ANTI-MONEY LAUNDERING ACT

Corporation Law PRE-WEEK LECTURE (PART ONE)

A.Corporation, defined

1.Definition (four corporate attributes)

a.an artificial being (has legal capacity to contract)

b.created by operation of law (creature of the law)

c.having the right of succession (strong juridical personality)

d.having the powers, attributes and properties expressly authorized by law or incident to its existence (creature of limited powers)

2.Tri-level existence of a corporation

a.aggregation of assets and resources

b.business enterprise or economic unit

c.juridical entity

Note:Importance in acquisitions, particularly assumption of liabilities for obligations and labor contracts

3.Tri-level relationships involved in a corporate setting

a.juridical entity level (between the State and the corporation)

b.intra-corporate level (between/among the corporation/its insiders)

i.between the corporation and its directors or officers (also governed by law on agency)

ii.between corporation and its shareholders or members

iii.between the shareholders and the corporate directors and officers

iv.between and among the shareholders in a common venture

c.extra-corporate level (between corporation and third-parties or outsiders, governed by contract law or labor law)

4.Four advantages [disadvantages] of a corporate organization

a.strong and solemn juridical person [high cost of maintenance, double taxation]

b.centralized management [abuse of corporate management]

c.limited liability to investors and officers [abuse of limited liability feature]

d.free transferability of shares

5.Compared with other common business media

a.sole proprietorships

b.partnerships and other associations

c.joint ventures

d.cooperatives

6.Entitlement of corporation to constitutional guarantees

a.due process

b.equal protection

c.unreasonable searches and seizures

d.NO right against self-incrimination

B.Classification of corporations

1.In relation to the State (to determine purpose, powers, supervision, applicable law)

a.public corporation

i.those formed or organized for the government of a portion of the State, e.g., municipal corporations

ii.has police power, eminent domain, and taxation powers;

iii.has both public or governmental character and private or proprietary character

iv. NOT based on government ownership

b.private corporation

i.those organized under the Corporation Code for private ends

ii.those organized under the Corporation Code as GOCCs to achieve certain purposes of the State (e.g., Clark Development Corporation

iii.those GOCCs organized under their own charters (primarily governed by their charter, but Corporation Code suppletory)

iv.NOT based on private ownership

c.quasi-public corporation

i.those authorized to exercise powers, rights and privileges of private corporations (e.g., school districts, water districts)

ii.entirely distinct from corporations organized under Corporation Code

iii.not within jurisdiction of SEC

2.As to place of incorporation (to determining nationality and capacity to sue)

a.domestic corporation (incorporated under Philippine laws)

b.foreign corporation (incorporated under laws other than Philippine laws and whose laws allow Filipinos to do business therein)

3.As to legal status (to determine juridical existence and liability)

a.de jure corporation (full or substantial compliance with legal requirements; incorporation not subject of attack)

b.de facto corporation

i.Requisites for application of doctrine

(a)

existence of a valid law under which corporation may be incorporated (e.g., Corporation Code)

(b)

attempt in good faith to incorporate, or existence of colourable compliance with provisions on incorporation (e.g., defect in incorporation papers, but issuance of certificate of incorporation by SEC is necessary)

(c)

assumption by enterprise of corporate powers (e.g., adoption of by-laws, election of officers)

(d)

NOT applicable to purely intra-corporate level issues

ii.Scope/effects of application of doctrine

(a)

due incorporation cannot be attacked collaterally in any private suit to which de facto corporation is a party

(b)

due incorporation may be inquired into only by Solicitor General in quo warranto proceedings

(c)

in contracts between de facto corporations and outsiders, the de facto corporation is the entity that will be liable to or that can hold liable the outsiders

(d)

in contracts between de facto corporations and outsiders, the component individuals of such corporation will neither be liable to nor can hold liable the outsiders

c.corporation by estoppel

i.Scope/effects of application of doctrine

(a)

all persons who assume to act as a corporation, knowing it to be without authority to do so, shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof (liability as general partner includes not only those who actually participated in the contract, but also those who reaped the benefits)

(b)

when any such ostensible corporation is sued on any transaction entered into by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality

(c)

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

(d)

