LAW FINALS
 Trustees shall be elected for a term not
exceeding 3 years from among the
members of the corporation.
REVISED CORPORATION CODE
BOARD OF DIRECTORS/TRUSTEES AND
OFFICERS
ROLE OF BOARD OF
DIRECTORS/TRUSTEES
 They shall exercise the corporate
powers, conduct all business, and
control all properties of the corporation.
INDEPENDENT DIRECTORS
 A person who is independent of
management and free from any
business or other relationship which
could, or could reasonably be perceived
to materially interfere with the exercise
of independent judgment in carrying out
the responsibilities as a director.
INSTANCES WHEN AN INDEPENDENT
DIRECTOR IS REQUIRED:
LIMITATIONS OF THE POWERS OF THE
BOARD




Constitution
Laws
By-laws
Articles of Incorporation
QUALIFICATIONS FOR A DIRECTORS
 Must own at least one (1) share of
stock;
 Must not possess any of the
disqualifications.
Note: Majority of the directors must be
residents of the Philippines.
There is no citizenship requirement, except for
nationalized industries.
TERM OF BOARD OF
DIRECTORS/TRUSTEES
 Directors shall be elected for a term of 1
year from among the holders of stock
registered in the corporation’s books;
 Corporations vested with public interest
such as financial institutions or
corporations that have access to public
funds, borrow from the public, or
corporations that issue or float bonds –
they solicit capital from the public.
 Corporations covered under the
Securities Regulation Code, namely:
 Securities registered with
the Commission
 Corporations listed with an
exchange
 Corporations with assets
of at least 50M pesos, and
having 200 or more
holders of shares, each
holding at least 100 shares
of a class of its equity
shares.
 Banks, quasi-banks, NSSLAs,
pawnshops, corporations engaged in
money service business, preneed, trust
and insurance companies, and other
financial intermediaries
ELECTION OF INDEPENDENT
DIRECTORS
 It must be elected by shareholders
present or entitled to vote in absentia
during the election of directors.
ELECTION OF DIRECTORS OR
TRUSTEES
General Rule: Each stockholder or member
shall have the right to nominate any director or
trustee who possesses all of the qualifications
and none of the disqualifications in this Code.
Exception: When the exclusive rights is
reserved for holders of founders’ shares.
BASIC CORPORATE OFFICERS
 The president (must be a director);
 The treasurer (must be a resident of the
Philippines);
 The corporate secretary (must be a
citizen and resident of the Philippines);
 In the case of public interest company,
the compliance officer;
 Other officers as provided for in the bylaws
DISQUALIFICATION OF DIRECTORS,
TRUSTEES OR OFFICERS
 A person shall be disqualified from
being a director, trustee, or officer of any
corporation if, within 5 years prior to the
election or appointment as such, the
person was:
 Convicted by final judgment:
 Offense punishable by
imprisonment for a period
exceeding 6 years;
 Violating this code; and

