Finals
1. What is a Corporation?
A Corporation is an artificial being created by operation of law, having the right of succession
and the powers, attributes, and properties expressly authorized by law or incident to its
existence.
2. Please cite the 4 attributes of a Corporation.
Attributes of a Corporation
1) An Artificial Being - A corporation is a juridical entity that exists apart from its stockholders.
2) Created by Operation of Law - The State must give its consent either through a special
law (in case of government corporations) or a general law
3) Has the right of Succession - the corporation’s existence is unaffected by a change in the
composition of stockholders.
4) Has the Power Attributes and Properties Expressly Authorized by Law or Incident to its
Existence - A corporation has no power except those expressly conferred on it by the
Revised Corporation Code and by its articles of incorporation,
3. Differentiate a Stock and Non-Stock corporation.
A Stock Corporations are corporations which have capital stock divided into shares and are
authorized to distribute to the holders of such share’s dividends or allotments of the surplus
profits on the basis of shares held. Moreover, it is organized for profit. Meanwhile, all other
corporations that is not classified as stock corporation are Non-Stock Corporation.
4. What is a De facto corporation?
A De Facto Corporation is a corporation where there exists a flaw in its incorporation.
5. Why is there a need to determine the nationality of a Corporation?
Because the nationality of a corporation serves as a legal basis for subjecting an enterprise or its
activities to the laws, the economic and fiscal powers, and the various social and financial
policies of the State to which it is supposed to belong.
6. Please cite 5 industries wherein Control test should be applied.
Control test should be applied in the following:
1) Exploitation of natural resources – Only Filipino citizens or corporations whose capital
stock is at least 60% owned by Filipinos can qualify to exploit natural resources.
2) Public Utilities - No franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted, except to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least 60% of
whose capital is owned by such citizens.
3) Mass Media - “The ownership and management of mass media shall be limited to citizens
of the Philippines, or to corporations, cooperatives or associations, wholly-owned and
managed by such citizens.”
4) Advertising industry – “Only Filipino citizens or corporations or associations at least seventy
per centum of the capital of which is owned by such citizens shall be allowed to engage
in the advertising industry.”
5) Any industry or activity where foreign ownership is prohibited or restricted under the
Foreign Investment Negative List.
7. What is the Grandfather Rule?
The Grandfather Rule is a method of determining the nationality of a corporation, which is
owned in part by another corporation, by breaking down the equity structure of the
shareholder corporation.
o
o
It is applied if doubt exist as to the locus of the “beneficial ownership” and “control” of a
corporation, even if the 60-40 Filipino to foreign equity ratio is apparently met by the subject
or investee corporation.
The said rule accurately determine the actual participation, both direct and indirect, of
foreigners in a corporation engaged in a nationalized activity or business by means of
computing Filipino ownership of a corporation in which another corporation, of partly Filipino
and partly foreign equity, owns capital stock.
8. When will the Corporate Juridical Personality of a corporation commence?
Corporate existence and juridical personality commence from the date the SEC issues a
certificate of incorporation under its official seal.
9. What is the Doctrine of Separate Juridical Personality?
General Rule: Due the corporation’s separate juridical personality, a stockholder may not be
made to answer for acts or liabilities of said corporation, and vice-versa.
Therefore, a corporation has a personality separate and distinct from that of its stockholders
and members and is not affected by the personal rights, obligations, and transactions of the
latter.
10. What is the Doctrine of Piercing the Corporate Veil?
Piercing the veil of corporate entity is an equitable remedy developed to address situations
where the separate corporate personality of a corporation is abused or used for wrongful
purposes. It is enforced when the legal entity is used to defeat public convenience, justify
wrong, protect fraud, or defend crime.
11. What is the effect of piercing the Corporate Veil?
The corporation will be considered as a mere association of persons. Thus, the liability will
directly attach to the stockholders or to the other corporation. In addition, the juridical
personality of a corporation will be disregarded, the wrongdoing must be clearly and
convincingly established, and cannot be presumed.
12. How many Incorporators are allowed under the Revised Corporation Code?
The Revised Corporation Code removed the prescribed minimum number of incorporators.
