CORPORATION LAW 1.

Doctrine of Corporate Opportunity - a director is made to account to his corporation, gains and profits from transactions entered into by him/another competing corporation in which he has substantial interest, which should have been a transaction undertaken by the corporation. This s a breach of fiduciary relationship. 2. Doctrine of Piercing the Veil of Corporate Entity - it is to disregard for justifiable reasons by the state the fiction of juridical personality of the corporation separate and distinct from the persons composing it 3. De Jure Corporation - corporation formed with all the requirements of law 4. De Facto Corporation - corporation defectively formed from a bona fide attempt to incorporate under the existing law and exercises corporate powers 5. Corporation by Estoppel - a group of persons which holds itself out as a corporation and enters into a contract with 3rd persons on the strength of such appearance cannot be permitted to deny its existence in an action under said contract 6. Corporation by Prescription - body not lawfully organized as a corporation but has been recognized by immemorial usage as a corporation with rights and duties maintainable by law (ex. Roman Catholic) 7. Trust Fund Doctrine - the subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. Corporations may not dissipate this and the creditors may sue the stockholders directly for their unpaid subscriptions 8. Voting Shares a. Founders Shares - given rights and privileges not enjoyed by owners of other stocks; right to vote/be voted in the election of directors shall not exceed 5 years Non-Voting Shares a. Preferred Shares - issued only with par value; given preference in distribution of assets in liquidation and in payment of dividends and other preferences stated in the articles of incorporation b. Redeemable Shares - expressly provided in articles; have to be purchased/taken up upon expiration of period of said shares purchased whether or not there is unrestricted retained earnings c. Treasury Stocks - stocks previously issued and fully paid for and reacquired by the corporation through lawful means (purchase, donation, etc.) 9. Exceptions where holders of non-voting shares may vote: a. amendments of articles of incorporation b. adoption/amendment of by-laws c. increase/decrease of bonded indebtedness d. increase/decrease of capital stock e. sale/disposition of all/substantially all corporate property f. merger/consolidation of corporation g. investment of funds in another corporation/another business purpose

h. corporate dissolution 10. Preferred Cumulative Participating Share of Stock - share entitling its holder to preference in the payment of dividends ahead of common stockholders and to be paid the dividends ahead of common stockholders and to be paid the dividends due for prior years and to participate further with common stockholders in dividend declarations 11. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock - stock deposited with a 3rd person to be delivered to stockholder/assignor after complying with certain conditions - usually payment of full subscription price 12. Over-issued Stock - stock issued in excess of authorized capital stock; null and void 13. Watered Stock - stock issued gratuitously, money/property less than par value, services less than par value, dividends where no surplus profits exist 14. Certificate of Stock - written acknowledgment by the corporation of the stockholders interest in the corporation. It is the personal property and may be mortgaged/pledged. Transfer binds the corporation when it is recorded in the corporate books. A stockholder who does not pay his subscription is not entitled to the issue of a stock certificate. The total par value of the stocks subscribed by him should first be paid. 15. Chattel mortgage of shares registered with the Registrar of Deeds need not be registered in corporate books to bind third parties because corporate books only cover absolute transfers. But the pledgee/mortgagee may not have voting rights unless stated in the contract and registered in the corporate name. 16. Methods of Collection of Unpaid Subscription a. call, delinquency and sale at public auction of delinquent shares b. ordinary civil action c. collection from cash dividends and other amounts due to stockholders if allowed by by-laws/agreed to by him 17. A corporation can reacquire stocks in the following cases: a. eliminate fractional shares b. corporate indebtedness arising from unpaid subscriptions c. purchase delinquent shares d. exercise of appraisal right 18. Right of Appraisal a. amending articles, changing, restricting, enlarging stockholders rights/extending, shortening corporate life b. sale/disposition of all/substantially all of corporate assets c. merger and consolidation d. investment of funds in another corporation/for a different purpose

19. Grounds for Rejection of Registration a. not in prescribed form b. purpose illegal, inimical c. treasurers affidavit false d. non-compliance with required Filipino stock ownership 20. Corporation must organize within 2 years from issuance of certificate of incorporation. How to organize? a. adoption of by-laws b. election of Board of Directors c. election of officers But from issuance of certificate, it acquires juridical personality 21. Merger - one corporation absorbs the other and remains in existence while the other is dissolved 22. Consolidation - a new corporation is created and the consolidating corporations are extinguished 23. Theory of General Capacity - a corporation is said to hold such powers as are not prohibited/withheld from it by general law 24. Theory of Special Capacity - the corporation cannot exercise powers except those expressly/impliedly given 25. Concession Theory - a group of persons wanting to create a corporation will have to execute documents and comply with requirements set by the state before being given corporate personality; merely a privilege; state may provide causes for which the privilege may be withdrawn 26. Acts requiring majority vote of stockholder: a. filing of issue value of no par value share b. adoption, amendment, repeal of by-laws c. compensation and other per diems for directors 27. Where similar acts have been approved by the directors as a matter of general practice, custom and policy, the general manager may bind the company even without formal authorization of the board of directors 28. Powers of stockholders: a. a direct participation in management - where his vote is needed to approve certain corporate actions b. indirect participation in management to vote or remove directors c. proprietary rights d. remedial rights 29. Voting Trust Agreement - an agreement between a group of stockholders and trustee for a term not exceeding 5 years in which control over the stocks is lodged in the trustee. The purpose is for controlling the voting. a. in writing, notarized and filed with the SEC and the corporation