Violating RA 8799
(Securities Regulation
Code;
 Found administratively liable for any
offense involving fraudulent t acts; and
 By a foreign court or equivalent foreign
regulatory authority for acts, violations,
or misconduct similar to those
enumerated in paragraphs (a)and (b)
above.
LIABILITY OF DIRECTORS
The directors/trustees are liable to the
corporation for the commission of the following:
 Knowingly and willfully vote or assent to
patently unlawful acts
 Guilty of gross negligence or bad faith;
 Acquire any personal or pecuniary
interest in conflict of duty in conducting
the affairs of the corporation
REMOVAL DIRECTORS OR TRUSTEES
 SEC shall motu proprio, or upon verified
complaint, and after due notice and
hearing, order the removal of a director
or trustee elected despite the
disqualification, or whose
disqualification arose or is discovered
subsequent to an election.
 The removal of a disqualified of directors
shall be without prejudice to other
sanctions that the SEC may impose on
the board of directors or trustees who,
with knowledge of disqualification, failed
to remove such director or trustee
DEALINGS OF DIRECTORS, TRUSTEES,
OR OFFICERS WITH THE CORPORATION
Exception: (1) Cases of fraud; and (2)
Contract is not fair and reasonable
General Rule:
A contract of the corporation with 1 or more of
its directors, trustees, officers, or their spouses
and relatives within the 4th civil degree of
consanguinity or affinity is voidable, at the
option of such corporation
DEALINGS OF DIRECTORS, TRUSTEES,
OR OFFICERS WITH THE CORPORATION
Exception: Unless all the following conditions
are present:
 The presence of such director or trustee
in the board meeting in which the
contract was approved was not
necessary to constitute a quorum for
such meeting;
 The vote of such director or trustee was
not necessary for the approval of the
contract;
 The contract is fair and reasonable under
the circumstances;
 In case of corporations vested with public
interest, material contracts are approved
by at least 2/3 of the entire membership
of the board, with at least a majority of the
independent directors voting to approve
the material contract; and
 In case of an officer, the contract has
been previously authorized by the board
of directors.
INTERLOCKING DIRECTOR
Interlocking director refers to a director of
two corporations having a transaction with
each other .
General Rule: A contract between two (2) or
more corporations having interlocking
directors shall not be invalidated on that
ground alone.
DISLOYAL DIRECTOR
General Rule: A director, by virtue of such
office,
ACQUIRES
A
BUSINESS
OPPORTUNITY
belonging
to
the
corporation, (that should have benefitted the
corporation itself), thereby obtaining profits
to the prejudice of the corporation, must
ACCOUNT FOR AND REFUND the
corporation for ALL PROFITS.
Exception: Ratification by the stockholders
owning at least 2/3 of the outstanding capital
stock.
REVISED CORPORATION CODE
POWERS OF THE CORPORATION
CORPORATE POWERS AND
CAPACITY
 To sue and be sued in its corporate
name;
 To have perpetual existence unless
the certificate of incorporation
provides otherwise;
 Adopt and use a corporate seal;
 Amend its articles of incorporation in
accordance with the provisions of this
Code;
 To adopt bylaws, not contrary to law,
morals or public policy, and to amend
or repeal the same in accordance with
this Code;
CORPORATE POWERS AND
CAPACITY
 In case of stock corporations, to issue
or sell stocks to subscribers and
 to sell treasury stocks in accordance
with the provisions of this Code; and
to admit members to the corporation
if it be a nonstock corporation;
 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, subject to the
limitations prescribed by law and the
Constitution;
 To enter into a partnership, joint
venture, merger, consolidation, or
any other commercial agreement with
natural and juridical persons;
 To make reasonable donations,
including those for the public welfare
or for hospital, charitable, cultural,
scientific, civic, or similar purposes;
Provided, that no foreign corporation
shall give donations in aid of any
political party or candidate or for
purposes of partisan political activity;
 To establish pension, retirement, and
other plans for the benefit of its
directors, trustees, officers, and
employees; and
 To exercise such other powers as
may be essential to necessary to
carry out its purpose or purposes as
stated in the articles of incorporation.
POWER TO EXTEND OR SHORTEN
CORPORATE LIFE
Rules:
 If issued prior to the effectivity of the New
Code – deemed perpetual UNLESS
elects to retain original corporate term
 If issued under the New Code – perpetual
existence UNLESS
otherwise specified
Incorporation
in
the
Articles
of
POWER TO INCREASE OR DECREASE
CAPITAL STOCK
Requisites:
 Done in a stockholder’s meeting duly
called for the purpose.
 There must be a written notice of the
proposed increase or diminution of the
capital stock
 Majority vote of the board of directors.
 2/3 vote of the stockholders representing
the outstanding capital stock
 A certificate signed by a majority of the
directors and countersigned by the
chairman and the secretary of the
stockholders’ meeting
 Accompanied by the sworn statement of
the treasurer showing that at least 25%
of such increased capital stock has been
subscribed and that at least 25% of the
amount subscribed has been paid
 Submitted to and approved by the SEC.
 Approval by the Philippine Competition
Commission
POWER TO DENY PRE-EMTPIVE RIGHT
General Rule: Pre-emptive right is a
preferential right granted to the existing
stockholders to subscribe to the newly issued
stocks before it is being offered to the public.
Exception: Stockholders are denied their preemptive right in the following instances:
 When it is expressly prohibited under the
Articles of Incorporation
 Shares issued in compliance with the
laws requiring stock offerings or
minimum ownership by the public
 Shares to be issued in exchange of
properties to retire existing debts
SALE OR OTHER DISPOSITION OF
POWER TO DECLARE DIVIDENDS
ASSETS
General Rule: The Board has the sole authority
to declared dividends. The declaration of
dividends is the sole prerogative of the board.
General Rule: A corporation can dispose its
assets by a majority vote of its board of directors
or trustees.
Exception: If the disposition of all or
substantially all assets of the corporation, the
following requisites must be present:
 Vote of the majority of the board
 Authorized
by
the
stockholders
representing 2/3 of the outstanding
capital stock
 Exception to the exception:
 Necessary in the usual and
regular course of business of
the corporation; or
 Proceeds of the sale or other
disposition of property and
assets shall be appropriated
for the conduct of its remaining
business.
POWER TO ACQUIRE OWN SHARES
General Rule: A corporation is not allowed to
acquire its shares.
Exception:
 Prevent fractional shares arising from
stock dividends
 In distributing stock dividends
based on the amount, there will be
an instance where 1/2 or 1/4 share
is given. Instead of giving
fractional shares, the corporation
will just buy it back.
 Satisfy delinquent shares
 Pay dissenting stockholders – in the
exercise of their appraisal right, which
means that when the stockholder does
not agree with the decision of the board,
it may exercise such right and the
corporation shall be compelled to buyback the shares
Exception: The Board may be compelled to
issue dividends when the retained earnings of
the corporation EXCEED 100% of their paid-in
capital stock.
POWER TO ENTER INTO
MANAGEMENT CONTRACT
An agreement under which a corporation
delegates the management of its affairs to
another corporation for a certain period.
General Rule: Management contract is entered
into by a MAJORITY vote of the Board of
Directors and stockholders of both the
managing and managed corporation.
Exception: Approved by the stockholders of the
managed corporation owning at least 2/3 of the
outstanding capital stock or of members in two
instances:
 The stockholder representing the same
interest of both managing and managed
corporation owns or control MORE THAN
1/3 of the outstanding capital stock
entitled to vote of the managing
corporation; and
 Majority of the members of the BOD of
the
managing
corporation
also
constitutes majority of the members of
the BOD of the managed corporation
ULTRA VIRES ACTS
No corporation shall possess or exercise
corporate powers other than those conferred by
this Code or by its articles of incorporation and
except as necessary or incidental to the
exercise of the powers conferred.
LAW FINALS
Procedure for adoption of BY-LAWS
POST INCORPORATION
BY-LAWS