However, according to Section 10 of the aforementioned code, the number of Incorporators
must not exceed 15.
13. IS there a minimum capital requirement in the Revised Corporation Code? Explain.
None, corporations are not required to have minimum capital stock, except as otherwise
specially provided by special law because the new code removed the25% subscription,
payment, and minimum paid-up capital requirements.
14. What is the rule on pre-incorporation subscription?
General Rule: A pre-incorporation subscription is irrevocable for a period of at least 6 months
from the date of subscription and after the submission of the Articles of Incorporation to the SEC.
Exceptions:
o
o
All of the other subscriber’s consent to the revocation
The incorporation fails to materialize within 6 months or within a longer period as may be
stipulated in the contract of subscription
15. Can a corporation have perpetual existence under the Revised Corporation Code? Explain.
Yes, according to the Revised Corporation Code, a corporation can have perpetual existence.
However, the AOIs of existing corporations shall be deemed amended to reflect their perpetual
term.
16. What is the exception on the rule of perpetual existence of a corporation?
The AOIs of corporations created under the effectivity of this Code provide for a specific period.
17. What are the classifications of the shares of stock? Please enumerate.
Classification of shares
a)
b)
c)
d)
e)
f)
Preferred Shares vs. Common Shares
Scope of Voting Rights Subject to Classification
Founders’ Shares
Redeemable Shares
Treasury Shares
Par value shares vs. No-par value shares
18. What is the Doctrine of Equality of Shares?
Each share shall be equal in all respects to every other share, except as otherwise provided in
the Articles of Incorporation and stated in the certificate of stock.
19. What are Founder’s shares?
Founders’ Shares are shares classified as such in the AOI, which are given certain rights and
privileges not enjoyed by the owners of other stocks. These may be given special preference in
voting rights and dividend payments.
20. What are Redeemable Shares?
Redeemable Shares are shares which may be purchased by the corporation from the holders of
such shares upon the expiration of a fixed period, regardless of the existence of unrestricted
retained earnings in the books of the corporation.
21. Are treasury shares considered as retired shares?
Treasure shares are not retired shares because treasury shares do not revert to the unissued
shares of the corporation, but are regarded as property acquired by the corporation, which
may be reissued or resold at a price to be fixed by the Board of Directors.
22. Please differentiate Par value to non-par value shares.
Par value shares are shares with a stated or fixed value set out in the Articles of Incorporation,
which remains the same regardless of the profitability of the corporation. On the other hand,
non-par value shares are shares without a stated value in the AOI. They are without nominal
value. And they may be issued for the amount stipulated in the AOI or fixed by the Board.
23. What are the liabilities of a promoter?
General rule: the promoter binds himself personally and assumes the responsibility of looking to
the proposed corporation for reimbursement.
o
o
The promoter binds himself to ensure that the corporation, once formed, will ratify the
contract entered into in its name.
Otherwise, he becomes personally liable for such contract in the event that corporation
does not ratify.
24. In relation to question number 23, what are the exceptions?
Exceptions:
o
o
Express or implied agreement to the contrary
Novation, not merely adoption or ratification, of the contract
25. What are the liabilities of a Corporation for Promoter’s Acts? Also, please cite the exceptions.
General rule: A corporation is NOT bound by the contract. A corporation, until organized, has
no life and no legal existence. It could not have had an agent [the promoter] who could legally
bind it.
Exceptions: A corporation may be bound by the contract if it makes the contract its own by:
o
Adoption or ratification of the entire contract after incorporation.
a. Novation or the intent to novate the original contract is required to adopt or ratify the preincorporation contract.
b. The Court’s ruling in Cagayan Fishing v. Teodoro Sandiko, that “a corporation should have
a full and complete organization and existence as an entity before it can enter into any kind
of a contract or transact any business”, is not absolute. One of the exceptions recognized by
American courts is that “a contract made by the promoters of a corporation on its behalf
may be adopted, accepted or ratified by the corporation when organized”.
o
o
Acceptance of benefits under the contract with knowledge of the terms thereof.
