Title II
* any person, partnership, assoc, or corp can
be an incorporator, singly or jointly with others.
Incorporation means the performance of
conditions, acts or deeds and writing by
incorporators and the official acts,
certifications, records which give the corp its
existence. It is a mere grant of privilege from
the State and in order to be entitled to such
privilege, the reqts and procedures for the
grant must be complied with.
The old rule of having 5 number of
incorporators are stumbling blocks for many
investors to incorporate. Investors may have
incorporators who does not have real interest
with them. Hence, the law allows anyone who
wants to avail the benefits of a corporate entity
to do business even without incorporators, it
can go ahead and incorporate single
proprietorship but with the protection of the
general corporation law.
Effect if not incoroporated. It is only through
incorporation and registration with SEC that
private corporations acquire juridical
personality under the RCCP.
LGU may also organize corporations subject to
the limitations imposed under the LGC.
Number of Incorporators and shares
* the life of the corporation will not commence
if the SEC will not issue Cert. Of Incorporation,
even if the Incorporators already signed and
filed AoI with the SEC.
- not more than 15 Incorporators and must
atleast own one share. (reason: to indicate who
really represents the corporation at tits
inception)
Capacity to Act is the power to do acts with
legal effect. Minority, imbecility are restrictions
on capacity to act.
Agreement to Incorporate. Natural persons and
corporations (Juridical) may validly enter into
an agreement to create a corporation. Such
agreement may be Joint venture agreement,
may be reciprocal in nature which each party is
not obligated to comply if the other is also not
in position to comply his side of obligation.
* Non Philippine residents may be
incorporators, there is no residency reqts to
become Incorporator.
* No citizenship reqt that the majority of the
Incorporators must be Philippine citizen.
However subject to naturalization laws.
Sec. 10 INCORPORATORS
Sec. 11 Perpetual term / existence of
Corporation
O: Only natural persons are qualified to
incorporate; minimum of 5 incorporators
(except for corporations sole)
O: Only up to 50 years
- R: Persons, partnerships, associations,
corporations (singly or jointly with others)
R: Perpetual existence, unless Articles of
Incorporation (AOI) provides otherwise Existing corporations also perpetual existence
without necessity of amending their AOI, unless
majority of the Outstanding Capital Stock (OCS)
notifies the SEC that it elects to retain the term
provided in their AOI - Presumption: Perpetual
existence
- Singly - One Person Corporation (OPC) - Not
more than 15 incorporators
Basic qualifications of Incorporator.
* it is now allowed for a corp to have only one
Incorporator, One Parson Corp. (OPC)
To actually go through arduous task of
incorporating, runs the risk of having to forget
1
renewing the corporation. Limited term leads
to loss of income and livelihood of families, loss
of legacy and dreams of entrepreneurs if by
simply forgetting to renew the corporation,
which will dissolve the corp.
specifies a term - As to when the application
for revival should be filed:
RCC is silent, but according to Atty. Z, the
logical interpretation is that it should be made
within 3 years from the time the term sought
to be extended expires considering that within
that 3-year period, the corporation still has
residual corporate existence (note that as of
writing, the SEC still has no guidelines on the
matter)
- it is a default option to seek addressing this
problem. It also allow corporations to develop
long term plans and to look into more
sustainable strategies for economic growth.
Still corporations have options to have a fixed
term.
*Doctrine of Relations or relating back doctrine
Sec. 12 Minimum Capital Stock NOT Required
* Revival of Corporate Existence
CAPITAL REQUIREMENT
O: 25% subscribed shares of Authorized Capital
Stock - 25% paid up of subscribed shares is
required (25%-25% requirement).
OUTLINE the steps to be taken in order to
extend its Corporate life.
R: Stock corporations shall not be required to
have minimum capital stock, except as
provided for by special laws. - 25%-25%
requirement under the old law was deleted
The AoI shall be amended stating the term
extension and the amendment must be
approved by majority vote of the BOT and
Stake Holders representing 2/3 of the
Outstanding Capital stock
EXPN: if required by special law
The approved amendment of the AoI shall be
submitted to the SEC for approval not earlier
than 3 years prior to the original expiry date.
Percentage reqts of ownership:
The amendment is deemed approved upon the
inaction of SEC for 6 months after submission
due not the fault of the corporation or upon its
approval. The effectivity of the amendment
relates back to the date of its filing with the
SEC.
Advertising industry - 70% Fil / 30% Foreign
Mass Media - 100%
Public Utilities Educational insti, exploratins of
national resources - 60% Fil / 40% Foreign
Authorized Capital Stock
Subscribed Capital
TERM EXTENSION (Sec. 11)
Paid up Capital
O: Amendment of AOI as to extension: Must be
done within 5 years prior to the date of
expiration of the term sought to be extended
Pain-in Capital
Outstanding Capital Stock
R: Within 3 years prior to expiration of term
(Sec 11) - If term expired, and there was failure
to extend term of existence, the remedy is to
apply for REVIVAL with the SEC
Capital
Stated Capital
Revived Term: Enjoys presumption of perpetual
existence, unless the application for revival
2
Sec. 13 Contents of the Articles of
Incorporation
- has been described as a document that
defines the charter of the corporation stating
its name……
It is the document prepared by the
incorporators organizing a corporation
containing the matters required by the RCC. It
offers the ultimate evidence of the nature and
purpose of a corporation.
Three-fold nature of AOI
An AOI, which stands as the corporate charter,
is a contract of three-fold nature because it is a
contract between: 1. The State and the
corporation; 2. The corporation and the
stockholders; and 3. The stockholders inter se
(Corporation and Stockholder)
O: Number of board members cannot exceed
15; Only 5-15 members are allowed
R: - For Non-Stock (NS) Corporations: Can now
exceed 15 trustees
- it defines the contractual relationship b/n the
State and the Corp, the SH and the Stae and
bw/n Corp and SH.
**NS Religious Society: Only up to 15
**For Stock (S) Corporations: Only up to 15
members - Inclusion of a provision on
arbitration as a means of resolving
intra-corporate disputes is ENCOURAGED (but
not required) - Filing of AOI via electronic
means is now allowed
- its contents are binding to Corp and share
holders, State
*Substantial Compliance - the AoI must comply
with the form prescribed by RCCP. Substantial
compliance may not affect the de jure
existence of the Corp.
Contents of the AoI - mandatory can add others
Name of Corp
Purpose Clause - is important in order to assure
the persons who invest in corporate entitites
would be aware of the business is designed to
engage in.
Primary purpose (express power)
Secondary purpose (Express power)
*If within the power -
Intravires act
Rationale of PC: ….
*If outside - ultravires act
Principal office must state the location of the
principal office to be specifically identified.
Street #, St. Name, Brgy. City. Municipality etc.
Remedy: Ratify if ultravires - 2/3 of the OCS
vote
Importance of Principal Office since it’s the
place of residence, The principal office of a
corporation determines its residence or
domicile the venue of court cases, service of
summons, notices to be properly made.
Principal office is located
Term of Corporation
Stock reqts
Arbitration reqts
Non-stock reqts
Effect if Sole Proprietorship is organized
- there must be a deed of assignment that must
specify the liabilities of the sole proprietorship
that are being assumed by the new corp. The
corp would no be liable if there is no
assumption of obligation.
Sec. 14 Form of AoI
* AoI as Charter and Contract
3
Anti-Dummy Law
corporation - Unauthorized Use of Corporation
Name (Sec. 159): Penalty: Fine of 10k-200k
Sec 15.
Amendment
Prior Right
Requirements for amending AoI.
Three (3) basic requirements for amending the
Articles of Incorporation, namely:
Doctrine of Secondary Meaning
1. Majority vote of the board of directors
2. Written assent of the stockholders
representing at least 2/3 of the outstanding
capital stock
3. Approval by the Securities and Exchange
Commission
Priority of Adoption Rule ‘
Revocation
Dissolution
Expiration of Term
Express and Implied Approval - amendments
shall take effect upon approval of SEC. Express
approval is not indispensable. Amendments will
take effect from date of filing with SEC if not
acted upon withn 6 months from date of filing.
Corporations with Same Name - they do not
have single legal personality. The two
registration certificate shows the separate
nature of their juridical entities.
Who can question amendments and By-Laws:
real party of interest like share holder and
member.
Sec. 17 A corporation asking to prevent
another corporation using its name must prove
that:
a corporation prohibit the use of a corporate
name by another corporation? A: 1. When the
complainant corporation acquired a prior right
over the use of such corporate name through
earlier registration; and 2. The proposed name
is either: not distinguishable from that already
reserved or registered for the use of the
complainant corporation; already protected by
law or; its use is contrary to existing law, rules,
and regulations. (
3 reasons…
Sec. 19 De Facto Corprations
Sec. 16
Distinguishability Test
CORPORATE NAME (Sec. 17) - SEC may now
order the immediate cessation of the usage of
the name if it is: (1) not distinguishable from a
reserved name; (2) not distinguishable from
one protected by law; or (3) is contrary to law,
rules, etc. - SEC can also order the removal of
signages, marks, advertisements, etc; else,
contempt/civil/criminal/administrative liability
against the director or officers of the
Defective corporations
Requisites of de facto Corp.
Good faith
Sec 20 Corp by Estoppel
4
Laiability as A Gen. Partner
Enterprise Liability
5
(Sec. 21) NON-USE OF CORPORATE CHARTER
OR INOPERATION - O: Corporation is deemed
inoperative if it fails to organize or commence
business within a period of 2 years - R: Period is
now 5 years before corporation is deemed
inoperative; else, COI deemed revoked - What
if business commenced operation but the
corporation became inoperative for at least 5
years? → It becomes a DELINQUENT
corporation - Delinquent corporation has 2
years to resume operations, and comply with
requirements (such as reportorial
requirements, submission of financial
statements, etc.); else, COI is deemed revoked
bias. - 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 reasonably
be perceived to materially interfere with the
exercise of independent judgment in carrying
out the responsibilities as a director. Independent director is not equal to minority
director because latter represents a group, i.e.,
the minority
Rationale: Objectivity and impartiality when
making business or commercial decisions.
(Sec. 22)- TERM OF OFFICE (BOARD)
Notes:
O: 1 year for BOTH directors and trustees R: Trustees are now elected for a term NOT
EXCEEDING 3 YEARS, whereas directors are
STILL elected for a term of 1 YEAR - No clear
rule as to EXISTING NS corporations with
different term of office of trustees in the
by-laws (BL) - According to Atty. Z, however, it
may be argued that considering that the RCC is
prospective in nature, these NS corporations
may still use the terms of office specified in
their BL. INDEPENDENT DIRECTOR/S (Sec. 22) Board to have independent directors (20% of
the Board) 1. Public companies (SRC [RA 8799],
Sec. 17.2) a. securities listed with an exchange;
OR - In PH, the stock exchange is the Philippine
Stock Exchange (PSE).
Corporate Management
The directors or trustees are the executive
representatives of the corporation, charged
with the administration of its internal affairs
and management and use of its assets.The
Board is the body which:
a. Exercises all powers provided for under the
Corporation Code;
b. b.Conducts all business of the corporation;
and
c. c.Controls and holds all property of the
corporation.
b. 50M assets and with 200 or more
shareholders, each holding at least 100 shares.
