Module 1 Flashcards
1
Q
Three Forms of Business Organization
A
- Sole Proprietorship
- Partnership
- Corporation
2
Q
The law that governs the rules and regulations in the establishment and operation of stock and non-stock corporations in the Philippines.
A
“The Corporation Code of the Philippines”
3
Q
“The Corporation Code of the Philippines” characteristics
A
- Application for a Charter / Articles of Incorporation
- Shareholders (stock corporation)
- Members (non-stock)
- Life span of 50 years
4
Q
T or F. A corporation is a juridical person and is created by operation of law
A
T. under Section 2 of the Corporation Code of the Philippines
“Section 2. Corporation defined – A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incidence to its existence.”
5
Q
Breakdown of the Corporation definition:
A
- Artificial: not a natural person (living breathing person)
- Right of succession: continuity of operations. If a stockholder dies does that mean the corporation dies also? In partnerships, if a partner leaves the partnership, the relationship changes and therefore dissolves.
6
Q
How is a Corporation formed?
A
a. 5-15 (15) natural persons of legal age and majority are residents of the PH – Sec. 10
i. Grandfather rule: 60-40; 60% Filipino owned
b. Corporator vs Incorporator – Sec. 5
i. Corporator – Shareholders (existing, involved in the ongoing ops)
ii. Incorporator – original corporators mentioned in the Articles Of Incorporation (founding team, getting everything setup legally)
7
Q
A corporation can exercise only the powers expressly conferred upon it by _____ and its __________________, those implied from such powers expressly granted, and those that are incident to its existence.
A
law; articles of incorporation
8
Q
How long can a corporation live?
A
a. Corporate term is for a period of max 50 years from date of incorporation
b. Extendible by another 50 years
c. Extension cannot be made 5 years before expiration. – Sec. 11
d. Perpertual unless AOI provides otherwise
9
Q
What happens if the corporate charter is not used? – Sec. 22
A
a. Within 2 years – no formal organization or operations from date of incorporation
i. Deemed dissolved
b. If operations have started but stopped operations for 5 CONTINUOUS years
i. Ground for suspension or revocation of franchise or certificate of incorporation
ii. Delinquent, then 2 year to resume operation,if not certificate is revoked
10
Q
Specific Express Powers of a Corporation under the Corporation Code
A
- Power to extend or shorten corporate term.
- Power to increase or decrease capital stock.
- Power to incur, create or increase bonded indebtedness
- Power to deny pre-emptive right.
- Power to sell, lease, exchange, mortgage, pledge or otherwise dispose all or substantially all of its property
- Power to acquire its own shares
— AKA treasury shares
— Allowed as long as there is unrestricted retained earnings - Power to invest corporate funds in another corporation or business or for any other purposes.
- Power to declare dividends
- Power to enter into management contracts
11
Q
What are the powers of a corporation?– Sec. 36
A
a. To sue and be sued in its corporate name;
b. Of succession
c. To adopt and use a corporate seal;
d. To amend its articles of incorporation;
e. To adopt by-laws,
f. In case of stock corporations: to issue or sell stocks and/or treasury stocks to subscribers
i. Nonstock: to admit members;
g. To enter into merger or consolidation;
h. To establish pension, retirement, and other plans
i. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations,
j. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political party or candidate or for purposes of partisan political activity;
k. To exercise such other powers as may be
essential or necessary
12
Q
A corporation being a juridical person means that
A
- The debts of the corporation are not the debts of the stockholders, nor are the debts of the stockholders the debts of the corporation.
- In taxation, the income of the corporation is not the income of the stockholders who may be required to pay taxes on the dividends that they may derive from such income.
- In connection with corporate property or affairs, stockholders cannot maintain actions in their own name and they have no right to recover possession of property belonging to the corporation or to recover damages for injury thereto.
13
Q
The company is responsible for all debt that is contracted in its name. Therefore, the stockholders cannot be held personally liable for these debts, though the percentage of the company they own might decrease in value. In that case, they are indirectly affected by debt.
A
Corporate Liability
14
Q
Types of Corporation
A
- De Jure Corporation
- Stock Corporation
- Limited Liability Corporation
- Closed Corporation
- Public Company
15
Q
One that has been created in strict compliance with all the legal requirements and whose right to exist as a corporation cannot be successfully attacked in a direct proceeding for that purpose by the State.
A
De Jure Corporation
16
Q
One that is defectively created but there is an exercise of corporate rights and franchise resulting from an attempt in good faith to incorporate
A
De Facto Corporation
17
Q
Difference of De Jure Corporation and De Facto Corporation
A
De Jure Corporation (by law)
* Real
* Genuine
* Nothing wrong with it
* corporation within the proper confines of the law
De Facto Corporation (by estoppel)
* Appears real
* Genuine
* With a sincere intent to form a corporation and an attempt to comply with all the requirements
* no proper form but holds themselves as such
18
Q
One which has exercised corporate powers for such a length of time without interference by the State, and which, by fiction of law, is given the status of a corporation.
A
Incorporation by Prescription
19
Q
One which is in reality not a corporation but is considered as one with respect to those who are precluded by their admission or conduct denying its existence
A
Corporation by Estoppel
20
Q
As, a general rule, in a corporate form of business organization, the stockholders are not personally liable for corporate obligations and cannot be held liable to third persons who have claims against the corporation beyond their agreed subscriptions/contributions to the corporate capital. However, this privilege may be disregarded under the” Doctrine of Piercing the Corporate Veil.
A
Limited Liability Company
21
Q
Close Corporation characteristics
A
1) All the corporation’s issued stocks of all classes shall be held of record by not more than a specified number of persons, not exceeding 20
2) All of the issued stocks of all classes shall be subject to one or more specified restrictions on transfer permitted by the corporation code
3) Not listed on any stock exchange or make any public offering of any of its stock of any class
22
Q
Public Company/Listed Company
A
Listed on an exchange
OR
1) With assets in excess of 50,000,000
2) Has at least 200 shareholders which are holding at least 100 shares of a class of its equity securities
23
Q
Classes of Corporation
A
- Stock Corporation
- Non-stock Corporation
24
Q
One that has capital stock divided into shares and is authorized to distribute dividends or allotments of the surplus profits on the basis of shares held by its stockholders
A
Stock Corporation
25
a corporation that does not have owners represented by shares of stock
Non-Stock Corporation
26
Differentiate/Summarize Stock/ Non-Stock Corporation
**Stock Corporation**
- Capital stock are divided into shares.
- Authorized to distribute dividends on the basis of shares held.
- Can either be a preferred or common share.
**Non-Stock Corporation**
- All other corporations which are not stock corporations.
- Institutions/Association for charitable, religious, educational, professional, etc.
27
Formation of a Corporation
1. Articles of Incorporation
2. By-Laws
3. Certificate of Incorporation / Juridical Personality Commences
4. Powers of a Corporation
28
The articles of Incorporation of a corporation is a contract between the parties:
A.Between the State and the corporation
B. Between the stockholders (members in case of non-stock corporation) and the State
C.Between the corporation and the stockholders (members)
29
The articles of Incorporation do not become effective and binding as the charter of the corporation, unless they have been ______________________________ in accordance with the provisions of the __________________.
filed and registered with the SEC; Corporation Code
30
Articles of Incorporation include:
**N**ame of the Corporation
**L**ocation
**T**erm of existence *(if not elected perpetually)*
**I**ncorporators / Owners / Proponents *(names, nationalities, & residence)*
**P**urpose and Nature *(Primary and Secondary, if many)*
**M**aximum Number of Shares
**P**ar Value
**B**oard of Directors
**R**ights of Stockholders
31
When can SEC reject/disapprove an AOI?
(FIFO) – Sec. 17
a. Failed in proper format
b. Illegal, immoral purpose
c. False treasurer’s affidavit
d. Ownership by citizens
*if there is a special law or charter (banking, quasi banking, building and loan, education, insurance, public utilities), there should be a recommendation first*
32
Differentiate Articles of Incorporation and By-Laws
**Articles of Incorporation**: sets the framework of the corporation *(birth certificate)*
a. How a corporation deals with the public/ outsiders
b. Condition needed for incorporation
**By-Laws**: the actual picture of what really happens *(rules and regulations)*
a. Internal government and operations
b. Not needed to be submitted before incorporation
c. Can be filed with AOI OR 1 month after receipt of official notice of cert of incorporation
33
What are By-laws? – Sec. 47
a. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees;
b. The time and manner of calling and conducting regular or special meetings of the stockholders or members;
c. The required quorum in meetings of stockholders or members and the manner of voting therein;
d. The form for proxies of stockholders and members and the manner of voting them;
e. The qualifications, duties and compensation of directors or trustees, officers and employees;
f. The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof;
g. The manner of election or appointment and the term of office of all officers other than directors or trustees;
h. The penalties for violation of the by-laws;
i. In the case of stock corporations, the manner of issuing stock certificates; and
j. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and affairs.