Performance of its obligation under the contract.
26. Kindly cite the types of consideration for the issuance if stock.
Consideration for the issuance of stock may be:
a) Actual cash paid to the corporation
b) Property, tangible, or intangible, which must be:
i.
Actually received by the corporation
ii.
Necessary or convenient for its use and lawful purposes
iii.
At a fair valuation equal to the par or issued value of the stock issued
c) Labor performed for or services actually rendered to the corporation
d) Previously incurred indebtedness of the corporation
e) Amounts transferred from unrestricted retained earnings to stated capital
f) Outstanding shares exchanged for stocks in the event of reclassification or conversion
g) Shares of stock in another corporation
h) Other generally accepted form of
i) consideration
27. What is the Articles of Incorporation?
The Articles of Incorporations is a basic contract document, defining the charter of the
corporation, and serves as the basis by which to judge whether it exists for legal purposes.
28. Please cite the contents of the Articles of Incorporation.
The Articles of Incorporation must contain:
a)
b)
c)
d)
e)
f)
Corporate Name
Purpose Clause
Principal Office
Corporate Term if the corporation has not elected perpetual existence
Incorporators
Trustees/Directors
g) For stock corporations:
1) The authorized capital stock,
2) Number of shares into which it is divided,
3) The par value of each share,
4) Names, nationalities, and residence addresses of the original subscribers,
5) Amount subscribed and paid by each on the subscription, and
6) A statement that some or all of the shares are without par value, if applicable
h) For nonstock corporations:
1) Amount of its capital,
2) The names, nationalities, and
3) Residence addresses of the contributors
4) Amount contributed by each
i) Other matters (including arbitration agreement pursuant to Sec. 181).
29. What is the residence of a corporation?
The residence of a corporation is the place where its principal office is located, as stated in its
Articles of Incorporation.
30. Please cite the grounds for the isapproval of the Articles of Incorporation.
a) Does not substantially comply with form prescribed
b) Purpose is patently unconstitutional, illegal, immoral, contrary to government rules and
regulations
c) The certification concerning the amount of capital stock subscribed and/or paid is false
d) Required percentage of ownership of Filipino citizens has not been complied with when
required by existing laws or the Constitution.
31. Is voting via remote communication allowed?
According to the new code, voting via remote communication is indeed allowed. The right to
vote through such modes may be exercised in corporations vested with public interest,
notwithstanding the absence of a provision in the bylaws of such corporations.
32. Who are the Corporate Officers?
a) President – must be a director
b) Treasurer – may or may not be a director; must be a resident
c) Secretary – need not be a director unless required by the by-laws; must be a citizen and
resident of the Philippines
d) Compliance officer – only for corporations vested with public interest.
e) Other officers as may be provided in the by-laws.
33. What is a By-laws?
By-laws are regulations, ordinances, rules or laws adopted by an association or corporation for
its internal governance, including rules for routine matters such as calling meetings.
34. What is the effect of Failure to Organize?
A corporation who failed to formally organize and commence its business within five (5) years
from the date of its incorporation, its certificate of incorporation shall be deemed revoked as of
the day following the end of the five (5) year period.
35. What is the effect of Continuous Inoperation?
A corporation who commenced its business but subsequently becomes inoperative for a period
of at least five (5) consecutive years, the Commission may, after due notice and hearing, place
the corporation under delinquent status.
36. What are the general powers of a corporation?
Power and capacity of corporation:
a) To sue and be sued in its corporate name
b) To have perpetual existence
*Unless the certificate of incorporation provides otherwise
c) To adopt and use a corporate seal
d) To amend its articles of incorporation in accordance with the provisions of this Code
e) To adopt bylaws, and to amend or repeal the same in accordance with this Code
*Must not contrary to law, morals or public policy
f) In case of stock corporations: Tissue or sell stocks to subscribers and to sell treasury stocks in
accordance with the provisions of this Code and In case of non-stock corporations: To admit
members to the corporation
g) 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
h) To enter, with natural and juridical persons, into a:
i.
Partnership
ii.
Joint venture
iii.