What are BY-LAWS?

They are the internal rules and
regulations of a corporation.
Requirements:
 Affirmative vote and signature of
stockholders representing the
majority of the OCS or members in
case of nonstock corporation;
 Duly certified by the majority of the
BOD/BOT; and
 Filed with SEC, to be attached to the
original Articles of Incorporation.
When should a corporation file its BYLAWS?


Within one (1) month after the receipt of
the official notice of the issuance of its
certificate of incorporation from the
SEC, or
They may be adopted and filed prior to
incorporation, together with the Articles
of Incorporation.
Note: You can already submit your by-laws
even if you have not yet been given the
authority to exist.
What are the requisites for the adoption of
BY-LAWS?



Vote of the stockholders representing at
least a majority of the OCS in case of
stock corporations or members in case
of non-stock corporations;
Approved and signed by all
incorporators; and
Submitted to the SEC.
PERSONS BOUND BY THE BY-LAWS
Procedure for adoption of BY-LAWS
PRE-INCORPORATION

Submitted or filed before the SEC
together with the Articles of
Incorporation.
 Requirements:
 Approved and signed by all
incorporators; and
 Submitted to the SEC
together with the Articles of
Incorporation.
Note: Additional requirements for banks and
other special corporations: Accompanied by a
certificate of the appropriate government
agency to the effect that such by-laws or
amendments are in accordance with law.



