of its organization
o IA: an act contrary to law, morals, good
customs, public order, or public policy and,
therefore, per se illicit.
From act done without complying with certain
conditions
 From act beyond powers of particular officers an act
may be within the powers of a corporation and not
within the powers of directors, for the powers of the
latter are derived not from the legislature, like the
powers of the corporation, but from the SHs in their
corporate capacity.
From act involving inexistent contract A contract may
not be illegal but inexistent, and therefore, void, when it
lacks one or some of the essential elements of a contract,
such as those which are absolutely simulated or fictitious
(see Art. 1409, Civil Code)
Ratification of ultra vires acts
Where the contract or act is illegal per se, it is wholly void
or inexistent. It cannot be ratified or validated.
Where the contract or act is not illegal per se but merely
beyond the power of a corporation, the same is merely
voidable and may be enforced by performance,
ratification, or estoppel, or on equitable grounds.
Effects of ultra vires acts which are not illegal
An ultra vires contract, while executory on both sides,
cannot be enforced by either party thereto. It is in the
public interest that corporations do not transcend the
powers granted to them by law and their assets be not
subjected to risks created by forbidden acts.
When an ultra vires contract has been performed on one
side and the other has received benefits by reason of
such performance, recovery is permitted in most courts
on behalf of such performance.
Acts presumed to be within corporate powers
Where private rights only are involved When a contract
is not on its face necessarily beyond the scope of the
power of the corporation by which it is made, it will in
the absence of proof to the contrary, be presumed to be
valid.
o The defense of ultra vires rests on violation of
trust or duty toward stockholders (or
members), and should not be entertained
where its allowance will do greater wrong to
innocent parties dealing with the corporation.
Where act clearly beneficial to the corporation
Who may invoke ultra vires
The State may have the right to invoke it, although
neither of the parties to he contract may urge it, as in the
case of an executed contract.
So, a party to the contract may, under some
circumstances, urge ultra vires in a case where a total
stranger would not have that right.
Dissenting SHs sometimes sue to enjoin the execution or
performance of ultra vires contract where neither party
to the contract could set up the claim.
Strangers
o General rule: Except where it is otherwise
provided by statue, a plea of ultra vires cannot
be imposed by a stranger not a party to the
contract, at least if he is not injured by such act
or contract.
Competitors in business
Creditors Judgment creditors may impeach an ultra
vires contract as in fraud of creditors, the same as any
other act.
TITLE V
BY-LAWS
Sec. 46. ADOPTION OF BY-LAWS. - Every corporation formed
under this Code must, within one (1) month after receipt of official
notice of the issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code of by-laws for
its government not inconsistent with this Code. For the adoption
of by-laws by the corporation the affirmative vote of the
stockholders representing at least a majority of the outstanding
capital stock, or of at least a majority of the members in case of
non-stock corporations, shall be necessary. The by-laws shall be
signed by the stockholders or members voting for them and shall
be kept in the principal office of the corporation, subject to the
inspection of the stockholders or members during office hours. A
copy thereof, duly certified to by a majority of the directors or
trustees countersigned by the secretary of the corporation, shall
be filed with the Securities and Exchange Commission which shall
be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-
laws may be adopted and filed prior to incorporation; in such case,
such by-laws shall be approved and signed by all the incorporators
and submitted to the Securities and Exchange Commission,
together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by
the Securities and Exchange Commission of a certification that the
by-laws are not inconsistent with this Code.
Stockholder/Members, adoption of by-laws
Stockholders: affirmative vote of the SHs representing at
least a majority of the OCS
Members: at least a majority of the members
By-laws
Definition: the rules of action adopted by a corporation
(or association) for its internal government and for the
government of its SHs 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
By-laws v. Articles of Incorporation
BY-LAWS ARTICLES OF
INCORPORATION
Merely rules and Constitutes the charter or
regulations adopted by the fundamental law of the
corporation corporation
Executed after Executed before incorporation
incorporation by the SHs or by the incorporators
members
Filing is a condition Filing is a condition precedent
subsequent to corporate existence
Purpose: to govern the Purpose: to incorporate, make
internal affairs of a incorporators into a body
corporation, of the
SHs/members
Power to adopt by-laws
The power is inherent in every corporation as one of its
necessary and inseparable legal incidents, essential to
enable the corporation to accomplish the purposes of its
creation, that it is ordinarily conferred in express terms
by the law.
Function of by-laws
Supplement the AOI; provide the details not important
enough to be stated in the articles
To define the rights and duties of corporate officers and
directors or trustees, and of SHs or members towards the
corporation and among themselves with reference to the
management of corporate affairs and to regulate
transaction of the business of the corporation in a
particular way
A source of authority for corporate officers and agents of
the corporation
Effectivity of by-laws
By-laws shall be effective only upon issuance by the
Commission of a certification that they are not
inconsistent with the Code.

Validity of by-laws
They must not be contrary to existing law and
inconsistent with the Code.
They must not be contrary to morals and public policy.
They must not impair obligations of contracts.
They must be general and uniform in their operation and
not directed against particular individuals, i.e. not
discriminatory.
They must be consistent with the charter or articles of
incorporation.
They must be reasonable.
SEC. 47. CONTENTS OF BY-LAWS. - Subject to the provisions of
the Constitution, this Code, other special laws, and the articles of
incorporation, a private corporation may provide in its by-laws
for:
1. The time, place and manner of calling and conducting regular
or special meetings of the directors or trustees;
2. The time and manner of calling and conducting regular or
special meetings of the stockholders or members;
3. The required quorum in meetings of stockholders or
members and the manner of voting therein;
4. The form for proxies of stockholders 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; and
10. Such other matters as may be necessary for the proper or
convenient transaction of its corporate business and affairs.
(21a)
NOTES:
PLACE OF MEETING:
Directors / trustees (D/T) meeting may be held at the place
determined in the by-laws anywhere in or outside the Phils.
Stockholders / members (S/M) meeting must always be
held at the city or municipality where the principal office of
the corporation is located or if practicable in the principal
office of the corporation.
QUORUM:
Corporations can determine in their by-laws the required
quorum in meetings of S/M they can fix a specific number
necessary to constitute a quorum for the transaction of
business, but cannot provide that a lesser number shall
constitute a quorum in those cases where law requires
validity of certain corporate acts the approval of minimum
number of votes.
Corporations also has the power to prescribe in the articles of
incorporation (AIC) or by-laws a number greater than the
majority of the members of the board of directors or trustees
to constitute a quorum.
PROXIES:
By-laws may provide for:
a. The form of such proxies
b. The manner of voting them subject to the date provisions
of Sec. 58
It can validly provide that proxies be notarized and filed with
the corporate secretary at least 2 days before the date of the
meeting.
QUALIFICATIONS OF DIRECTORS:
By-laws cannot dispense with the minimum legal
requirements that a director must be:
a. Registered owner of at least 1 share of stock.
b. At least 2 of the directors must be residents of the PH.
DISQ FOR POSITION OF DIRECTOR:
Validly provide for the DQ for the position of directors (i.e.
being engaged in any business which competes with the
corporation).
COMPENSATION TO S/M:
S/M do not render service for attendance at corporate
meetings but exercise rights personal to themselves in the
corporation.
By-laws may not provide compensation to S/M if they are not
D/T, officers and employees.
ELECTION & TERM OF OFFICE D/T:
Neither can the corporation provide in the by-laws for the
manner of election and term of office of D/T which are
already provided in the law.
The amendment to the corporations by-laws limits the term
to a max of 3 consecutive years as director, and he has to wait
for 1 consecutive year before he can run again for election in
the board.
This has prospective effect upon approval of SEC
IMPOSITION OF PENALTIES / SANCTIONS:
Corporation has the power to enforce its by-laws properly
made, by pecuniary penalties and corporate disabilities
proportionate to the violation
In the absence of any provisions in the by-laws, a violation of
such would merely constitute in appropriate cases an
actionable wrong for which the ultimate remedy resides in
the courts
REMEDY OF MANDAMUS generally available to compel
officers of the corporation to perform the duties imposed on
them by the by-laws
Obligations imposed upon its officers are not such as rest
wholly in the contract for the breach of which there is an
adequate legal remedy preventing the issuance of mandamus
to compel compliance with them.
ISSUANCE OF CERTIFICATES OF STOCK:
Internal matter which the corporation can decide on
Authority granted to a corporation to regulate the transfer of
its stock does not empower it to restrict the right of
stockholder to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and procedure to
be followed in effecting transfer.
Enumeration in Sec. 47 is merely directory and will not affect the
validity of the by-laws nor of the corporate act.
SEC. 48. AMENDMENTS TO BY-LAWS. - The board of directors or
trustees, by a majority vote thereof, and the owners of at least a
majority of the outstanding capital stock, or at least a majority of
the members of a non-stock corporation, at a regular or special
meeting duly called for the purpose, may amend or repeal any by-
laws or adopt new by-laws. The owners of two-thirds (2/3) of the
outstanding capital stock or two-thirds (2/3) of the members in a
non-stock corporation may delegate to the board of directors or
trustees the power to amend or repeal any by-laws or adopt new
by-laws: Provided, That any power delegated to the board of
directors or trustees to amend or repeal any by-laws or adopt new
by-laws shall be considered as revoked whenever stockholders
owning or representing a majority of the outstanding capital stock
or a majority of the members in non-stock corporations, shall so
vote at a regular or special meeting.
Whenever any amendment or new by-laws are adopted, such
amendment or new by-laws shall be attached to the original by-
laws in the office of the corporation, and a copy thereof, duly
certified under oath by the corporate secretary and a majority of
the directors or trustees, shall be filed with the Securities and
Exchange Commission the same to be attached to the original
articles of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the
issuance by the Securities and Exchange Commission of a
certification that the same are not inconsistent with this Code.
NOTES:

AMENDMENT & REPEAL OF BY-LAWS & ADOPTION OF NEW

BY-LAWS:

POWER IMPLIED:

Power to make by-laws implies the power to alter or repeal

them and enact new ones

FORMALITIES:

Power can only be exercised at a regular or special meeting

duly called for the purpose
Even non-voting shares or non-voting members are entitled
to vote on the matter
Amendments / repeal cannot be done in a referendum
Rationale: to give the S/M a chance to deliberate on the
amendments or repeal to be voted upon
If S/M cannot attend meeting, he can execute written proxy
authorizing another person to exercise his rights in the
meeting

DELEGATION OF POWER:

Power may be exercised by the S/M directly or indirectly by

delegating said power to the BOD/T
LIMITATION: authority given to the BOD to alter / amend by-
laws must be construed as to restrict it from altering /
annulling a by-law imposing a limitation on its powers.