NOT applicable to purely intra-corporate level issues

d.corporation by prescription (i.e., Roman Catholic Church)

4.Other classifications

a.as to purpose of incorporation (business, religious, educational, charitable, scientific, vocational)

b.as to number of members (aggregate, corporation sole)

c.as to existence of shares (stock, non-stock)

d.as to relationship of management and control (holding, affiliate, parent and subsidiary companies)

C.Nationality of corporations

1.Tests of nationality of corporations

a.place of incorporation test (primary test)

b.control test (in addition to place of incorporation, to determine qualification of corporation to engage in nationalized activities as provided under the Constitution and laws)

c.NOT principal place of business test (although applied to determine which state has jurisdiction over a corporation)

d.NOT applicable to corporation sole (which has no nationality to disqualify it from owning land)

(1)Control test

1.Application of control test

a.control test applies only if area of activity that the operating corporation engages in is fully or partially nationalized as provided for under the Constitution and other nationalization laws, for example:

i.exploitation of natural resources

ii.ownership of land

iii.owning and operating public utilities

iv.mass media

v.advertising industry

vi.others as may be provided by law

b. before applying control test, operating corporation must first pass place of incorporation test

c.to determine if nationalization requirements are met, the term capital as used in Sec. 11, Art. XII of the Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common shares, and not the total OCS comprising both common and non-voting preferred shares

d.Note: not applicable if purpose is purely to invest in the operating company, and not engage in (whether solely or as part of a joint venture) the nationalized area of activity; in such case, apply grandfather rule as discussed below)

(2)Grandfather rule

1.Application of grandfather rule

a.grandfather rule applies to compute Filipino equity in a corporation engaged in fully or partially nationalized areas of activities provided for under the Constitution and other nationalization laws,

b.in cases where corporate shareholders are present in the situation

c.by attributing the nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate shareholder

d.for purposes of investment, a corporation organized under the laws of the Philippines of which at least 60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, is considered a Philippine National

D.Corporate juridical personality

(1)Doctrine of separate juridical personality (General Rule)

1.Legal consequences of application of separate juridical personality

a.separate obligations and liabilities

b.separate rights and privileges

c.separate properties

d.separate personalities for purposes of legal suits

(a)Liability for tort and crimes

1.Liability for torts (jointly and severally liable with officer or agent)

a.liable if the tortuous act is committed by officer or agent under its express direction or authority from the corporation

b.liable if the tortuous act arises as a necessary incident of the business or transaction of the corporation

c.liable if tortuous act is subsequently ratified by corporation

d.NOT liable if the tortuous act is outside the scope of authority of officer or agent and is not subsequently ratified by the corporation

2.Non-liability for crimes (reasons)

a.no existing laws by which to support a criminal process against a corporation

b.fiction of corporate entity cannot be applied to shield individual actors in the criminal act

c.difficulty, if not impossibility, of imposing penal sanctions (i.e., imprisonment)

d.BUT consider cases of laws specifically penalizing a corporation (e.g., AMLA, which imposes penalty of suspension or revocation of license)

(b)Recovery of damages (NOT entitled to moral damages, but there are vacillating rulings)

(2)Doctrine of piercing the corporate veil (Exception)

1.Guiding principles in application of doctrine

a.piercing is an equitable remedy (only when separate juridical personality is abused or used for wrongful purposes) of last resort (where no other remedies available) and not for purposes of theorizing (creation of rights that otherwise have no basis)

b.piercing must be based on clear evidence

c.piercing is a judicial remedy that is subject to due process requirements (e.g., impleading parties)

d.piercing only has res judicata effect (only for that case)