Corporation
Directors or trustees
Stockholders
PERSONS NOT BOUND BY THE BY-LAWS


Any person who has no actual
knowledge of the bylaws of the
corporation;
Employees of the corporation
What is the binding effect of BY-LAWS to
the public?
GENERAL RULE: It does not bind the public.
EXCEPTION: A third person may be bound by
the by-laws where he has knowledge about it,
either actual or constructive.
CONTENTS OF BY-LAWS











The time, place and manner of calling
and conducting regular or special
meetings of the directors or trustees;
The time and manner of calling and
conducting regular or special meetings
and mode of notifying the stockholders
or members thereof;
The required quorum in meetings of
stockholders or members and the
manner of voting therein;
The modes by which a stockholder,
member, director, or trustee may attend
meetings and cast their votes;
The form for proxies of stockholders and
members and the manner of voting
them;
The directors’ or trustees’ qualifications,
duties and responsibilities, the
guidelines for setting the compensation
of directors or trustees and officers, and
the maximum number of other board
representations that an independent
director or trustee may have which shall,
in no case, be more than the number
prescribed by the Commission;
The time for holding the annual election
of directors or trustees and the mode or
manner of giving notice thereof;
The manner of election or appointment
and the term of office of all officers other
than directors or trustees;
The penalties for violation of the bylaws;
In the case of stock corporations, the
manner of issuing stock certificates; and
Such other matters as may be
necessary for the proper or convenient
transaction of its corporate affairs for the
promotion of good governance and antigraft and corruption measures. (Sec. 46,
Revised Corp. Code)
STOCKS
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,
notwithstanding the fact that the parties
refer to it as a purchase or some other
contract. (Sec.59)
Pre-incorporation Subscription

A subscription of shares in 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 their
vocation, or the corporation fails to
incorporate within the same period or
with in a longer period stipulated in
the contract of subscription. No preincorporation subscription may be
revoked after the articles of
incorporation is submitted to the
Commission.
Consideration for Stocks








Actual cash paid to the corporation;
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;
Labor performed for or services actually
rendered to the corporation;
Previously incurred indebtedness of the
corporation;
Amounts transferred from unrestricted
retained earnings to stated capital;
Outstanding shares exchanged for
stocks in the event of reclassification or
conversion;
Shares of stock in another corporation;
and/or
Other generally accepted form of
consideration.
Issuance of Stock Certificates

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.(Sec.67,RCC)
No certificate of stock shall be issued
to a subscriber until the full amount
of the subscription together with
interest and expenses (in case of
delinquent shares),if any is due, has
been paid.(Sec.63,RCC)
Effects of Delinquency
Liability of Directors for Watered Stocks

A director or officer of a corporation
who:
(a)consents to the issuance of stocks
for a consideration less than its par or
issued value;
As to the stockholder, he will no longer enjoy
the following rights:




(b)consents to the issuance of stocks
for a consideration other than cash,
valued in excess of its fair value; or
(c)having knowledge of the insufficient
consideration, does not file a written
objection with the corporate secretary,
shall be liable to the corporation or its
creditors, solidarily with the stockholder
concerned for the difference between
the value received at the time of
issuance of the stock and the par or
issued value of the same.(Sec.64,RCC)

STOCKHOLDERS AND MEMBERS
RIGHTS OF STOCKHOLDERS AND
MEMBERS

Interest on Unpaid Subscription

Subscribers to stocks shall be liable to
the corporation for interest on all unpaid
subscriptions from the date of
subscription, if so required by and at the
rate of interest fixed in the subscription
contract. If no rate of interest is fixed in
the subscription contract, the prevailing
legal rate shall apply.(Sec.65,RCC)
Delinquency Sale

The board of directors may, by
resolution, order the sale of delinquent
stock and shall specifically state the
Right to vote;
Right to be voted for;
Right of representation at any
stockholder's meeting;
Not entitled to any of the rights of a
stockholder;
 EXCEPT the right to dividends in
accordance with the provisions of
this Code
Stocks will be considered delinquent
and shall be subject to delinquency sale.