b. period not exceeding 5 years c. cannot be entered into to circumvent the laws against monopolies, illegal combinations in restraint of trade in fraud 30. Cumulative Voting - the number of votes that a shareholders number of shares multiplied by the number of directors may give all said votes to one candidate or he may distribute them as he may deem fit. Cumulative voting is a matter of right in a stock corporation. In a non-stock corporation, it cannot be utilized unless allowed by the by-laws/articles 31. The power of removal of directors that may be exercised with or without cause cannot apply to the director representing the minority shareholders. He may only be removed with cause. 32. General Rule: If surplus profits exceed the requirements the corporation shall declare dividends. This is compulsory if the surplus is equal/or more than the paid-up capital. Exceptions: a. justified by approved expansion projects b. prohibited by creditor to declare dividends c. retention is necessary under existing circumstances 33. Business Judgment Rule - decisions made by a corporations management body shall not be interfered with even by the courts unless such acts are oppressive/unconscionable as to violate the rights of the minority 34. Individual Suit - one brought to assert a right of a stockholder peculiar to himself 35. Representative Suit - brought by the stockholder in his own behalf and in behalf of other stockholders similarly situated, having common cause against the corporation 36. Derivative Suit - brought by a stockholder for and in behalf of the corporation to protect/vindicate corporate rights after he has exhausted intra-corporate remedies Requisites: a. cause of action in favor of the corporation b. refusal of corporation to sue c. injury to the corporation y Although corporations dissolved have 3 years to wind up, they can convey their properties to a trustee who can continue the suit beyond the 3 year period. The lawyer who handled the case in the trial court may be considered as trustee for the dissolved corporation with respect to the matter in litigation only even if no appointment was extended to him. (Selano vs. CA) In a case filed before dissolution, it may continue even beyond the 3 year period until final determination of litigation. Otherwise, the corporation in liquidation would lose what justly belongs to them/be exempt from payment of obligations because of a technicality.

37. Foreign Corporations

a. Doing Business - continuity of commercial dealings incident to prosecution of purpose and object of the organization. Isolated, occasional or casual transactions do not amount to engaging in business. But where the isolated act is not incidental/casual but indicates the foreign corporations intention to do other business, said single act constitutes engaging in business in the Philippines b. Instances when unlicensed foreign corporations can sue: (1) isolated transactions (2) action to protect good name, goodwill, and reputation of a foreign corporation (3) contracts provide that Phil. Courts will be venue to controversies (4) license subsequently granted enables foreign corporation to sue on contracts executed before the grant of the license (5) recovery of misdelivered property (6) where the unlicensed foreign corporation has a domestic corporation 38. Religious Corporations a. Corporation Sole - special form of corporation; associated with the clergy and consists of 1 person only and his successors; incorporated by law giving them legal capacity and advantage b. Close Corporations - one whose articles provide that its shares shall not be held by more than 20 persons; its issued stock shall be subject to one or more restrictions on transfer and shall not be listed in any stock exchange/make public offering c. Non-stock Corporation - one where no part of its income is distributable to its members and shall be used in furtherance of the purpose of which it was organized 39. SEC Jurisdiction a. original and exclusive jurisdiction (1) fraudulent devices and schemes employed by directors detrimental to public interest (2) intra-corporate disputes and with the state in relation to their franchise and right to exist as such (3) controversies in the election, appointment of directors, trustees, etc. (4) petition to be declared in a state of suspension of payments b. Grounds for Suspension/Revocation of Certificate of Registration (1) fraud in procuring registration (2) serious misrepresentation as to objectives of corporation (3) refusal to comply with lawful order of SEC (4) continuous inoperation for at least 5 years (5) failure to file by-laws within the required period (6) failure to file reports (7) other similar grounds REVISED SECURITIES ACT (Material on the Securities Regulation Code of 2000 to follow) 1. General Rule: All securities before being offered for sale/actual sale to the public must first be registered and have the proper permit. Exception:

a. exempt securities b. securities emanating from exempt transactions 2. Exempt Securities a. issued by the government subdivisions/instrumentalities b. issued by foreign government which the Philippines has diplomatic relations c. issued by receiver/trustee of an insolvent approved by the court d. issued by building and loan association e. issued by receiver/trustee of an insolvent approved by the court f. policy of insurance issued by insurance corporation supervised by the insurance commission g. security/right/interest in real property including subdivision lot/condominium supervised by the Ministry of Human Settlements h. pension plans regulated by BIR/Insurance Commission 3. Exempt Transactions a. judicial sale by execution, etc. in insolvency b. sale of pledged property/foreclosed property to liquidate an obligation c. isolated transactions on securities done by owner/agent d. stock transfers emanating from mergers and consolidations e. pre-incorporation subscription f. securities issued by public service operator to broaden equity base 4. Grounds for Rejection of Registration a. application incomplete/untruthful/omits to state a material fact b. issuer/registrant insolvent, violated code/ SEC rules, engages in fraudulent transactions c. issuers business not sound d. officer, director, stockholders of issuers is disqualified e. issue would prejudice the public 5. Grounds for Revocation a. issuer insolvent b. violated of Code/SEC rules c. fraudulent transaction d. dishonesty by issuer/misrepresented prospectus e. does not conduct business in accordance with law 6. Acts Prohibited a. manipulation of security prices b. manipulation of deceptive devices c. artificial measures of price control d. fraudulent transactions e. insider trading f. false prospectus, communications, reports