(a)Grounds for application of doctrine

1.Grounds for application of doctrine

a.defeat of public convenience or equity (when corporation is used as a vehicle for evasion of an existing obligation)

b.fraud (when corporation is used to justify wrong, protect fraud, defend a crime)

c.alter-ego (where corporation is a mere instrumentality, agency, conduit, or adjunct of another person or corporation)

d.NOT mere ownership or control, absent any of the aforementioned grounds

(b)Test in determining applicability

1.Summary of probative factors (although no hard and fast rule)

a.stock ownership by one or common ownership of both corporations

b.identity of directors and officers

c.manner of keeping corporate books and records

d.methods of conducting the business

2.Guiding principles in fraud cases

a.there must have been fraud or an evil motive in the affected transaction

b.corporate fiction is used as a means to commit the fraud or avoid the consequences thereof

c.main action should seek enforcement of pecuniary claims pertaining to the corporation against corporate officers or stockholders, or vice-versa

d.NOT mere proof of control of the corporation

3.Guiding principles in alter-ego cases

a.doctrine applies even in the absence of evil intent, because of direct violation of corporate law principle separating ownership from management

b.doctrine is based on estoppel, i.e., if stockholders do not respect the separate juridical entity, others cannot also be expected to be bound by the separate juridical entity

c.doctrine may apply even when no monetary claims are sought to be enforced against the stockholders or officers of the corporation

d.NOT mere existence of parent-subsidiary, affiliate relationship

E.Capital structure

(1)Number and qualifications of incorporators

1.Number and qualifications of incorporators

a.natural persons

b.any number not less than five (5) but not more than fifteen (15)

c.all of legal age

d.majority of whom are residents of the Philippines

(2)Minimum capital stock and subscription requirements

1.Minimum capital stock and subscription requirements

a.no minimum capital stock except as otherwise specifically provided for by special law

b.at least 25% of ACS as stated in AOI subscribed at time of incorporation

c.at least 25% of total subscription must be paid upon subscription (balance of unpaid subscription must be paid on date fixed in contract, or upon call for payment by BOD)

d.paid-up capital shall not be less than P5,000.00

(3)Corporate term

1.Corporate term

a.not exceeding 50 years (unless dissolved or extended)

b.may be extended for periods not exceeding 50 years (by amending AOI)

c.no extension can be made earlier than 5 years before expiry date (except for justifiable reasons as determined by SEC)

(4)Classification of shares

1.Basic policies on classification of shares

a.freedom and power of a corporation to classify shares in classes or series, or both, with rights, privileges, or restrictions as stated in the AOI

b.presumption of equality of rights and features of shares, except as otherwise provided in the AOI and stated in the certificate of stock

c.provision for a class or series of shares with complete voting rights

d.provision for voting rights for all types of shares on fundamental matters

2.Kinds of shares

a.common shares (no special contractual rights or preferences)

b.preferred shares

i.may be given preference in distribution of assets upon liquidation, distribution of dividends, or such other preferences as stated in the AOI

ii.may be deprived of voting rights, except on fundamental matters

iii.may only be issued with a stated par value

iv.BOD may fix terms and conditions thereof if authorized by AOI

c.redeemable shares (may be purchased or taken up by corporation upon expiration of a fixed period, regardless of existence of unrestricted retained earnings in books of the corporation, upon such other terms as stated in the AOI and in the certificates of stock, e.g., redemption may be optional)

d.founders shares (may be given rights, such as exclusive right to vote and be voted for in election of BOD for period not exceeding 5 years)

e.treasury shares (issued and fully paid shares subsequently reacquired by corporation by purchase, redemption, etc., which may again be disposed for reasonable price fixed by BOD)

f.no par value shares (deemed fully paid and non-assessable, but cannot be issued for consideration less than P5.00/share, and consideration treated as capital and cannot be distributed as dividends)F.Incorporation and organization

(1)Promoter

(a)Liability of promoter

(b)Liability of corporation for promoters contracts

1.What are promoters contracts?

a.contracts entered into in behalf of the corporation which is in the process of organization and incorporation (e.g., pre-incorporation subscription agreements or pre-incorporation contracts with third parties or corporate outsiders)

b,by a promoter, i.e., a person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor (as distinguished from investors who are not moving spirit behind the organization of the corporation)

c.with both parties fully aware that the corporation is still in the process of registration.

d.NO overlap with de facto corporation or corporation by estoppel since third party is aware that corporation is yet to be registered

2.Rules on liability for promoters contracts with third parties

a,If corporation not duly incorporated, promoter is personally liable

b.If corporation is incorporated but does not ratify the promoters contracts, promoter is liable (applying principle of agency)

c.If corporation is incorporated but expressly or impliedly ratifies the promoters contracts, corporation is liable

d,Mere investor who is not a promoter incurs no liability because no misrepresentation, mistake, or fraud