Direct or indirect participation in
management (Sec. 6);
Voting rights (Sec. 6);
Right to remove directors (Sec. 28);
Proprietary rights;
Right to inspect books and records
(Sec. 74);
Right to be furnished with the most
recent financial statements (Sec. 75);
Right to recover stocks unlawfully sold
for delinquent payment of subscription
(Sec. 69);
Right to file individual suit,
representative suit and derivative suit.
 A certified copy of such agreement is
filed with the corporation and with
the SEC.
What are considered PROPRIETARY
RIGHTS






Right to dividends (Secs. 43 and 71);
Appraisal right (Sec. 81);
Right to issuance of stock certificate for
fully paid shares (Sec. 64);
Proportionate participation in the
distribution of assets in liquidation (Sec.
122);
Right to transfer of stocks in corporate
books (Sec. 63);
Pre-emptive right (Sec. 39).
Participation in Management


Stockholders and members may vote in
person or by proxy in all meetings.
 Proxy may be understood in two
ways:
 First, It may refer to the person
duly authorized by a stockholder
to vote in his behalf in a
stockholder’s meeting.
 Secondly, it may refer to the
document which evidences this
authority.
Requisites for a valid and enforceable
Proxy:
 It must be in writing
 Signed by the stockholder or
member of record; and
 Filed with the corporation before the
scheduled meeting with the
Corporate Secretary.
Voting Trust


An arrangement created by one or more
stockholders:
 For the purpose of conferring upon a
trustee/s the right to vote and other
rights pertaining to the shares;
 For a period not exceeding 5 years
at any time.
Requisites:
 It is in writing and notarized;
 It specifies the terms and conditions
thereof; and
Right to Vote in Stock Corporations
General Rule: Each share of stock is entitled
to vote.
Exception: Unless otherwise provide din the
articles of incorporation or declared delinquent.
Right to Vote in Stock Corporations in the
following matters:








Amendment of the articles of
incorporation;
Adoption and amendment of by-laws:
Sales, lease, exchange, mortgage,
pledge, or other disposition of all or
substantially all of the corporate
property;
Incurring, creating, or increasing bonded
indebtedness;
Increase or decrease of capital stock;
Merger or consolidation;
Investment of corporate funds in another
corporation business; and
Dissolution of the corporation.
Right to Vote in Non-Stock Corporation

In non-stock corporations, the voting
rights are attached to membership.
Members must vote in person or in
accordance with the law and by-laws of
the corporation.
Right to Dividends
General Rule: the board of directors of a stock
corporation may declare dividends out of the
unrestricted retained earnings to all
stockholders on the basis of outstanding stock
held by them.
Exception:

Stock corporations are prohibited from
retaining surplus profits un excess of
100% of their paid-in capital stock.
Exception to the Exception:



When justified by definite corporate
expansion projects or programs
approved by the board of directors; or
When the corporation is prohibited
under any loan agreement with financial
institutions or creditors, whether local or
foreign, from declaring dividends without
their consent, and such consent has not
yet been secured.
When it can be clearly shown that such
retention is necessary under special
circumstances.
Obligations of a Stockholder






Pay unpaid subscription or any
percentage thereof;
Pay interest on unpaid subscription if
required by the by-laws;
Pay watered stocks
Shares issued as fully paid when in truth
no consideration is paid, or the
consideration received is known to be
less than the par value or issued value
of the shares.
Pay dividends unlawfully paid;
Liable for assuming to act for the
corporation knowing it to be without
authority.
Appraisal Right



The right to withdraw from the
corporation and demand payment of the
fair value of
thesharesafterdissentingfromcertaincorp
orateactsinvolvingfundamentalchangesi
n corporate structure.
Who is entitled to Exercise
A prejudiced stockholder who dissented
in the meeting where the proposal was
approved.
CORPORATE BOOKS
Books to be Kept


Right to Inspect

As the beneficial owners of the
business, the stockholders have the
right to know the financial condition and
management of corporate affairs.
Pre-emptive Right

An option or privilege of an existing
stockholder to subscribe to a
proportionate part of shares
subsequently issued by the corporation
before the same can be disposed of in
favor of others.