34
The by-laws differ from the articles of incorporation in that the by-laws are the following EXCEPT:
a. The rules of action adopted by a corporation for its internal government.
b. Adopted before or after incorporation.
c. Approved by the stockholders if adopted after incorporation.
d. A condition subsequent in the acquisition by a corporation of a juridical personality
d. A condition subsequent in the acquisition by a corporation of a juridical personality -**AOI**
35
When to adopt by-laws?
The Corporation Code requires that every corporation formed under the Corporation Code, **must within one (1) month after receipt of the official notice of the issuance of the certificate of incorporation by the SEC**, adopt by-laws for its government not inconsistent with the provisions of the Code
36
Characteristics of a Corporate Existence
• A private corporation commences to have a corporate existence and juridical personality and is deemed incorporated from the **date the SEC issues a certificate of incorporation under its official seal**.
• Requires a **separate permit or license** or approval from other government agencies.
• The registration of a corporation with the SEC only constitutes a grant by the government of the power to act as a corporation, **but does not preclude the government from exercising its police power over such corporation whenever public interest demands it.**
37
Their names are mentioned in the articles of incorporation as originally forming the corporation and are signatories thereof.
a. Corporators
b. Stockholders
c. Members
d. Incorporators
d. Incorporators
38
Corporate Doctrines
1. Doctrine of Corporate Entity
2. Piercing Veil of Corporate Viction
3. Right of Succession
4. Ultra Vires Doctrine
5. Doctrine of Corporate Opportunity
39
**The Doctrine of Corporate Entity states that**
• The “________________________” of a corporation from that of the stockholders/members is a basic attribute attached to a corporation which gives rise to fundamental principles in corporation law that, **the stockholders/members of a corporation are not the same as the corporation itself.**
• The property belonging to a corporation cannot be __________________________________ **of the stockholders thereof.**
• Because of the separate personality of the corporation from the stockholders, ___________________, _____________, and ___________ **of a stockholder should not in any way affect the ______________________ of the corporation.**
• separate and distinct personality;
• attached nor held answerable for the debt;
• personal transactions, obligations, liabilities; ordinary operations
40
the principle on separate identity of a corporation from its stockholders may be disregarded when it is used to defeat public convenience, justify wrong, protect or cover fraud or defend crime or work an injustice.
Doctrine of Piercing the Corporate Veil
41
granted by law to a registered corporation means **that a corporation has a continuity of corporate life during its term of existence stated in the articles of incorporation**, independent from that of its stockholders or members.
Right of Succession
42
This doctrine states that there should be **No corporation under the Corporation Code should possess or exercise any corporate powers except those conferred by the the Code** or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers as conferred
Ultra vires acts of a corporation
43
Under the Doctrine of Corporate Opportunity: When a director attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed in him in confidence, or when by virtue of his office. What action should be made?
He acquires for himself a business opportunity which should belong to the corporation, he must account for all such profits derived by him from the said business opportunity by refunding the profits to the corporation.
44
Under this doctrine, **the capital stock and assets of the corporation are held in trust for the creditors. Accordingly, there shall be no distribution of assets to shareholders until the claims of creditors have been paid** or an appropriation of such assets has been made for the payment of such claims.
Trust Fund Doctrine
45
Summarize the Doctrines
1. **Doctrine of Corporate Entity:** “Separate and distinct personality”
2. **Doctrine of Piercing the Corporate Veil:** The principle on separate identity of a corporation from its stockholders may be disregarded when it is used to defeat the law
3. **Right of Succession:** A corporation has a continuity of corporate life during its term of existence stated in the articles of incorporation
4. **Ultra Vires Acts of Corporation:** No corporation under the Corporation Code shall possess or exercise any corporate powers except those conferred by the the Code
5. **Doctrine of Corporate Opportunity Director:** attempts to acquire for himself a business opportunity that should belong to the corporation
6. **Trust Fund Doctrine:** The capital stock and assets of the corporation are held in trust for the creditors
46
Shareholders’ Rights
✅VOTE to elect Board of Directors
✅RECEIVE dividends
✅EXAMINE books of accounts
✅RECEIVE remaining assets
✅RECEIVE stock certificate
✅TRANSFER shares
47
Capital Structure
1. Authorized Capital Stock
2. Pre-Incorporation Subscription
3. Subscribed Capital Stock
4. Paid-Up Capital
5. Additional Paid-In Capital
6. Unissued/Unsubscribe Capital Stock
7. Outstanding Capital Stock
48
This refers to **the total amount of shares which a corporation is allowed to issue if the shares have a par value. If the shares do not have par value**, the corporation does not have an authorized capital stock but it has authorized number of shares which it may issue.
Once issued, the corporation shall have a capital stock but not an authorized capital stock.
Authorized Capital Stock
49
3 Main Types of Capitalization:
1. Authorized Capital
2. Subscribed Capital
3. Paid-Up Capital
*Note: Min. paid-up capital should be 5k*
50
Authorized capital formula (capitalization)
the maximum number of shares that the corporation may issue
**x** the par value of each share
51
T or F. The Board of Directors cannot increase the corporation’s authorized capital even with the approval of the stockholders and the SEC
F. The Board of Directors may increase the corporation’s authorized capital with the approval of the stockholders and the SEC
52
Subscribed Capital is __% of __________________.
25%; Authorized Capital
53
Paid-Up Capital is ___% of _______________.
25%; Subscribed Capital
54
**Problem#1:** The ABC Company can issue a maximum of 2,000,000 shares and the par value per share is P10.00. What is Authorized Capital, Subscribed Capital, Paid-Up Capital?
**Authorized Capital**
= 2,000,000 x 10.00
= 20,000,000
**Subscribed Capital**
= 25% of 20,000,000
= 5,000,000
**Paid-Up Capital**
= 25% of 5,000,00
= 1,250,000
55
**Problem#2:** The XYZ Company can issue a maximum of 10,000,000 shares and the par value per share is P5.00. Determine the authorized, subscribed, and its paid-up capital.
**Authorized Capital**
= 10,000,000 x 5.00
= 50,000,000
**Subscribed Capital**
= 25% of 50,000,000
= 12,500,000
**Paid-Up Capital**
= 25% of 12,500,00
= 3,125,000
56
Refers to the **total shares of stock issued to subscribers or stockholders whether or not fully or partially paid** (as long as there is a binding subscription agreement) , except treasury shares.
Outstanding Capital Stock
57
Part of the capital stock which is not issued or subscribed
Unissued Capital Stock
58
Issued Capital formule
Issued shares **x** par value
59
Amount paid in excess of par value
additional paid-in capital/paid-in surplus
60
**Problem #3:** If price paid per share is above par value, say P12.00 with 125,000 shares. How much would be recorded in the books of the corporation as additional paid-in capital?
**P250,000** = P12.00-P10.00 = P2.00 x 125,000 shares
61
**Problem #4:** The articles of incorporation of ABC Corporation provide for the issuance of 100,000 shares without par value and an issued price per share of P10.00. At the time of incorporation, the subscription and paid-up capital should not be less than:
a. P250,000.00 and P62,500.00 respectively.
b. P1,000,000.00 and P250,000.00, respectively.
c. P250,000.00 and P125,000.00, respectively.
d. P250,000.00 and P250,000.00, respectively.
d. P250,000.00 and P250,000.00, respectively
62
What section of the Corporation Code supports Problem #4?
**Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation.**
– **At least twenty-five percent (25%) of the authorized capital stock** as stated in the articles of incorporation must be _subscribed at the time of incorporation_, and **at least twenty-five percent (25%) of the total subscription** must be _paid upon subscription_, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in **no case shall the paid-up capital be less than five Thousand (P5,000.00) pesos.**
63
Which of the following subscriptions does not comply with the subscription and paid-up capital requirements at the time of incorporation?
**Authorized | Subscribed | Paid-up**
1.1,000,000.00|P250,000.00|P62,500.00
2. 300,000.00 | 75,000.00 | 50,000.00
3. 100,000.00 | 100,000.00 |100,000.00
4. 50,000.00 | 12,500.00. |. 3,125.00
4. 50,000.00 |12,500.00 | 3,125.00
64
**Problem #6:** The authorized capital of ABC Company is P20,000,000 divided into 2,000,000 common shares with a par value per share of P10.00. Find the minimum amount of subscribed capital and paid-in capital.
1. The subscribed capital must be at least P5 million
(P20,000,000 x 25%)
_____________________________________________________________________
2. The paid-up capital must be at least P1.25 million
(P5,000,000 x 25%)
65
Capitalization: Ways to raise new funds
1. Issue more shares
2. Issue debt instruments
3. Borrow from a bank
*1 & 2 are securities*
66
Classification/Kinds of shares
1. Common Shares
2. Preferred Shares
3. Rights Shares
4. Treasury Shares
5. Outstanding Shares
6. Par Value Shares
7. Non-Par Value Shares
8. Redeemable Shares
9. Founders Shares
10. Watered Shares
11. Voting Shares
12. Non-Voting Shares
13. Retireable Shares
67
Differentiate Stock Certificate and Share of Stock
**Stock Certificate**
• The written evidence of such right
• Tangible personal property
• Issued only if the subscription is fully paid
**Share of Stock**
• Represents the rights and interest of a stockholder in the corporation
• Intangible personal property
• May be issued even if not fully paid, except shares without par value which are deemed fully paid and non-assessable upon issuance
68
The ordinary stock of a corporation which entitles the holder to a pro rata division of the dividends, without any preference or advantage over any other stockholders
Common Stock
69
Common Stock is a form of equity security because they represent ____________ in a corporation.
ownership
70
A Common Stock indicates different kinds of value such as:
1. Par Value
2. Book Value
3. Market Value
71
the stated value of stock
Par Value
72
• tangible net asset value per share (NAVPS)
• amount per share if a corporation is to be liquidated
Book Value
73
price someone is willing to pay for every share
Market Value
74
Common Stock Formula
(No. of shares / Total No. of Issued Shares) x 100
75
**Problem #7:** Mr. Reyes owns 10,000 shares out the total 100,000 shares issued by the XYZ company. How many percent of the company does he own?