(2)Subscription contract (contract for acquisition of unissued stock in an existing corporation or corporation still to be formed, notwithstanding that parties refer to it as a purchase)

1.When can there be a subscription?

a,original issuance from ACS at time of incorporation

b.opening, during life of corporation, of portion of original ACS previously unissued

c.increase in ACS through amendment of AOI registered with SEC

d.NOT if shares previously issued (including treasury shares), in which case there is sale of shares (as opposed to subscription)

2.Rules governing subscription contracts vis--vis stock purchase

a.i.subscription (not payment of subscription) creates the legal relationship between the stockholder and the corporation, such that subscriber (provided subscribed shares are not delinquent) shall have all the rights of a stockholder

ii.purchaser of stock must comply with registration requirements to be considered stockholder of corporation

b.i.subscription renders subscriber as debtor of corporation; hence, subject to call for unpaid subscription

ii.purchaser not a debtor of corporation

c.i.in case of insolvency of corporation, unpaid subscription is immediately due and demandable

ii.not applicable to stock purchases

d.i.subscriber can only be released by corporation from liability on the subscription only with express or implied consent of all shareholders, and only when there is no prejudice to corporate creditors (trust fund doctrine)

ii.not applicable to stock purchases

(3)Pre-incorporation subscription agreements

1.Rules governing pre-incorporation subscription agreements

a.applies to subscription for shares of stock of a corporation still to be formed

b.irrevocable for a period of at least six (6) months from date of subscription

c.unless: (i) all of the other subscribers consent to the revocation; or (ii) incorporation of said corporation fails to materialize within the said period or longer period stipulated in the subscription contract

d.provided, that it cannot be revoked after the submission of the AOI to the SEC

(4)Consideration for stocks

1.Consideration for shares of stock (applies to issuance, NOT purchase; if unlawful consideration, may be watered stock)

a.actual cash paid to corporation (NOT promissory notes)

b.property, tangible or intangible, actually received by corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to par or issued value of stock issued (valuation by BOD subject to SEC approval)

c.labor performed for or services actually rendered to corporation (NOT future services)

d.previously incurred indebtedness of corporation (set-off)

e.amounts transferred from unrestricted retained earnings to stated capital (covers declaration of stock dividends)

f.outstanding shares exchanged for stocks in the event of reclassification or conversion

(5)Articles of Incorporation (charter of corporation)

(a)Contents

1.Contents of AOI (jurisdictional such that law provides form)

a.name of the corporation

b.purpose clauses (primary/secondary); for non-stock corporations, should not include a purpose contrary to its nature

c.place of principal office within the Philippines

d.term of existence

e.names, nationalities and residences of incorporators

f.number of directors or trustees (between 5 to 15)

g.names, nationalities and residences of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified

h.if stock corporation, amount of authorized capital stock, number of shares, par value or no par value shares, original subscribers, amounts subscribed and paid by each

(b)Non-amendable items

1.Non-amendable items (fait accompli at time of incorporation)

a.names of incorporators (as opposed to corporators, i.e., stockholders or members)

b.names of incorporating directors/trustees

b.names of original subscribers/members

c.the treasurer-in-trust elected by original subscribers

d.witnesses and acknowledgment thereof

(6)Corporate name

-- limitations on use of corporate name

1.Limitations on use of corporate name

a.cannot be identical or deceptively or confusingly similar to that of any existing corporation (even if dissolved, there is 3-year ban)

b.cannot be identical or deceptively or confusingly similar to that of any other name already protected by law (e.g., United Nations)

c.cannot be patently deceptive, confusing or contrary to existing laws (e.g., finance/investment, engineer/architects, banks, etc.)

d.SEC requires written undertaking to change corporate name in case there is another person, firm or entity with a prior right to the use of said name or one similar to it

(7)Registration and issuance of Certificate of Incorporation (Commencement of corporate existence and juridical personality from incorporation, i.e., date of SEC issuance of certificate of incorporation)

