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Corporation code audio notes

Life of the corporation
Gen rule: upon issuance of the Cert of Registration by SEC
Exception: Corporation Sole is upon filing of the AOI (S112)
For non-stock, it may be upto 3 years. For educational
institutions, 5 years.
Gen rule: 50 years and renewable (before the expiration of the
term) for 50 years per single renewal
Exception: corporation sole is perpetual
Removal of Director
Stock holders in a directors’ meeting cannot oust a fellow
director. Only the stock holders can remove a director,
provided it does not deprive the minority of right of
Educational Institutions
Gen Rule: 60/40 but no foreigner may participate in the
management, thus cannot be members of the board
Exception: Religious Orgs, Mission groups and Charitable
institutions where foreigners may participate and thus can be
Issuance of watered stock
Par value share: the stock holder of the share and the directors
are solidarily liable for the difference
Non-par value shares: stock holder is not liable, only the
Fleisher vs. Botica Nolasco
Restrictions (ex. Right of first refusal) must be indicated in the
AOI and in the Cert of stocks. It may also be in the BL, but
what is controlling is the AOI to bind 3rd persons
Exception: in close corporations, ALL three must contain
De Facto Corporation
One that is so defectively formed but which has colourable
compliance to incorporate. It also practices corporate powers
in good faith
Ex. Majority of the incorporators are not residents but was
Amendment of the Bylaws
Sec 16 is the general rule. It even allows written assent.
Different rules apply in sec 37, 38 & 120. Considerations:
Who may vote?
When will take effect?
Manner of voting
When acts of the director bind the corpo?
Express Authority
Valid delegation
Actual or apparent authority
Express or implied ratification
Teleconference under the e-commerce act
Applicable in the meeting of the BOD
Not applicable in the meeting of the SH
Election of BOD
Only the ones receiving the highest number of votes. There is
a quorum requirement but no vote requirement. Thus, even if
one receives merely 1 vote, if he is among the highest, he gets
elected. (Sec 24)
Cumulative voting
The right of a stock holder in a stock corporation to multiply
his number of shares by the number of directors to be elected
the total sum of which will be his total number of votes which
he may cast in favour of only one candidate or distribute them
to as many candidates as he wants provided that it will not
exceed his total number of votes
In case of non-stock, the AOI or BL may provide for such, but
it is not a matter of right.
Term of office
In stock corporations, 1 year until after a successor is elected
and qualified in accordance with law.
One who is in a hold over capacity can be removed at any time
with or without cause upon the election and appointment of
his successor in a subsequent stock holders’ meeting.
(Barayoga vs. Adventist Univ of the Phils)
Filling up of vacancy (sec 29)
In case of removal, maybe in the same meeting. In case of
increase in number, maybe in the same meeting, provided that
it is stated in the notice
Service of summons in Intra-corporate dispute
Sec 5, Rule 2 of the Interim rules governing Intra-corporate
controversies, if a defendant is a domestic corporation, service
is deemed adequate if made upon ANY of the statutory or
corporate officers as fixed in the BL, or their respective
Bar 2002
May a stock corporation convert into a non-stock corporation?
Yes. The property right of the stock holders permit them to
transfer their properties to any person of their choosing.
In case of non-stock to stock, no. It must be dissolved first.
Because the winding up, specifically the properties, must be
returned first after its usage in a particular purpose.
Reasons for increase in capital stock
Expansion of business
Payment of indebtedness
Reasons for decrease in capital stock (creditors should not
be prejudiced)
-Wipe out or reduce existing deficits where creditors or 3 rd
persons will not be affected
-Wipe out or reduce capital surplus when the capital is more
than necessary to procreate the business
-To write down the value of its fixed assets if there is a decline
in their actual valuation
Pre-emptive rights
Even if denied by the AOI or one of the exceptions in Sec 39,
the issuance may still be questioned if done by the BOD in
breach of trust and the purpose is to perpetrate or shift the
control of the corporation or to /freeze out the minority
interest. (majority stock holders of Ruby Ind. Corp. vs. Lim)
Maybe exercised by one who has not paid his subscription.
(sec 72)
Approval of the Stockholders are not necessary when it is
reasonably necessary for the corporation to accomplish its
primary purpose
Power to declare dividends
A subscriber not fully paid is entitled to the full amount of
dividends. In case it is delinquent, cash must first be applied to
the unpaid subscription and the remaining shall be paid to him.
Stock dividends
The amount that a corporation transfers from the surplus
profits to its capital account. “Capitalization of URE”. Akin to
a forced purchase of stocks. Must be with consent of 2/3 of
outstanding capital stock.
It does not result to the decrease in the corporate assets.
In case of stock dividends, it shall be issued according to their
proportionate interest.
Stock corporations are prohibited from retaining surplus
profits in excess of one hundred (100%) percent of their paidin capital stock. Not total number of stocks.
Test of reasonableness (ultra vires acts)
There is an existence of logical relation between the act done
and the purpose in a substantial and not in a remote fanciful
Ultra vires acts are not illegal per se but voidable. Thus it
maybe ratified, whether implied or express, or by
Must not be contrary to law, morals, public order, or public
Must not be inconsistent with the AOI. It is merely an internal
rules of governance
Must apply to all persons situated alike
Must be reasonable
Must not impair vested rights