2. Banks, quasi-banks, NSSLAs, pawnshops,
those engaged in money service business,
preneed, trust and insurance and other
financial intermediaries - NSSLAs: Being
operated like a cooperative but with
banking/quasi-banking functions which are
available only to a well-defined group, and
usually is composed of the employees. 3.
Companies vested with public interest (SEC to
determine) - E.g. Public utilities, distribution,
water, telecommunications - Do not equate
independent director with minority director,
here we can expect impartiality and lack of
The authority of the BOD is restricted to the
management of the regular business affairs of
the corp, unless more extensive power is
expressly conferred. A corporation can act only
through its directors and officers. The Board is
the central power that authorizes the executive
agents to enter into contracts and embark on a
business.
Reason for Concentration of Power
6
The concentration of power in a board is
question of: a. Speed and cost and ;
b.Expertise; and
felt. Nevertheless, the power to unite islimited
to removal and election of directors
andis not extended to contracts wherebylimitat
ions are placed on the power of thedirectors to
manage the business of thecorporation by
selection of agents.If the stockholders do not
agree with thepolicies of the board, their
remedy is to wait
forthe election of directors or to remove thedir
ectors if they have the required vote.
d. Motivation.
Convening numerous shareholders everytime a
decision should be made may becumbersome
and may entail great cost.
Theories on Source of Powers
Business Judgment Rule
a.Agency Theory – all powers reside in the
stockholders and are just delegated to the
directors as agents.b.Concession Theory
– the power of thedirectors under this theory is
derivedfrom the State.c.Platonic Guardian
Theory – everycorporation under this theory
musthave a board and “the board is
anaristocracy or group of PlatonicGuardians
created by the
legislativeordainment”.d.Sui Generis Theory
– the directors arenot agents of the
stockholders whoelect them; they are
fiduciaries whoseduties run primarily to the
corporation.
Under this rule, the will of the majoritycontrols
in corporate affairs, and the contractsintra
vires entered into by the BOD are bindingon
the corporation and courts will not
interfereunless such contracts are so unconscio
nableand oppressive as to amount to a wanton
destruction of rights of the
minority.For the BOD to be held accountable, t
hemismanagement and resulting losses onacco
unt thereof are not the only matters to
beproven; it is likewise necessary to show that
hedirectors and/or officers acted in bad faith
andwith malice in doing the assailed
acts.Bad faith does not simply connote bad jud
gment or negligence,
it imports a dishonestpurpose or some moral
obliquity and consciousdoing of a wrong, a
breach of a known duty
through some motive or interest or ill willparta
king the nature of fraud.Mere errors of
judgment are not sufficientgrounds for equity
interference, for the powersof those entrusted
with corporate managementis
discretionary.The directors are entitled to
exercise honestbusiness judgment on the
information beforethem and to act within their
corporate powers.
Valle Verde Country Club vs. AfricaThe
underlying policy of theCorporation Code is
that the businessand affairs of the corporation
must begoverned by a BOD whose
membershave stood for election, and who
haveactually been elected by thestockholders
on an annual
basis.Only in that way can the directors’continu
ed accountability to theshareholders, and the l
egitimacy of their decision that bind thecorpora
tion’s stockholders, be assured.
Independence
Resolution
Stockholders cannot reverse the decisions
ofthe Board. Consistently, the directors and
notthe shareholders must make all contracts
withthird persons.Remedy of StockholdersThe
stockholders must unite to make theirpower
The Board must act, not individually orseparate
ly, but as a body in a lawful
meeting.The actions of the Board are expresse
d inresolutions passed in its
7
meetings.In relation to Section 25: the basis for
determining the presence of the requirednumb
er of directors or trustees for purposes
of confirming that there is a quorum is thenum
ber fixes in the Articles of Incorporationand
not the actual present
members of theboard.Proof of ResolutionA
Secretary’s Certificate – a certificate issuedby
the Corporate Secretary of the corporation
–is a sufficient proof of the existence of aresolu
tion from the Board and it is presumed tobe
true.The Secretary’s Certificate is not renderedi
nvalid even if it is alleged that the
CorporateSecretary did not
appear before the notarypublic who notarized
the same.Similarly, the Minutes of Meeting of
the BODcan also establish the existence of a
Resolutionof the Board.
the period during which the incumbentactually
holds office. The tenure may be shorterthan
the term.The one year term does not apply to
theincorporating directors who shall act only
assuch until the first regular directors are
dulyelected and qualified.The regular directors
shall be elected
duringthe first organizational meeting of thecor
poration, which shall be called
immediatelyafter registration with the SEC.
NOT DNE COPY 7 [ASE PAGE 25
XXX
Quorum
Under the Anti-Dummy Law, foreigners canbe
elected as directors only in proportion
totheir allowable equity participation in thecapi
tal of said activities.Dual CitizensThey can be
directors and officers even forcorporations
engaged in partly nationalize ornationalized
industries even if they possessed“dual
citizenship”.By-LawsSection 47(5) of this Code
provides that acorporation is empowered to
provide in its by-laws the qualifications and
disqualifications of members of the
Board.Effect of
DisqualificationA disqualified stockholder cann
ot run forelection as director. If the ground for
disqualification was present at the time of elect
ion, but the disqualified stockholder
wasnevertheless elected as director, thesubseq
uent disqualification of director wouldnot
render the Board incapable of
transactingbusiness for as long as
the remaining directorsstill constitute a
quorum.Such situation merely gives rise to a
vacancyin the Board.
Read Section 25.The stockholders may elect
less than the
totalnumber of directors specified in the Article
s.Nevertheless, an incomplete Board may stillfu
nction as long as the remaining directorsconstit
ute a quorum.The SEC opined that a
disqualified
directorlosses his capacity as director and as su
chcannot be counted for purposes of
establishinga quorum.
Term
The one-year term was construed by the SCto
mean that the term of the members of
theBOD shall be only for one year;
their termexpires one year after election to the
office. Theofficers have the same term as
directors.The provision is explicit that the term
is forone year in a stock corp. The By-Laws
cannotprovide for a longer term.The
SC defined “term” as the time duringwhich the
officer may claim to hold the officeas of right,
and fixes the interval after which theseveral
incumbents shall succeed one another.Term is
distinguished from “tenure” since thelatter is
Re-Election
8
Unless there is a provision in the Articles
orBy-Laws that disqualifies an incumbent
directoror officer from seeking another term of
office,the incumbent is not prevented from
seekingre-election.
As part of the rules on CorporateGovernance, t
he SEC likewise promulgatedrules
on independent directors which
is entitle“Guidelines on the Nomination, and
Election of Independent
Directors”.Independent director means a
person
who,apart from his fees and shareholdings, isin
dependent of management and free from
anybusiness or other relationship which could,
orcould reasonably be perceived to materiallyin
terfere with his exercise of independent judgm
ent in carrying
out his responsibilities asa director in any corpo
ration as prescribedunder the Securities
Regulation
Code.The 2009 Code of Corporate Governance
provides that a regular director who resigns
orwhose term ends on the day of the
electionshall only qualify for nomination and
electionas independent director only after a
two-yearcooling off period.According to the
SEC, the policy behind theappointment of an
independent director is
thata non-executive director must not have are
lationship with the corporation that wouldmate
rially interfere with his exercise of independent
judgment in carrying out hisresponsibilities as
director in any coveredcompany.It is during the
annualstockholders/members’ meeting that th
eindependent directors are elected. Hence,
“it isnot correct to say that it is either the
majorityblock or the minority one which has
the burdento elect the independent directors
since to doso would be anathema to the policy
behind theappointment of independent
directors.
Hold-Over
If no election is held, the directors andofficers s
hall hold-over until their successorsare
elected.The term of office is not affected by the
hold-over.The hold-over period – that time
from thelapse of one year from a member’s
election tothe Board and until his successor’s
election
andqualification – is not part of the director’sor
iginal term of office, nor is it a new term;
thehold-over period, however, constitutes part
of his tenure.
Corporate Governance
The 2009 Code of Corporate Governance
wasissued by the SEC. It defines “CorporateGov
ernance” as the framework of rules,
systemsand processes in the corporation that
governsthe performance by the Board of
Directors
andManagement of their respective duties and
responsibilities to the stockholders and
otherstakeholders which include, among others
,customers, employees, suppliers, financiers,go
vernment and community it
operates.Alternative Theories on Corporate
Governancea.Shareholder Primacy TheoryThis
theory holds that the corporationshould be run
for the exclusive benefitof
shareholders.b.Corporate Social
Responsibility TheoryThis theory prefers the li
mitation onexcessive pursuit of profit andprom
otion of employee, customer,
andcommunity voice in corporategovernance.
Sec. 23 i) ADOPTION OF BY-LAWS By-laws are
rules and regulations or private laws enacted
by the corporation to regulate, govern and
Independent Directors
9
control its own actions, affairs and concerns
and of its stockholders or members and
directors and officers in relation thereto and
among themselves in their relation to it.
of documents, can be performed only by
natural persons duly authorized for the
purpose by corporate by-laws or by a specific
act of the board. Absent the said board
resolution, a petition may not be given due
course. (Esguerra, et al. vs Holcim Philippines,
Inc., G.R. No. 182571, 02 Sept. 2013)
By-laws are adopted either prior to
incorporation or after incorporation
Non-submission of By-laws
An Unregistered Corporation has No Right to
Sue or be Sued for Want of Corporate
Personality “Lideco Corporation” had no
personality to intervene since it had not been
duly registered as a corporation. If petitioner
“Laureano Investment & Development
Corporation” legally and truly wanted to
intervene, it should have used its corporate
name as the law requires and not another
name which it had not registered. (Laureano
Investment & Development Corp. v. CA, G.R.
No. 100468, 06 May 1997)
ELECTION OF BOARD MEMBERS (Sec. 23) - R:
Voting via remote communication or voting in
absentia now allowed. - Must be authorized:
(1) in the By Laws OR (2) by majority of board
of directors. - Right to vote thru such modes
may be exercised in corporations vested with
PUBLIC INTEREST, even if NOT in the BL
(otherwise stated, right to vote thru such
modes is automatic without need of
authorizing the same in the BL).
Implied Powers of a Corporation A corporation
is not restricted to the exercise of powers
expressly conferred upon it by its charter but
has the power to do what is reasonably
necessary or proper to promote the interest or
welfare of the corporation. (NAPOCOR v. Vera,
G.R. No. 83558, 27 Feb. 1989)
CORPORATE POWERS
Kinds of Corporate Powers
Express Powers – granted by law, the
Corporation Code, and its Articles of
Incorporation or Charter, and administrative
regulations;
Inherent/Incidental Powers – not expressly
stated but are deemed to be within the
capacity of corporate entities; and
Theory of Specific Capacity Under the Theory of
Specific Capacity, a corporation cannot exercise
powers except those expressly or impliedly
given to it.
Implied/Necessary Powers – exists as a
necessary consequence of the exercise of the
express powers of the corporation or the
pursuit of its purposes as provided for in the
Charter.
Pre-emptive Right (2019 BAR) All stockholders
shall enjoy the pre-emptive right to subscribe
to all issues or disposition of shares of any class
in proportion to their present shareholdings,
unless such right is denied by the articles of
incorporation or an amendment thereto. (Sec.
38, RCC) This means that except in the cases
provided by law, shares of stock of the
corporation should first be offered to the
stockholders prior to any offer to
non stockholders. Purpose of Pre-emptive
Right The purpose of pre-emptive right is to
enable the shareholder to retain his
proportionate control in the corporation and to
Theory of General Capacity Under the Theory
of General Capacity, a corporation holds such
powers which are not prohibited or withheld
from it by general laws.