(8)Election of directors or trustees

1.Rules on election of directors (or trustees)

a.there must be present, either in person or by proxy, owners of a majority of the OCS (or majority of members entitled to vote)

b.election must be by ballot if requested by any voting stockholder (or member)

c.in stock corporations, stockholders entitled to vote have right to vote the number of shares of stock standing, at time fixed in by-laws (if silent, at time of election), in his own name on the stock books of the corporation (but no delinquent stock may be voted)

d.in stock corporations, stockholders entitled to cumulative voting

(9)Adoption of By-Laws

(a)Requisites of valid by-laws

1.Requisites of valid by-laws (for internal governance of corporation)

a.cannot be contrary to law and the AOI (in case of conflict, provisions of by-laws cannot prevail over the law or AOI)

b.cannot be unreasonable or contrary to the nature of by-laws (i.e., cannot restrict right to transfer shares)

c.cannot discriminate (e.g., disqualifying specific person from BOD)

(b)Binding effects (By-laws cannot affect or prejudice third persons who deal with the corporation, unless they have knowledge thereof)

(c)Amendments

1.Rules on amendments, repeals, and adoption of new by-laws

a.by majority vote of BOD (or BOT), and by vote of at least a majority of the OCS (or members), at a regular/special meeting called for the purpose

b.by BOD/BOT if power is delegated by owners of at least 2/3 of OCS (or 2/3 of members), but power delegated considered revoked whenever majority of OCS (or members) vote for revocation at a regular/special meeting for the purpose

c.amended or new by-laws shall be attached to the original

d.amended or new by-laws effective only upon SEC approval

G.Corporate powers

(1)General powers, theory of general capacity

1.General powers of a corporation

a.Express powers

i.to sue and be sued in its corporate name

ii.power of succession by its corporate name for duration of corporate term as stated in AOI and certificate of incorporation

iii.to adopt and use a corporate seal

iv.to amend its AOI

v.to adopt By-laws, not contrary to law, morals, or public policy, and to amend or repeal the same

vi.in stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks; in non-stock corporations, to admit members

vii.to purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal properties (including securities and bonds of other corporations) as transaction of lawful business of the corporation may reasonably and necessarily require

viii.to enter into merger or consolidation with other corporations

ix.to make reasonable donations (except in aid of any political party or candidate or for purposes of partisan political activity

x.to establish pension, retirement, an other plans for the benefit of its directors, trustees, officers and employees.

b.Implied powers, i.e., such other powers as may be essential or necessary to carry out its purpose or purposes as stated in its AOIc.Incidental powers, i.e., powers, attributes and properties incident to its existence

(2)Specific powers, theory of specific capacity

(a)Power to extend or shorten corporate term

1.Power to extend or shorten corporate term

a.Vote requirement: majority of BOD (or BOT), ratified by 2/3 of OCS (or members) at meeting duly called for the purpose

b.Appraisal right of dissenting stockholders: available only for extension of corporate term, not for shortening

c.Other requirements/considerations:

i.AOI must be amended

ii.SEC approval is required

d.Note: SEC opined that temporary cessation of operations also requires prior or subsequent ratificatory vote by 2/3 of OCS (or members)

(b)Power to increase or decrease capital stock or incur, create, increase bonded indebtedness

1.Power to increase or decrease capital stock (for stock corporations only)

a.Vote requirement: majority of BOD, ratified by 2/3 of OCS at meeting duly called for the purpose

b.Appraisal right of dissenting stockholders: none

c.Other requirements/considerations:

i.AOI must be amended

ii.SEC approval is required

iii.If increase in ACS, at least 25% of increase must be subscribed, and at least 25% of subscribed must be paid

iv.If decrease in ACS, should not prejudice rights of corporate creditors

2.Power to incur, create, increase bonded indebtedness

a.Vote requirement: majority of BOD (or BOT), ratified by 2/3 of OCS (or members) at meeting duly called for the purpose

b.Appraisal right of dissenting stockholders: none

c.Other requirements/considerations:

i.SEC approval is required

d.Note: provision applies only to bonded indebtedness (corporation issues bonds), but not ordinary loans; also, distinguish from encumbrance of all or substantially all of the assets of the corporation to secure borrowings (which is subject to different requirements)