Merger,
iv.
Consolidation, or
v.
Any other commercial agreement
i) 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
j) To establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers, and employees
k) To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in the articles of incorporation.
37. What are the specific powers of a corporation?
Under the Theory of Specific Capacity, the specific powers of a corporation are as follows:
(a) Power to extend or shorten corporate term [Sec. 36]
(b) Power to increase or decrease capital stock, or incur, create, increase bonded
indebtedness [Sec.37]
(c) Power to deny pre-emptive rights [Sec. 38]
(d) Power to sell or dispose corporate assets [Sec. 39]
(e) Power to acquire own shares [Sec. 40]
(f) Power to invest corporate funds in another corporation or business, or for any other purpose
[Sec. 41]
(g) Power to declare dividends [Sec. 42]
(h) Power to enter into management contract [Sec. 43]
(i) Power to amend AOI
38. Please differentiate Theory of General Capacity vs Theory of Specific Capacity.
The Theory of General Capacity states that a corporation is said to hold such powers as are not
prohibited or withheld from it by general law. Meanwhile, the Theory of Specific Capacity states
that the corporation cannot exercise powers except those expressly/impliedly given.
39. What is a Pre-emptive right?
The preemptive right are the rights of shareholders to subscribe to all issues or disposition of
shares of any class in proportion to their present shareholdings. [Sec 38] The purpose of preemptive right is to enable the shareholder to retain his proportionate control in the corporation
and to retain his equity in the surplus.
40. When can the pre-emptive right be denied?
The AOI may deny pre-emptive right, specifically when:
o
o
o
Shares to be issued are to comply with laws requiring stock offerings or minimum stock
ownership by the public; [Sec. 38]
Shares to be issued are in good faith with the approval of the stockholders representing 2/3
of the OCS in exchange for property needed for corporate purposes; [Sec. 38]
Shares to be issued are issued in payment of previously contracted debts; [Sec. 38]
o
o
In case the right is denied in the AOI
Waiver of the right by the stockholder.
41. Can a corporation acquire its own shares? Explain.
Yes, a corporation has the power to purchase or acquire its own shares for a legitimate
corporate purpose or purposes. However, corporation may only acquire its own stocks in the
presence of unrestricted retained earnings (URE).
42. What are the forms of dividends?
Forms of Dividends
1. Cash – any cash dividend due on delinquent stock shall first be applied to the unpaid
balance on the subscription plus cost and expenses. [Sec. 42]
2. Stock - Stock dividends shall be withheld from the delinquent stockholder until his unpaid
subscription is fully paid; Stock dividends cannot be issued to a person who is not a
stockholder in payment of services rendered.
3. Property - Stockholders are entitled to dividends pro-rata based on the total number of
shares and not on the amount paid on shares.
43. Please differentiate Cash dividends vs Stock dividends.
Cash dividend can be issued with the approval of Board of Directors. Meanwhile, no stock dividend shall be issued
without the approval of stockholders representing at least two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the purpose. Additionally, cash dividends due on delinquent stock shall
first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be
withheld from the delinquent stockholders until their unpaid subscription is fully paid.
44. What is Management Contract?
A management contract is any 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.
45. What are Ultra Vires Acts?
Ultra Vires Acts are those acts which a corporation is not empowered to do or perform because
they are outside or beyond the express and implied powers conferred by its Articles of
Incorporation or by the Revised Corporation Code, or not necessary or incidental to the
exercise of the powers so conferred. [Sec. 44]
46. What is a Trust Fund Doctrine?
The Trust Fund Doctrine states that the capital stock, properties and other assets of a
corporation are regarded as equity in trust for the payment of corporate creditors.
o
All funds received by the corporation in payment of the shares of stock shall be held in trust
for the corporate creditors and other stockholders of the corporation.
o
No fund shall be used to buy back the issued shares of stock except only in instances
specifically allowed by the Corporation Code.
47. Cite the effects of trust fund doctrine.
1) Dividends must never impair the subscribed capital stock and must only be declared out of
unrestricted retained earnings (URE).
2) Subscription commitments cannot be condoned or remitted.