The Power of the Corporation to Sue and be
Sued is Exercised by the Board of Directors The
power of the corporation to sue and be sued is
exercised by the board of directors. The
physical acts of the corporation, like the signing
10
retain his equity in the surplus. NOTE:
Pre-emptive right shall not extend to shares to
be issued in compliance with laws requiring
stock offerings or minimum stock ownership by
the public; or to shares issued in good faith
with the approval of the stockholders
representing 2/3 of the OCS, in exchange for
property needed for corporate purposes or in
payment of a previously contracted debt; (Sec.
38, RCC)
remove solely on Shareholders - R: SEC can
now, 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
director shall be without prejudice to other
sanctions that the SEC may impose on the
board of directors or trustees who, with
knowledge of the disqualification, failed to
remove such director or trustee. - Note that
not only the disqualified director or trustee,
who, despite having the knowledge of the
existence of a ground for disqualification
willfully holds office, is liable (Sec. 160; offense
likewise applies to officers), but also OTHER
director, trustee, or officer, who, despite
having the knowledge of the existence of a
ground for disqualification, WILLFULLY
CONCEALS SUCH DISQUALIFICATION. (Sec. 160)
- Penalty for such includes both (1) fine ranging
from P10,000 to P200,000 or P20,000 to
P400,000 if the violation is injurious or
detrimental to the public. at the discretion of
the Court; AND (2) permanent disqualification
from being a director, trustee or officer of ANY
corporation BOARD VACANCY (Sec. 28) 1.
Vacancy due to reasons other than removal or
expiration: May be filled by the vote of at least
a majority of the remaining directors or
trustees, if still constituting a quorum. Example
of other reasons: resignation, amendment
increasing the number of board members, etc.
- Otherwise, said vacancies must be filled by
the stockholders or members in a regular or
special meeting called for that purpose. The
election must be held no later than 45 days
from the time the vacancy arose 2. Vacancy
due to term expiration: Election shall be held
no later than the day of such expiration at a
meeting called for that purpose Rationale: To
ensure the continuity of the board 3. Vacancy
due to removal: Election may be held on the
same day of the meeting authorizing the
removal and this fact must be so stated in the
agenda and notice of said meeting (Kasi para
maka hold ng meeting to remove ng board.
Dapat ilagay ni corporate secretary sa agenda.
CORPORATE OFFICERS (Sec. 24) - O: No specific
requirement for the treasurer to be a resident R: The treasurer must be a resident of the
Philippines - Subject to qualifications as
provided for under the AOI. - If the corporation
is vested with public interest, the board shall
also elect a compliance officer (usually a
lawyer). NON-HOLDING OF ELECTION (Sec. 25) R: Non-holding of elections and reasons
therefor shall be reported by the CORSEC to
the SEC within 30 days from the date of the
scheduled election. - The report shall specify
the NEW DATE of the election, which shall not
be later than 60 days from the ORIGINAL
scheduled date of the election. - If there is no
new date/rescheduled election not held: Upon
application of stockholder/member/D/T, SEC
can summarily order the conduct of election.
DISQUALIFICATIONS (Sec. 26) - O: The following
may not qualify as director, trustee or officer of
any corporation: 1. Conviction by final
judgment of an offense punishable by
imprisonment for a period exceeding 6 years 2.
Violation of the Code committed within 5 years
prior to the date of his election or appointment
- R: Additional grounds for disqualification: 3.
Violation of R.A. No. 8799 (SRC)
Found administratively liable for any offense
involving fraudulent acts 5. Judgment by a
foreign court or equivalent foreign regulatory
authority for acts, violations or misconduct
similar to those enumerated above. - According
to Atty. Z, with respect to violation of the RCC
or the SRC under this number, it refers to the
equivalent law of the RCC or the SRC in that
foreign jurisdiction). SEC POWER TO REMOVE A
DIRECTOR OR TRUSTEE (Sec. 27) - O: Power to
11
ang weird dito ay pinapalagay din dito sa
agenda yung "election of replacement" kahit
wala pang removal; lagyan na lang ng "If so
removed..." para hindi masyadong offensive
haha.) - A director or trustee elected to fill a
vacancy shall be referred to as replacement
director or trustee and shall serve only for the
unexpired term of the predecessor in office. Emergency Board: When the vacancy (1)
prevents the remaining directors from
constituting a quorum and (2) emergency
action is required to prevent grave, substantial,
and irreparable loss or damage to the
corporation: Vacancy may be temporarily filled
from among the officers of the corporation by
UNANIMOUS VOTE of the remaining directors
or trustees. (Sec. 28)
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
SEC. 24
BOARD COMPENSATION (Sec. 29) - O: The law
is silent as to who has the power to decide
compensation for board members. Directors or
trustees shall not participate in the
determination for their own per diems or
compensation - RCC: Corporations vested with
public interest shall submit to their
shareholders and the Commission, an annual
report of the total compensation of each of
their directors or trustees (Sec 29, RCC) - The
solution under the RCC: The board of directors
may create special committees of temporary
the or permanent nature and determine the
members' term, composition, compensation,
powers, and responsibilities (Sec. 34, RCC) SELF
DEALING CONTRACTS (Sec. 31) - A contract of
the corporation with one or more of its
directors or trustees or officers, or their
spouses and relative within the 4th civil degree
of consanguinity is voidable (Sec. 31 RCC) Additional requirement to validate SDC: In case
of corporations vested with public interest,
12
13
14
15
16
17
18
A corporate president is often given
generalsupervision and control over corporateoperations. A party dealing with the president of aco
rporation is entitled to assume that he hasthe authority to enter, on behalf of thecorporation, into
contracts that are within thescope of the powers of said corporation andthat do not violate any
statute or rule on publicpolicy.Vice-PresidentRead Section 63.The By-Laws ordinarily assign to the
VP theduty of succession to the position of chief executive in the absence or disability
of thepresident or the chairman of the board andsuch other duties as the board may
assign.ChairmanThe concept of board chairman and hisfunctions as executive vary so widely indiffe
rent companies.The chairman may be concurrently thepresident and may be designated as the
chief executive officer of the corporation.SecretaryThe Corpo Code provides that the
corporatesecretary must be a resident and citizen of
thePhilippines. Other qualifications may beprovided for in the
By-laws.The secretary is duty-bound to keep thecorporate records and to make proper
entriesthereto.The secretary is the officer who maintains thestock and transfer
book.Under Section 63, the corporate secretarymust sign the certificates of stocks of acorporation.I
t is also the corporate secretary who mustsend notices of the meeting of the directorsand/or
stockholders are sent by the secretary.The secretary likewise prepares the minutes of such
19
meetings.The minutes of the meetings need only tocontain a summary and the highlights of
thematters taken up during the meetings.However, the actual resolutions that werepassed should
be stated in the minutes.The Secretary issues certificates commonlyknown as “Secretary’s
Certificate” regarding thepassage, existence, and binding effect of aboard
resolution.TreasurerThe Treasurer normally takes care of thefunds of the
corporation.The Corpo Code does not require thetreasurer to be a resident or a citizen of
thePhilippines. However, the SEC, as a matter of policy, has imposed the residence requirementfor
treasurers.
Concurrence
Any two or more positions may be heldconcurrently by the same person. The
Presidentmay serve concurrently as the Chairman.Similarly, the director may be the legal counselof
the corporation.Section 25 provides that no one shall act
aspresident and secretary or as president andtreasurer at the same time. The law
considersthe positions of secretary and treasurer asinconsistent with the position of a president.
Corporate Officer Concurrently anEmployee
A corporation is not prohibited from hiring
acorporate officer to perform services undercircumstances that will make him an employee.Indeed,
it is possible for one to have a dualrole of officer and employee.If the corporate officer is also an
employee,the NLRC has jurisdiction over the complaintfiled by the same corporate officer who
servedboth as corporate secretary and administrator,if the money claims were made as an
employeeand not as a corporate officer. (Vda. DeLecciones vs. NLRC)
Anti-Dummy Law
While a foreigner can still be a director in apartly nationalized activity in proportion to theequity
participation allowed to foreigners, noforeigner can be elected or appointed as officereven in partly
nationalized activities.
Authority of Officers
In some cases, corporate officers like thePresident can also bind the corporation.
Theauthority of such individuals to bind thecorporation is generally derived from:a.Law;b.Articles
of Incorporation;c.Corporate By-Laws;d.Authorization from the Board; ore.Those inherent in
the office.If the authority of the officers is provided
forin a board resolution, the corporate officersshall be deemed fully clothed by thecorporation to
exercise a power of the board, if the board specifically authorizes them to do so.If the By-Laws
provide for specific powers of an officer like the President, the officer
neednot secure a separate resolution from theBoard to exercise the specific power.
20
Implied Authority
A corporate officer, who is entrusted with
thegeneral management and control of itsbusiness, has implied authority to make anycontract or
do any other act that is necessary orappropriate to the conduct of the ordinarybusiness of the
corporation.As such officer, he may, without any specialauthority from the BOD, perform all acts of
anordinary nature that by usage or necessity areincident to his office, and may bind thecorporation
by contracts in matters arising inthe usual course of business.
Practice, Custom and Policy
Where the BOD approves similar acts as amatter of general practice, custom, and
policy,the officer may bind the company withoutformal authorization of the BOD,The existence of
such authority is established,by proof of the course of business, the
usageand practices of the company, and by theknowledge that the BOD has or must bepresumed to
have, of acts and doings of itssubordinates in and about the affairs of thecorporation.
Ratification
The acts of corporate officers within thescope of their authority
are binding on thecorporation; but when these officers exceedtheir authority, their actions
cannot bind thecorporation, unless the Board ratifies such actsor is stopped from disclaiming
therein.Ratification by a corporation of anunauthorized act or contract by its officers orothers
retroacts back to the time of the act orcontract ratified.The adoption or ratification of a contract by
acorporation is nothing more or less than themaking of an original document.Any party who alleges
that the corporationratified the action of the officer must provesuch ratification.
The rule on
Agency by Estoppel
applies tocorporations.Apparent AuthorityBased on decisions of the SC, an officer mayalso bind
the corporation of he has apparentauthority.The doctrine of apparent authority is aspecies of the
doctrine of estoppels.Apparent authority is derived not only
frompractice – its existence may be ascertainedthrough:a.The general manner in which thecorporat
ion holds out an officer oragent as having the power to act, withwhich it clothes him;
orb.The acquiescence in his acts of aparticular nature, with actual orconstructive
knowledge thereof, withor beyond the scope of his
ordinarypowers.The principal’s liability, however, is limitedonly to third persons who have been led
reasonably to believe by the conduct of theprincipal that such actual authority exists,although none
was
given.The Doctrine of Apparent Authority wasapplied in a situation where the solemanagement
was left to the President and
theTreasurer who are both incorporators of thecorporation. (Advance Paper Corp. vs. ArmaTraders
Corp.)
21
De Facto Officers
A person is a de facto officer if he acts assuch, under color of authority, through electionor
appointment.By color of authority is meant authorityderived from an election or appointment,altho
ugh irregular or informal, so that theincumbent must be more than a volunteer.
Compensation
The By-Laws may provide that the Board shallfix the compensation of the corporate officers.The
fixing of the compensation is part of theregular business of the corporation that theBoard conducts,
even if not stated under theBy-Laws.