= (10,000/100,000) x 100
= (0.10) x 100
= 10%
76
**Problem #8:** (Cont. of Problem #7) Suppose the company decided to issue additional 50,000 shares to increase funds. What will happen to the ownership of Mr. Reyes?
Ownership of Mr. Reyes will be diluted
= (10,000/150,000) x 100
= (0.067) x 100
= 6.67%
77
Kind of shares which entitles the holder to certain preferences over other shareholders.
Preferred Shares
78
Preferred Shares are shares that has a preference over common stocks as to dividends and claims upon liquidation of a company. It does not have ____________ but offers __________________.
voting rights; fixed dividend rates
79
Preferred stock which entitles the holder to preference in the distribution of dividends over common stock upon the liquidation of the corporation.
Preferred stock as to asset
80
Preferred stocks that entitles the holder to preference in the distribution of dividends over common stock
Preferred as to dividends
81
T or F. Preferred stocks can be par or no par value
F. Can never be no par value
82
Types of Preferred Shares
1. Participating Preferred
2. Cumulative Preferred
3. Callable Preferred
4. Convertible Preferred
83
Preferred Shares: Parity Formula
Parity = Price of Common Stock x Conversion Ratio
84
Differentiate Common Stocks and Preferred Stocks
**Common Stocks:**
• 2nd in line to receive dividends; dividends vary
• With voting rights
• Last to receive payout upon liquidation
**Preferred Stocks**
• 1st in line to receive dividends; fixed dividend rate
• Without voting rights
• 2nd in line to receive payout upon liquidation
85
• stockholders are given the first option to subscribe to all issues or disposition of shares.
• allows shareholders to maintain the proportionate shares of ownership.
Rights Shares: Pre-emptive rights
86
**Problem #9:** Mr. Reyes owns 10,000 shares (at P20.00 / share) out of the total 100,000 shares issued by the XYZ company. The company has a stock rights offer/issue to have additional 50,000 shares issued at P18.50 / share.
______________________________________________________________
|*Stock Rights Offer Period* | 100,000 shares x P20 = P2M
50,000 shares x P18.5 = P925k
New Market Capitalization = 2.925M
= 2.925M / 150,000 shares
= P19.5/share
Options of Mr. Reyes during the stock rights offer period:
1. **IGNORE THE OFFER** – his ownership of the company will be diluted.
2. **AVAIL HIS PREEMPTIVE RIGHT** - Mr. Reyes currently owns 10% of the company thus, he can purchase 10% of the additional 50,000 shares.
3. **SELL HIS RIGHTS** – 2 ways to compute the intrinsic value of shares
87
2 Ways of computing the intrisic value of shares
(Rights Shares: 3rd Option - Sell his Rights)
**1. Cum Rights** = **DURING** the stocks right offer period
=(Market Price - Subscription Price) / (No. of rights/share + 1)
**2. Ex-Rights** = **AFTER** the stocks right offer period
=(Market Price - Subscription Price) / (No. of rights/share)
88
Compute for the Cum Rights and Ex-Rights of **Problem #9**
**Step 1:** Compute how many rights are needed to purchase a share.
= 100,000/50,000
= 2 rights per share
**Cum Rights**
=(Market Price - Subscription Price) / (No. of rights/share + 1)
= (20-18.5) / (2+1)
= 1.50/3
= P 0.50
**Ex-Rights**
=(Market Price - Subscription Price) / (No. of rights/share)
= (20-18.5) / 2
= 1.50/2
= P 0.75
89
**Problem #10:** Mrs. Chua owns 100,000 shares (at P50.00 / share) out of the total 1,000,000 shares issued by the LKG company. The company has a stock rights issue to have additional 800,000 shares issued at P45.00 / share. Compute for the cum rights and ex-rights.
**Step 1:** Compute how many rights are needed to purchase a share.
= 1,000,000 𝑠ℎ𝑎𝑟𝑒𝑠 / 800,000 𝑠ℎ𝑎𝑟𝑒𝑠
= 1.25 rights per share
**Cum Rights:**
= (50-45) / (1.25+1)
= 5/2.25
= P 2.22
**Ex-Rights:**
= (50-45) / 1.25
= 5/1.25
= P 4
90
Differentiate Voting Shares and Non-Voting Shares
**Voting Shares**
Those entitled to vote in the meetings of the corporation.
**Non-Voting Shares**
Those without voting rights, except in certain cases.
91
Differentiate Par Value Shares and No Par Value Shares
**Par Value Shares**
One the nominal value of which appears on the articles of incorporation and on the stock certificate.
**Non-Value Shares**
One without any nominal or par value appearing in the articles of incorporation or on the stock certificate.
92
**Shares without PAR Value**
✅ Cannot be issued by _______, _______________, _________________, _____________, and _______________________.
✅ Deemed __________ and non-assessable
✅ Not liable to the _____________ and its _____________
✅ May not be issued for a consideration less than _________
✅ Treated as __________ and shall not be available for ___________
✅ banks, trust companies, insurance companies, public utilities, building and loan associations
✅ fully paid
✅ corporation, creditors
✅ Php 5.00
✅ capital, dividends
93
Those which grant the issuing corporation the power to redeem or purchase on a agreed/fixed period.
Redeemable Shares
94
T or F. redeemable shares can be redeemed regardless of existence of unrestricted retained earnings.
T
95
Issued shares and owned by persons other than the corporation.
Outstanding Shares
96
Issued with a value much greater than the value of the issuing company’s assets.
Watered Shares
97
Those that grant to the founders special rights and privileges not enjoyed by other shares for not more than 5 years.
Founders’ Shares
98
**Rules on Founders Shares**
a. Founders shares must be classified as such in the _______________________.
b. They may be given rights and privileges not enjoyed by other shares subject to the following limitations:
1. If the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not exceeding ________ subject to the approval of the SEC.
2. The _________ period begins from the approval of SEC.
a. articles of incorporation
b.
1. 5 years
2. five-year
99
Shares that were reacquired by the corporation. It does not have voting rights.
Treasury Shares
100
**Rules of Treasury Shares**
a. They shall have ________________ as long as they remain in the _________.
b. Although they are part of the subscribed stock, they are not considered ___________________.
c. Being owned by the corporation, they are not entitled to ____________.
d. They may again be disposed of for a reasonable ____________ by the ______________.
e. Reduces __________.
a. no voting rights; treasury
b. outstanding shares
c. dividends
d. price fixed; board of directors
e. Capital
101
ISSUANCE OF SHARES: Where the corporation had previously issued the entire authorized capital stock, it cannot issue additional stock in excess thereof. What happens if there is an over-issuance?
Where there is an over-issuance, the increase and the certificates issued are void because of the fact that it is beyond the power of the corporation to create and issue the additional stock, and therefore, holders of the certificates, whether they be the original holders or their bona fide transferees, do not become stockholders.
102
Shares of stock cannot be issued by a corporation gratuitously under an agreement that nothing at all shall be paid to the corporation for this would result in the __________________.
watering of shares
103
A corporation may issue shares of stock at any price, provided it is not less than _____.
par
104
T or F. Where the consideration for stocks is other than actual cash, or consists of intangible property, the valuation thereof shall be determined by the incorporators or board of directors.
T
105
______________ is one of the method used to determine the amount spent per stock.
Cost basis
106
How do YOU earn from stocks?
1. Capital Gains / Appreciation
2. Dividends
3. Capitalization
107
Another way for a shareholder to earn income from his equity securities.
Capital Gains / Appreciation
108
**Problem 11:** Mr. Reyes bought his 10,000 shares for P12/share and sold it at P20/share. Compute for his capital gains.
= (Selling Price - Original Price) x No. of shares
= (20-12) x 10,000 shares
= 8 x 10,000 shares
= P 80,000
109
is a corporate action that increases the number of shares in a company. The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur
stock split
110
Before the Stock Split vs. After the Stock Split
**Before the Stock Split**
✔️Market Cap= Earlier no. of Total shares x Earlier price per share
✔️Php 50 Million = 2 million shares x Php 25/share
✔️ Reason/s for doing:
- Price is too high compared to similar companies of the same sector.