The articles of incorporation and bylaws
of the corporation and all their
amendments;
The current ownership structure and
voting rights of the corporation,
including:
 lists of stockholders or members
 group structures
 intra-group relations
 ownership data, and
 beneficial ownership;
The names and addresses of all the
members of the board of directors or
trustees and the executive officers;
A record of all business transactions;
A record of the resolutions of the board
of directors or trustees and of the
stockholders or members;
Copies of the latest reportorial
requirements submitted to the
Commission; and
The minutes of all meetings of
stockholders or members, or of the
board of directors or trustee
Reason for the Corporation to Keep the
Books and Records

It is the best evidence used in cases
where conflicts need to be resolved in a
corporation. It is a proof of the
corporation’s transactions. Also, it is
considered as a prima facie official
evidence of the corporation.
Right to Financial Statement

A corporation shall furnish a stockholder
or member, within ten (10) days from
receipt of their written request, its most
recent financial statement, in the form
and substance of the financial reporting
required by the Commission.
Right to Inspect Corporate Records


It must be exercised at a
reasonablehours on business days.
Directors of a corporation have the
unqualified right to inspect the books
and records of the corporation at all
reasonable times.
Effect of Refusal to inspect Corporate
Records


Officer or agent of corporation who
refused to allow the inspection and/or
reproduction of records shall be liable to
the requesting officer for damages and
shall be punishable under Section 161
of the Revised Corporation Code.
If refusal is made pursuant to a
resolution or order of the BOD/trustees,
liability for such action shall be imposed
upon the director/trustees who voted on
such refusal.
Defenses for Refusal



Person demanding to examine and copy
excerpts has improperly used any
information secured through any prior
examination of the records of such
corporation of any other corporation.
Person demanding to inspect was not
acting in good faith or for a legitimate
purpose.
Person demanding to inspect is a
competition, director, officer, controlling
stockholder, or otherwise represents
interests of a competitor.
MERGER AND CONSOLIDATION
Merger

A corporation absorbs the other and
remains in existence while the others
are dissolved.
Consolidation

A new corporation is created, and
consolidating corporations are
extinguished.
Merger vs. Consolidation
MERGER
CONSOLIDATION
Union of 2 or more
corporations to form a
new corporation.
One or more
corporations are
absorbed by another
which survives and
continues the
combined business.
One of the constituent
All constituent
corporation remains as corporations disappear
an existing juridical
with the emergence of
person, whereas the
a new corporate entity.
other corporation shall
cease to exist.
The surviving
The new corporate
corporation acquires all entity shall obtain all
the assets, rights of
the assets of the
action, and assuming
disappearing
all the liabilities of the
corporation, and
disappearing
likewise shall assume
corporation/s.
all their liabilities.
There is no liquidation of the assets of the
dissolved corporation, all rights, properties and
franchises are acquired by the surviving/new
corporation.
Procedure:


Approval by majority vote of each of the
board of directors or trustees of the
constituent corporations of the plan of
merger or consolidation.
Approval by the stockholders or
members of each of such corporations
at separate corporate meetings duly
called for that purpose.
Note: any dissenting stockholder in stock
corporations may exercise his appraisal right.
Limitations:
In case of merger or consolidation of banks,
banking institutions, loan associations, trust
companies, insurance companies, public
utilities , educational institutions, and other
special corporations governed by special laws,
the favorable recommendation of the
appropriate government agency shall first be
obtained.
Effects of Merger or Consolidation
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The constituent corporations shall
become a single corporation shall
become a single corporation which, in
case of merger, shall be the surviving
corporation designated in the plan of
merger; and in case of consolidation,
shall be the consolidated corporation
designated in the plan of consolidation;
The separate existence of the
constituent corporations shall cease,
except that of the surviving or the
consolidated corporation;
The surviving or the consolidated
corporation shall possess all the right,
privileges, immunities and franchises of
each constituent corporation;
All real or personal property, all
receivables due on whatever account,
including subscriptions to shares and
other choses in action, and every other
interest of, belonging to, or due to each
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constituents corporation, shall be
deemed transferred to and vested in
such surviving or consolidated
corporation as though such surviving or
consolidated corporation had itself
incurred such liabilities or obligations;
Any pending claim, action or proceeding
brought by or against any constituent
corporation may be prosecuted by or
against the surviving or consolidated
corporation. The rights of creditors or
liens upon the property of such
constituent corporations shall not be
impaired by the merger or consolidation.