Section 26. – Report of election of directors,trustees and officers.
The SEC rules provide that a “GeneralInformation Sheet” (GIS) shall be filed with theCommission
within 30 days following the dateof annual stockholders’ (or members’) meeting.
The GIS contains the names of thestockholders, directors and corporate officers.The recent
enhancement of the GIS includes aportion that is designed for compliance withthe Anti-Money
Laundering Law.
The GIS indicates who and who is not acorporate officer or director or stockholder.However, the
GIS is only a piece of evidenceand is subject to stronger proof if entriestherein are in question.
31
Premium Marble Resources, Inc. vs. CAIssue: WON the officers of thecorporation have legal
capacity to file acomplaint for damages in behalf of thecorporationThe SC sustained the dismissal of
thecomplaint because it was notestablished that the Members of theBoard who authorized the
filing of thecomplaint were the lawfully electeddirectors of the corporation.It was pointed out in
this case that theGeneral Information Sheet filedpursuant to Section 26 does not
showthe names of the persons whoauthorized the filing of the case.
Monfort Hermanos AgriculturalDevelopment Corporation vs. AntonioMonfort IIIThe SC rejected the
allegation that thealleged members of the board whosigned the Board Resolution were dulyelected
22
directors. It was noted that “thefact that four of the six Members of theBoard listed in the GIS are
already deadat the time the Board Resolution wasissued”, does not automatically makethe four
signatories to the said
BoardResolution (whose names do notappear in the GIS) as amongincumbent members of the
Board.The belated attempt to replace thedeceased Board Members did noterase the doubt as to w
hether anelection was indeed held.
Report in case of Vacancy
If a new director is elected because of avacancy in the Board, the Corporate Secretarymust submit
an Amended GIS indicating thechange of director within 30 calendar daysfrom the occurrence of
such change.
Section 27. – Disqualification of directors,trustees or officers.
Grounds for Disqualification
a.If he is convicted by final judgment of anoffense punishable by imprisonmentexceeding 6
years;b.If he is convicted by final judgment of aviolation of the Corporation Codecommitted within
5 years prior to thedate of his election or appointment.
Rationale
The position of director in a corporation isone of trust. A director in a corporation has
thepersonality of managing the funds belongingto other persons or individuals.
Non-exclusive
The disqualifications under Section 27 are notexclusive. Additional grounds fordisqualification are
contemplated in the otherprovisions of the Code.For instance, a person who ceases to be
ashareholder because he already transferred allhis shares is already disqualified to be adirector.
Grounds in Articles and By-Laws
Other grounds may be provided for in theArticles or By-Laws of the corporation.
Government vs. El Hogar FilipinoThe SC sustained the validity of aprovision in the corporate by-laws
inpursuant to the law then in force that“corporations are authorized to providein their by-laws for
the qualifications of directors and is highly prudent and inconformity with good practice.
Corporate Governance
23
Disqualifications are likewise provided underthe 2009 Code of Corporate Governance.
Section 28. – Removal of directors ortrustees.
Right to Remove
At common law, the inherent right to removea director for cause is known as “amotion”.Under the
Corporation Code, the authority toremove the directors is the prerogative of
thestockholders or members of the corporationreposed under Section 28. Hence, the
directorscannot indirectly usurp or disregard the saidpower of the stockholders.
Requisites of Removal
a.It must take place either at a regularmeeting or a special meeting of thestockholders or members
called for thepurpose;b.There must be previous notice to thestockholders or members of the
intentionto remove a director;c.The removal must be by a vote of
thestockholders representing 2/3 of the
Outstanding Capital Stock or 2/3 of members;d.A director who was elected by theminority must be
removed only for acause.The directors may elect the replacementduring the same
meeting that such directorwas removed.
Removal Without Cause
A director who was elected by the majoritymay actually be removed with or without cause.The
requirement that there must be cause forremoval is limited to a director who was electedby the
minority.
Raniel vs. JochicoThe SC declared valid the removal of two directors where 400 shares
votedfor their removal and 2/3 of theOutstanding Capital Stock was only333.33
shares.The votes of 400 shares were morethan enough to oust the two directors,with or without
cause.
Disqualified Director
Removal should be distinguished from ousterbecause of
disqualification.There is no need to follow the procedureunder Section 28 if the director is
disqualified.Mere declaration of disqualification as thecause of vacancy is sufficient.
Effect on the Shares
24
The removal of the director does not result inthe transfer of his shares; the removed
directorremains a shareholder.
Removal of Corporate Officers
Since the authority to elect corporate officersrests with the Board, there is a correlativeauthority to
remove the corporate officers. Theremoval of corporate officers is a corporate act.
Section 29. – Vacancies in the office of director or trustee.
Filling Up of Vacancies in the Board
Vacancies may be filled up either by thestockholders (or members) or by the
remainingdirectors (trustees) constituting a quorumdepending on the reason for vacancy.Vacancy
is the operative fact that justifies theelection or appointment of the
replacement.The stockholders or members shallreplace/elect the director if the vacancy is
dueto:a.Removal;b.Expiration of term;c.A ground other than removal orexpiration of term (e.g. dea
th,resignation, abandonment) where theremaining directors do not constitute aquorum;
ord.Increase in the number of directors.Allowing the remaining directors or trusteesto fill up
vacancies avoids the expenses andinconveniences attending the calling of stockholder’s or
member’s meeting, especiallywhere there are many of
them.Note that filling up of vacancies by theremaining board members, if proper, ismandatory. For
instance, the remainingdirectors may choose not to fill up the vacancyand leave the matter to the
stockholders. Thus,the directors may call a special stockholder’smeeting for such purpose.Vacancy
may occur if the director abandonedhis position. A director is deemed to haveabandoned his
position where a director of
thecorporation accepts a position in which hisduties are incompatible with and which willrender
him physically incapable of performinghis duties as director.
Effect of Vacancy
The Board may continue to function even if there is vacancy as long as there is a quorumand any
act, transaction or resolution made bythem shall be considered valid.
By-Laws
The by-laws may provide for the procedurefor the filling-up of the vacancy. Thus, the by-laws may
provide that the stockholders must fillthe vacancy instead of the remaining directors.However, such
provisions must be consistentwith the other provision of the CorporationCode.
Hold-Over Directors
If a director resigns after the expiration of theterm of the directors, and while the directorscontinue
to function in a hold-over capacity,the position of the resigning director cannot befilled by the
25
remaining hold-over directors. Thevacancy is, in legal effect, not due toresignation but
to expiration of the term. Avacancy is created the moment the term of thedirectors expires. Hence,
only the stockholderscan fill the vacancy.Section 29 limited the instances when theremaining
directors can fill in vacancies in theboard. It contemplates a vacancy occurringwithin
the director’s term of office. When a
33
vacancy is created by the expiration of theterm, there is no more unexpired term to speakof.
Term
The director who will fill up the vacancy willnot serve for another one-year term. Thereplacement
will serve only for the remainingperiod of the original term of the director thathe replaced for the
reason that the term is afixed period and cannot be split into two ormore terms.
Section 30. Compensation of Directors
Rules on Compensation
a.The by-laws may provide for a fixedcompensation of the members of theBoard.b.If
the by-laws does not provide forcompensation,
compensation may begranted to the directors by majorityvote of the stockholders representingthe
OCS.c. Even if the by-laws does not providefor compensation, the directors areentitled to
reasonable per diems.d.The total compensation of directorsshall not exceed 10% of the net
incomebefore income tax of the corporationduring the preceding year.
No Salary
Therefore, directors or trustees are notentitled to salary or other compensation
whenthey perform nothing more than usual andordinary duties of their office.
Per Diems
This is limited to pay for a day’s services.They are allowances of money for expenseseach day.
Limitations
The 10% limit means that the compensationcan be given only if there are profits.
Compensation of Officers
26
The board may fix their compensation. It iswithin the power of the board to fix the salariesof the
officers by way of a resolution.The salaries of officers are not covered by the10% limit.A director is
also entitled to receive salaries if he is performing functions as an officer.
Remedy in case of abuse
The remedies in case of clear abuse of discretion to give salaries or in case of compensations or per
diems that are contraryto the Code include a derivative suit.
Section 31. Liability of Directors, trustees orofficers.
Duties.
In a broad sense, management hasthree paramount duties, namely:a.
Obedience
This requires compliance with the lawand rules. In relation to this duty,directors, trustees and
officers have theduty to act intra vires and withinauthority.The directors, trustees and officersmust
also obey the orders of courts.b.
Diligence
The directors and officers are requiredto exercise due care in the performanceof their
functions.The requirement of presence of badfaith and gross negligence indicatesthat the directors
and officers are notliable for simple mistakes ornegligence. They are not insurers andare not liable
for errors of judgment ormistakes while acting with reasonablediligence, care and skill.Gross
negligence removes the act oromission from the operation of Business Judgment Rule.The standard
of care to be applied inthe exercise of diligence is that of areasonably prudent person.c.
Loyalty.
The director or officer owes loyalty andallegiance to the corporation. Anyadverse interest of a
director will besubject to a rigid and
uncompromisingscrutiny.Directors and officers owe fiduciaryduty to the corporation and to theshar
eholders. Hence the Code providesfor rules on: (a) self-dealing
directors,(b) contracts between directors withinter-locking directorship, (c)usurpation of the corpor
ationsbusiness opportunity, (d) oppression of
34
the minority shareholders, and (e)conflict of interest.
Liability of Directors/Officers
27
As a rule, directors and officers are notsolidarily liable with the corporation.Obligations incurred by
them, acting as suchcorporate agents, are not theirs but the
directaccountabilities of the corporation theyrepresent.
Criminal Liability
– corporate officers oremployees through whose act the
corporationcommits a crime, may themselves beindividually held liable for the crime.
Solidary Liability
– in following situations,personal liability may be incurred by thedirectors and
officers:a.When directors and trustees or, inappropriate cases, the officers of thecorporation:i.Vote
for or assent to the patentlyunlawful acts of the
corporation;ii.Act in bad faith or with grossnegligence in directing the affairs of the
corporation;iii.Are guilty of conflicts of interest
tothe prejudice of corporation, itsstockholders or members, and otherpersons;b.When a director
has consented to theissuance of watered stocks or who,having knowledge thereof, did not filewith
the corporate secretary his writtenobjection thereto;c.When the director, trustee or officerhas
contractually agreed or stipulatedto hold himself personally andsolidarily liable with the
corporation;d.When a director, trustee or
officer ismade, by specific provisions of law,personally liable for his corporateactions.
Gross negligence
– the directorswould also be considered grosslynegligent if their action lacks businesspurpose, is so
egregious as to amountto no-win decision, or a result from
anobvious and prolonged failure toexercise oversight or supervision.
Watered Stocks
– sections 62 and 65
Contractual Assumption of Liability
–a director or officer is personally liablefor the corporation’s debt if they socontractually agree or
stipulate. [TupasIV vs CA]
Labor Cases
Generally, directors and officers are personallyliable in cases when they acted with malice
orbad faith in terminating the services of anemployee.
Duties of Officers
Like directors, officers are similarly vested withthe duties of obedience, loyalty and diligence.
Section 32. Dealings of directors, trustees orofficers with the corporation.
28
Self-Dealing Directors, Trustees or Officers
It is discouraged because the directors, trusteesand officers have fiduciary relationship with
thecorporation, and there can be no realbargaining where the same is acting on bothsides of the
trade.