- Hard to sell
**After the Stock Split**
✔️ Market Cap= New no. of Total shares x Earlier price per share
✔️ Php 50 Million = 10 million shares x Php 5/share
✔️ Effect:
**Decrease in Par/Price**
- makes it attractive to smaller investors
- Increased liquidity because shares are easily traded
**Increase in Total number of Shares or Outstanding Shares**
111
When the stock price sinks too low, a reverse split combines more shares into a single share with a higher share price
Reserve Stock Splits
112
Before the Reverse Stock Split vs. After the Reverse Stock Split
**Before the Reverse Stock Split**
✔️Market Cap= Earlier no. of Total shares x Earlier price per share
✔️Php 50 Million = 10 million shares x Php 5/share
✔️ Cause: **Price sinks too low**
- Low price makes it vulnerable to further market pressure which would cause them to be delisted in an exchange.
**After the Reverse Stock Split:**
✔️Effect:
- **Increase in Par/Price:** because shares are combined to a single share with a higher price.
- **Decrease in Total number of Shares or Outstanding Shares**
113
Summarize STOCK Splits vs. REVERSE Splits
**STOCK Splits**
• Divides its existing shares into multiple shares to boost liquidity.
• Also known as _forward stock split_
• Market Capitalization is still the same.
**REVERSE Splits**
• Reduces the total number of its outstanding shares and increases its price.
• Also known as _stock consolidation_ or _share roll back_
• Market Capitalization is still the same.
114
**Problem #12:** A 2-for-1 Stock Split 20M Outstanding Shares trading at P10 each
20 M shares x 2 = 40 M shares
P 10 per share / 2 = P 5 per share
40 M shares x 5 pesos = *200M Market Capitalization*
115
**Problem #13:** A 1-in-10 Reverse Split 200M Outstanding Shares trading at P1 each
= 200 M shares / 10 = 20 M shares
= Php 1 x 10 per share = Php 10
= 20M shares x 10 pesos = *200M Market Capitalization*
116
These are declared out of the **accumulated profits** (unrestricted retained earnings) of the company. The Board of Directors will decide whether dividends will be declared or not.
Dividends
117
Three Types of Dividends:
1. Cash Dividends
2. Property Dividends
3. Stock Dividends
118
It does not mean an increase in the market value of the investment.
Stock Dividend
119
Adjusted Market Price Formula
= Price before declaration of stock dividend / 1 + stock dividend rate
120
**Problem #14:** The shares of XYZ company were trading at P20/share and the total market value of Mr. Reyes’ 10,000 shares is P200,000. Suppose the company declares a 25% stock dividend, compute for the adjusted market price of a share.
= Price before declaration of stock dividend / 1 + stock dividend rate
= 20 / 1 + 0.25
= P 16
121
4 dates to remember for dividends:
1. Declaration Date
2. Ex-Dividend Date
3. Record Date
4. Payment Date
122
Two Methods of Voting
A holder of 500 shares with 5 directors to be elected
**1. Statutory**
- All 5 directors have 100 shares each
**2. Cumulative**
- Director A have 200 shares, Director B have 300 shares and the rest do not have any.
123
Understanding Voting Rights
- Warrants
- Options or Contracts
- Proxy
- Exercise or Strike Price
- Voting Trust Agreement
124
rights to subscribe or purchase new shares on or before a predetermined date.
Warrants
125
gives the buyer the right, but not the obligation to buy or sell, at a predetermined price.
options or contracts
126
somebody will vote on behalf of the shareholder.
proxy
127
fixed price at which the owner can buy or sell.
exercise or strike price
128
more than one shareholders transfer their voting rights to a trustee
Voting Trust Agreement
129
Considerations for the Issuance of Shares
1. Cash
2. Property
3. Previously incurred indebtedness
4. Deposit for future subscription
5. Outstanding shares of stock
6. Unrestricted retained earnings to stated capital
7. Actual services rendered
130
**SUBSCRIPTIONS**
1. The subscribers may in their own personal capacity and acting in good faith, _______________ for payment of their ________________.
2. Corporations are not restricted from receiving only __________________ in payment of subscription of capital stock. **The Corporation Code allows payment in exchange for shares of stock in the form of ______________.**
3. **Shares of stock may be accepted as ___________________ payment in exchange of shares of stock of a corporation,** provided that the same is necessary or convenient in carrying out the corporate business for which the corporation is organized
1. borrow money; subscriptions
2. money/cash; property
3. capital contributions
131
Rights of a Stockholder
1. Right to vote in the election of the board
2. Right to be voted
3. Right to vote in corporate acts
4. Pre-emptive right/stock rights offerings
5. Right to first refusal
6. Right to recieve dividends
7. Right to inspect corporate books
8. Appraisal Right
9. Right to dispose, designate proxy, voting trust agreement
10. Derivative Suit
132
How to become a stockholder? – Sec. 62
1. Actual cash;
2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.
7. Intangible property that is properly valued
133
**Stockholders:**
*Can never become the consideration:
*Issuance for less than consideration
*Can never become the consideration:
Future service
Promissory notes
Issuance of bonds
*Issuance for less than consideration
Called watered shares
Violation of trust fund doctrine
Solidarily liable (1 for all, all for 1)
134
**General Rule– Voting**
• The _______________ is a stockholder’s most basic and fundamental right
• Each share of stock is entitled to vote, unless denied in the _____________________ or declared __________under Section ___ of the Corporation Code.
• Only stockholders of record as of date fixed in the _________ shall enjoy the right to vote at stockholders’ meeting.
• The ____________________ is the best evidence to establish the stockholders who are entitled to vote at stockholders’ meeting
• right to vote
• articles of incorporation; delinquent; 67
• by-laws
• stock and transfer book
135
Vote or be voted into the board - When can non voting shares vote? (DAAIIIMS)
i. Dissolution
ii. Amendment of the articles of incorporation
iii. Adoption and amendment of by-laws
iv. Incurring, creating or increasing bonded indebtedness
v. Increase or decrease of capital stock
vi. Investment of corporate funds in another corporation or business in accordance with this Code
vii. Merger or consolidation of the corporation with another corporation or other corporations
136
Vote or be voted into the board - When does majority of BOD +2/3 shareholders vote? (DAEIIIMS)
i. Dissolution
ii. Amendment of the articles of incorporation
iii. Extend/shorten corporate term
iv. Incurring, creating or increasing bonded indebtedness
v. Increase or decrease of capital stock
vi. Investment of corporate funds in another corporation or business in accordance with this Code
vii. Merger or consolidation of the corporation with another corporation or other corporations
viii. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property
137
When does majority 2/3 shareholders vote?
(RCBDSM)
i. Remove directors
ii. Contracts with director/officer provided reasonable
— If officer; has to be approved by BOD
iii. Director business opportunity
iv. Delegation to BOD of power to amend/repeal/adopt new bylaws
v. Stock dividends
vi. Management contract where majority of managing is managing of managed corporation
138
Who votes for pledged/mortgaged etc?
1. _Pledged/Mortgaged shares_ —> Pledgor/ Mortgagor
2. _Executors/ Administrators/Receivers_ —> Executors/ Administrators/Receivers – no need for written proxy
3. _Jointly owned_ —> ALL co-owners unless with written proxy OR owned in an “and/or” capacity
4. _Treasury Shares_ —> No voting rights
5. _Proxies_ —> If stockholder is present – Proxy is invalidated
6. _Voting Trust_ —> Trustee votes even if shareholder is present
7. _Delinquent Shares_ —> Cannot vote until fully paid
139
Stockholders: What are proxies and voting trust agreements? – Sec. 55, 56, 71
i. Proxies
ii. Voting trusts
iii. Delinquent shares
i. **Proxies** – valid only for the meeting; no longer than 5 years
— If the stockholder is present, the proxy is invalidated
ii. **Voting trusts** – should not exceed 5 years; can be longer if related to debt but should be co-terminus
— Voting right and ownership are effectively split
iii. **Delinquent shares** – cannot vote until fully paid
— Can still receive dividends (applied to
unpaid balance)
140
a stockholder may vote for every directorship, a maximum number of votes equal to the number of shares he owns
Statutory Voting
141
• the stockholder may spread his total votes among the number of positions to be filled in any manner
• affords minority shareholders their best opportunity of gaining representation on the Board of Director
Cumulative voting
142
Section 71 of the Corporation Code
**Delinquent shares:** _Section 71_ of the Corporation Code is explicit that the moment a stock becomes delinquent, the holder thereof loses his right to vote. Therefore, no delinquent stock for unpaid subscription shall be voted or entitled to vote or represented at any stockholders’ meeting.
143
T or F. Common stockholders do not have voting rights.
F. Common stockholders HAVE voting rights.
144
**Co-owners**
• **In case of shares of stock owned jointly by two or more persons, in order to vote the same, the _________ of all the co-owners shall be necessary,** unless there is a ________________, signed by all the _______, authorizing one or some of them or any other person to vote such share or shares: Provided, That when the shares are owned in an _________ capacity by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.
• The right to vote a co-owned share covered by a conjunctive “and/or” in the stock certificate may be exercised by ____ or ____ or ____ of the co-owners.