NECESSITY OF MEETING:

No express requirement of S/Ms meeting for the delegation

of power but such is necessary
If revocation of the delegated power requires a meeting, it
should also be required in delegation of such power

IMPLIED REPEAL / AMENDMENT OF BY-LAW:

A by-law is impliedly repealed by a subsequent by-law

inconsistent with it

WAIVER OF BY-LAW PROVISION:

A by-law may not be amended otherwise than provided in

Sec. 48
To allow the waiver of any provision is tantamount to an
indirect amendment thereof
Corporation, directors, officers, and members are bound by
and must comply with the by-laws

NON-DELEGABLE POWER:

The power to amend AIC lies with the S/M and cannot be
delegated to the BOD/T
Power to adopt the original (not new) by-laws cannot be
delegated

REVOCATION OF DELEGATED POWER OF BOD/T:

LESSER NUMBER OF VOTE REQUIRED:

To revoke the delegated power to amend or repeal the

original by-laws, the law requires the vote of stockholders
representing a majority of the outstanding capital stock or a
majority of the members
To delegate, vote is 2/3

PREVIOUS NOTICE OF PROPOSED REVOCATION AT MEETING

NOT NECESSARY:

Revocation is valid notwithstanding that no previous notice

was given to S/M of the intention to propose such revocation.
BY-LAWS VS. RESOLUTION: o Corporation cannot immediately implement the amended
/ new by-laws without the certification or approval of
BY-LAWS RESOLUTION the Commission.
o If the special corporation is governed by a special law, the
Merely a declaration amended or new by-laws shall be effective only upon
of the will of the approval by both the appropriate government agency
corporation in a given and the Commission.
matter and in the o Amended or new by-laws shall apply prospectively and
Permanent rule of nature of a ministerial not retroactively.
action (XPN: if act;
Nature & amended /
subject matter repealed) of the Ordinarily limited in SEC. 49. KINDS OF MEETINGS. - Meetings of directors, trustees,
conduct of its operation, applying stockholders, or members may be regular or special. (n)
corporate affairs usually to a single act
or transaction of the SEC. 50. REGULAR AND SPECIAL MEETINGS OF
corporation or to STOCKHOLDERS OR MEMBERS. - Regular meetings of
some specific person, stockholders or members shall be held annually on a date fixed in
situation or occasion. the by-laws, or if not so fixed, on any date in April of every year as
Serves as determined by the board of directors or trustees: Provided, That
constitution of the written notice of regular meetings shall be sent to all stockholders
Rule in case of
corporation and will or members of record at least two (2) weeks prior to the meeting,
Conflict
prevail over the unless a different period is required by the by-laws.
resolution
No need for SECs Special meetings of stockholders or members shall be held at any
Necessity of approval unless they time deemed necessary or as provided in the by-laws: Provided,
Subject to SECs however, that at least one (1) week written notice shall be sent to
approval by involve matters where
approval all stockholders or members, unless otherwise provided in the by-
SEC the law requires such
approval laws.

Notice of any meeting may be waived, expressly or impliedly, by

RESOLUTION ADOPTED AS A BY-LAW: any stockholder or member.

Although a by-law may be in the form of a resolution, and in Whenever, for any cause, there is no person authorized to call a
such case repeal a previous by-law, a simple resolution in meeting, the Secretaries and Exchange Commission, upon petition
favor of some object which is inconsistent with or forbidden of a stockholder or member on a showing of good cause therefor,
by a by-law does not repeal / override the by-law. may issue an order to the petitioning stockholder or member
directing him to call a meeting of the corporation by giving proper
AIC VS. BY-LAWS: notice required by this Code or by the by-laws. The petitioning
stockholder or member shall preside thereat until at least a
ARTICLES OF majority of the stockholders or members present have been
BY-LAWS
INCORPORATION chosen one of their number as presiding officer. (This paragraph
Constitutes the is in conflict with Sec. 54)
Merely rules and
charter /
Nature regulations adopted NOTES:
fundamental law of
by the Corp.
the corporation KINDS OF MEETINGS:
Executed BEFORE Usually AFTER
Time of 1. Meetings of S/M:
incorporation by the incorporation by the
Execution a. REGULAR:
incorporators S/M
Held annually on a date fixed in the by-laws or if not
fixed, on any date of April of every year as determined
Filing of AIC is a Filing of BL is a
by the BOD/T (when stockholders are generally free
condition precedent condition subsequent
of their primary concerns; they have already filed
To govern the income tax returns, kids graduation ceremonies are
To incorporate the internal affairs of done, school year is over, etc.)
Purpose Held principally for the purpose of electing another
Corp. internal corp & its
officers / S / M set of D/T

b. SPECIAL:
Any time deemed necessary
Or as provided in the by-laws

2. Meetings of D/T:
ADOPTION OF BY-LAWS:
a. REGULAR:
1. BOD/T do not participate Held monthly unless otherwise provided by the by-
2. S/M/incorporators - they participate laws

AMENDMENT OF BY-LAWS: b. SPECIAL:

1. BOD/T initiates
2. Majority of S/M - votes
FILING & EFFECTIVITY OF AMENDED / NEW BY-LAWS:
Under Sec. 46, a certificate of the appropriate government
agency that the amendments are in accordance with law is
required in case of amended by-laws of any corporation
governed by special laws.
Without such certificate, SEC will not accept them for filing
In the case of original by-laws, amended / new by-laws shall
only be effective upon the issuance by SEC of a certification
that the same are not inconsistent with the Code.
Any time upon the call of the president
Or as provided in the by-laws
NECESSITY OF MEETINGS:
The corporate powers are vested in the BOD/T and / or S/M as a
body and not as individuals.
MEETINGS OF S/M:
S/M can act only in meetings properly convened and
assembled
Written assent of the majority of the S/M without a meeting
to a matter requiring action by them is insufficient
 This is to protect the S/M by notice and opportunity to attend,
discuss, and vote at a meeting, may preclude or estop those
who assent from complaining of what they have consented to.
MEETINGS OF D/T:
As agents of the corporation managing its affairs, the D/T can
only exercise their powers as a board, not individually /
separately.
D/T shall meet and counsel with each other, and that any
determination affecting the corporation shall only be arrived
at after the consultation at a meeting of the board upon notice
to all, attended by at least a quorum of its members.
GR: Where the law expressly requires a meeting for a particular
transaction, any action taken by the corporation without a meeting
properly held for such purpose is VOID.
XPNs:
1. Sec. 16 any corporation may amend its articles of
incorporation by a majority vote of the BOD/T and the vote or
written assent 2/3s of the stockholders representing at least
2/3 of the outstanding capital stock of the members. Meeting
of S/M is not necessary.
2. Corporation will be bound by the unanimous act or
agreement of its S/M although expressed elsewhere than at a
formal meeting.
3. Sec. 101 any action taken by the directors of a close
corporation without a meeting is valid, unless otherwise
provided in the by-laws.
REQUISITES FOR A VALID MEETING OF S/M:
Must be:
1. Held at the proper place
2. Held at the stated date and the appointed time or at a
reasonable time thereafter
3. Called by the proper person
4. Have previous notice
5. A quorum
SEC. 51. PLACE AND TIME OF MEETINGS OF STOCKHOLDERS
OR MEMBERS. - Stockholders' or members' meetings, whether
regular or special, shall be held in the city or municipality where
the principal office of the corporation is located, and if practicable
in the principal office of the corporation: Provided, That Metro
Manila shall, for purposes of this section, be considered a city or
municipality.
Notice of meetings shall be in writing, and the time and place
thereof stated therein.
taken at such meetings even though a majority of the S/M
were present in the absence of the waiver, estoppel or
ratification.
c. This rule is subject to the exception provided in Sec. 51 (2).
Ex:
X Corp city of principal office is in Makati City
Meeting of S/M of X Corp may be held anywhere in Metro Manila,
but if practicable, it should be held in the principal office of the
corporation (Ayala Ave., Makati City)
Failure to comply or observe the proper place for holding the S/M
meeting will not render the meeting illegal if all the S/M are
present or duly represented at the meeting.
PROPER PERSON TO CALL MEETING:
call for meeting exercised by the person who has power to
call the meeting
The person/s designated in the by-laws have authority to call
S/Ms meeting
In the absence of such provision, the meeting may be called
by a D/T or by an officer entrusted with the management of
the corporation unless otherwise provided by law.
Sec.50 (3) is in conflict with Sec. 54 S/M may make the call
on order of SEC whenever for any cause, there is NO PERSON
AUTHORIZED to call a meeting
Sec. 50 (3) applies where there is no person authorized to call
a corporate meeting or the officers authorized fail or refuse to
call a meeting
Any interested S/M may petition Commission to authorize
him to call a meeting or to compel the officers of the
corporation to call a meeting
Special meeting for the removal of the D/T may be called by
the secretary of the corporation or by a S/M
NOTICE OF EVERY MEETING REQUIRED:
NOTICE a writing informing the S/M of the meeting
If the meeting is a special one, notice must be given. A special
meeting may not consider business other than those listed in
the notice of meeting unless there is a unanimous waiver.
Whether regular / special, notice must be given when
required by the law / by-laws of the corporation.
Written notice even of regular meetings must be sent to
registered S/M at least 2 weeks before the meeting, or at least
1 week for special meetings, unless a shorter or longer period
is required by the by-laws.
Notice is necessary for meetings ordered by SEC
REQUIRED OF NOTICE OF MEETING:

All proceedings had and any business transacted at any meeting of 1.
the stockholders or members, if within the powers or authority of 2.
the corporation, shall be valid even if the meeting be improperly 3.
held or called, provided all the stockholders or members of the
corporation are present or duly represented at the meeting. 4.
5.
NOTES: 6.
PLACE & TIME OF MEETINGS OF S/M:
Principal place Sec. 14: where principal office of corporation is
located; where the books / important records of transactions are
kept; stock & transfer books, ledgers, minutes of meetings, records
of important transactions; to enable them to exercise easily their
right to inspect these books.
GR: Meeting in a proper place is MANDATORY
SUBSTANTIAL COMPLIANCE WITH REQUIREMENTS:
XPN: The by-laws cannot provide otherwise, except as allowed by
Sec. 93 with respect to meetings of members of a non-stock
corporation.
a. D/Ts meetings may be held at any place fixed in the by-laws
even beyond the bounds of the State where the corporation
exists.
b. If the meeting is held at an unauthorized place or without STATEMENT OF PURPOSE OF MEETING:
proper notice and not all the S/M are present, those who have
1.
a right to complain may take steps to set aside any action
It must be issued by one who is authorized to issue it
Must be in writing
Must state the date, time, place of meeting unless otherwise
provided in the by-laws
Must state business to be transacted thereat
Must be sent at a certain time before the scheduled meeting
as fixed by law, unless a different period is required by the by-
laws
Notice must comply with any other requirements prescribed
by law / by-laws of the corporation
a. Sec. 77 Requires that notice of meeting for the approval
of merger or consolidation shall state the purpose of the
meeting and shall include a copy or summary of the plan
of merger or consolidation.
b. Sec 118 Notice of meetings for voluntary dissolution
shall be made by publication + written notice which shall
be sent by registered mail or personal delivery.
Substantial compliance is sufficient
If general and special statutory provisions are conflicting,
special statutes prevail
Notice should be in a language readily understood by
businessmen
Election of D/T
2. Removal of D/T constitute a quorum at a meeting called to transact such
3. Filling of vacancies in the office of D/T business.
4. Ratification of contract of the corporation with a D/T By-laws may provide for a greater quorum.
5. Extension or reduction of corporate term
6. Increase or decrease of capital stock ANY NUMBER BUT AT LEAST 2:
7. Creation or increase of bonded indebtedness
8. Sale or other disposition of all or substantially all of the By-laws may validly provide for the holding of meetings with
corporate assets the presence of any number of S/M, even less than a majority,
9. Investment of corporate funds in another corporation or provided that there are at least 2.
business or for any other purpose A MAJORITY OF OUTSTANDING CAPITAL STOCK / MEMBERS:
10. Declaration of stock dividends
11. Entering into a management contract with another Defined in Sec. 137
corporation In case of non-stock corporations, a majority of the members
12. Amendment to, or repeal of, any by-laws or adoption of new shall constitute a quorum unless otherwise provided in the
by-laws Code or by-laws
13. Fixing the issued price of no par value shares o For non-stock corp, the basis for determining the quorum
14. Plan of merger or consolidation is the total number of registered numbers. Only those
15. Amendment of the articles of incorporation of a close who are actual, living members with voting rights shall
corporation be counted in determining the existence of a quorum
16. Voluntary dissolution of the corporation where no creditors during members meetings.
are affected o Best evidence of who are present members is
17. Voluntary dissolution of the corporation where the creditors the membership book
are affected
18. Dissolution by shortening corporate term WHERE WITHDRAWAL LEAVES LESS THAN A QUORUM
PREVIOUSLY DECLARED:
These matters may be transacted during the annual S/Ms
meeting of the corporation as long as the required notice is Once a quorum is present, the affirmative vote of the majority
complied with. in the absence of express provision in the by-laws to the
Objection that no notice was given or that the notice given contrary and unless the vote of a greater number is required
was defective, cannot be raised by 3rd persons who have not by law, is sufficient to decide any question properly
been injured. presented.
All the stockholders are bound by the result of such a vote
and, this even notwithstanding the withdrawal of enough
shareholders to leave less than a quorum
A minority group cannot prevent corporate action by walking
out
EFFECT OF FAILURE TO COMPLY WITH REQUISITES FOR
MEETING: EFFECT OF DEATH OF S/M:
PROCEEDINGS VALID: Shareholders may generally transfer shares
REQUISITES: On the death of a shareholder, the executor / administrator
duly appointed by the court is vested with the legal title to the
1. The proceedings had the business transacted are within the stock and entitled to vote it
power or authority of the corporation and are not ultra vires Until a settlement and division of estate is effected, the stock
2. All S/M of the corporation are present or duly represented at of the decedent are held by the administrator or executor
the meeting Membership in and all rights arising from a non-stock
corporation are personal and nontransferable, unless the AIC
PROCEEDINGS INVALID: or by-laws of the corporation provide otherwise
Determination of whether or not dead members are entitled
If the 2 requisites mentioned are not met, action taken in the to exercise their voting rights, depends on those AIC / by-laws
meeting shall be invalid
Without the signature of the secretary of the meeting, an POSTPONEMENT OF S/MS ANNUAL MEETING:
alleged minute taken by a mere clerk has neither probative
value nor credibility. CHANGE OF DATE OF MEETING FIXED IN BY-LAWS NOT
ALLOWED:

SEC. 52. QUORUM IN MEETINGS. - Unless otherwise provided for
in this Code or in the by-laws, a quorum shall consist of the
stockholders representing a majority of the outstanding capital
stock or a majority of the members in the case of non-stock
corporations
GR: where the date of the annual meeting is fixed in the by-
laws, the BOD/T cannot change the date so as to lengthen
their term of office
POSTPONEMENT OF MEETING TO A LATER DATE WHEN
ALLOWED:

XPNS: where annual meeting cannot be held on the date fixed

NOTES:
QUORUM REQUIRED IN S/Ms MEETINGS:
NUMBER PROVIDED IN THE BY-LAWS:
Corporation can determine the required quorum in meetings
of S/M for transaction of business at such meetings
In the absence of a quorum, no action can be taken except to
adjourn
Sec. 52 does not base the quorum on the meetings of S/M on
their absolute number as fixed in the AIC
NUMBER NOT LESS THAN THAT REQUIRED BY LAW:
In those cases which law determines the number or
proportion of shareholders or members whose concurring
votes are necessary to make their action binding on the
corporation, not less than such number is necessary to
by the by-laws for some valid reason, such as an erroneous
date for holding the meeting stated in the notice sent out to
members
Annual meeting may be postponed to a date later than that
fixed by the by-laws
Proper notice of the change of date is given to the members
HOLDING OF MEETING WITHIN A REASONABLE TIME AFTER
FIXED DATE:
It is the duty of the BOD/T to call the annual meeting without
unnecessary delay or within a reasonable time, particularly
when a demand is made on them by the S/M
They can continue to hold over only as long as their
successors have not been elected
It is not within their power to delay such election as to
prolong their stay in office
PAYMENT OF COMPENSATION FOR ATTENDANCE AT S/M
MEETING:
There is nothing in the Code which expressly or impliedly
authorize the payment of per diems to S/M for their
attendance at S/M meeting
MATTERS WHERE LAW REQUIRES MINIMUM NUMBER OF
VOTES:
1. Amend AIC majority of the BOD and vote / written assent of
2/3 of the outstanding capital stock (OCS) or of the members
2. Elect D/T majority of OCS or members entitled to vote
3. Remove D/T 2/3 of the OCS or members entitled to vote
4. Call for special meeting to remove D/T majority of the OCS
or of the members entitled to vote
5. Ratify a contract of a D/T or officer with corp 2/3 of the OCS
or of the members
6. Extend / shorten corporate term majority of the BOD/T and
2/3 of the OCS or of the members
7. Increase / decrease capital stock majority of the BOD and
2/3 of the OCS
8. Incur, create or increase bonded indebtedness majority of
the BOD and 2/3 of OCS
9. Sell, lease, exchange, mortgage, pledge, or dispose all or
substantially all of the corporate assets majority of the
BOD/T and 2/3 of the OCS or members
10. Invest corporate funds in another corporation or business or
for any purpose other than the primary purpose majority of
BOD/T and 2/3 of the OCS or members
11. Issue stock dividends majority of quorum of BOD and 2/3 of
OCS
12. Enter into management contract majority of quorum of
BOD/T and majority of OCS or members of both the managing
and managed corporations, in some cases, 2/3 of the total OCS
entitled to vote or of the members with respect to the
managed corporation
13. To adopt by-laws majority of the OCS or members
14. Amend or repeal by-laws or adopt new by-laws majority of
the BOD/T and the OCS or of the members
15. Delegate to the BOD/T the power to amend or repeal the by-
laws or adopt new by-laws 2/3 of the OCS or of the members
16. Revoke the preceding power delegated to the BOD/T
majority of the OCS or members
17. Fix the issued price of no par value shares majority of the
quorum of the BOD if authorized by AIC or in absence of such
authority, by majority of the OCS
18. Effect or amend a plan of merger or consolidation majority
of BOD/T and 2/3 of the OCS or members of the constituent
corporations
19. Dissolve the corporation majority vote of the BOD/T and
2/3 of the OCS or members
20. Adopt a plan of distribution of assets of a non-stock
corporation majority vote of BOD/T and 2/3 of members
having voting rights.
GREATER VOTING REQUIREMENT:
A corporation may prescribe a greater voting requirement for
the approval of any of the above corporate acts in its AIC in
order to protect the rights of the minority S/M
Any matter or transaction must necessarily fail if the number
of votes attained or cast is less than what is prescribed for the
particular transaction
If an issue to be resolved requires a majority for it to be
passed and there is a tie, the issue loses.
Sec. 53. Regular and special meetings of directors or trustees. -
Regular meetings of the board of directors or trustees of every
corporation shall be held monthly, unless the by-laws provide
otherwise.
Special meetings of the board of directors or trustees may be held
at any time upon the call of the president or as provided in the by-
laws.
Meetings of directors or trustees of corporations may be held
anywhere in or outside of the Philippines, unless the by-laws
provide otherwise. Notice of regular or special meetings stating
the date, time and place of the meeting must be sent to every
director or trustee at least one (1) day prior to the scheduled
meeting, unless otherwise provided by the by-laws. A director or
trustee may waive this requirement, either expressly or impliedly.
(n)
Place and Time of Meeting of Directors
- anywhere in or outside of the Philippines
- shall be held monthly, unless the by-laws provide
otherwise.
- Notice of regular or special meetings stating the date,
time and place of the meeting must be sent to every
director or trustee at least one (1) day prior to the
scheduled meeting, unless otherwise provided by the by-
laws
Sec. 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.
(n)
This Section is in conflict with Section 50 of the same code. To
resolve such conflict, Section 50 shall only apply if the president
is absent, otherwise, Section 54 shall apply.
Sec. 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. (n)
Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend and vote
in behalf of the stockholders or members without need of any
written proxy. (27a)
In general
It is through the right to vote that the stockholder participates in
the management of the corporation. This right has been described
as the stockholders supreme right and main protection.
Manner of Voting
- Directly (in person);
- Indirectly (through a representative)
a. by means of proxy; or
b. by a trustee under a voting trust agreement; or
c. by executors, administrators, receivers or other legal
representatives duly appointed by the court.
- Voting may be straight or cumulative.
Representative Voting
1. Legal representative of stockholder / member
Section 55 authorizes executors, administrators, receivers or
other legal representatives duly appointed by the court to attend
and vote in behalf of the stockholders or members on sheirs under
their administration without need of any written proxy because
they have legal title to the stock of the deceased owner or their
principal. This is an exception to Section 24 that only stockholders
of record may vote.
2. Pledgee / mortgagee of stockholders shares
They may attend and vote in behalf of the stockholders only when
expressly given such right in writing by the pledgor or mortgagor,
the latter remains the owner of the stock pledged or mortgaged.
Sec. 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. (n)
Section 56 requires the consent of all the co-owners in order to
vote such stock, except if:
a. there is a written proxy executed by the joint-owners
authorizing one or some of them or any other person to
vote for all; and
 b. the shares are owned in an and/or capacity by the
holders thereof.
Where the property relation between husband and wife is
governed by the system of absolute community of property, the
same shall be governed by the rules on co-ownership.
Sec. 57. Voting right for treasury shares. - Treasury shares shall
have no voting right as long as such shares remain in the Treasury.
(n)
Section 57 expressly denies any voting rights to treasury shares as
long as such stock remains in the treasury. The only right which
the corporation has over treasury shares is to reissue the same for
valuable consideration. In case of such sale, tresury shares regain
whatever voting rights and dividends to which they were
originally entitled.
Sec. 58. PROXIES- Stockholders and members may vote in
person or by proxy in all meetings of stockholders or
members. Proxies shall be in writing, signed by the
stockholder or member and filed before the scheduled
meeting with the corporate secretary. Unless otherwise
provided in the proxy, it shall be valid only for the meeting for
which it is intended. No proxy shall be valid and effective for
a period longer than five (5) years at any one time.
Proxy given to two or more persons
Meaning of Proxy
1. A 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 right of the former.
2. Used to apply to the holder of the authority or person
authorized by an absent stockholder or member to vote
for him at a stockholders or members meeting.
3. It is an instrument which evidences the authority of the
agent.
A proxy is thus a special form of agency. The proxy holder
is in the eye of the law an agent and as such a fiduciary.
Who may be a proxy?
A stockholder or member may appoint any person he
sees fit to represent him, and by-laws restricting his right in this
respect are void.
Note: 1. A stockholder disqualified to vote because his stock has
been declared delinquent may vote the stock of his principal who
is not delinquent. A stockholder or member who himself is not
entitled to vote cannot of course vote by proxy. 2. The same person
may act as proxy for one or several stockholders or members. 3.
Directors or trustees cannot attend or vote by proxy at the board
meeting (Sec 25) but they may act as proxies in stockholders
meetings.
Revocation of Proxies
Nature of Proxies
1. Consent in writing
2. Signed by the stockholder or member
3. Purely personal to be valid a proxy to vote must have
been given by the person who is the legal owner of the
stock entitled to vote the same at the time it is be voted.
4. A designated proxy may not be further re-designated
another under the same proxy.
5. Alternate proxy can only act as proxy in case of non-
attendance of the other designated proxy.
Duration of Proxy
Limitations on proxies
1. Must be in writing signed by the stockholder or member
and filed before the scheduled meeting with the
corporate secretary.
2. Valid only for the meeting for which it is intended unless
otherwise provided in the proxy.
3. A continuing proxy must be for a period not exceeding
five (5) years otherwise it shall be not valid and
ineffective after such period.
Note: A proxy sold for a consideration is contrary to
public policy.
Form and Execution of proxies
1. No particular form requiredthe code does not provide
express provisions on the form of proxiesleaving the
matter to be provided in the corporate by-laws.
A. It is sufficient that it be in writing, signed by the
stockholder or member and it shall show the
intention to empower the person to whom it is given
to act as agent in voting the stock so as to enable the
election officers to know who is authorized.
B. In the absence of a provision in the articles of
incorporation or the by-laws, directors cannot
prescribe the form of proxies other than as provided
for under Section 58.
C. The proxy should be dated. But neither is a proxy
instrument rendered invalid by the fact that it is
undated or the holders name is in blank. If the name
of the proxu is left blank, the corporation receiving
the proxy is at liberty to fill in any name it chooses.
By returning the proxy form unfilled, therefore, the
latter may fill it up to the authority given by the
stockholder or member.
2. Regularity in execution presumed- there is a
presumption of regularity in the execution of proxies. It
should be accepted if there is prima facie authenticity in
the absence of any valid and timely challenge or
objection.
1. Action of the majority A proxy in favor of several
persons is presumed by the action of the majority to
represent the givers will.
2. Rule where all proxies undated Where the corporation
receives more than 1 proxy from the same person, and
they are all undated, the postmark or electronic dates
shall be considered.
a. If the proxies are mailed on the same date, the one
bearing the latest time of day indicated in the
postmark or latest time of dispatch appearing in the
electronic mail, shall prevail.
b. If the proxies are not mailed, then the time of their
actual presentation is considered. That which is
presented last will be recognized.
3. Number of shares to be represented by each proxy If the
stockholder intends to designate several proxies, the
number of shares of stock to be represented by each
proxy shall be specifically indicated in the proxy for,.
a. If some proxy form do not indicate the numberthe
total shareholding of the stockholder shall be tallied
and the balance thereof, if any, shall be allotted to
the holder of the proxy form without the number of
shares.
b. If all are in blank the stocks shall be distributed
equally among the proxies
a. Generally proxies, even those with irrevocable terms,
have always been considered as revocable, unless
coupled with interest and their revocation may be by
formal notice, orally or by conduct as by the appearance
of the stockholder or member giving the proxy, or the
issuance of the subsequent proxy, or the sale of shares.
b. Last proxy given revokes all previous proxiesthe last
proxy given is deemed a revocation of all previous
proxies.
1. Limited and specific proxy It cannot be exceeded or
extended if given and a specific proxy when requires,
cannot be implied.
2. Continuing Proxy it is one which authorizes the holder
thereof to vote for the absent stockholder or member at
any meeting of stockholders or members for a ixed or an
indefinite period of time.
a. at any and all regular and special meetings
without any limitation with respect to the period of
activity, shall be valid only for five (5) years from its
date, whethere or not it is coupled with interest.
b. If the stockholder does not revoke a continuing
proxy, it shall continue to be effective until its
expiration.
 3. Renewal of proxy It may be renewed for not more than To vest upon the transferee the voting right and other
five (5) years for each renewal. It can be both specific and rights pertaining to the shares. The trustee becomes the legal
continuing. owner of the trust (rights transferred pertaining to the shares)