Fair and Reasonable
Fairness typically requires that the transactionreflect terms one would expect in an arm’slength
transaction, which means generally thata self-dealing director must treat hiscorporation’s interest
as his own.
Section 33. Contracts between corporationswith interlocking directors.
Effect of Interlocking Directorship
Interlocking directorship by itself is notprohibited under the Corporation Code.
Ratification
Contract between corporations withinterlocking directors/trustees must alwaysmeet the condition
that said contracts must befair and reasonable under the circumstances.Relate with Section 32.
Effect of Prejudice to Third Party
Section 33, which provides for rules
regardingtransactions between corporations withinterlocking directors, applies if the contractresult
s in prejudice to one of the corporations.This rule does not apply if the corporationallegedly
prejudiced is a third party, not one of the corporations with interlocking directors.
Section 34. Disloyalty of a director.
Doctrine of Corporate Opportunity
35
Section 34 of the Corporate Code is consistentwith the duty of loyalty of a
director.The duty of loyalty
mandates that directorsshould not give preference to their ownpersonal amelioration by taking the
opportunity belonging to the corporation.Section 34 applies if there is presented to
acorporate director a business opportunitywhich:a.The corporation is financially
29
able toundertake;b.From its nature, is in line withcorporations business and is of practical
advantage to it; andc.Is one in which corporation has ininterest or a reasonable expectancy.
Gokongwei Jr. vs SEC
The Doctrine of Corporate Opportunity, asoriginally crafted by the courts, recognizesthat
the fiduciary standards could not beupheld where the fiduciary was acting for
twoentities with competing interests. Thisdoctrine rests fundamentally on theunfairness, in
particular circumstances, of anofficer or director taking advantage of anopportunity for his own
personal profit whenthe interest of the corporation justly calls forprotection.
Tests1.Interest or Expectancy Test
Precludes acquisition by corporateofficers of the property of a businessopportunity in which
the corporationhas a “beachhead” in the sense of alegal or equitable interest orexpectancy growing
out of pre-existingright or relationship.
2.Line of Business Test
Characterizes an opportunity ascorporate whenever a managing
officerbecomes involved in an activityintimately or closely associated withthe existing or
prospective activities of the corporation..
3.Fairness Test
Determines the existence of acorporate opportunity by applyingethical
standards of what is fair andequitable under the circumstances.
4.Mixed Test
Another approach is to apply any twoor all the tests. For instance, one courtapplied a two stage
test using both theline of business test and the fairnesstest.It is believed that either the
FairnessTest or the Mixed Test can be appliedin this jurisdiction.
Trustees and Officers Not Covered
Section 34 of the Corporation Code
specifiesonly the directors as the persons who arecovered by the Doctrine of CorporateOpportunity
.Trustees are not included because non-stockcorporations are not supposed to be engagedin
business as a main purpose.
Section 35. Executive Committee.
Purpose
The executive committee is a corporate body“with standing in law, although in a sense, it isan
agent of the BOD because it performs whatotherwise is vested by law in the BOD”.The Code allows
the creation of an executivecommittee because the board may not
30
readilyface the contingency of confronting urgentmatters that requires its attention.The executive
committee can only be createdby virtue of a provision in the by-laws.
Authority
The executive committee has all the authorityof the board to the extent provided in theresolution
of the board or in the by-laws.However, there must be no undue abdicationof the powers of the
Board. The rights of theminority should not be impaired.
De Facto Officers
If the executive committee was not validlyconstituted, the members thereof maybeconsidered de
facto officers.
TITLE IV – POWERS OF CORPORATIONSSection 36. Corporate powers and capacity.
Special Capacities
A corporation can only do that which the lawauthorizes it to perform.
Kinds of Powers1.Express
36
These are powers expressly provided by theCorporation Code. This includes (a) generalpowers
under Section 36; and (2) the specificpowers under Sections 11, 16 and
37-44.The powers expressly provided for in theCorporation Code are deemed part of theArticles
of Incorporation even if such powersare not enumerated therein.
2.Implied
This is recognized under paragraph 11 ofSection 36.a.Implied powers include all powers thatare
reasonably necessary or proper forthe execution of the powers expresslygranted and are not
expressly orimpliedly excluded.b.For instance, a corporation engaged inmining has the power to
establish alocal post office. [Republic vs. AcojeMining]c.Similarly, a corporation that isauthorized to
operate a cement factoryhas the implied power to operate
anelectric power plant for such factory.[Teresa Electric & Power Co. vs. Phil.Service Commission]d.A
corporation engaged in
advertisingbusiness may pursue any and allrelated activities covered by thepurpose clause.e.The
SEC opined that manufacturing isnot implied from or incidental to thebusiness of selling that is
stated in theArticles of Incorporation.f.A corporation cannot operate an onlinecasino on
the basis of its secondarypurpose to operate amusement centersfor various computer games.g.A
31
corporation with a primary purposeof trading goods can likewise
importgoods.Powers merely convenient or useful are notimplied if they are not essential, having in
viewthe nature and object of the corporation.The SEC adopted the
“Stretching of PurposeClauses Rule”
under which it is legal to stretchthe meaning of the purpose clause to
covernew and unexpected situations. There is nomore need to amend the Articles toaccommodate
the new situations.
3.Incidental
These are powers that are deemed conferredon the corporation because they are incidentalto the
existence of the corporation.This include:a.Right to successionb.Right to have a
corporate namec.Right to make by-laws for itsgovernmentd.Right to sue and be suede.Right to
acquire and hold propertiesfor the purposes authorized by thecharter
Specific Powers
Sections 11 and 37, 16, 38, 39, 40, 41, 42, 43,44.
General Powers
The Board exercises general powers of thecorporation. Generally, approval of a resolutionby the
board is enough for the exercise of suchpowers.
Other Powers (paragraph 11)a. To enter into a Partnership.
Generally,
acorporation is prohibited to enter intopartnership. By way of exception, the SECallows a corporati
on to be a partner if thefollowing conditions are present:i. The authority to enter into apartnership
relation is expressly conferred bythe charter or Articles, and the nature of
thebusiness venture to be undertaken by thepartnership is in line with the businessauthorized by
the charter or Articles of thecorporation involved.ii. The partnership must be a limitedpartnership
and the corporation must be alimited partner.iii. If it is a foreign corporation, it mustobtain a
license to transact business in thecountry.
b.
To enter into a Joint Venture.
Acorporation can enter into a JVA. JV is anorganization formed for some temporarypurposes.Under
Philippine law, a JV is a form of apartnership and should be governed by the lawof partnerships.
c. To borrow funds.
32
The power to borrowmoney is auxiliary to the primary purposes of the corporation.It is only the
duly authorized representativesthat must secure loans in behalf of thecorporation. If the loan is the
personal debt of
37
the corporate officer, the corporation is underno obligation to pay the loan. [Juanity Ang vs.Spouses
Ang]
d. To act as Surety or Guarantor
. The generalrule is that a corporation may not ordinarily bebound by a contract of guarantee
or surety forthe benefit of third persons.However, such guaranty may be given in
theaccomplishment of any object for which thecorporation was created or when the
particulartransaction is reasonably necessary or proper inthe conduct of its business.
Re: Negotiable Instruments
A corporation cannot act as accommodationparty in a negotiable instrument. Issue orindorsement
of a negotiable instrumentwithout consideration and for theaccommodation of another is ultra
vires.
e.
To Mortgage
. Corporate assets may bemortgaged by authorized directors or officerson behalf of the corporation
as owner, as
thetransaction of lawful business of thecorporation may reasonably and necessarilyrequire.In the
case of
China Banking Corp. vs. QBROFishing Enterprises, Inc
., the SC sustained thevalidity of a mortgage to secure the obligationsof a “sister company” under
Article 2085 of theNCC.
f. Practice of Profession.
A view wasexpressed in one case that the corporatepractice of any profession must never besanctio
ned.Exceptionally, architects can organize acorporation for the practice of their professionunder
R.A. 9266.
Section 37. Power to extend or shortencorporate term.
Not inherent right
33
Shortening of corporate term can actually bedone at the discretion of the corporation
underSections 117-120.
Dissolution
The shortening of a corporate term may bedesigned to have the effect of dissolving thecorporation.
The dissolution takes effect on thedate of approval of the Amended Articles of Incorporation by the
SEC.
Section 38. Power to increase or decreasecapital stock; incur, create or increasebonded
indebtedness.
The exercise of the power to increase ordecrease the ACS of the corporation results inthe
amendment of the Articles.This should be distinguished from mereincrease of subscribed capital
stock or paid-upcapital that does not necessarily requireamendment of the Articles.
Stock Split
The increase or decrease of capital will notnecessarily result if there is a stock split. Instock split, a
share is divided or converted intotwo or more shares but the amount of the OCremains the same
because the par value is alsodivided in as many shares.
Increase of Subscribed Capital
This is necessary when additional funds arerequired by the operation and the
corporationopted to raise funds through additionalinvestments.The power to issue shares of stock i
n acorporation is lodged in the Board and nostockholders’ meeting is required to consider
itbecause additional issuances of shares of stockdo not need approval of the
stockholders.An increase in the ACS is required if theadditional subscription cannot be covered
bythe original authorized capital or if the originalauthorized capital is already exhausted.
Increase in paid-up capital
Generally, there is also no need to get theapproval of the SEC for the creation of additional paid-in
capital. However, there arecertain cases when the valuation of theconsideration is subject to the
approval of theSEC like in cases where property is given inpayment of subscription price.
SEC Approval
Section 38 provides that it is only from andafter approval by the SEC and the issuance bythe SEC
of a certificate of filing that the capitalstock shall stand increased or decreased.Thus, there is no
increase in the ACS even if thestockholders already paid the additionalsubscription if there is no
approval of the SEC.[Central Textile Mills vs. National Wages andProductivity Comm.]
Verification
34
SEC Memorandum Circular No. 6, Series of 2008 provides for the rules for on-siteverification of
financial records relative to theapplication for increase in capital stocks where
38
SEC will verify cash payment for subscriptionsor the conversion of advances/liabilities topayment
subscription for the increase.
Bonded Indebtedness
refers to securedindebtedness or those secured by real orpersonal properties that are covered byce
rtificates.
Section 39. Power to deny pre-emptiveright.
This is aimed to maintain the existing ratio of the shareholder’s interest and voting power inthe
corporation.
The pre-emptive right covers all issues anddispositions, whether newly-issued orpreviously
subscribed shares.
The pre-emptive right is not available whenshares are issued in exchange for shares inanother
corporation if the same is the result of a merger to which the corporations are parties.
Waiver
Upon the expiration of reasonable time grantedto the stockholder, he who has not exercisedsuch
right will be deemed to have waived it.A stockholder who neither desires nor intendsto buy any of
the stocks being offered maywaive such right. In which event, the
sharesmay be offered to any interested personsacceptable to the corporation.
Transfer
The right subscribed to new issues anddisposition may be transferred by theshareholder. Unless the
re is an expressrestriction in the Articles, the pre-emptive rightis transferable.
Denial and Restriction
Even if the pre-emptive right does not exist,either because the issue comes within theexceptions in
Section 39 or because it is deniedor limited in the Articles, an issue may still beobjectionable if the
35
directors acted in breach of trust and their primary purpose is to perpetuateor shift control of the
corporation, or to “freeout” the minority interest.