• consent; written proxy; co-owners; “and/or”
• both; all; any
145
**Right of First Refusal**
• In order to be valid and enforceable, any restriction on the transfer of shares requiring the transferor to first offer **the same to the ____________________ before ________ it to _____________, must be explicitly provided for in the articles of incorporation and stock certificate.**
• Restrictions on transfer cannot be more oppressive than granting the existing stockholders or the corporation the option to __________ the shares of the selling stockholders under reasonable terms and conditions or period stated therein.
• **In the absence of an express provision in the articles of incorporation and stock certificate stating that the transfer of issued shares should be offered to the existing stockholders, the transferor may legally _______________ or __________ to anybody without the need of a ________ from the remaining stockholders.**
• A provision in the articles of incorporation giving the stockholders the right of ___________ in case of sale of stock does not apply to transfer by donation.
• existing stockholders; selling; third parties
• purchase
• dispose of; sell his shares; waiver
• first refusal
146
not an inherent right otherwise, a stockholder can easily withdraw from the corporation at anytime he desires by returning his shares and getting back his capital.
Appraisal Right
147
Appraisal right is allowed only under the instances provided in the Corporation Code, particularly in Section ___, ___, ___, and ____, the exercise of which is subject to the conditions prescribed therein.
37, 42, 81, 105
148
**Section 37. Power to extend or shorten corporate term.**
_A private corporation may extend or shorten its term_ as stated in the articles of incorporation when approved by a _____________________________ and ratified at a meeting by the ___________________________________________________________ or ___________________________________________________________.
Provided, **That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right** under the conditions provided in this code.
majority vote of the board of directors or trustees;
stockholders representing at least two-thirds (2/3) of the outstanding capital stock;
by at least two-thirds (2/3) of the members in case of non-stock corporations.
149
**Section 42. Power to invest corporate funds in another corporation or business or for any other purpose.**
_A private corporation may invest its funds in any other corporation or business or for any purpose other than the primary purpose for which it was organized_ when approved by a ____________________________________ and ratified by the stockholders representing ____________________________________________, or by _____________________________________________, at a stockholder’s or member’s meeting duly called for the purpose.
Provided, **That any dissenting stockholder shall have appraisal right as provided in this Code.**
majority of the board of directors or trustees;
at least two-thirds (2/3) of the outstanding capital stock;
at least two thirds (2/3) of the members in the case of non-stock corporations
150
When to exercise: **Section 81. Instances of appraisal right.**
Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of his shares in the following instances:
1. In case **any amendment to the articles of incorporation**
2. In case of **sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets**
3. In case of **merger or consolidation.**
151
a union whereby one or more existing corporations are absorbed by another corporation which survives and continues the combined business.
Merger
152
is the union of two or more existing corporations to form a new corporation called the Consolidated Corporation
Consolidation
153
Merger vs. Consolidation
**Merger**
✅ All of the constituent corporations involved in the merger are dissolved except one
✅ no new corporation is created
✅ The surviving corporation acquires all the assets, liabilities and capital stock of all constituent corporations
**Consolidation**
✅ all consolidated corporations are dissolved without exception
✅ a single new corporation emerges
✅ all assets, liabilities and capital stock of all consolidated corporations are transferred to the new corporation.
154
When to exercise: **Section 105. Withdrawal of stockholder or dissolution of corporation.**
Any stockholder of a close corporation may, for any reason, compel the said corporation to purchase his shares at their __________, which shall not be less than their _____ or issued value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of ______________.
fair value; par; capital stock
155
However, as a remedy in case an appraisal right is not allowed, a stockholder may avail of Section ___ of the Corporation Code which allows transfer of ownership of shares.
63. Certificate of stock and transfer of shares
156
**Sec. 63. Certificate of stock and transfer of shares.**
Shares of stock so issued are __________________ and may be transferred by delivery of the certificate or certificates endorsed by the owner or his _______________________ or other person legally authorized to make the transfer.
personal property; attorney-in-fact
157
refers to corporate profits allocated, lawfully declared and ordered by the directors to be paid to the stockholders on demand or at a fixed time.
Dividend
158
**Right to dividends**
• When a corporation earns profit over and above the amount of its capital, the stockholders are entitled to have a share in such profit in proportion to their ________________, and the fund set apart for this purpose is called ____________.
shareholdings; dividends
159
Dividends must be declared and paid out from this.
Unrestricted Retained Earnings
160
The accumulated profits realized out of normal and continuous operations of the business. It refers to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt (ie. Expansion, possible future loss, loan agreement, etc.)
Retained Earnings
161
• paid to stock-holders in cash
• usually quoted in peso amounts (say P0.50 per share) or as a percentage of the par value (hence, a 5% cash dividend on a common stock with a par value of P10.00 is equal to P0.50)
Cash Dividends
162
**Problem #15:** If the Board of Directors of XYZ Company declares a cash dividend of P0.50/share, how much dividend will Mr. Reyes receive on his 10,000 shares?
P5,000.00
163
• stockholders are given additional shares of the company.
• quoted as a percentage of the company’s outstanding shares.
Stock Dividends
164
**Problem #16:** If the Board of Directors of XYZ Company declares a 25% stock dividend, how many additional shares will Mr. Reyes receive as dividend?
2,500 shares
(25% x 10,000 shares).
165
• rarely done
• dividends are paid out in the formof assets
• assets can be shares of **another corporation** owned by the company
Property Dividends
166
the date when the Board of Directors declared the dividend.
Declaration date
167
first business day on which a share will trade without its dividend
Ex-dividend date
1) If holder **before** ex date – will receive dividends
2) If holder **after** ex date – will not receive dividends
*(usually 2-3 business days prior to the record date.)*
168
dividends are to be paid to shareholders of record as of a specified date.
Record date
169
business day on which a shareholder that is listed in the company’s records is deemed to have ownership of the company’s shares for the purpose of deciding who can and who cannot receive a dividend when paid
Holder of record
170
the date when the checks are mailed out.
Payment Date
171
What is the sequence of dates for dividends?
1. Declaration date
2. Ex date
3. Record date
4. Payment date
172
Features of Dividends
1. Guaranteed
2. Cumulative
3. Participatory
4. Non-cumulative and nonparticipatory
173
Payment of dividends is guaranteed
Guaranteed
174
Cumulative vs. Non-cumulative
**Cumulative:** Entitle the holder thereof to payment of current dividends as well as dividends in arrears *(dividends not given in the prior years)*
**Non-cumulative:** Entitle the holder thereof only to the payment of current and not past dividends
- this is the norm; only current dividends
175
Participating vs. Non- Participating
**Participating:** Entitle the holder thereof to participate with the holders of common shares after their preferred right has been satisfied
**Non-Participating:** Entitle the holder thereof to payment of the stipulated preferred dividends and no more.
176
Entitle the holder thereof to payment of dividends in arrears and also, after receiving his preferred share of dividends, to participate with the holders of common stock in the remaining profits
Cumulative-participating
177
T or F. All corporations whose securities are registered under the Securities Regulation Code are required to first register with the Commission any or all offers to subscribe to shares from increases in the authorized capital stock.
T
178
All corporations declaring _______ or _______________ must secure approval of stockholders within________ from such declaration by the _______________ . The Board Resolution shall be specific as to the amount of stock or property dividend.
stock or property dividends; 45 days; Board of Directors
179
**Rules in Declaring Stock Dividend in connection with an Increase in Authorized Capital Stock:**
• Approval of the ______________ must be secured within __________ upon the declaration of the _____________ by the Board of Directors;
• Application for increase in authorized capital stock and for the registration of the securities must be filed with the ____, within ___________ from the date of the approval by the stockholders;
• The record of such declaration shall not be _________________ nor ____________ after clearances and approvals by the Commission
• stockholders; (30) days; stock dividend
• SEC; forty five (45) days
• less than ten (10) days; more than (30) days
180
Sanctions for Violation of any of the Provisions of the Rules
• Fine of no less than Two Hundred (200.00) pesos nor more than Fifty Thousand (P50,000.00) pesos plus not more than Five Hundred (P500.00) pesos for each day of continuing violation;
• Suspension or Revocation of Certificate of Registration or permit to offer securities; and
• Other penalties within the power of the Commission
181
Problem #17:
Date of Approval of the Increase of Authorized Capital Stock: 18 June 2017
(Subscription is by way of payment of stock dividend)
Record Date for stock dividend declaration: 18 July 2017
Request for Change of Record Date: 28 August 2017
How much is the violation of the Rules?
• Violation of the Rules for a period of 41 days
(from 18 July 2017 to 28 August 2017).
Fine: P 50,000.00 (Maximum)
+ 20,500.00 (P500.00 x 41 days)
Total 70,500.00
182
Section 10. Exempt Transactions– The requirement of registration under Subsection 8.1 shall not apply to the sale of any security in any of the following transactions:
(a) at any juridical sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankcruptcy
(b) by or for the account of a pledge holder, or a mortgagee or any other similar lien holder selling or offering for sale or delivery in the delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this code., to liquidate a bonafide debt, a security pledged in good faith as security for such debt.
