MATUDIO JAMES NICOLE L. BSAC4-2 QUIZ/Assignment 4 1. What are the different kinds of books and when are they available for reproduction and examination to the Stockholders? - According to Section 74, there are books and records required to be kept. The following are: • The articles of incorporation and by-laws of the corporation and all amendments; • The current ownership structure and voting rights of the corporation, including list of stockholders of 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; • Records of all business transactions; • Minutes of meetings of directors or trustees; • Minutes of meetings of stockholders or members which shall set forth in detail the following: o Time and place of holding the meeting o How authorized o The notice given o Whether the meeting was regular or special, and if special, its object or purpose o Those present and absent o Every act done or ordered at the meeting. • Stock and transfer book showing the following: o Names of stockholders alphabetically arranged o Installments paid and unpaid on all stock for which subscription has been made and date of payment of any installment o A statement of every alienation, sale or transfer of stock made and the date thereof, and by whom and to whom made o Such other entries as the by-laws may prescribe. They are always available for reproduction and examination to the Stockholders for reasons of getting copies and excerpts for the books/documents and most importantly, be intelligently informed about corporate affairs. Afterall, they own a share on the corporation, thus, they have the right. Corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee, stockholder or member of the corporation in person or by a representative at reasonable hours on business days, and a demand in writing may be made by such director, trustee or stockholder at their expense, for copies of such records or excerpts from said record. 2. What is the meaning of Corporate Reorganization, Merger and Consolidation? - Corporate Reorganization means, in respect of a corporation, any transaction whereby all or substantially all of its undertaking, property and assets would become the property of any other Person whether by way of arrangement, reorganization, consolidation, amalgamation, merger, transfer, sale, continuance into any other jurisdiction of incorporation or otherwise. Merger, on the other hand, is the union of two or more corporations whereby one or more but not all of the constituent corporations are absorbed by one which continues in existence and retains its name and corporate identity, called the surviving corporation. The rights, privileges, franchises, and property of the constituent corporations are merged into the surviving corporation. Another concept is the Consolidations. Consolidation is the union of two or more corporations whereby the existence of the constituent corporations is terminated and a new one, called the consolidated corporation, is created. The rights, privileges, franchises and property of the constituent corporations are united, and become the rights, privileges, franchises, and property, of the consolidated corporation. 3. What is the meaning of Appraisal Right? - The concept of Appraisal right is that the right is given to a dissenting stockholder to demand payment of the fair value of his shares in the following cases: • In case any amendment to the articles of incorporation has the effect of: o Changing or restricting the rights of any stockholders or class of shares; o Authorizing preferences in any respect superior to those of outstanding shares of any class; or o Extending or shortening the term of corporate existence. • In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property • In case of merger or consolidation. (Section 81) • In case of investment of funds by the corporation in another corporation or business or for other than the primary purpose. The ones who may exercise appraisal right is any stockholder who dissented from or voted against the proposed corporate action. (Section 82) 4. What are the differences and the laws and rules that govern Non-stock Corporation, Close Corporation, Educational Corporation, Religious Corporation, One Person Corporation? - According to Section 87, Non-stock corporation is the one where no part of its income is distributable as dividends to its members, trustees or officers. Any profit it may obtain as an incident to its operation shall, whenever necessary, be used for the furtherance of the purpose or purposes for which it was organized. Nowhere in article does it state that a non-stock corporation does not have capital stock. Thus, it is possible for non-stock corporation to have capital stock and will be considered as such for as long as it is not authorized to distribute dividends to its members, trustees, or officers. This has been made clear as early as in the case of The Collector of Internal Revenue vs. The Club Filipino, Inc. de Cebu, G.R. No. L-12719, May 31, 1962). Close Corporation, in other manner, is a corporation whose articles of incorporation provide the following: • All of the corporation’s issued stock of all classes, excluding treasury shares, shall be held of record by not more than a specified number of persons, not exceeding 20. • All of the issued stock of all classes shall be subject to one or more restrictions on transfer. • The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class. The corporation shall not be considered as a close corporation notwithstanding the foregoing if at least 2/3 of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation. (Section 96) Provisions of Articles of Incorporation of a Close Corporation 1. The classification of shares or rights and the qualifications for owning or holding the same and the restrictions on their transfers. 2. The classification of directors into one or more classes, each of which may be voted for and elected solely by a particular class of stock. 