Section 40. Sale or other disposition of assets.
RequisitesIslamic Directorate of the Philippinesvs. CA
A sale, lease, exchange, mortgage,pledge or other disposition of all orsubstantially all of the propert
ies andassets of the corporation, including itsgoodwill, requires the ff:a.It must be approved by the
majorityof the directors or trustees;b. 2/3 of OCS or 2/3 of members in
ameeting duly called for the purposeafter written notice.The sale is void if these are not
compliedwith.If the transaction does not cover all orsubstantially all of the assets, the decision
of the board is sufficient and it is not necessary toget the approval of the stockholders.
Kinds of Corporate AcquisitionsSME Bank vs. De Guzman
The SC explained the two types of corporate acquisitions
are:a.Asset sales – the corporate entitysells all or substantially all of itsassets to another
entity.b.Stock Sales – the individual orcorporate stockholders sell acontrolling block of stock to new
orexisting stockholders.
Effect on CreditorsGR:
The transferee-corporation of all orsubstantially all of the assets or shares of
thetransferor-corporation will not be liable for thedebts of said transferor.
Exception: [Edward J. Neil, Co., vs.Pacific Farms]
The transferee-corporation isliable if:a.There is an express or impliedassumption of
liabilities;b.There is a consolidation or merger or ade facto merger;c.The purchase was in fraud
of creditors;andd.The purchaser becomes a continuation of the seller.To allow the assignor to
transfer all its business,properties and assets without the consent of itscreditors and without
requiring the assignee toassume the assignor’s obligations will defraudthe creditors. [Caltex Inc., vs.
PNOC Shipping]
39
Creditors are likewise protected under Articles1313 and 1381 of the NCC.
Read about Badges of Fraud.
Effect on Employees of CorporateAcquisitionsSME Bank, Inc., vs. De Guzman
36
The SC reiterated that the dismissal of theemployees in good faith is justified if thecorporate entity
sells all or substantially all of its assets.At any rate, even under the present doctrine,it is still
necessary that there is good faith inthe dismissal of the employees.
Section 41. Power to acquire own shares.
Requirements for acquisition
The SEC adopted the following enumeration of requirements for the exercise of the power
toacquire the corporation’s own shares:a.The capital is not
impaired;b. A legitimate and proper corporatepurpose or objective is advanced;c.The corporate
affairs warrant it;d.The transaction is designed and carriedout in good faith;e.There is intended and
there results noundue advantage to a favoredstockholders at the expense of theremainder;f.The
creditors are not prejudiced;g.The corporation acts in good faith
andwithout prejudice to the rights of creditors and stockholders;
andh.There must be unrestricted retainedearnings to purchase the
same.Section 41 provides a non-exclusive list of examples of cases when the corporation
canacquire its own shares. However, it is stillnecessary under any of the 3 purposes underthe
section that there are unrestricted retainedearnings even if already considered aslegitimate
corporate purposes.Other cases when UREs are no longer
necessaryinclude redemption of redeemable sharesunder Section 8, purchase for the purpose
of reducing the ACS under Section 38, and in caseof deadlock in a close corporation underSection
104.
Section 42. Power to invest corporate fundsin another corporation or business or for anyother
purpose.
Pursuing Primary Purpose
Investment of a corporation in a business,which is in line with its primary purpose,requires only the
approval of the Board.
Pursuing Secondary Purpose
If the corporation will pursue its secondarypurpose, it is required that the requisites underSection
42 shall concur.
Meaning of Investment
Investment of funds includes not onlyinvestment of money but also investment of property of the
corporation.Lease of property is included in the term“investment of funds”. However, the SECimpo
ses the following requirements that:a.The property is not presently used by thecompany and the
leasing thereof is notmade on a regular basis;b.By leasing the property, it will make itproductive
instead of allowing them toremain idle;c.There are no express restrictions in thearticles of
incorporation or by-laws;d.The leasing is not used as a scheme toprejudice corporate creditors or
37
resultin the infringement of the Trust FundDoctrine;
ande.There must be compliance with therequirements of Section 42.
Section 42 does not cover investment inshares. Thus, a corporation with idle funds mayinvest in
shares for the purpose of generatingincome.
Section 43. Power to declare dividends.
Board Discretion
The Board has the discretion to declaredividends.
Property Dividends
SEC Rules provide that the property to bedistributed shall consist only of property
whichis no longer intended to be used in theoperation of the business of the corporationand which
are practicable to be distributed asdividends.
Stock Dividends
This involves the conversion of surplus orundivided profits into capital.This was discussed by the SC
in the case of PLDT vs. NTC; 2007:
40
The value of the declaration in the case of stockdividend is the actual value of the originalissuance
of said stocks.It cannot be said that no consideration isinvolved in the issuance of stock dividends.
Infact, the declaration of stock dividends is akinto a forced purchase of stocks.
Retained Earnings and UnrestrictedRetained Earnings DefinedogMemorandum Circular No. 11,
S-2009Retained Earnings
is the accumulated
profitsrealized out of normal and continuousoperations of the business after deductingtherefrom di
stribution of stockholders ortransfers to capital stock or other accounts.
Unrestricted Retained Earnings
is the amountof accumulated profits and gains realized out of the normal and continuous
operations of thecompany after deducting therefromdistributions of stockholders
and transfers tocapital stock or other accounts, and which
38
is:a.Not appropriated by its Board forcorporate expansion projects orprograms;b.Not covered by a
restriction for dividenddeclaration under a loan agreement;andc.Not required to be retained under
specialcircumstances obtaining in thecorporation such as when there is aneed for
special reserve for probablecontingencies.
No Dividends from Capital
The
Trust Fund Doctrine
considers thesubscribed capital as a trust fund for thepayment of the debts of the corporation
towhich the corporation may look for satisfaction.
[NTC vs. CA]
The doctrine will be violated if dividends
aredeclared out of capital except only in twoinstances:a.Liquidating dividends; andb.Dividends
from investments in WastingAssets Corporation.Wasting Assets Corporation are solely orprincipally
engaged in the exploitation of wasting assets.
What is Included in Retained Earnings
MC No. 11 S-2009 requires
the existence of surplus profits arising from the operation of corporate business before dividends c
an bedeclared.a.
Paid-in Surplus
cannot be declared asdividends because they part of thecapital. It is the difference between
thepar value and the issued value orselling price of the shares and are
notconsidered as profits earned in theconduct of business of the corporation.It is also called as
“premium”.b.
Revaluation Surplus
, generally, cannotbe declared as dividend because theycannot be considered earnings of
thecorporation. There is revaluationsurplus if there is an increase in thevalue of the assets. They are
by naturesubject to fluctuations.c.
Gains from sale of real property
areavailable for dividend declarationbecause they are part of the
retainedearnings. However, there must besurplus profits. Hence, the corporationcannot distribute
gains from sale of realproperties as dividends if the
remainingassets after the distribution are lessthan the amount of legal or statedcapital and
liabilities.d.
Treasury Shares
39
cannot be declared asstock or cash dividends because theyare not considered part of the earnedor
surplus profits.e.
Interim Income.
The presence of UREcan be determined only at the end of the fiscal year. The corporation will
notbe able to know if there are earningsuntil the end of the year. Thus, as ageneral rule, there can
be no dividenddeclaration for profits in a fiscal yearthat has not yet expired.
Who is entitled
Stockholders are entitled to dividends pro ratabased on the total number of shares and noton the
amount paid for the shares. However,only stockholders at the time of declaration areentitled to
dividends.Dividends declared before the transfer of shares belong to the transferor and
dividendsdeclared after the transfer belongs to thetransferee. In others, dividends belong to
theperson who owns the stock when the dividendis declared.
Vesting
The right of the stockholders to be paiddividends accrued as soon as the declaration ismade in
accordance with Section 43. From thattime, the stockholder can demand paymentthereof.
41
Generally, dividends cannot be revoked by theBoard upon declaration. However, the samerule does
not apply to stock dividends beforethe issuance of dividend declaration.Note that with respect to
cash dividends, thefunds are not actually set apart from thegeneral mass of the company’s funds
and arenot appropriated for the payment of dividendthat has been declared.
Amount
The amount to be declared as dividendsdepends upon the amount of the URE.
Afterdetermining the available amount, dividendsshall declared pro rata unless there arepreferred
shares that are entitled
to a fixedpercentage.When it comes to stock dividends, thecorporation is not required to pay divide
ndaccording to their par values. Stock dividendscan be declared at a premium (value higherthan
par.
Section 44. Power to enter into managementcontract.
Management Contract
40
is an agreementwhereby one undertakes to manage or
operateall or substantially all of the business of another, whether such contracts are calledservice c
ontracts, operating agreements orotherwise.
Approving Authority
Read codal.
Section 45. Ultra vires acts of corporations.
Concept
It can be inferred from Section 45 that ultravires acts are those powers that are notconferred to the
corporation by-laws, Articles,and those that are not implied or necessary
orincidental to the exercise of the powers soconferred.An
ultra vires act
is one committed outside theobject for which the corporation is created
asdefined by the law of its organization andtherefore beyond the powers conferred upon itby law.
[Republic vs. Acoje Mining Co., Inc.]
Distinguished from Other ActsPirovano vs. Dela Rama Steamship Co.,Inc.
Strictly speaking, an ultra vires act is oneoutside the scope of the powers conferredby the
legislature, and although the termhas been used indiscriminately, it isproperly distinguishable from
acts whichare illegal, in excess or abuse of power, orexecuted in an unauthorized manner, oracts
within corporate powers but outsidethe authority of particular officers oragents.
Effects of Ultra Vires Acts
If the act is ultra vires not because it is
illegalbut because it is not an express, implied orincidental power, the same may, in certaincases,
be enforced.Senator Salonga summarized the rules in thiswise:1. A corporation that is engaged in
ultravires business is liable for tortscommitted by its agents within theirauthority in the course of
that business.2. If a corporation acted outside itsauthority in taking or holding title
toproperty, the validity of the TorrensCertificate of Title cannot bequestioned on the ground that th
ecorporation was without authority orexceeded its authority in taking orholding the
property.3. When the contract is fully executed onboth sides, the contract is effective
andwill stand as a foundation of rightsacquired under it.4. When the contract is executory on
oneside and has been fully performed onthe other, the party who has
receivedbenefits from the performance isstopped in claiming that the contract isultra
vires.5. When both contracts are whollyexecutory on both sides, neither partycan maintain an
action.
41
It was observed in
Pirovano vs Dela RamaSteamship
and
Republic vs Acoje Mining
thatan ultra vires act can be ratified and parties maybe estopped from raising such defense.In Civil
Law, ratification is recognized.However,it is required that at the time of the ratification,the cause of
nullity has already ceased to exist.It is believed that an ultra vires act cannot beratified. In ultra
vires act, the act is not withinthe power of the corporation, hence the groundfor being ultra vires
cannot cease.
TITLE VBY-LAWS
42
Section 46. Adoption of by-laws.Section 47. Contents of by-laws.
ConceptLoyola Grand Villas HOA vs. CA
The By-laws of a corporation are the rulesand regulations or private laws enacted
bythe corporation to regulate, govern andcontrol its own actions, affairs andconcerns and of its sto
ckholders ormembers and directors and officers inrelation thereto and among themselves intheir
relation to the corporation.The provisions of the By-laws should bedistinguished from resolutions of
the Board. Aprovision in the By-laws is a permanent rule
of action and mode of conduct of corporateaffairs, while a resolution ordinarily applies onlyto a
single act of a corporation.