(c)Power to deny pre-emptive rights

1.Exceptions to pre-emptive rights (for stock corporations only)

a.If denied by AOI or amendment thereto

b.If shares issued in compliance with laws requiring stock offerings or minimum stock ownership by the public

c.If shares issued in good faith with the approval of 2/3 OCS, in exchange for property needed for corporate purposes

d.If shares issued in good faith with the approval of 2/3 OCS, in payment of previously contracted debt

(d)Power to sell or dispose of corporate assets

1.Power to sell, dispose of, lease or encumber corporate assets

a.Vote requirement:

i.If all or substantially all (if corporation rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated) of its property and assets, including its goodwill majority of BOD (or BOT), ratified by 2/3 of OCS (or members) at meeting duly called for the purpose

ii.If: (a) necessary in the usual or regular course of its business; or (b) proceeds of the sale or disposition is appropriated for the conduct of its remaining business BOD (or BOT) only

b.Appraisal right of dissenting stockholders: available

c.Other requirements/considerations: subject to provisions of existing laws on illegal combinations and monopolies; subject to Bulk Sales Law

(e)

Power to acquire own shares

1.When power to acquire own shares exercisable

a.for a legitimate corporate purpose(s)

b.to eliminate fractional shares arising out of stock dividends

c.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

d.to pay dissenting or withdrawing stockholders entitled to payment for their shares under the Corporation Code

Note:corporation must have unrestricted retained earnings in its books to cover the shares to be purchased or acquired (except redeemable shares)

(f)Power to invest corporate funds in another corporation or business

1.Power to invest corporate funds (includes corporate property) in another corporation or business

a.Vote requirement:

i.If investment by corporation of funds: (a) in any other corporation or business; or (b) for any purpose other than its primary purpose majority of BOD (or BOT), ratified by 2/3 of OCS (or members) at meeting duly called for the purpose

ii.If investment by corporation of funds is reasonably necessary to accomplish its primary purpose as stated in AOI majority of BOD (or BOT) only

b.Appraisal right of dissenting stockholders: available

c.Other requirements/considerations: AOI must be amended

d.SEC approval: required

(g)Power to declare dividends

1.Rules on power to declare dividends (for stock corporations only)

a.Vote requirement:

i.If: (a) cash; or (b) property dividends BOD only

ii.If stock dividends BOD, ratified by 2/3 of OCS at meeting duly called for the purpose

b.should be declared out of the unrestricted retained earnings

c.payable to all stockholders on the basis of the outstanding stock held by them

d.provided, if delinquent stock: (a) cash dividends due shall first be applied to the unpaid balance on the subscription; and (b) stock dividends shall be withheld until subscription is fully paid

2.Exceptions to prohibition on retention of surplus profits in excess of 100% of paid-in capital stock (for stock corporations only)

a.when justified by definite corporate expansion projects or programs approved by BOD

b.when corporation is prohibited under any loan agreement from declaring dividends without the creditors consent, and such consent has not been secured

c.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

Note:stockholders may demand declaration of dividends if not covered by exception

(h)Power to enter into management contract

1.Rules on management contracts

a.Definition of management contract: 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

b.Vote requirement:

i.If management contract (i.e., with another corporation)

(a)

ordinary ratification rule BOD and majority of OCS (or by majority of members) of both managing and managed corporations

(b)

If: (i) stockholder(s) representing same interest of both managing and managed corporations own or control more than 1/3 of the OCS entitled to vote of the managing corporation; or (ii) majority of BOD of managing corporation also constitute majority of BOD of managed corporation BOD and majority of OCS (or majority of members) of managing corporation, and BOD and 2/3 of OCS (or members entitled to vote) of managed corporation

ii.If not management contract (e.g., with individual or partnership) BOD (or BOT) only

c.Maximum term: 5 years for any one term

(i)Ultra vires acts

i.Applicability of ultra vires doctrine

1.When ultra vires doctrine applicable

a.if corporations act is not within its powers as conferred by the Corporation Code or its AOI, or are necessary or incidental to the exercise of the powers so conferred (classic ultra vires act)

b.if corporations act is executed by officer or agent who was not duly authorized by the BOD

c.if corporations act is contrary to law (per se illegal)

d.Note: attitude of courts is liberal towards corporate acts and contracts which are not per se illegal, and which are in direct and immediate furtherance of the corporations business, fairly incident to the express powers and reasonably necessary to their exercise, because: (i) need for stability; (ii) business judgment rule.