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
183
(l)The sale of securities to any number of the following qualified buyers:
i. Bank;
ii. Registered investment House;
iii. Insurance company
iv. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral ng Pilipinas to engage in trust functions;
v. Investment company; or
vi. Such other persons as the Commission may by rule determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management.
184
Natural person which shall be considered a ______________________ if he has registered as such with entities that are authorized by the Commission to act as registrar of qualified buyers
**qualified individual buyer**
185
QIB Qualifications (Individual)
Any of the ff:
• **Annual gross income:** _at least Ten Million Pesos_ (Php 10,000,000.00) at least two (2) years prior to registration, or
• **Total Portfolio Investment** (in securities registered with the SEC) of _at least Ten Million Pesos_ (Php 10,000,000.00), or
• **Personal net worth:** not less than _Thirty Million Pesos_ (Php 30,000,000.00)
**and**
Any of the ff:
• **Engaged in securities trading personally or through a fund manager** for a minimum period of one (1) year, or
• Has held for **at least two (2) years a position of responsibility in any professional business entity with knowledge/expertise in securities trading**, (i.e., legal consultant, financial adviser, sales person, or associated person of a broker-dealer, bank finance or treasury officer, trust officer or other similar executive officers.)
186
QIB Qualifications (Juridical Person)
• **Gross assets:** at least One Hundred Million Pesos (Php 100,000,000.00), or
• **Total Portfolio Investment** (in securities registered with the SEC or financial instruments issued by government)of at least Sixty Million Pesos (Php 60,000,000.00)
187
QIB Requirements: Submit under oath certified copies of the documents or their equivalent that show the following matters:
• Total Portfolio of securities;
• Annual Gross Income;
• Their Net Worth; and
• Threshold Risk (low, medium, high risk)
188
**QIB Registration**
• The registration as qualified buyer shall be valid for ________ if the qualifications provided are continuously complied with.
• Any application for renewal shall be subject to new _____________ by the _________ and accompanied by _________________________.
• The registrar shall maintain a _________________ of qualified buyers that shall be open for inspection by the Commission.
• 3 years
• evaluation; registrar; updated information sheets
• registry book
189
**Capital Market Participants (Institutions and Professionals)**
• Registration Requirements for a Broker Dealer, Investment Company Adviser/Fund Manager, Associated Person, Compliance Officer, Certified Investment Solicitor and Salesman are under the _____________________________________________________________.
• The Market Participants are Regulated by the _____________________________________________________________.
• Licensing Unit of the Company Registration and Monitoring Department (CRMD)
• Market and Securities Regulation Department (MSRD)
190
Who are the different Market Participants/Professionals?
1. Broker
2. Dealer
3. Associated Person
4. Salesman
191
is a person engaged in the business of buying and selling securities for the account of others.
Broker
192
means any person who buys and sells securities for his/her own account in the ordinary course of business.
Dealer
193
any person employed full time by the Broker Dealer whose responsibilities include internal control supervision of other employees, agents, salesmen, officers, directors, clerks and stockholders of such Broker Dealer for compliance with the SRC and its IRR.
Associated Person
194
is a natural person hired to buy and sell securities on a salary or commission basis endorsed to the Commission by the employing Broker Dealer.
Salesman
195
Other Market Participants/Professionals
1. Government Securities Eligible Dealer (GSED)
2. Investment House/Underwriter of Securities
3. Transfer Agent
4. Exchange
5. Clearing Agency
196
a person or entity engaged in buying and selling of government securities such as Treasury bills, Treasury notes, and Treasury bonds.
Government Securities Eligible Dealer (GSED)
197
a corporation which engages in the underwriting of securities of another person, including securities of the government or its instrumentalities.
Investment House/Underwriter of Securities
198
any person who engages on behalf of an issuer of securities in, among others, registering the transfer of such securities.
Transfer Agent
199
is an organized marketplace that brings together buyers and sellers and executes trades of securities and/or commodities.
Exchange
200
any person who acts as an intermediary in making deliveries upon payment to effect settlement in securities transactions.
Clearing Agency
201
**Registration of Brokers and Dealers Section 28–SRC**
• No person shall engage in the business of buying or selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated person of any broker or dealer unless _____________________________.
• No registered broker or dealer shall employ any __________ or any _________________ who is not registered as such with the Commission.
• registered as such with the Commission.
• salesman; associated person
202
**Registration of Brokers and Dealers**
• If a natural person, the applicant must satisfactorily pass a ______________________ as to his proficiency and knowledge in the ______________ for which registration is sought.
• In the case of a broker or dealer, the applicant must satisfy a minimum _________________ as prescribed by the Commission, and provide a bond or other security as the Commission may prescribe to secure compliance with the provisions of this Code.
• written examination; area of activity
• RBCA requirement
203
refer to the **minimum levels of capital that has to be maintained by firms which are licensed, or securing a Broker Dealer license, taking into consideration the firm size, complexity and business risk.** Such risks that are considered in determining the capital requirement include, among others, _Operational, Position, Counterparty, Large Exposure, Underwriting, and Margin Financing Risks._
Risk-Based Capital Adequacy Requirement/Ratio
204
**Registration of Brokers and Dealers**
• The registration of a salesman or associated person shall be **automatically terminated upon the _________ of his __________________________.**
• Promptly following any such cessation of affiliation, **the registered broker or dealer shall file with the Commission a _________________ of such salesman or associated person.**
• cessation; affiliation with the broker or dealer.
• notice of separation
205
**Registration Requirements of Brokers and Dealers**
_Some of the significant requirements:_
A person applying for registration as a Broker-Dealer under Section 28 **shall indicate in SEC Form 28-BDA (Application for Registration as a Broker-Dealer)** the following matters:
• Act as a Broker or Dealer
• Trade, directly or indirectly, in an Exchange, in the Over The-Counter Market or in an Alternative Trading System
• If an Exchange Trading Participant, whether:
- clearing or a non-clearing trading participant
- it shall engage in market making transactions
206
**Registration Requirements of Brokers and Dealers**
**Market Making Transactions** shall mean transactions in a particular security/ies:
• **complies with the rules of the Commission and Exchange** regarding its duty as a market maker;
• **ensure two way quotes, provide liquidity, and maintain a fair and orderly trading market.**
207
**Registration Requirements of Brokers and Dealers**
_Some requirements for registration:_
* Written supervision and control procedures (WSP), including ______________, requirements of the _______________________ (RA 9160, as amended) and the _________________ (SEC Memorandum Circular No. 2, Series of 2002);
* Detailed description of __________________, names and designations of the officers, including branch offices;
* A _______________ on the implementation of the ______________ for the staff;
* __________________ & Internal Control Procedures;
* Business Continuity and ________________;
* Comprehensive ___________________ Plan;
* Copies of ________________ of any activities or services that are being __________.
* __________ which shall contain basic information about the firm including _____________, the ________, _____________ and ________________ of its directors, principal
officers, associated persons and salesmen.
* Submit list of _________, ______, __________ and __________ together with their photos
* “Chinese Wall” provisions; Anti-Money Laundering Act of 2001; Code of Corporate Governance
* Organizational and Functional Charts
* yearly schedule/timetable; training program
* Risk Management Manual
* Disaster Recovery Plan
* Information Technology
* proposed contract; outsourced
* Website; services offered; names; current photos; contact details
* directors; officers; salesmen; employees
208
Other Market Participants/Professionals
Investment Company Act (ICA) [R.A. No. 2629]
• Investment Company Adviser or Fund Manager
• Investment Company
• Mutual Fund Distributor
• Certified Investment Solicitor
• Compliance Officer
209
the firm that manages the funds of an Investment Company
Investment Company Adviser or Fund Manager
210
a company that pools funds from numerous investors through the issuance of its shares to the public
– open-end investment company (mutual fund)
– closed-end investment company
Investment Company
211
distribute shares or units of an Investment Company as either principal distributor or sub-distributor
Mutual Fund Distributor
212
**agent or employee** of an Investment Company Adviser/Fund Manager/Distributor who solicits or procures investments or applications for investment in an Investment Company/Mutual Fund Company
Certified Investment Solicitor
213
Compliance Officer
**a. To have a system designed to achieve compliance** with the SRC, ICA and their IRR, SEC Memorandum Circulars,Corporate Governance Rules, Anti-Money Laundering Act, Data Privacy Act;
**b. Oversee the compliance with the requirements of the Commission** relative to the closure of the business of an Investment Company and Fund Manager.