Sec. 59. VOTING TRUSTS. - One or more stockholders of a stock To make it possible for a stockholder to transfer his share
corporation may create a voting trust for the purpose of to another person without losing control over the affairs of the
conferring upon a trustee or trustees the right to vote and corporation.
other rights pertaining to the shares for a period not
exceeding five (5) years at any time: Provided, That in the Lee Vs. CA 205 Scra 752
case of a voting trust specifically required as a condition in a
By its very nature, a voting trust agreement results in the
loan agreement, said voting trust may be for a period
separation of the voting rights of a stockholder from his other
exceeding five (5) years but shall automatically expire upon
rights.
full payment of the loan. A voting trust agreement must be in
writing and notarized, and shall specify the terms and Result/ Effect of Voting Trust Agreement
conditions thereof. A certified copy of such agreement shall
be filed with the corporation and with the Securities and The transferring stockholder, although he has ceased to
Exchange Commission; otherwise, said agreement is be a stockholder of record, retains the right of inspection of
ineffective and unenforceable. The certificate or certificates corporate books, which he can exercise concurrently with the
of stock covered by the voting trust agreement shall be voting trustee (Sec 72, par 2), to receive the dividends when they
canceled and new ones shall be issued in the name of the are collected by the trustee, and to recover his stock at the
trustee or trustees stating that they are issued pursuant to expiration of the trust, and other rights a stockholder may be
said agreement. In the books of the corporation, it shall be entitled until the liquidation fo the corporation.
noted that the transfer in the name of the trustee or trustees
is made pursuant to said voting trust agreement. Note: A stockholder whose shares are covered by a voting trust
agreement is disqualified from being elected as director unless he
The trustee or trustees shall execute and deliver to the retains at least 1 share in his name on the books of the corporation.
transferors voting trust certificates, which shall be
transferable in the same manner and with the same effect as
certificates of stock.
TRUSTEE VS PROXY
The voting trust agreement filed with the corporation shall be As To: Trustee Proxy
subject to examination by any stockholder of the corporation 1. Ownership Acquires legal No legal title to
in the same manner as any other corporate book or record: title to the the shares of the
Provided, That both the transferor and the trustee or trustees shares of the stockholder
may exercise the right of inspection of all corporate books transferring giving the
and records in accordance with the provisions of this Code. stockholder agency (AGENT)
(Owner)
Any other stockholder may transfer his shares to the same 2. Revocability Intended to be Revocable
trustee or trustees upon the terms and conditions stated in irrevocable for anytime
the voting trust agreement, and thereupon shall be bound by a definite and
all the provisions of said agreement. limited period
of time
No voting trust agreement shall be entered into for the
3. Limitation Not limited to Can only act at
purpose of circumventing the law against monopolies and
any particular the specified
illegal combinations in restraint of trade or used for purposes
meeting stockholders or
of fraud.
members
Unless expressly renewed, all rights granted in a voting trust meeting (unless
agreement shall automatically expire at the end of the agreed continuing)
period, and the voting trust certificates as well as the 4. As to cast of Can vote and Can vote only in
certificates of stock in the name of the trustee or trustees shall votes exercise all the the absence of
thereby be deemed canceled and new certificates of stock rights of the the owner of the
shall be reissued in the name of the transferors. transferring stock
stockholder
The voting trustee or trustees may vote by proxy unless the even when the
agreement provides otherwise. (36a) latter is present
5. Duration Maximum Maximum
Voting trust cannot exceed 5 cannot exceed 5
years at any one years at any one
1. Voting trusts must be in writing, notarized, time time
specifying the terms and conditions thereof, But usually
certified copy filed with SEC. Failure to comply with shorter than a
this requirement renders the agreement ineffective voting trust
agreement
and unenforceable.
6. Notarization Must be Need not be
2. As a general rule, voting trusts are valid for a notarized and a notarized
period not exceeding 5 years at any one time, and certified copy
automatically expire at the end of the agreed period must be filed
unless expressly renewed. However, in the case of a with the
voting trust specifically required as a condition in a Commission
loan agreement, said voting trust may exceed 5 7. Right of Trustee have No such right
years but shall automatically expire upon payment Inspection of such right
of the loan. corporate
books
3. Voting trusts may be voted by proxy unless the
agreement provides otherwise.
TITLE VII
4. Also applies to Non-stock Corporation. STOCKS AND STOCKHOLDERS