ii.Consequences of ultra vires acts

1.Consequences of ultra vires acts

a.if classic ultra vires act subject to ratification; estoppel

b.if unauthorized act of corporate officer or agent subject to ratification; estoppel; doctrine of apparent authority

c.if per se illegal void and cannot be ratified

(j)Doctrine of individuality [indivisibility] of subscription

1.Doctrine of indivisibility of subscription

a.Basis: no certificate of stock shall be issued to a subscriber until full amount of his subscription together with interest and expenses in case of delinquent shares, if any is due, has been paid.

b.Doctrine: for partially paid subscriptions, corporation may refuse any claim by a subscriber to issue certificates of stock covering the extent of the shares that have been paid-up

c.Purpose: to prevent partial disposition of a subscription which is not fully paid

d.Note: while no prohibition in Corporation Code for corporation (at its option, not at option of subscriber) to divide the subscription by considering a portion thereof as fully paid and issuing a corresponding certificate over the paid-up shares, SEC has applied doctrine of indivisibility of subscription to prohibit the same

(k)Doctrine of equality of shares (Based on presumption of equality of rights and features of shares, except as otherwise provided in the AOI and stated in the certificate of stock; See discussions under Item E[4] above on Classification of Shares)

(l)Trust fund doctrine

1.Coverage of trust fund for benefit of creditors

a.all shares issued and subscribed (OCS), except treasury shares

b.does not cover unrestricted retained earnings (which may be used to pay out dividends, but if stock dividends declared, covered)

c.does not cover advances in payment of future subscription (which may be withdrawn until actual subscription is made)

d.If corporation insolvent, covers all assets of insolvent corporation

2.Cases where trust fund doctrine applies

a.where there has been a distribution or attempt to distribute corporate properties, or a return of the capital or portion thereof, to stockholders, without providing for payment to creditors

b.where corporation has released subscribers to the capital stock from their subscriptions without valuable consideration

c.where corporation has transferred the corporate property in fraud of its creditors

d.where corporation is insolvent

(3)How exercised

(a)By the shareholders (indirectly by virtue of right to elect BOD and directly by ratification of acts of BOD in cases specified by law; to be further discussed under Item H below)

(b)By the Board of Directors (by virtue of fundamental corporate character of centralized management; to be further discussed under Item I below)

(c)By the Officers (by virtue of functions as provided by law, the corporations by-laws, or as authorized by BOD; to be further discussed in conjunction with Item I below)H.Stockholders and members