Nature of Power; Effect of Non-AdoptionGokongwei, Jr. vs. SEC
Every corporation has the
inherent power
to adopt By-laws for its internalgovernment and to regulate the conductand prescribe the rights
and duties of itsmembers towards itself and amongthemselves in reference to themanagement of
its affairs.The SC, in this case, rejected the view
thatthere is automatic dissolution of thecorporation for non-submission of the By-Laws.At the very
least, a corporation that failedto submit the by-laws may be
considereda de facto corporation whose right toexercise corporate powers may not beinquired into
collaterally in any private suitto which such corporation may be a party.It was stressed that
substantial compliancewith conditions subsequent will suffice toperfect corporate personality.
42
Requisitesa.Must not be contrary to law
The fact that the provisions of the
by-laws,which are contrary to law, have not beenquestioned for several years cannot forestallthe
challenge to their validity.Neither can the by-laws provisions attainvalidity through acquiescence
because, if theyare contrary to law, it is beyond the power of the members of the association to
waive theirinvalidity. [Grace Christian High School vs. CA]
b.Must not be contrary to Articles
The Articles should be given more weight thanthe by-laws. Hence, in case of conflict theprovisions
of the Articles shall prevail.
c.Must not be contrary to morals andpublic policy
Consequently, the provisions must bereasonable and must not be discriminatory,arbitrary or
oppressive upon the shareholders.In
Gokongwei, Jr. vs SEC
: while additionalqualifications can be provided for in the
by-laws, the same should be applicable to allshareholders and not merely on one or a groupof
shareholders.
d.Vested Rights
The provisions of the by-laws must not disturbvested rights. In
Salafranca vs. Philamlife,
theSC declared that amended by-laws should
notundermine the security of tenure of anemployee by declaring non-existent anemployee’s
position.
Binding Effect
The provisions of the by-laws are binding
notonly upon the corporation but also on itsstockholder, members and those havingdirection, man
agement and control of itsaffairs.However, they are not binding on subordinateemployees having
no actual knowledge of theprovisions thereof.As to third persons: they are not also bindingunless
there is actual knowledge. Third personsare not even bound to investigate the contentsof the
by-laws.
Contents [read codal]Section 48. Amendments to by-laws.
Two-ways to amend by-lawsA.By the Board and Stockholders
In the absence of an express provision denyingthe right to vote by proxy in the Articles or By-Laws,
proxies may validly amend the By-Laws.
43
B.Delegation to the Board; Revocationof Delegated Power
A stockholders’ meeting is necessary both forthe delegation of the power to amend the
By-Laws and the revocation of the delegatedpower.
Filing with the SEC
If the SEC approved the amended By-Laws, theapproval has the presumption of regularity.
Theregularity of the performance of the functionsof government officials is presumed and strong
43
evidence is necessary to rebut thispresumption. [UCCP vs. Bradford United Churchof Christ]
TITLE VIMEETINGSSection 49. Kinds of meetingsSection 50. Regular and special meetings
ofstockholders or membersSection 51. Place and time of meetings ofstockholders or members
Requisites
a.It must be held on the proper datewhich is the date fixed in the by-lawsor in the absence of a
provision thereinon the date fixed under Section 50;b.There must be previous notice;c.It must be
held in the proper place; andd.There must be a quorum.
Date and Time
As a rule, the annual meeting cannot bepostponed. It is the duty of the Board todetermine the date
and time to hold themeeting earlier or postpone it taking intoconsideration the surrounding
circumstances orvalid reasons.If the annual meeting of stockholders ispostponed for a valid reason,
the adjournmentof the meeting for purposes of electing thenew directors must be from day to day
and not
sine die
.
Notice
Written notice is mandatory and thereforeessential to the validity of the stockholders’meeting.The
corporation cannot close its eyes to thefact that the stockholder or member is nolonger residing or
holding office in the addressappearing in the Stock and Transfer Book.
44
Badfaith will be ascribed if it continues sendingnotices to the address of record even if
thecorporation is already aware of the realaddress. [Calatagan Golf and Country Club vs.Clemente]
Waiver of Notice
The mode of sending notice may also bewaived. For instance, if notice through e-mail
isnot provided for in the by-laws, thestockholders may be deemed to have waivedthe right to
question the sending of such noticeif the stockholder does not object.
Call of Meeting
In the absence of a provision in the By-Laws,the power to call the meeting rests with theBoard.
Agenda
The notice must indicate the matters to betaken up during the stockholders’ meeting.
Themeeting is irregular if there are particulartransactions to be resolved but the same wasnot
stated in the agenda.
Stockholders and Members
All the stockholders and members have theright to attend the special and regularmeetings.With
respect to stockholders, the best evidencein determining who the stockholders who canattend the
meeting is the Stock and TransferBook. [Lao vs Lao]However, the STB is not the exclusive
evidenceof the fact that a person is a stockholder.
Otherevidence – like the certificate and deed of transfer – may be presented in an
appropriateproceeding to prove that the STB does notreflect the accurate list of stockholders.
One Share-One Vote Policy
Voting shall always be on the basis of thenumber of shares and not on the number
of stockholders present in the stockholders’meeting. [MC No. 4, S-2004]
Effect of Failure to Call
Officers of the corporation, whose duty is tocall the stockholders’ meeting for purposes of holding
an election, but who shall
deliberatelyavoid or cause the failure of holding suchstockholders’ meeting shall be punishable
asofficers of the corporation.
Joint Meeting
45
There is no express provision of law or rulingprohibiting the holding of a joint meeting
of stockholders and directors of differentcorporations. It is sound practice, however, toprepare
separate minutes of meetings for thedifferent corporations.
Section 52. Quorum in meetings
44
ConceptQuorum
means the number of members of thecorporation, board or committee who must bepresent in
order to take action. The meeting isvoid if there is no quorum.A different quorum may be provided
for in theby-laws.
Bases of Quorum
In stock corporations, the presence of aquorum is ascertained and counted on thebasis of OCS.In
non-stock, the members vote as persons.
Section 53. Regular and special meetings of directors or trustees
Compliance with Rules
The Board must comply with the requiredquorum, notice and other similar formalities.The directors
must act as a body in a meetingcalled pursuant to law, or the corporation’s
By-Laws, otherwise, any objecting director orshareholder may question any action takentherein.
[Lopez Realty, Inc. vs. Fontecha]
Quorum of the Board
The quorum is the same even if there is avacancy in the board. If the required quorumcannot be
satisfied because of this vacancy, theremedy is for the stockholders to fill thevacancy.If there is a
quorum at the start of the meeting,the meeting can still continue even if some of the directors will
leave thereafter.
Proxy Not Allowed
A director cannot participate in a meeting byproxy. While voting by proxy is allowed in
allmeetings of the stockholders, the same isexplicitly prohibited under Section 25 withrespect to
directors.
46
Teleconference or Video ConferenceExpertravel & Tours, Inc. vs. CA
Justice Callejo observed that in this age of modern technology, the courts may
take judicial notice that business transactionsmay be made by individuals throughteleconferencing.
Teleconferencing is aninteractive group communication throughan electronic medium.
Section 54. Who shall preside at meetings.
Presiding Officer Can Vote
The presiding officer is also a member of theBoard. Hence, it cannot be provided in the By-Laws or
a Board Resolution that he can onlyvote in case of a tie in a board meeting.
Section 55. Right to vote of pledgors,mortgagors, and administrators.
When Shares are Pledged or Mortgaged
The stockholders whose stock certificates wereused as collaterals for a loan have the
right tovote unless said stockholders authorized thebank in writing to vote the pledged ormortgage
d shares.
Escrow Shares
Where a stock certificate is deposited in
escrowas security for a promissory note withinstructions to the holder to deliver thecertificate to
the payee of the note and
thestock is so delivered and transferred to thepayee in the books of the corporation, thepayee-tran
sferee has the right to vote thesame.
Section 56. Voting in case of joint ownershipof stock.
Unanimity; When not required
In Civil Law, acts of ownership requireunanimity among the co-owners.Not required when:a.There
is a written proxy signed by allthe co-owners authorizing any or someto vote; andb.The shares are
owned in an “and/or”capacity.
Section 57. Voting right for treasury shares.
Treasury shares are not part of theoutstanding capital.
Section 58. Proxies.
47
A proxy is a written authorization given byone person to another so that the secondperson can act
for the first such as that
givenby the shareholder to someone else torepresent him and vote his shares at ashareholders’
meeting.
Requirements:
a.In Writing;b.Signed by the stockholder or member;c.Filed before the scheduled meetingwith the
corporate secretary;
Share this document
Share or Embed Document
Sharing Options
Share on Facebook, opens a new window
Share on Twitter, opens a new window
Share on LinkedIn, opens a new window
Share with Email, opens mail client
Copy Link
You might also like
SaveSave CORPORATION LAW NOTES Aquino Book For Later
CORPORATION LAW NOTES Aquino Book
Document64 pages
CORPORATION LAW NOTES Aquino Book
pit1x
48
83% (6)
SaveSave Corporation Law: An Overview of Business Organizations, Registration Requirements, and
Prohibitions Under Philippine Law For Later
A corporate president is often given
generalsupervision and control over corporateoperations. A party dealing with the president of aco
rporation is entitled to assume that he hasthe authority to enter, on behalf of thecorporation, into
contracts that are within thescope of the powers of said corporation andthat do not violate any
statute or rule on publicpolicy.Vice-PresidentRead Section 63.The By-Laws ordinarily assign to the
VP theduty of succession to the position of chief executive in the absence or disability
of thepresident or the chairman of the board andsuch other duties as the board may
assign.ChairmanThe concept of board chairman and hisfunctions as executive vary so widely indiffe
rent companies.The chairman may be concurrently thepresident and may be designated as the
chief executive officer of the corporation.SecretaryThe Corpo Code provides that the
corporatesecretary must be a resident and citizen of
thePhilippines. Other qualifications may beprovided for in the
By-laws.The secretary is duty-bound to keep thecorporate records and to make proper
entriesthereto.The secretary is the officer who maintains thestock and transfer
book.Under Section 63, the corporate secretarymust sign the certificates of stocks of acorporation.I
t is also the corporate secretary who mustsend notices of the meeting of the directorsand/or
stockholders are sent by the secretary.The secretary likewise prepares the minutes of such
meetings.The minutes of the meetings need only tocontain a summary and the highlights of
thematters taken up during the meetings.However, the actual resolutions that werepassed should
be stated in the minutes.The Secretary issues certificates commonlyknown as “Secretary’s
Certificate” regarding thepassage, existence, and binding effect of aboard
resolution.TreasurerThe Treasurer normally takes care of thefunds of the
corporation.The Corpo Code does not require thetreasurer to be a resident or a citizen of
thePhilippines. However, the SEC, as a matter of policy, has imposed the residence requirementfor
treasurers.
Concurrence
Any two or more positions may be heldconcurrently by the same person. The
Presidentmay serve concurrently as the Chairman.Similarly, the director may be the legal counselof
the corporation.Section 25 provides that no one shall act
aspresident and secretary or as president andtreasurer at the same time. The law
considersthe positions of secretary and treasurer asinconsistent with the position of a president.