Purpose Sec. 60. SUBSCRIPTION CONTRACT. - Any contract for the

acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription
within the meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other contract.
(n)
WHAT IS A SUBSCRIPTION CONTRACT?
It is any contract for the acquisition of unissued stock in an existing
corporation or a corporation still to be formed. This is
notwithstanding the fact that the parties refer to it as a purchase
or some other contract. (Sec. 60)
WHAT IS THE NATURE OF A SUBSCRIPTION CONTRACT?
Subscriptions constitute a fund to which the creditors
have a right to look for satisfaction of their claims.
The assignee in insolvency can maintain an action upon
any unpaid stock subscription in order to realize assets
for the payment of its debts.
A subscription contract is INDIVISIBLE (Sec. 64).
A subscription contract subsists as a liability from the
time that the subscription is made until such time that
the subscription is fully paid.
HOW DOES ONE BECOME A STOCKHOLDER?
a. By subscription contract with an existing corporation for
the acquisition of unissued shares.
b. By purchase from the corporation of treasury shares (sec
9)
c. By transfer from a previous stockholder of outstanding
shares or existing subscription to shares.
Note:
Treasury shares already issued shares before and
purchased back by the corporation
KINDS OF SUBSCRIPTION:
1. Pre-incorporation subscription (contracted between all
subscribers)
Sec. 61. PRE-INCORPORATION SUBSCRIPTION. - A
subscription for shares of stock of a corporation still
to be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription,
unless all of the other subscribers consent to the
revocation, or unless the incorporation of said
corporation fails to materialize within said period or
within a longer period as may be stipulated in the
contract of subscription: Provided, That no pre-
incorporation subscription may be revoked after the
submission of the articles of incorporation to the
Securities and Exchange Commission. (n)
RULE: When a group of persons sign a subscription
contract, they are deemed not only to make a continuing
offer to the corporation, but also to have contracted with
each other as well. Thus, no one may revoke the contract
even prior to incorporation without the consent of all the
others.
WHEN IS A PRE-INCORPORATION SUBSCRIPTION
IRREVOCABLE?
1) For a period of at least 6 months from the date of
subscription;
EXCEPTIONS: (1) unless all of the other
subscribers consent to the revocation, or
(2) unless the incorporation of said
corporation fails to materialize
within the said period or within
a longer period as may be
stipulated in the contract of
subscription
2) After the articles of incorporation have been
submitted to the SEC (Sec. 61)
2. Post incorporation subscription one entered into after the
incorporation for the acquisition of unissued stocks
(contracted between subscriber and corporation)
RULE: The subscriber becomes a stockholder upon the
acceptance by the corporation of the subscribers offer or by
the subscriber of the corporations offer even though he has
not paid for his shares unless the subscription agreement
otherwise provides or when there is a constitutional,
statutory, or charter provision to the contrary or except in the
instances of increased in authorized capital stock.
3. Conditional subscription one which is subject to
condition which may be a past event unknown to the
parties or a future uncertain event.
Note: The subscription is void if the condition is void.
4. Absolute subscription or one which is not subject to any
condition and therefore the subscriber becomes liable on
the subscription and acquires the rights of a stockholder
from the time it is accepted.
5. Subscription with a special term or one where the
corporation agrees to do something, the fulfillment of
which not being a condition precedent to the accrual of
liability of the subscriber or the acquisition of the rights
of a stockholder
As to: PURCHASE SUBSCRIPTION
When Only AFTER May be before or
incorporation after incorporation
Payment Full payment must Full payment of
be made value of shared are
not required
Ownership Acquired upon full Vested upon
payment subscribers even if
not fully paid
Sec. 62. CONSIDERING FOR STOCKS. - Stocks shall not be issued
for a consideration less than the par or issued price thereof.
Consideration for the issuance of stock 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; and
6. Outstanding shares exchanged for stocks in the event
of reclassification or conversion.
Where 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. (5 and 16)
SOURCES OF CORPORATE CAPITAL
1. Funds furnished by shareholdersevery corporation must
issue stocks, also called equity securities, to persons who
want to invest capital in it, for money, property or
services.
 2. Borrowings A corporation may also raise capital to
finance its business from loans or advances by creditors
in return for which the latter get debt-securities called
bonds for long-term debts.
Corporate Bond- a written promise by a corporation to
pay a definite sum of money at some future date, at a
fixed rate of interest, given in return for money or its
equivalent received by the corporation, sometimes
secured sometimes not.
3. Profits and stock dividends A corporation also get
internal generated funds from its profits or earnings
which are reinvested in the business.
Power to Issue stock
Issue the making of share contract, that is , transactions by which
a person becomes the owner of shares and by which new shares
contracts are created. Note that a corporation cannot issue shares
of stocks beyond its authorized capital stock.
Such power is lodged in the board of directors an no stockholders
meeting approval is necessary to consider the issuance of shares.
Modes by which shares may be issued
1. By subscription before and after incorporation, to original
unissued stock.
2. By sale of treasury stocks after incorporation for money
property or service.
3. By subscription to new issues of stock when all the
original stock has been issued and the amount of the
capital stock increased.
4. By making stock dividend.
Amount of consideration
Shares of stock shall not be issued for a consideration less than the
par value or issued priced thereof (Sec 65), except treasury shares
so long as the price is reasonable. Stocks issued for a consideration
less than their par or issued price are watered stocks (Sec 65).
Consideration other than Cash
1. Property, service, corporate indebtedness,
2. Stock dividends
3. Outstanding Shares
4. Receivables
Section 63. Certificate of stock and transfer of shares. The
capital stock of stock corporations shall be divided into shares for
which certificates signed by the president or vice president,
countersigned by the secretary or assistant secretary, and sealed
with the seal of the corporation shall be issued in accordance with
the by-laws. Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or certificates
indorsed by the owner or his attorney-in-fact or other person
legally authorized to make the transfer. No transfer, however, shall
be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of
the certificate or certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid
claim shall be transferable in the books of the corporation. (35)
Certificate of Stock
- Is a written instrument signed by the proper officer of a
corporation stating or acknowledging that the person named
therein is the owner of a designated number of shares of its
stock. It indicates the name of the holder, the number, kind
and class of shares represented, and the date of the issuance.
- The certificate is not stock in the corporation but is merely
evidence of the holders interest and status in the corporation.
- A certificate of stock, like the shares it represents, is property,
bit it has a value separate and distinct from the value of the
shares represented.
Note:
In the absence of the certificate, the ownership of stocks
may be shown by the record thereof in the corporate
books.
Issuance of certificate of stock
- Every certificate of stock shall be signed by the
president or vice-president of the corporation,
countersigned by the corporate secretary, and sealed
with the seal of the corporation and shall be issued in
accordance with the by-laws.
Requisites for valid issuance of formal certificate of stock (Sec.
63)
(1) The certificates must be signed by the
President / Vice-President, countersigned by
the secretary or assistant secretary, and sealed
with the seal of the corporation.
- A mere typewritten statement advising a SH of the
extent of his ownership in a corporation without
qualification and/or authentication cannot be
considered as a formal certificate of stock. (Bitong v. CA,
292 SCRA 503)
(2) Delivery of the certificate
- There is no issuance of a stock certificate where it is
never detached from the stock books although blanks
therein are properly filled up if the person whose name
is inserted therein has no control over the books of the
company. (Bitong v. CA, 292 SCRA 503)
(3) Par value of par value shares / Full subscription
of no par value shares must be fully paid.
(4) Surrender of the original certificate if the
person requesting the issuance of a certificate is
a transferee from a SH.
HOW ARE SHARES OF STOCK TRANSFERRED?
By delivery of the certificate/s
indorsed by the owner or his attorney-in-fact
or other person legally authorized to make the
transfer. (Sec. 63)
WHAT ARE THE REQUISITES FOR A VALID
TRANSFER?
(1) Delivery;
- Delivery, actual or constructive, is essential to
the issuance of a certificate of stock.
- A formal contract of purchase and sale set in a
notarial document is equivalent to actual
delivery of the certificates themselves.
- There is no issuance of stock certificate
(therefore, no delivery) where it is never
detached from the stock books although blanks
therein are properly filled up, if the person
whose name is inserted therein has no control
over the books of the corporation.
(2) Indorsement by the owner or
his attorney-in-fact or other
persons legally authorized to
make the transfer
- Indorsement of the certificate of stock is a
mandatory requirement of law for an effective
transfer of a certificate of stock. (Razon v. CA,
207 SCRA 234)
 (3) Recording of the transfer in the sue, or are the ones to be sued, or hold control of the
books of the corporation (so as to corporation.
make the transfer valid as against
third parties) Cause of action belongs to the
corp. and not the stockholder
- Until registration is accomplished, the transfer,
though valid between the parties, cannot be But since the directors who are
effective as against the corporation. Thus, the charged with mismanagement
unrecorded transferee cannot enjoy the status are also the ones who will decide
of a SH: he cannot vote nor be voted for, and he WON the corp. will sue, the corp.
will not be entitled to dividends. may be left without redress;
thus, the stockholder is given the
REMEDY IF REGISTRATION REFUSED right to sue on behalf of the
corporation.
The proper remedy is a petition for a
writ of mandamus to compel the corporation An effective remedy of the
to record the transfer or issue a new certificate minority against the abuses of
in favor of the transferee, as the case may management
be. The writ will be granted provided it is
shown that he transferee has no other plain, An individual stockholder is
speedy and adequate remedy and that there are permitted to bring a derivative
no unpaid claims against the stocks whose suit to protect or vindicate
transfer is sought to be recorded. It must be corporate rights, whenever the
noted that unless the latter fact is alleged, officials of the corp. refuse to sue
mandamus will be denied due to failure to state or are the ones to be sued or hold
a cause of action. the control of the corp.

Suing stockholder is merely the

Section 64. Issuance of stock certificates. No certificate of stock nominal party and the corp. is
shall be issued to a subscriber until the full amount of his actually the party in interest.
subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid. (37) A SH can only bring suit for an
act that took place when he was
a stockholder; not
Issuance of Certificate before. (Bitong v. CA, 292 SCRA
503)
Certificate of stock
Derivative Suit Individual Suit
CONDITION FOR ISSUANCE: payment of full amount of
If the gravamen of If the injury is one to
subscription price plus interest, if any is due (Sec. 64)
the complint is the plaintiff as a
injury to the stockholder (or
CERTIFICATION THAT: person named therein is a
corporation or to the member) and to him
holder or owner of a stated number of shares in the corporation.
whole body of its individually and not
stock or property to the corporation,
INDICATES: 1. kind of shares
without any as where the
2. date of issuance
severance or contract is based on
3. par value, if par value shares
distribution among a contract to which
individual holders, he is party, or on a
BEARS: Signatures of the proper officers, usually
or if seeks to recover right belonging
president or secretary, as well as the corporate seal
assets for the severally to him, or
corporation or to in s fraud affecting
AMOUNT ISSUED: For no more than the number of
prevent the him directly.
shares authorized in articles of incorporation; excess would
dissipation of its
be void
assets.
Suits of stockholders/ members based on wrongful or
Derivative Suit Representative suit
fraudulent acts of directors or other persons:
Is one brought by a Is one brought by a
a. Individual suits - wrong done to stockholder person as a person in his own
personally and not to other stockholders; representative of behalf and on behalf
- an action brought by a stockholder against the another. of all similarly
corporation for direct violation of his contractual situated.
rights as such individual stockholder, such as the
right to vote and to be voted, the right to share in the
declared dividends, the right to inspect corporate REQUISITES FOR BRINGING DERIVATIVE SUIT.
books and records and similar other examples. Before a stockholder or member may sue in behalf of the
(ex. When right of inspection is denied corporation, the following requisites must exist:
to a stockholder) 1. There must be an existing cause of action in favor of the
corporation;
b. Class/representative suit - wrong done to a 2. The stockholder or member must first make a demand
group of stockholders, a stockholder may bring a upon the corporation or the management to sue, unless
suit in behalf of himself and all other stockholders such a demand would be futile or useless, and the
who are similarly situated. corporation refuses or fails to sue notwithstanding such
demand. This is known as exhausting INTRA-
(ex. Preferred stockholders' rights are CORPORATE REMEDIES;
violated) 3. The stockholder or member must have been such at the
time of the objectionable acts or transactions, as well as
c. Derivative suit one brought by one or more the time the action was filed and during the pendency of
stockholders or members in the name and on behalf the action;
of the corporation to redress wrongs committed 4. The action must be brought by the stockholder or
against it or to protect or vindicate corporate rights, member in the name and for the benefit of the
whenever the officials of the corporation refuse to corporation.