3. A greater quorum or voting requirements in meeting of stockholders or directors other than those provided in the Corporation Code. Educational Corporations The laws applicable to educational corporations are special laws governing them and general provisions of the Corporation Code. For trustees of educational institutions organized as non-stock corporations shall not be less than five (5) nor more than fifteen (15): Provided, however, that the number of trustees shall be in multiplies of 5. Unless provided in the articles or by-laws, the trustees shall so classify themselves that the term of office of 1/5 of their number shall expire every year. For stock educational corporations, on the other hand, the number and term of directors shall be governed by the provisions on stock corporations. Religious Corporations It is one incorporated by one person and consists of one member such as the chief archbishop, bishop, priest, minister or rabbi or other presiding elder. Its purpose is to administer and manage as trustee, the affairs, property and temporalities of any religious denomination, sect or church. In order to become a corporation sole, the presiding elder must file with the SEC articles of incorporation setting forth, among other provisions: 1. That he is the leader of his denomination. 2. The rules of the religious denomination do not prohibit his becoming a corporation sole. 3. That he is charged with administration of the temporalities of his denomination. 4. The filling of any vacancy in the office of the presiding elder. 5. The principal office of the corporation. (Sec. 111) One Person Corporation It is a corporation with a single stockholder that only a natural person, trust, or an estate may form a One Person Corporation. One Person Corporation shall file article of incorporation in accordance with the requirements under Section 14 of this Code. It shall likewise substantially contain the following: (a) If the single stockholder is a trust or an estate, the name, nationality and residence of the trustee, administrator, executor, guardian, conservator, custodian or other person exercising fiduciary duties together with the proof of such authority to act on behalf of the trust or estate; and (b) Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage and limitation of the authority. The nominee's and alternate nominee's names, dwelling addresses, and contact information, as well as the scope and restrictions of their authority in administering the One Person Corporation's operations, must be listed in the article of incorporation. The nominee's and alternate nominee's written consents must be attached to the incorporation application. Such consent may be given in writing at any time prior to the single stockholder's death or incapacity. (Section 124) 5. What are the Modes of Dissolution and liquidation? Dissolution of a corporation is the termination of the existence of a corporation. Modes of Dissolution 1. Voluntary Dissolution • Voluntary dissolution where no creditors are affected There is a vote requirement from majority vote of the board of directors or trustees and resolution of 2/3 of the outstanding capital stock or 2/3 of the members in a meeting called for the purpose. Here, a copy of the resolution authorizing the dissolution duly certified by a majority of the board of directors or trustees and countersigned by the corporate secretary is filed with SEC. Thereupon, the SEC shall issue the certificate of dissolution. • Voluntary dissolution where creditors are affected The vote required are majority vote of the board of directors or trustees and resolution of 2/3 of the outstanding capital stock or 2/3 of the members in a meeting called for the purpose. There is a verified petition filed with SEC for the dissolution of the corporation. Thereafter, the SEC hears the petition and try any issue made by the objections filed. If no such objection is sufficient, and the material allegations of the petition are true, the SEC shall render judgement dissolving the corporation and directing the disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation. Involuntary Dissolution It will be resulted by reasons by: • The expiration of the term provided in the articles of incorporation • Its failure to formally organize and commence the transaction of its business or construction of its works within 2 years from its incorporation. • Order of the SEC. • Legislative dissolution. Corporate Liquidation It is the process of winding up the affairs of a corporation and entails the collection of all assets, the payment of all its creditors, and the distribution of the remaining assets, if any, among the stockholders in accordance with their contracts, or if there be no specific contract, on the basis of their respective interests. After dissolution, the corporation shall nevertheless continue as a body corporate for 3 years not for continuing the business for which it was established but for the following: a. To prosecute and defend suits by or against it; b. To enable it to settle and close its affairs; c. To dispose of and convey its property; and d. To distribute its assets. 6. What is the meaning of foreign corporation and what are the laws and rules that govern them? A foreign corporation is a corporation formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state. Any foreign corporation lawfully doing business in the Philippines shall be bound by all laws, rules and regulations applicable to domestic corporations, except those in relation to the following: 1. Creation, formation or organization or dissolution of corporations. 2. The fixing of relations, liabilities, responsibilities or duties of stockholders, members, or officers, of corporations to each other or to the corporation. 7. What are the rights of foreign corporations? According to Section 140, it shall have the right to transact business in the Philippines after obtaining a license for purpose in accordance with the Corporation Code and a certificate of authority from the appropriate government agency. 8. What are the instances that will warrant the suspension and revocation of license including the investigation, offenses and penalties under the Code? The license of a foreign corporation to do business in the Philippines may be revoked or suspended by the SEC upon any of the following grounds/instances: 1. Failure to file its annual report or pay any fees as required by this code. 2. Failure to appoint and maintains resident agent in the Philippines as required by thus Title; 3. Failure, after change of its resident agent or address, to submit to the Commission a statement of such change as required by this title. 4. Failure to submit to the Commission an unauthenticated copy of any amendment to the articles of incorporation or bylaws or if any articles of merger or consolidation within the time prescribed by this Title; 5. A misrepresentation of any material matter in any application, report, affidavit or other document submitted by such corporation pursuant to this Title; 6. Failure to pay any and all taxes, imposts, assessments or penalties if any, lawfully due to the Philippines Government or any of its agencies or political subdivisions; 7. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized under its license; 8. Transacting business in the Philippines as agent if or acting on behalf if any foreign corporation or entity not duly licensed to do business in the Philippines; or 9. Any other grounds as would render it unfit to transact business in the Philippines. 9. What is the jurisdiction of the Securities and Exchange Commission and its powers under the Code? Under Section 5 of the Securities Regulation Code, Rep. Act. 8799, the Commission shall have, among others, the following powers and functions: a. Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of pr imary franchises and/or a license or permit issued by the Government; b. Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto; c. Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications; d. Regulate, investigate or supervise the activities of persons to ensure compliance; e. Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs; f. Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; g. Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders; h. Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code; i. Issue cease and desist orders to prevent fraud or injury to the investing public; j. Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court; k. Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; l. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person u nder investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws; m. Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and n. Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws. Under Section 52 of the Securities Regulation Code, the Commission’s jurisdiction over all cases enumerated under Section 5 of PD 902-A has been transferred to the Courts of general jurisdict ion or the appropriate Regional Trial Court. The Commission shall retain jurisdiction over pending cases involving intra -corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of the Code. The Comm ission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. Considering that only Sections 2, 4, and 8 of PD 902 -A, as amended, have been expressly repealed by the Securities Regulation Code, the Commission retains the powers enumerated in Section 6 of said Decree, unless these are inconsistent with any provision of the Code. 10. What are other relevant Miscellaneous Provisions under the Code? SEC. 173. Outstanding Capital Stock Defined. – The term “outstanding capital stock”, as used in this Code, shall mean the total shares of stock issued under binding subscription contracts to subscribers or stockholders, whether fully or partially paid, except treasury shares. SEC. 174. Designation of Governing Boards. – The provisions of specific provisions of this Code to the contrary notwithstanding, nonstock or special corporations may, through their articles of incorporation or their bylaws, designate their governing boards by any name other than as board of trustees. SEC. 175. Collection and Use of Registration, Incorporation and Other Fees. – For a more effective implementation of this Code, the Commission is hereby authorized to collect, retain, and use fees, fines, and other charges pursuant to this Code and its rules and regulations. The amount collected shall be deposited and maintained in a separate account which shall form a fund for its modernization and to augment its operational expenses such as, but not limited to, capital outlay, increase in compensation and benefits comparable with prevailing rates in the private sector, reasonable employee allowance, employee health care services, and other insurance, employee career advancement and professionalization, legal assistance, seminars, and other professional fees. SEC. 176. Stock Ownership in Corporations. – Pursuant to the duties specified by Article XIV of the Constitution, the National Economic and Development Authority (NEDA) shall, from time to time, determine if the corporate vehicle has been used by any corporation, business, or industry to frustrate the provisions of this Code or applicable laws, and shall submit to Congress, whenever deemed necessary, a report of its findings, including recommendations for their prevention or correction. The Congress of the Philippines may set maximum limits for stock ownership of individuals or groups of individuals related to each other by consanguinity, affinity, or by close business interests, in corporations declared to be vested with public interest pursuant to the provisions of this section, or whenever necessary to prevent anti-competitive practices as provided in Republic Act No. 10667, otherwise known as the “Philippine Competition Act”, or to implement national economic policies designed to promote general welfare and economic development, as declared in laws, rules, and regulations. In recommending to the Congress which corporations, businesses and industries will be declared as vested with public interest, and in formulating proposals for limitations on stock ownership, the NEDA shall consider the type and nature of the industry, size of the enterprise, economies of scale, geographic location, extent of Filipino ownership, labor intensity of the activity, export potential, as well as other factors which are germane to the realization and promotion of business and industry. SEC. 177. Reportorial Requirements of Corporations. – Except as otherwise provided in this Code or in the rules issued by the Commission, every corporation, domestic or foreign, doing business in the Philippines shall submit to the Commission: SEC. 180. Development and Implementation of Electronic Filing and Monitoring System. – The Commission shall develop and implement an electronic filing and monitoring system. The Commission shall promulgate rules to facilitate and expedite, among others, corporate name reservation and registration, incorporation, submission of reports, notices, and documents required under this Code, and sharing of pertinent information with other government agencies. SEC. 181. Arbitration for Corporations. – An arbitration agreement may be provided in the articles of incorporation or bylaws of an unlisted corporation. When such an agreement is in place, disputes between the corporation, its stockholders or members, which arise from the implementation of the articles of incorporation or bylaws, or from intra-corporate relations, shall be referred to arbitration. A dispute shall be non-arbitrable when it involves criminal offenses and interests of third parties.