Corporate Officer Concurrently anEmployee
49
A corporation is not prohibited from hiring
acorporate officer to perform services undercircumstances that will make him an employee.Indeed,
it is possible for one to have a dualrole of officer and employee.If the corporate officer is also an
employee,the NLRC has jurisdiction over the complaintfiled by the same corporate officer who
servedboth as corporate secretary and administrator,if the money claims were made as an
employeeand not as a corporate officer. (Vda. DeLecciones vs. NLRC)
Anti-Dummy Law
While a foreigner can still be a director in apartly nationalized activity in proportion to theequity
participation allowed to foreigners, noforeigner can be elected or appointed as officereven in partly
nationalized activities.
Authority of Officers
In some cases, corporate officers like thePresident can also bind the corporation.
Theauthority of such individuals to bind thecorporation is generally derived from:a.Law;b.Articles
of Incorporation;c.Corporate By-Laws;d.Authorization from the Board; ore.Those inherent in
the office.If the authority of the officers is provided
forin a board resolution, the corporate officersshall be deemed fully clothed by thecorporation to
exercise a power of the board, if the board specifically authorizes them to do so.If the By-Laws
provide for specific powers of an officer like the President, the officer
neednot secure a separate resolution from the Board to exercise the specific power.
Implied Authority
A corporate officer, who is entrusted with
thegeneral management and control of itsbusiness, has implied authority to make anycontract or
do any other act that is necessary orappropriate to the conduct of the ordinarybusiness of the
corporation.As such officer, he may, without any specialauthority from the BOD, perform all acts of
anordinary nature that by usage or necessity areincident to his office, and may bind thecorporation
by contracts in matters arising inthe usual course of business.
Practice, Custom and Policy
Where the BOD approves similar acts as amatter of general practice, custom, and
policy,the officer may bind the company withoutformal authorization of the BOD,The existence of
such authority is established,by proof of the course of business, the
usageand practices of the company, and by theknowledge that the BOD has or must bepresumed to
have, of acts and doings of itssubordinates in and about the affairs of thecorporation.
Ratification
The acts of corporate officers within thescope of their authority
are binding on thecorporation; but when these officers exceedtheir authority, their actions
50
cannot bind thecorporation, unless the Board ratifies such actsor is stopped from disclaiming
therein.Ratification by a corporation of anunauthorized act or contract by its officers orothers
retroacts back to the time of the act orcontract ratified.The adoption or ratification of a contract by
acorporation is nothing more or less than themaking of an original document.Any party who alleges
that the corporationratified the action of the officer must provesuch ratification.
The rule on
Agency by Estoppel
applies tocorporations.Apparent AuthorityBased on decisions of the SC, an officer mayalso bind
the corporation of he has apparentauthority.The doctrine of apparent authority is aspecies of the
doctrine of estoppels.Apparent authority is derived not only
frompractice – its existence may be ascertainedthrough:a.The general manner in which thecorporat
ion holds out an officer oragent as having the power to act, withwhich it clothes him;
orb.The acquiescence in his acts of aparticular nature, with actual orconstructive
knowledge thereof, withor beyond the scope of his
ordinarypowers.The principal’s liability, however, is limitedonly to third persons who have been led
reasonably to believe by the conduct of theprincipal that such actual authority exists,although none
was
given.The Doctrine of Apparent Authority wasapplied in a situation where the solemanagement
was left to the President and
theTreasurer who are both incorporators of thecorporation. (Advance Paper Corp. vs. ArmaTraders
Corp.)
De Facto Officers
A person is a de facto officer if he acts assuch, under color of authority, through electionor
appointment.By color of authority is meant authorityderived from an election or appointment,altho
ugh irregular or informal, so that theincumbent must be more than a volunteer.
Compensation
The By-Laws may provide that the Board shallfix the compensation of the corporate officers.The
fixing of the compensation is part of theregular business of the corporation that theBoard conducts,
even if not stated under theBy-Laws.
bordinates in and about the affairs of thecorporation.
Ratification
The acts of corporate officers within thescope of their authority
are binding on thecorporation; but when these officers exceedtheir authority, their actions
cannot bind thecorporation, unless the Board ratifies such actsor is stopped from disclaiming
therein.Ratification by a corporation of anunauthorized act or contract by its officers orothers
51
retroacts back to the time of the act orcontract ratified.The adoption or ratification of a contract by
acorporation is nothing more or less than themaking of an original document.Any party who alleges
that the corporationratified the action of the officer must provesuch ratification.
The rule on
Agency by Estoppel
applies tocorporations.Apparent AuthorityBased on decisions of the SC, an officer mayalso bind
the corporation of he has apparentauthority.The doctrine of apparent authority is aspecies of the
doctrine of estoppels.Apparent authority is derived not only
frompractice – its existence may be ascertainedthrough:a.The general manner in which thecorporat
ion holds out an officer oragent as having the power to act, withwhich it clothes him;
orb.The acquiescence in his acts of aparticular nature, with actual orconstructive
knowledge thereof, withor beyond the scope of his
ordinarypowers.The principal’s liability, however, is limitedonly to third persons who have been led
reasonably to believe by the conduct of theprincipal that such actual authority exists,although none
was
given.The Doctrine of Apparent Authority wasapplied in a situation where the solemanagement
was left to the President and
theTreasurer who are both incorporators of thecorporation. (Advance Paper Corp. vs. ArmaTraders
Corp.)
De Facto Officers
A person is a de facto officer if he acts assuch, under color of authority, through electionor
appointment.By color of authority is meant authorityderived from an election or appointment,altho
ugh irregular or informal, so that theincumbent must be more than a volunteer.
Compensation
The By-Laws may provide that the Board shallfix the compensation of the corporate officers.The
fixing of the compensation is part of theregular business of the corporation that theBoard conducts,
even if not stated under theBy-Laws.
Section 26. – Report of election of directors,trustees and officers.
The SEC rules provide that a “GeneralInformation Sheet” (GIS) shall be filed with theCommission
within 30 days following the dateof annual stockholders’ (or members’) meeting.
The GIS contains the names of thestockholders, directors and corporate officers.The recent
enhancement of the GIS includes aportion that is designed for compliance withthe Anti-Money
Laundering Law.
52
The GIS indicates who and who is not acorporate officer or director or stockholder.However, the
GIS is only a piece of evidenceand is subject to stronger proof if entriestherein are in question.
31
Premium Marble Resources, Inc. vs. CAIssue: WON the officers of thecorporation have legal
capacity to file acomplaint for damages in behalf of thecorporationThe SC sustained the dismissal of
thecomplaint because it was notestablished that the Members of theBoard who authorized the
filing of thecomplaint were the lawfully electeddirectors of the corporation.It was pointed out in
this case that theGeneral Information Sheet filedpursuant to Section 26 does not
showthe names of the persons whoauthorized the filing of the case.
Monfort Hermanos AgriculturalDevelopment Corporation vs. AntonioMonfort IIIThe SC rejected the
allegation that thealleged members of the board whosigned the Board Resolution were dulyelected
directors. It was noted that “thefact that four of the six Members of theBoard listed in the GIS are
already deadat the time the Board Resolution wasissued”, does not automatically makethe four
signatories to the said
BoardResolution (whose names do notappear in the GIS) as amongincumbent members of the
Board.The belated attempt to replace thedeceased Board Members did noterase the doubt as to w
hether anelection was indeed held.
Report in case of Vacancy
If a new director is elected because of avacancy in the Board, the Corporate Secretarymust submit
an Amended GIS indicating thechange of director within 30 calendar daysfrom the occurrence of
such change.
Section 27. – Disqualification of directors,trustees or officers.
Grounds for Disqualification
a.If he is convicted by final judgment of anoffense punishable by imprisonmentexceeding 6
years;b.If he is convicted by final judgment of aviolation of the Corporation Codecommitted within
5 years prior to thedate of his election or appointment.
Rationale
53
The position of director in a corporation isone of trust. A director in a corporation has
thepersonality of managing the funds belongingto other persons or individuals.
Non-exclusive
The disqualifications under Section 27 are notexclusive. Additional grounds fordisqualification are
contemplated in the otherprovisions of the Code.For instance, a person who ceases to be
ashareholder because he already transferred allhis shares is already disqualified to be adirector.
Grounds in Articles and By-Laws
Other grounds may be provided for in theArticles or By-Laws of the corporation.
Government vs. El Hogar FilipinoThe SC sustained the validity of aprovision in the corporate by-laws
inpursuant to the law then in force that“corporations are authorized to providein their by-laws for
the qualifications of directors and is highly prudent and inconformity with good practice.
Corporate Governance
Disqualifications are likewise provided underthe 2009 Code of Corporate Governance.
Section 28. – Removal of directors ortrustees.
Right to Remove
At common law, the inherent right to removea director for cause is known as “amotion”.Under the
Corporation Code, the authority toremove the directors is the prerogative of
thestockholders or members of the corporationreposed under Section 28. Hence, the
directorscannot indirectly usurp or disregard the saidpower of the stockholders.
Requisites of Removal
a.It must take place either at a regularmeeting or a special meeting of thestockholders or members
called for thepurpose;b.There must be previous notice to thestockholders or members of the
intentionto remove a director;c.The removal must be by a vote of
thestockholders representing 2/3 of the
Outstanding Capital Stock or 2/3 of members;d.A director who was elected by theminority must be
removed only for acause.The directors may elect the replacementduring the same
meeting that such directorwas removed.
Removal Without Cause
54
A director who was elected by the majoritymay actually be removed with or without cause.The
requirement that there must be cause forremoval is limited to a director who was electedby the
minority.
Raniel vs. JochicoThe SC declared valid the removal of two directors where 400 shares
votedfor their removal and 2/3 of theOutstanding Capital Stock was only333.33
shares.The votes of 400 shares were morethan enough to oust the two directors,with or without
cause.
Disqualified Director
Removal should be distinguished from ousterbecause of
disqualification.There is no need to follow the procedureunder Section 28 if the director is
disqualified.Mere declaration of disqualification as thecause of vacancy is sufficient.
Effect on the Shares
The removal of the director does not result inthe transfer of his shares; the removed
directorremains a shareholder.
Removal of Corporate Officers
Since the authority to elect corporate officersrests with the Board, there is a correlativeauthority to
remove the corporate officers. Theremoval of corporate officers is a corporate act.
Section 29. – Vacancies in the office of director or trustee.
Filling Up of Vacancies in the Board
Vacancies may be filled up either by thestockholders (or members) or by the
remainingdirectors (trustees) constituting a quorumdepending on the reason for vacancy.Vacancy
is the operative fact that justifies theelection or appointment of the
replacement.The stockholders or members shallreplace/elect the director if the vacancy is
dueto:a.Removal;b.Expiration of term;c.A ground other than removal orexpiration of term (e.g. dea
th,resignation, abandonment) where theremaining directors do not constitute aquorum;
ord.Increase in the number of directors.Allowing the remaining directors or trusteesto fill up
vacancies avoids the expenses andinconveniences attending the calling of stockholder’s or
member’s meeting, especiallywhere there are many of
them.Note that filling up of vacancies by theremaining board members, if proper, ismandatory. For
instance, the remainingdirectors may choose not to fill up the vacancyand leave the matter to the
stockholders. Thus,the directors may call a special stockholder’smeeting for such purpose.Vacancy
may occur if the director abandonedhis position. A director is deemed to haveabandoned his
position where a director of
55
thecorporation accepts a position in which hisduties are incompatible with and which willrender
him physically incapable of performinghis duties as director
56