Requirements Relating to Derivative Suits
WHAT ARE THE LEGAL PRINCIPLES
CONCERNING DERIVATIVE SUITS?
1) Stockholder/ member must have
exhausted all remedies within the
corp.
2) Stockholder/ member must be a
stockholder/ member at the time of
acts or transactions complained of or
in case of a stockholder, the shares
must have devolved upon him since
by operation of law, unless such
transaction or act continues and is
injurious to the stockholder.
3) Any benefit recovered by the
stockholder as a result of bringing
derivative suit must be accounted for
to the corp. who is the real party in
interest.
4) If suit is successful, plaintiff entitled
to reimbursement from corp. for
reasonable expenses including
attorneys' fees.
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. (n)
WHAT IS WATERED STOCK?
Stocks issued not in exchange for its
equivalent either in cash, property, share,
stock dividends, or services. Oftentimes,
the consideration received is less than the
par value of the share.
NOTE: No-par shares CAN be
watered stock: when they are issued
for less than their issued value as fixed
by the corp. in accordance with law.
WHAT ARE THE WAYS BY WHICH WATERED
STOCK CAN BE ISSUED?
(1) Gratuitously. Issued without
consideration (bonus share);
(2) Upon payment of less than its
par value in money or for cost at
a discount;
(3) Upon payment with property,
labor or services, whose value
is less than the par value of the
shares; and
(4) In the guise of stock dividends
representing surplus profits or
an increase in the value of
property, when there are no
sufficient profits or sufficient
increases in value to justify it.
WHAT IS THE LIABILITY OF DIRECTORS FOR
THE ISSUANCE OF WATERED STOCK?
Directors and officers who consented
to the issuance of watered stocks
are solidarily liable with the holder of such
stocks to the corp. and its creditors for the
difference between the fair value received
at the time of the issuance and the par or
issued value of the share.
The liability will be to all creditors,
whether they became such prior or
subsequent to the issuance of the watered
stock. Reliance by the creditors on the
alleged valuation of corporate capital is
immaterial and fraud is not made an
element of liability.
NOTE: In the Philippines, it is the statutory obligation
theory that is controlling (cf. Sec. 65).
Section 66. Interest on unpaid subscriptions. Subscribers for
stock shall pay to the corporation interest on all unpaid
subscriptions from the date of subscription, if so required by, and
at the rate of interest fixed in the by-laws. If no rate of interest is
fixed in the by-laws, such rate shall be deemed to be the legal rate.
(37)
Interest on all unpaid subscriptions shall be at the rate
of interest fixed in the by-laws. If there is none, it shall
be the legal rate. (Sec. 66)
Section 67. Payment of balance of subscription. Subject to the
provisions of the contract of subscription, the board of directors of
any stock corporation may at any time declare due and payable to
the corporation unpaid subscriptions to the capital stock and may
collect the same or such percentage thereof, in either case with
accrued interest, if any, as it may deem necessary.
Payment of any unpaid subscription or any percentage thereof,
together with the interest accrued, if any, shall be made on the date
specified in the contract of subscription or on the date stated in the
call made by the board. Failure to pay on such date shall render the
entire balance due and payable and shall make the stockholder
liable for interest at the legal rate on such balance, unless a
different rate of interest is provided in the by-laws, computed from
such date until full payment. If within thirty (30) days from the
said date no payment is made, all stocks covered by said
subscription shall thereupon become delinquent and shall be
subject to sale as hereinafter provided, unless the board of
directors orders otherwise. (38)
Unpaid subscriptions are not due and payable
until a call is made by the corporation for
payment. (Sec. 67)
An obligation arising from non-payment of
stock subscriptions to a corporation cannot be
offset against a money claim of an employee
against the employer. (Apodaca v. NLRC, 172
SCRA 442)
WHAT IS DELINQUENT STOCK? (Sec. 67)
Stock that remains unpaid 30 days
after the date specified in the
subscription contract or the date
stated in the call made by the Board.
WHAT ARE THE EFFECTS OF DELINQUENCY?
1. The holder thereof loses all his
rights as a stockholder except
only the rights to dividends;
2. Dividends will not be paid to the
stockholder but will be applied
to the unpaid balance of his
subscription plus costs and
expenses. Also, stock dividends
will be withheld until full
payment is made.