3) General Rule: The corporation cannot buy its own shares using the subscribed capital as the
consideration, therefore.
48. How are corporate powers exercised by the shareholders?
Corporate Acts Requiring All (Voting and Non-Voting) Shareholders’ Approval
General Rule: Vote necessary to approve a particular corporate act as provided in this Code
shall be deemed to refer only to stocks with voting rights [Sec. 6]
Exceptions [Sec. 6]:
Voting and non-voting shares shall be entitled to vote in the following cases:
a. Amendment of Articles of Incorporation [Sec. 15]
b. Adoption, Amendment and Repeal of By- Laws [Sec. 47]
c. Sale, Lease, Mortgage or Other Disposition of Substantially all corporate assets [Sec. 39]
d. Incurring, Creating or Increasing Bonded Indebtedness [Sec. 37]
e. Increase or Decrease of Capital Stock [Sec. 37]
f. Merger and Consolidation [Sec. 76-79]
g. Investment of funds in another corporation or business or for any purpose other than the
primary purpose for which it was organized [Sec. 41]
h. Dissolution of the Corporation [Secs. 133-138]
Corporate Acts Requiring Voting Shareholders’ Approval
1. Declaration of Stock Dividends [Sec. 42]
2. Management Contracts [Sec. 43]
3. Fixing the Consideration of No-Par shares [Sec. 61]
4. Fixing the Compensation of Directors [Sec. 29]
49. How are corporate powers exercised by the Board of Directors?
Unless otherwise provided in this Code, the board of directors or trustees shall exercise the
corporate powers, conduct all business, and control all properties of the corporation. [Sec. 22]
Majority vote of the Board is needed in the exercise of the ff. powers:
(1) Filling of vacancies in the board, except when it is due to removal by the
stockholders/members or by expiration of term
(2) Extension or shortening of the corporate term
(3) Increase or decrease of capital stock or the creation of bonded indebtedness
(4) Sale or other disposition of all or substantially all assets
(5) Acquisition of its own shares
(6) Investment of corporate funds in any corporation or business or for any purpose other than its
primary purpose
(7) Declaration of cash, property, and stock dividends
(8) Entering into management contracts
(9) Amendment of AOI
(10) Amendment of the by-laws
(11) Approval of the plan of merger or consolidation
(12) Dissolution of the corporation
50. What is the Doctrine of Apparent Authority?
Doctrine of Apparent Authority are corporate officers who have apparent authority to bind the
corporation on matters that are generally within the domain of corporate business, and the
scope of their usual duties.
51. What are the Fundamental Rights of a Stockholder?
1. Direct or indirect participation in management [Sec. 6]
2. Voting rights [Sec. 6]
3. Right to remove directors [Sec. 27]
4. Proprietary rights
(a) Right to dividends [Sec. 42 and 70]
(b) Appraisal rights [Sec. 80]
(c) Right to issuance of stock certificate for fully paid shares [Sec. 63]
(d) Proportionate participation in the distribution of assets in liquidation [Sec. 139]
(e) Right to transfer of stocks in corporate books [Sec. 62]
(f) Pre-emptive right [Sec. 38]
5. Right to inspect books and records [Sec.73]
6. Right to be furnished with the most recent financial statements/reports [Sec. 73]
7. Right to recover stocks unlawfully sold for delinquent payment of subscription [Sec. 68]
8. Right to file individual suit, representative suit and derivative suits
52. Can a stockholder vote by proxy?
Yes, stockholders and members may vote in person or by proxy in all meetings.
53. What is a proxy?
The word “proxy” may refer to the person duly authorized by a stockholder to vote in his
behalf in a stockholder’s meeting or it may refer to the document which evidences this
authority.