214
Registration Requirements for Capital Market Professionals (SPVL)
• SEC Forms
• Proof of Examinations: SEC Certification Program Examination
• Valid ID
• Letter from Employer
215
Registration Requirements for Capital Market Professionals (SEC Forms)
**SEC Form 28-AP/28-AMD:** Registration of Associated Person of a Broker Dealer
**SEC Form 28-S/28-AMD** Registration of Salesman of a Broker Dealer
**SEC Form IHU/GSED-CO-AP** Application for Registration of Associated Person/ Compliance Officer of Investment House/Underwriter of Securities and Government Securities Eligible Dealers
**SEC Form ICA-CO** Registrationof a Compliance Officer of an Investment Company Adviser/Manager
**SEC Form ICA-CIS** Registration of a Certified Investment Solicitor of an Investment Company Adviser/Manager
216
SEC Certification Program Examinations
_Phase 1_
Module 1 - Fundamentals of Securities
Module 2 - Economic Principles and Market Theories
Module 3 - Fundamentals of Securities Regulation
Module 4 - Corporate Governance
Module 5 - Risk Management
Module 6 - Anti-Money Laundering
_Phase 2_
Module 7A - Mutual Funds
Module 7B - Equities
Module 7C - Fixed Income
Module 7D - Compliance Officer/Associated Person
Module 7E - Proprietary/Non-Proprietary Securities, Timeshares
217
**Terms and conditions for applicants for registration:**
(Capital Market Professionals)
• Only _____________ can apply and be employed by a Capital Market Institution.
• Applicants for salesman/certified investment solicitor shall be at least _________________ and applicants for associated person/compliance officer shall be at least ________________.
• Applicants for registration as a salesman/certified investment solicitor must have no ____________________ that would subject them to disqualification from registration under Section ____ of the Code.
• natural persons
• eighteen (18) years of age; twenty one (21) years of age
• disciplinary history; 29
218
Applicants for registration as a capital market professional must not have been:
• censured or reprimanded by a professional (e.g. IBP, PRC) or regulatory body (e.g. SEC, BSP) for ____________, ___________________ or ______________ OR
• ___________ or requested to _________ from any position or office for negligence, incompetence or mismanagement OR
• be subject to any other _________________ under Section ___ of the SRC
• negligence, incompetence, mismanagement
• dismissed; resign
• disqualification; 29
219
• Any applicant applying for registration for the 1st time must have taken and passed the applicable examination within the __________________ immediately preceding the date of his application.
• No applicant for registration as capital market professional shall be registered unless he has completed the _____________ requirements.
• An applicant who is not registered as a capital market professional for three (3) consecutive years or more, which shall be counted from the date of ___________________________ or from the date of _________________________, cannot apply for registration unless he has complied with the certification requirements of the Commission.
• An applicant who is in a condition/situation as described above may not be required to take the earlier referred examination if he can prove to the Commission that he has continuously __________ in an equivalent capacity in the local capital market or its related industries for the last three (3) years.
• last three (3) years
• certification
• expiration or termination of his registration; his passing of relevant examinations
• worked
220
• **The registration of a capital market professional shall cease** when he is no longer ___________ by the Capital Market Institution identified in his registration application (SEC Form 28-T) _________________ after discontinuance of employment)
• Every registered capital market professional who shall change his registration category (license type) during the year shall be assessed the appropriate ______ for the issuance of a new license.
• **Every registered capital market professional shall report** in __________________, _________________ any change in the information provided in the application forms within _______ from such change.
• employed; five (5) business days
• fee
• SEC Form 28S/AP AMD; SEC Form ICA-CO/CIS; 7 days
221
**The license of a capital market professional shall remain valid unless otherwise _________________ or _____________ or _______________________,** subject to compliance with the terms and conditions of registration. Each registered salesman or associated person shall pay the annual fee every ___________ of each year of registration and must be cleared of all derogatory reports and cases. **The filing and payment of the annual fee after the prescribed period will be charged a fee for late filing. Failure to pay is a ground to suspend registration.**
revoked for cause; suspended; voluntarily surrendered; November
222
**Conditions for Continuing Registration of Capital Market Professionals**
• Observe at all times the provisions of the ________________________________________, all rules and regulations adopted thereunder, and applicable Exchange, clearing agency and other SRO rules; and
• Demonstrate an on-going understanding of applicable regulatory requirements and _________, __________, and other _________.
• Securities Regulation Code/Investment Company Act/Investment Houses Law
• Exchange; clearing agency; SRO rules
223
Kinds of Debt Instruments
1. Corporate Bonds
2. Government Securities
224
Corporate Bonds
1. Secured and Unsecured Bonds
2. Money Market Instruments
225
Government Securities
1. Treasury Bills, Notes, and Bonds
2. Agency and Municipal Bonds
226
They are **evidences of indebtedness** by the corporation to creditors. It is covered by a **deed of trust** (indenture) and can be a **bearer** or **registered bond.**
Corporate Bonds
227
Corp bonds: A bond may be sold at:
1. **PAR**– at face value
2. **PREMIUM** – price above its par value
3. **DISCOUNT** - price below its par value
228
Yield Measurement
1. NOMINAL YIELD
2. CURRENT YIELD
3. YIELD-TO- MATURITY
229
Nominal Yield vs. Current Yield vs. Yield-to-Maturity
**Nominal Yield**
• bond’s coupon rate
• nominal yield curve vis-à-vis time horizon
**Current Yield**
• takes into account the current market value of the bond
• coupon/current market price of bond
**Yield-to-Maturity**
• the compounded rate of return of a bond, if held until maturity.
• 𝐶𝑜𝑢𝑝𝑜𝑛 + [(𝑃𝑎𝑟 − 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒) / 𝑌𝑒𝑎𝑟𝑠] / [(𝑃𝑎𝑟 + 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒) / 2]
230
**Problem #18:** The par value of clients bond is P1,000.00 and has a 10% coupon rate. Compute for the current yield if the market price of the bond is at P1,050.00.
= coupon/ current market price of the bond
= (1,000 x 10%) / 1,050
= 100/1050
= 9.52%
231
**Problem #19:** The par value of clients bond is P100,000.00 and has a 5% coupon rate. Compute for the current yield if the market price of the bond is at P250,000.
= (100,000 x 5%) / 250,000
= 5000 / 250,000
= 0.02 or 2%
232
**Problem #20:** Suppose a bond with P1,000 par value with 6% coupon rate and matures in 12 years is selling at P900. Compute for the yield-to-maturity.
= [Annual Coupon + (par-market value)/years)] / (par+market value/2)
= (1000 x 6%) + (1000-900/12)/(1000+900/2)
= 60 + (1000-900/12)/(1000+900/2)
= 60 + 8.33/950
= 68.33/950
= 0.071926 or 7.19%
233
A type of bond that is secured by the issuer’s pledge of a specific asset
Secured Bonds
234
Secured Bonds
1. Mortgage Bonds
2. Equipment Trust Certificates
235
backed by real estate holdings and real property.
Secured bonds: Mortgage bonds
236
secured by equipment or physical assets
Secured bonds: Equipment Trust Certificates
237
These are backed solely by the reputation, credit record, and earning power of a corporation. It is also known as **debentures.**
1. Subordinate Debentures
2. Convertible Debentures
238
• riskier than convertible but priority in liquidation than stocks
• can be a junior or senior debenture
Unsecured Bonds: Subordinate Debentures
239
• right to convert to a common stock
Unsecured bonds: Convertible Debentures
240
These are short-term debt instruments maturing in less than one year.
Money Market Instruments
241
Other Money Market Instruments
1. Negotiable Certificate of Deposit (NCD)
2. Banker’s Acceptances (BAs)
3. Repurchase Agreements (REPOs)
4. Commercial Papers
242
Time Deposit issued by banks
Negotiable Certificate of Deposit (NCD)
243
Used to facilitate import/export transactions
Banker’s Acceptances (BAs)
244
Alternative to borrowing for the short-term by using government securities as collateral
Repurchase Agreements (REPOs)
245
Unsecured corporate debt instruments of less than one year. These are normally used for short-term cash requirements **(working capital).**
Commercial Papers
246
Ratings indicate the **relative safety** of the securities and are done by the Philippine Ratings Services Corporation **(PhilRatings).**
Bomd and Commercial Paper Ratings
247
Peso-denominated **government securities** are considered as a __________ investment because they are ______________ by the government.
risk-free; guaranteed
248
Tbills vs. Tnotes vs. Tbonds
**Treasury Bills**
_Sold:_ Discount
_Tenor:_ 91-, 182-, 364- day
_Coupon:_ None
**Treasury Notes**
_Sold:_ Par Value; Discount; Premium
_Tenor:_ 2-5 years
_Coupon:_ Semi-Annual
**Treasury Bonds**
_Sold:_ Par Value; Discount; Premium
_Tenor:_ >2 years
_Coupon:_ Quarterly
249
T or F. T-Bonds cannot be callable or putable.
F. T-Bonds may also be callable or putable.
250
There is also a special kind of notes called _______________________.
Floating Rate Treasury Notes (FRTNs).
251
____________ is used to calculate the interest of money market instruments.
360 day count
252
Agency vs. Municipal Bonds
**Agency Bonds**
• Corporations sponsored, owned, or controlled by the government
• 10-year Agrarian Reform Bond by LBP
**Municipal Bonds**
• Local Government Units (LGUs) such as states, cities, municipalities
• General Obligation Bonds (GOs) and Revenue Bonds
253
The differences in yields are sometimes expressed in _____________.
basis points
*(1% = 100 basis points)*
254
**Investment Banking:** The main objective is to raise capital for the issuer. It provides financial advice to help a corporation determine the following:
1. Amount
2. Approach
3. Type of Securities
4. Timing
255
Types of Underwriting
1. FIRM COMMITMENT
2. BEST EFFORT
256
Umderwriting: Types of Offerings
1. PRIMARY
2. SECONDARY
3. IPO
257
T or F. Only investment houses / banks with SEC licenses can underwrite securities.