(1)Fundamental rights of a stockholder

(2)Participation in management

(a)Proxy

(b)Voting trust

(c)Cases when stockholders action is required

i.By a majority vote

ii.By a two-thirds vote

iii.By cumulative voting

(3)Proprietary rights

(a)Right to dividends

(b)Right of appraisal

(c)Right to inspect

(d)Preemptive right

(e)Right to vote

(f)Right to dividends

(4)Remedial rights

(a)Individual suit

(b)Representative suit

(c)Derivative suit

(5)Obligation of a stockholder

(6)Meetings

(a)Regular or special

i.When and where

ii.Notice

(b)Who calls the meetings

(c)Quorum

(d)Minutes of meetings

I.Board of directors and trustees

(1)Repository of corporate powers

(2)Tenure, qualifications and disqualifications of directors

(3)Elections

(a)Cumulative voting

(b)Quorum

(4)Removal

(5)Filling of vacancies

(6)Compensation

(7)Disloyalty

(8)Business judgment rule

(9)Solidary liabilities for damages

(10)Liability for watered stocks

(11)Personal liabilities

(12)Responsibility for crimes

(13)Special fact doctrine

(14)Inside information

(15)Contracts

(a) By self-dealing directors with the corporation

(b) Between corporations with interlocking directors

(16)Executive committee

(a)Creation

(b)Limitations on its powers

(17)Meetings

(a)Regular or special

i.When and where

ii.Notice

(b)Who presides

(c)Quorum

(d)Rule on abstention

J.Capital affairs

(1)Certificate of stock

(a)Nature of the certificate

(b)Uncertificated shares

(c)Negotiability

i.Requirements for valid transfer of stocks

(d)Issuance

i.Full payment

ii.Payment pro-rata

(e)Stock and transfer book

i.Contents

ii.Who may make valid entries

(f)Lost or destroyed certificates

(g)Situs of the shares of stock

(2)Watered stocks

(a)Definition

(b)Liability of directors for watered stocks

(c)Trust fund doctrine for liability for watered stocks

(3)Payment of balance of subscription

(a)Call by board of directors

(b)Notice requirement

(4)Sale of delinquent shares

(a)Effect of delinquency

(b)Call by resolution of the board of directors

(c)Notice of sale

(d)Auction sale

(5)Alienation of shares

(a)Allowable restrictions on the sale of shares

(b)Sale of partially paid shares

(c)Sale of a portion of shares not fully paid

(d)Sale of all of shares not fully paid

(e)Sale of fully paid shares

(f)Requisites of a valid transfer

(g)Involuntary dealings

K.Dissolution and liquidation

(1)Modes of dissolution

(a)Voluntary

i.Where no creditors are affected

ii.Where creditors are affected

iii.By shortening of corporate term

(b)Involuntary

i.By expiration of corporate term

ii.Failure to organize and commence business within 2 years from incorporation

iii.Legislative dissolution

iv.Dissolution by the SEC on grounds under existing laws

(2)Methods of liquidation

(a)By the corporation itself

(b)Conveyance to a trustee within a 3-year period

(c)By management committee or rehabilitation receiver

(d)Liquidation after three years

L.Other corporations

(1)Close corporations

(a)Characteristics of a close corporation

(b)Validity of restrictions on transfer of shares

(c)Issuance or transfer of stock in breach of qualifying conditions

(d)When board meeting is unnecessary or improperly held

(e)Preemptive right

(f)Amendment of articles of incorporation

(g)Deadlocks

(2)Non-stock corporations

(a)Definition

(b)Purposes

(c)Treatment of profits

(d)Distribution of assets upon dissolution

(3)Religious corporations

(a)Corporation sole

i. Nationality

ii. Religious societies

(4)Foreign corporations

(a) Bases of authority over foreign corporations

i. Consent

ii. Doctrine of doing business (relate to definition under the Foreign Investments Act, RA 7042)

(b)Necessity of a license to do business

i.Requisites for issuance of a license

ii.Resident agent

(c)Personality to sue

(d)Suability of foreign corporations

(e)Instances when unlicensed foreign corporations may be allowed to sue

- Isolated transactions

(f) Grounds for revocation of license

M. Merger and consolidation

(1)Definition and concept

(2)Constituent v. consolidated corporation

(3)Plan of merger or consolidation

(4)Articles of merger or consolidation

(5)Procedure

(6)Effectivity

(7)Limitations

(8)Effects

Based on The Corporation Code (sections indicated refer to the Corporation Code, unless otherwise indicated) and Cesar L. Villanueva, Philippine Corporate Law, 2010 Edition.

Sec. 2

Sec. 4

Sec. 123

Sec. 20

Sec. 21

Sec. 3

Sec. 123

Gamboa v. Teves, G.R. No. 176579, 28 June 2011.

Sec. 3, Foreign Investments Act of 1991

Sec. 10

Sec. 12

Sec. 13

Id.

Id.

Sec. 11

Sec. 6

Sec. 6

Sec. 8

Sec. 7

Sec. 9

Sec. 6

Sec. 3.10, SRC

Sec. 60

Sec. 72

Sec. 63

Sec. 61

Sec. 62

Sec. 65

Sec. 14

Sec. 15

Sec. 5

Sec. 18

Sec. 19

Sec. 24

Sec. 47

Sec. 48

Sec. 36(1) to (10)

Sec. 36(11)

Sec. 2

Sec. 37

Sec. 37

Sec. 81

Sec. 38

Sec. 81

Sec. 38

Sec. 81

Sec. 40

Sec. 39

Sec. 40

Sec. 81

Sec. 41

Sec. 8

Sec. 42

Secs. 42 and 81

Sec. 43

Sec. 43

Sec. 44

Sec. 45

Sec. 64

Sec. 6

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