54. What is the period of effectivity of proxy?
Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is
intended. No proxy shall be valid and effective for a period longer than five (5) years at any
one time. [Sec. 57]
55. What is the voting requirement (Board of Directors and Stockholders/Members for the
following Corporate Acts:
a. Extension /Shortening of Corporate Term – requires majority vote of the BOD/BOT and
a 2/3 outstanding capital stock/members
b. Sale or disposition of other assets - requires majority vote of the BOD/BOT and a 2/3
outstanding capital stock/members
c. Entering into management contract – requires majority of the quorum of thebe/BOT
and Majority of the outstanding capital stock/members of both managing and
managed corporation
Exception: 2/3 of outstanding capital stock/members required for the managed
corporation:
•
•
Where a stockholder representing the same interest of both the managing and the
managed corporations own or control more than 1/3 of the total outstanding capital
stock entitled to vote of the managing corporation
Where a majority of the members of the BOD of the managing corporation also
constitute a majority of the members of the BOD of the managed corporations
d. Declaration of dividend – requires majority vote of BOD and 2/3 outstanding capital
stock
e. Voluntary dissolution where no creditors are affected - requires majority vote of the
BOD/BOT and majority of the outstanding capital stock/members
56. What is an Unrestricted retained earnings?
Unrestricted retained earnings are the portion which is free and can be declared as dividends
to stockholders.
57. Please distinguish retained earnings, restricted retained earnings and unrestricted retained
earnings.
Retained earnings represents the accumulation of net profits of the corporation over the years
and likewise losses sustained, as well as deductions made upon previous dividends declared.
There are two types of retained earnings, restricted and unrestricted. When we talk about
restricted retained earnings, we are referring to the portion of the retained earnings specifically
earmarked or set-aside for specific purposes. Meanwhile, unrestricted retained earnings are the
portion which is free and can be declared as dividends to stockholders.
58. What is an appraisal rights?
Appraisal right is the right to withdraw from the corporation and demand payment of the fair
value of the shares after dissenting from certain corporate acts involving fundamental changes
in corporate structure. [Sec. 80]
59. When is an appraisal right available?
•
•
•
•
In case an amendment to the articles of incorporation has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing preferences in
any
respect superior to those of outstanding shares of any class, or of 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 and assets as provided in this Code
In case of merger or consolidation
In case of investment of corporate funds for any purpose other than the primary purpose
of the corporation.
60. Please distinguish pre-emptive right vs right of first refusal.
Pre-emptive right grants stockholders the option to subscribe to all issues or disposition of shares
of any class, in proportion to their respective shareholdings. [Sec. 38]. Under this, All stockholders
of a stock corporation shall enjoy the pre-emptive right to subscribe to all issues or disposition of
shares of any class, in proportion to their respective shareholdings. [Sec. 38]. A right claimed
against the corporation on unissued shares of its capital stock, and likewise on treasury shares
held by the corporation. On the other hand, right of first refusal Grants the existing stockholders
or the corporation the option to purchase the shares of the transferring stockholder. It arises only
by virtue of contract stipulations, by which the right is strictly construed against the right of
person to dispose or deal with their property. A right exercisable against another stockholder on
his shares of stock.
61. When are non-voting shares allowed to vote?
Holders of nonvoting shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation
2. Adoption and amendment of bylaws
3. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of the
corporate property
4. Incurring, creating, or increasing bonded indebtedness
5. Increase or decrease of authorized capital stock
6. Merger or consolidation of the corporation with another corporation or other corporations
7. Investment of corporate funds in another corporation or business in accordance with this
Code
8. Dissolution of the corporation.
62. What is a Derivative Suit?
A derivative suit is a suit brought by a stockholder for and on behalf of the corporation for its
protection from the wrongful acts committed by the directors/trustees of the corporation, when
the stockholder finds that he has no redress because the directors/trustees, are the ones vested
by law to decide whether or not to sue.
63. What is a Business Judgment Rule?
As a general rule, when a wrong is committed against a corporation, whether to bring the suit
or not primarily lies within the discretion and exercise of business judgment of the BOD.
64. What are the requisites of derivative actions?
a. That the person instituting the action be a stockholder or member at the time the acts or
transactions subject of the action occurred and the time the action was filed
b. That the stockholder or member exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under the AOI, by-laws, laws or
rules governing the corporation or partnership to obtain the relief he desires
c. That there is no appraisal right available for the act(s) complained of
d. That the suit is not a nuisance or harassment suit; [Rule 8, Interim Rules of Procedure for IntraCorporate Controversies]
e. The action brought by the stockholder/member must be “in the name of the corporation or
association”.