3. Such stockholder cannot vote at
the election of directors or at any
meeting on any matter proper
for stockholder action.
4. Stockholder cannot be counted
as part of the required quorum.
5. Stockholder cannot be voted for
as director of the corporation.
CALL
- It is a declaration officially made by a corporation usually
expressed in the form of a resolution of the board of
directors requiring the payment of all or a certain
prescribed portion of a subscribers stock subscription.
REQUISITES FOR A VALID CALL
1. It must be made in the manner prescribed by law;
2. It must be made by the board of directors; and
3. It must operate uniformly upon all the shareholders.
Sec. 68. Delinquency sale. - The board of directors may, by
resolution, order the sale of delinquent stock and shall specifically
state the amount due on each subscription plus all accrued
interest, and the date, time and place of the sale which shall not be
less than thirty (30) days nor more than sixty (60) days from the
date the stocks become delinquent. Notice of said sale, with a copy
of the resolution, shall be sent to every delinquent stockholder
either personally or by registered mail. The same shall
furthermore be 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. Unless the
delinquent stockholder pays to the corporation, on or before the
date specified for the sale of the delinquent stock, the balance due
on his subscription, plus accrued interest, costs of advertisement
and expenses of sale, or unless the board of directors otherwise
orders, said delinquent stock shall be sold at public auction to such
bidder who shall offer to pay the full amount of the balance on the
subscription together with accrued interest, costs of
advertisement and expenses of sale, for the smallest number of
shares or fraction of a share. The stock so purchased shall be
transferred to such purchaser in the books of the corporation and
a certificate for such stock shall be issued in his favor. The
remaining shares, if any, shall be credited in favor of the
delinquent stockholder who shall likewise be entitled to the
issuance of a certificate of stock covering such shares. Should there
be no bidder at the public auction who offers to pay the full amount
of the balance on the subscription together with accrued interest,
costs of advertisement and expenses of sale, for the smallest
number of shares or fraction of a share, the corporation may,
subject to the provisions of this Code, bid for the same, and the
total amount due shall be credited as paid in full in the books of
the corporation. Title to all the shares of stock covered by the
subscription shall be vested in the corporation as treasury shares
and may be disposed of by said corporation in accordance with the
provisions of this Code.
Procedure for the sale of Delinquent Stocks
1. Resolution declaring unpaid subscriptions payable
*if date of payment not specified = BOD passes
resolution declaring the unpaid subscriptions payable,
state the date fixed for payment
*if date of payment specified in the contract of
subscription = no call necessary
2. Notice to stockholders of resolution
*given to stockholders by the secretary either personally
or by registered mail
a. if SHs do not pay w/in 30 days from the date specified
in the contract of subscription/the call made by the
board = all stocks covered become delinquent and
subject to sale
b. unpaid shares which are not delinquent not subject
to sale, the board may order the removal of the
delinquent status of the unpaid subscription
c. When unpaid subscription becomes delinquent, such
status remains as long as the SH does not pay in full his
subscription, unless the board orders otherwise
3.Resolution ordering sale of delinquent stocks
**by resolution, stating the date, time and place of sale
w/ notice to the delinquent stock holders
BOD has authority to fix the price of the DS
*notice requirement is mandatory
4. Notice and Publication of Delinquent Sale
*BOD may order the extension of the time and date of
sale
*if prescribed 60 day period be extended, notice of such
extension must be served
5. Sale of Delinquent Stocks
*at public auction to the highest bidder for cash
Meaning of Highest Bidder
Highest Bidder the person offering at the sale to pay the full
amount of the balance on the subscription together with accrued
interest, if any, cost of advertisement and expenses of sale, for the
smallest number of shares or fraction of a share
Highest bid must not be less than the full amount due.
Right of Corporation to Reject Highest Bid
The board is not bound to accept the highest bid unless the
contrary appears. Corp not making the offer to sell, but the bidder
is the one making the offer to purchase which the corp is free to
accept or reject.
Purchase by Corporation of Delinquent Stock
In the absence of bidder/highest bidder, corp may purchase for
itself the DS. Delinquent subscriber released from liability.
Title to all shares purchased shall be vested in the corp as Treasury
shares.
Forfeiture not authorized-corp must pay for the delinquent stocks.
Corp cannot forfeit in its favor delinquent shares to be taken up in
the corp books as treasury shares
Sec. 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. (47a)
Recovery of Stock unlawfully sold
Grounds:
1. Irregularity or defect in the notice of sale; and
2. Irregularity of defect in the sale itself
Requirements for maintaining action
1. Party seeking to maintain action first pays the party
holding the stock, the sum for which it was sold, w/ legal
interest from date of sale
2. Action is commenced w/in 6 months from the date of
sale
*owner of stock lawfully sold not given the right of
redemption
Sec. 69 applies to delinquent stocks, does not apply where
stock was fully paid
Sec. 70. Court action to recover unpaid subscription. - Nothing
in this Code shall prevent the corporation from collecting by action
in a court of proper jurisdiction the amount due on any unpaid
subscription, with accrued interest, costs and expenses. (49a)
Judicial remedy to recover unpaid subscription
*prior call necessary
*prescriptive period- w/in 10 years from the time the right of
action accrues
*remedy is only limited to the amount due n unpaid subscription,
with interest costs and expenses
*corp cannot recover any other claim from the subscriber
Jurisdiction-RTC
Sec. 71. Effect of delinquency. - No delinquent stock shall be
voted for be entitled to vote or to representation at any
stockholder's meeting, nor shall the holder thereof be entitled to
any of the rights of a stockholder except the right to dividends in
accordance with the provisions of this Code, until and unless he
pays the amount due on his subscription with accrued interest,
and the costs and expenses of advertisement, if any. (50a)
Effect of stock Delinquency
1. Deprive the SH the right to be voted for or be entitled to
vote or to representation at any SHs meeting
2. Delinquency affects the entire subscription; if auction is
successful, corp must issue cert of stock not only for the
unpaid portion but for the entire subscription
3. Delinquent stock not included in determining quorum,
4. Quo warranto proceedings may be instituted against
directors elected by delinquent stockholders
5. Delinquent stockholder shall not be entitled to any of the
rights of a stockholder but he shall be entitled to receive
dividends subject to the provisions of Sec.43
6. Delinquent stocks subject to delinquency sale
Denial of Voting Rights
To ensure prompt payment of subscriptions, to protect the
interests of the corp.
Delinquent members may still be allowed to vote depending
on the provisions of their by laws
Sec. 72. Rights of unpaid shares. - Holders of subscribed shares
not fully paid which are not delinquent shall have all the rights of
a stockholder.
Right of Unpaid Shares
Before Delinquency SH has all the rights of a stockholder, which
include the right to vote and to participate in dividends based on
his total subscription
After Delinquency- SH loses the right to vote the shares covering
the entire subscription.
Procedure for Issuance of Lost or Destroyed Certificates of
Stock
Sec. 73. Lost or destroyed certificates. - The following
procedure shall be followed for the issuance by a corporation of
new certificates of stock in lieu of those which have been lost,
stolen or destroyed:
1. The registered owner of a certificate of stock in a
corporation or his legal representative shall file with the
corporation an affidavit in triplicate setting forth, if possible, the
circumstances as to how the certificate was lost, stolen or
destroyed, the number of shares represented by such certificate,
the serial number of the certificate and the name of the
corporation which issued the same. He shall also submit such
other information and evidence which he may deem necessary;
2. After verifying the affidavit and other information and
evidence with the books of the corporation, said corporation
shall 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 registered owner of the certificate of stock which
has been lost, stolen or destroyed. The notice shall state the name
of said corporation, the name of the registered owner and the
serial number of said certificate, and the number of shares
represented by such certificate, and that after the expiration of one
(1) year from the date of the last publication, if no contest has been
presented to said corporation regarding said certificate of stock,
the right to make such contest shall be barred and said corporation
shall cancel in its books the certificate of stock which has been lost,
stolen or destroyed and issue in lieu thereof new certificate of
stock, unless the registered owner files a bond or other security in
lieu thereof as may be required, effective for a period of one (1)
year, for such amount and in such form and with such sureties as
may be satisfactory to the board of directors, in which case a new
certificate may be issued even before the expiration of the one (1)
year period provided herein: Provided, That if a contest has been
presented to said corporation or if an action is pending in court
regarding the ownership of said certificate of stock which has been
lost, stolen or destroyed, the issuance of the new certificate of
stock in lieu thereof shall be suspended until the final decision by
the court regarding the ownership of said certificate of stock
which has been lost, stolen or destroyed.
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. (R. A. 201a)
Sec 73, (2) with respect to notice is mandatory
in nature.
Above procedure is not applicable in a
proceeding to compel issuance to one in
whose favor non was ever issued by the
corporation.
While 73 is mandatory, a coporation may be
compelled to issue a new certificate if a bond
in posted
The Board of Directors is given the power to
determine the amount of the bond to be filed.
TITLE VIII
CORPORATE BOOKS AND RECORDS
Sec. 74. Books to be kept; stock transfer agent. - Every
corporation shall keep and carefully preserve at its principal office
a record of all business transactions and minutes of all meetings of
stockholders or members, or of the board of directors or trustees,
in which shall be set forth in detail the time and place of holding
the meeting, how authorized, the notice given, whether the
meeting was regular or special, if special its object, those present
and absent, and every act done or ordered done at the meeting.
Upon the demand of any director, trustee, stockholder or member,
the time when any director, trustee, stockholder or member
entered or left the meeting must be noted in the minutes; and on a
similar demand, the yeas and nays must be taken on any motion
or proposition, and a record thereof carefully made. The protest of
any director, trustee, stockholder or member on any action or
proposed action must be recorded in full on his demand.
The records of all business transactions of the corporation and the
minutes of any meetings shall be open to inspection by any
director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, writing,
for a copy of excerpts from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow
any director, trustees, stockholder or member of the corporation
to examine and copy excerpts from its records or minutes, in
accordance with the provisions of this Code, shall be liable to such
director, trustee, stockholder or member for damages, and in
addition, shall be guilty of an offense which shall be punishable
under Section 144 of this Code: Provided, That if such refusal is
made pursuant to a resolution or order of the board of directors or
trustees, the liability under this section for such action shall be
imposed upon the directors or trustees who voted for such refusal:
and Provided, further, That it shall be a defense to any action under
this section that the person demanding to examine and copy
excerpts from the corporation's records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand.
Stock corporations must also keep a book to be known as the
"stock and transfer book", in which must be kept a record of all
stocks in the names of the stockholders alphabetically arranged;
the installments paid and unpaid on all stock for which
subscription has been made, and the date of payment of any
installment; a statement of every alienation, sale or transfer of
stock made, the date thereof, and by and to whom made; and such
other entries as the by-laws may prescribe. The stock and transfer
book shall be kept in the principal office of the corporation or in
the office of its stock transfer agent and shall be open for
inspection by any director or stockholder of the corporation at
reasonable hours on business days.
No stock transfer agent or one engaged principally in the business
of registering transfers of stocks in behalf of a stock corporation
shall be allowed to operate in the Philippines unless he secures a
license from the Securities and Exchange Commission and pays a
fee as may be fixed by the Commission, which shall be renewable
annually: Provided, That a stock corporation is not precluded from
performing or making transfer of its own stocks, in which case all
the rules and regulations imposed on stock transfer agents, except
the payment of a license fee herein provided, shall be applicable.
(51a and 32a; B. P. No. 268.)
Section 74 in r/t Section 51
The above provision requires every coproation to keep
books and records
o Of all business transactions
o Minutes of all meetings of stockholders or
members
o Minutes of all meetings of directors and
trustees
o Stock and Transfer Book, in the case of stock
corporations
Records of all business transactions would include
journal, ledgers, financial statements, income tax
returns, vouchers, receipts, contracts, and all papers
pertaining to the operation of the corporation
Minutes of meetings should be signed by the secretary
Above provision pertaining to the keeping of books and
records is mandatory
All said books and records must be kept at the principal
place of business
The principal place of business is generally where
the business's books and records are kept and is often
where the head of the firm or at least upper
management is located.
A stock and transfer book keeps all the records of all
stock containing the entries required by Sec. 74 and by
the by-laws
The alienation, sale and transfer of stock supposed to
be recorded in the stock and transfer book refers to
shares of stock which may be alienated and those
covered by certificates of stock
Persons with the right to inspect Corporate Books
include:
o Any director, trustee, stockholder or member
o Voting trust certificate holder
o Stockholder of a sequestered company
o Beneficial/legal owner of shares of stock
Sec. 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.
TITLE IX
MERGER AND CONSOLIDATION
Sec. 76. Plan or merger of consolidation. - Two or more
corporations may merge into a single corporation which shall be
one of the constituent corporations or may consolidate into a new
single corporation which shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the
merger or consolidation, shall approve a plan of merger or
consolidation setting forth the following:
1. The names of the corporations proposing to merge or
consolidate, hereinafter referred to as the constituent
corporations;
2. The terms of the merger or consolidation and the
mode of carrying the same into effect;
3. A statement of the changes, if any, in the articles of
incorporation 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 articles of incorporation
for corporations organized under this Code; and
4. Such other provisions with respect to the proposed
merger or consolidation as are deemed necessary or
desirable. (n)
Sec. 77. Stockholder's or member's approval. - Upon
approval by majority vote of each of the board of directors or
trustees of the constituent corporations of the plan of merger or
consolidation, the same shall be submitted for approval by the
stockholders or members of each of such corporations at separate
corporate meetings duly called for the purpose. Notice of such
meetings shall be given to all stockholders or members of the
respective corporations, at least two (2) weeks prior to the date of
the meeting, either personally or by registered mail. Said notice
shall state the purpose of the meeting and shall include a copy or
a summary of the plan of merger or consolidation. The affirmative
vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock of each corporation in the case of stock
corporations or at least two-thirds (2/3) of the members in the
case of non-stock corporations shall be necessary for the approval
of such plan. Any dissenting stockholder in stock corporations may
exercise his appraisal right in accordance with the Code: Provided,
That if after the approval by the stockholders of such plan, the
board of directors decides to abandon the plan, the appraisal right
shall be extinguished.
Any amendment to the plan of merger or consolidation may be
made, provided such amendment is approved by majority vote of
the respective boards of directors or trustees of all the constituent
corporations and ratified by the affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital
stock or of two-thirds (2/3) of the members of each of the
constituent corporations. Such plan, together with any
amendment, shall be considered as the agreement of merger or
consolidation. (n)
Common forms of corporate combinations
1. Sale of Assets
Union of corporations effected by one
corporation selling all or
substantially all of its assets to
another, usually made during the
dissolution of the vendor corporation
Sale of the assets of stock if followed
by dissolution, has the effect of a
merger
2. Lease of Assets
In such a case, a corporation, without
being dissolved leases its property to
anotherfor which the lessor merely
receives rental paid by the lessee.
3. Sale of Stock
The purpose of the holding company
is to acquire a sufficient amount of the
stock of another corporation for the
purpose of acquiring control
The acquring company is called the
parent or holding company. The
corporation whose stocks are
acquired is known as the subsidiary
company
 A holding company is defined as a
super corporation which owns or at
least controls such a dominant
interest in one or more other
corporations that it is enabled to
dictate their policies through voting
power, or which is in a position to
control or materially to influence the
management of one oir more
cmpanies by virtue of its ownership of
securities in the other company or
companies.
4. Merger
Here, two or more corporations unite,
one corporation which retains its
coroportae existence absorbing or
merging in itself the other which
disappears as a separate corporation.
It is the absorption of one corporation
by another which survives
As observed an practised in the
Philippines, merger usually entails a
transfer of all the assets and
assumption of debts and liabilities of
the absorbed corporation by the
acquiring corporation.
This is followed by a separate action
on the part of the absorbed company
for dissolution, generally by
amendment of its articles of
incorporation
5. Consolidation
Here, two or more coproations unite,
giving rise to a new corporate body
and dissolving the constituent
corporations which cease to exist as
separate corporations.