65. Who has jurisdiction over derivative suits?
The Regional Trial Courts exercise jurisdiction over derivative suits.
66. Please enumerate the obligations of a stockholder.
•
•
•
•
•
Liability to the Corporation for Unpaid Subscription [Sec. 66]
Liability to the Corporation for Interest on Unpaid Subscription if so Required by the By-Laws
[Sec. 65]
Liability for Watered Stocks [Sec. 64]
Liability for Dividends Unlawfully Paid
Liability for Assuming to Act as a Corporation Knowing it to be Without Authority
67. What are the terms of Directors and Trustees?
o Directors – Term of 1 year from among the holders of stocks registered in the corporation’s
books. [Sec. 22]
o Trustees – Term not exceeding 3 years from among the members of the corporation. [Sec.22]
68. What is the holdover principle?
Upon failure of a quorum at any meeting of the stockholders or members called for an election,
the directorate naturally holds over and continues to function until another directorate is
chosen and qualified.
69. Who is an independent director?
An independent director is a person who, apart from shareholdings and fees received from the
corporation, is independent of management and free from any business or other relationship
which could or could reasonable be perceived to materially interfere with the exercise of
independent judgment in carrying out the responsibilities as a director. [Sec. 22]
70. What are the three fold liabilities of Directors and Trustees?
1) Duty of Obedience - shall direct the affairs of the corporation only in accordance with the
purposes for which it was organized
2) Duty of Diligence - shall not willfully and knowingly vote for or assent to patently unlawful acts
of the corporation or act in bad faith or with gross negligence in directing the affairs of the
corporation
3) Duty of Loyalty - shall not acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees.
71. What is Doctrine of Corporate Opportunity?
Unless his act is ratified, a director shall refund to the corporation all the profits he realizes on a
business opportunity which:
a. Corporation is financially able to undertake
b. From its nature, is in line with corporation’s business and is of practical advantage to it
c. One in which the corporation has an interest or a reasonable expectancy.
72. What are the remedies in case of mismanagement?
(1) Removal of directors pursuant to Sec. 27
(2) Derivative suit or complaint filed with the RTC [Sec. 5.2, R.A. 8799, Securities Regulation Code;
A.M. No. 01-2-04 SC, Interim Rules of Procedure Governing Intracorporate Controversies]
(3) Receivership
(4) Injunction if the act has not yet been done
(5) Dissolution if abuse amounts to a ground for quo warranto but Solicitor General refuses to
act
73. Who can be an Insider?
(a) The issuer
(b) A director or officer (or any person performing similar functions) of, or a person controlling
the issuer; gives or gave him access to material information about the issuer or the security that
is not generally available to the public
(c) A government employee, director, or officer of an exchange, clearing agency and/or selfregulatory organization who has access to material information about an issuer or a security
that is not generally available to the public; or
(d) A person who learns such information by a communication from any foregoing insiders.
[Sec. 3.8, Securities Regulation Code]
74. What is the rule for self-dealing Directors?
General Rule: A contract of the corporation with (1) one or more of its directors, trustees,
officers or their spouses and relatives within the fourth civil degree of consanguinity or
affinity is voidable, at the option of such corporation. [Sec. 31]
Exception:
Such contract is VALID if all of the following conditions are present:
a. 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
b. The vote of such director or trustee was not necessary for the approval of the contract
c. The contract is fair and reasonable under the circumstances
d. In case of corporations vested with public interest: Material contracts are approved by
at least two-thirds (2/3) of the entire membership of the board, with at least a majority of
the independent directors voting to approve the material contract
e. In case of an officer: The contract has been previously authorized by the BOD. [Sec.31]
75. What are the kinds of meeting?
• Regular meetings of directors or trustees shall be held monthly, unless the by-laws provide
otherwise.
• Special meetings of the BOD or trustees may be held at any time upon the call of the
president or as provided in the by-laws.