T
258
Treasury Shares are shares that were reacquired by the corporation. It does not have
A) dividends
B) pre-emptive rights
C) voting rights
D) par value
C) voting rights
259
This is the maximum number of shares multiplied by the par value that the company can offer:
A) Authorized Capital
B) Subscribed Capital
C) Paid-Up Capital
D) Paid-In Capital
A) Authorized Capital
260
If a corporation gives shares of stock of another corporation owned by the company as a form of dividend to its shareholders, then the type of dividend is called:
A) transferred dividend
B) property dividend
C) stock dividend
D) cash dividend
B) property dividend
261
This gives the buyer the right, but not obligation to buy or sell a share, at a predetermined price.
A) Warrants
B) Options
C) Proxy
D) Exercise
B) Options
262
The minimum paid-up capital of a corporation is
A) Php 5,000
B) Php 50,000
C) Php 500,000
D) Php 5,000,000
A) Php 5,000
263
defined as shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written or electronic in character.
Securities
264
Securities include:
(a) Shares of ______, _____, _________, _____, evidences of ___________, _______________
(b) Investment contracts, certificates of interest or participation in a ________________, certificate of ____________________.
(c) Fractional undivided interest in ____, ____, or other ____________.
(d) Derivatives like ________ and _________
(e) Certificates of ___________, certificates of _____________, ______ certificates, _____________ certificates or similar instruments;
(f)____________ or ______________membership certificates in corporations; and
(g) _______________ as may in the future be determined by the Commission.
(a) Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a profit-sharing agreement, certificates of deposit for a future subscription;
(c) Fractional undivided interest in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments;
(f) Proprietary or non-proprietary membership certificates in corporations; and
(g) Other instruments as may in the future be determined by the Commission.
265
SEC Establishment:
Promoted by:
Operated on:
Oct. 26, 1936
to safeguard public interest in view of local stock market boom at that time.
Nov. 11, 1936
266
SEC was reorganized on _____________ as mandated by _________ also known as ______________________.
Dec. 01, 2000; RA 8799; Securities
Regulation Code
267
The purpose of securities is to serve as the instruments by which investment funds are raised and transferred from those who _________________ and those who ___________________, providing the evidence for the contractual financial claims of the securities holder (supplier of funds) against the securities issuer (the user of funds).
have the funds (SUPPLY); need the funds (DEMAND)
268
The **purpose of the Issuer of securities** is, primarily, _____________ for its business by accessing the funds of others who become co owners of the business (equity securities) or become creditors (bonds and other debt instruments).
to raise funds
269
could be cited as **another purpose of the Issuer** when it converts the value of its retained earnings to additional common stocks (stock dividends), thus providing a means to enlarge the number and amount of tradeable securities.
asset transformation
270
could also be an Issuer’s objective in issuing new debt securities. Could also be used to simply replace existing debt but there could be another motivation, which is to take advantage of current lower interest rates compared to the older interest rates applied to outstanding debt.
Refinancing of outstanding debt
271
could be another purpose of the Issuer when it issues more common stocks or bonds or other debt securities to balance or re-balance its corporate capital structure, for greater or reduced leveraging in its capital mix.
Risk management
272
The Purpose of the Securities Issuer
1. To raise funds
2. Asset Transformation
3. Refinancing of outstanding debt
4. Risk Management
273
it is a monetary asset that is bought and kept with the notion that such asset will offer a future income or will later be sold at a higher price for a profit.
Investment
274
In theory, the main objective of investment management is purely
_____________________.
wealth maximization
275
4 Usual Investment Objectives
1. Capital Preservation
2. Capital Appreciation
3. Current Income
4. Total Return
276
Earning a rate of return that is at least equal to the rate of inflation; concern is to maintain purchasing power
Capital Preservation
277
Earning a nominal rate of return that exceeds the rate of inflation over a period of time
Capital Appreciation
278
Earning a return on an investment for the purpose of generating Income to improve cash flow position
Current Income
279
Growing the portfolio in value to meet a future need through both Capital gains and reinvestment of income
Total Return
280
“Special” investment objectives for some investors are:
- ** To obtain management control of a company or have a significant
influence over the affairs of the company:** by acquiring a majority or a significant number of voting shares
- ** To become a shareholder:** in order to be able to obtain convenient access to corporate information, particularly important for advocates for greater protection of minority shareholder interests.
- ** To use the investment for cash or fund management purposes**
281
**Other Investment Purposes:**
In the case of **proprietary or non proprietary shares** in corporations, the purpose would be the _________ to the use of the ___________________________, say, in golf clubs or sports clubs.
access; facilities and amenities provided by the membership
282
Types of Securities
1. Equity Securities
2. Debt Securities
3. Derivatives
4. Proprietary or Non-Proprietary Share/Certificate
5. Securities issued by Investment Companies
283
are evidences of indebtedness of a corporation with maturities over one year, with a stated rate of interest payable periodically.
bonds
284
are issued by the National Treasury and represent borrowings by the National Government.
Government bonds
285
are issued by corporations.
Corporate bonds
286
represent another form of corporate borrowing with long-term maturities with “customized” features to meet the specific needs of the issuing corporations.
Notes
287
represents an evidence of indebtedness of any person with a maturity of 365 days or less and are usually issued by corporations
Commercial paper
288
represents an evidence of indebtedness of any person with a maturity of 365 days or less and are usually issued by corporations
Commercial paper
289
is evidence of ownership of a certain or specified amount of deposit in a bank, issued by the bank, which by agreement, represents a claim to the deposit that can be transferred from one holder to another.
Certificate of deposit
290
is evidence of ownership of a certain or specified amount of deposit in a bank, issued by the bank, which by agreement, represents a claim to the deposit that can be transferred from one holder to another.
Certificate of deposit
291
is a financial instrument whose value changes in response to changes in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or similar variable or underlying factor. It is settled at a future date.
a financial contract whose value is
linked to the value of any underlying asset.
Derivative
292
Some common examples of Derivatives
- Options
- Futures
- Forwards
- Swaps
293
__________ or contracts that give the buyer the right but not the obligation, to buy or sell an underlying security at predetermined price called the ________________, on or before a predetermined date, called the ___________.
OPTIONS; exercise or strike price; expiry date
294
an agreement between two parties that is initiated at one point in time but requires the parties to the agreement to perform some act (usually the trading of assets for cash) in accordance with the terms (or some clearly defined rule) of the agreement, at some future point in time.
futures contract
295
T or F. Forwards are highly standardized contracts that are written by a clearing house that operates an exchange where the contract can be bought or sold.
Futures
296
T or F. Forwards are highly standardized contracts that are written by a clearing house that operates an exchange where the contract can be bought or sold.
Futures
297
• The **seller of the contract,** also called the holder of the ______ position, is the party that is obliged to ______ the stated asset.
• The **buyer of the contract,** also called the holder of the position, is the party that is obliged to ____ for the asset upon delivery.
• short; deliver
• pay
298
The _____________, also called the deliverable items, is the asset that is to be traded under the terms of the contract.
underlying
299
is the time at which the contract is to be fulfilled.
Settlement, maturity or expiration
300
The ______________ or the ____________________ is the amount that must be paid for the contract size of the underlying asset by the holder of the long position at the time of settlement of the agreement.
invoice amount; forward contract price
301
The ______________ or the ____________________ is the amount that must be paid for the contract size of the underlying asset by the holder of the long position at the time of settlement of the agreement.
invoice amount; forward contract price
302
is the quantity of the underlying asset that is to be traded at the time the contract settles.
Contract size
303
is an agreement between two parties to buy or sell an asset at a specified point of time in the future at a price identified beforehand.
forward contract
304
is an agreement between two parties to buy or sell an asset at a specified point of time in the future at a price identified beforehand.
forward contract
305
Two common types of forward contracts
1. Currency Forwards (FX Forward)
2. Interest Rate Forwards or forward rate agreements (FRA)
306
are customized derivative instruments. They are contractual agreements between two parties, in which the counter parties agree to exchange future cash flows for a stipulated period of time (called the term or tenor of the swap), based on certain agreed upon parameters and the price fluctuations in some underlying specified commodity or market index.
Swaps
307
are customized derivative instruments. They are contractual agreements between two parties, in which the counter parties agree to exchange future cash flows for a stipulated period of time (called the term or tenor of the swap), based on certain agreed upon parameters and the price fluctuations in some underlying specified commodity or market index.
Swaps
308
Derivatives are innovative products that aim to _________________, _________________, and _____________________.
enhance returns; reduce risk; provide diversification
309
Derivatives are used for
hedging, speculation, and arbitrage
310
is an evidence of interest, participation or privilege in a corporation which gives the holder of the share or certificate the right to use the facilities covered by such certificate and to receive dividends or earnings from the corporation. Upon the liquidation of the corporation, the holder shall have proportionate ownership rights over its assets.
proprietary share or certificate
311
is an evidence of interest, participation or privilege over a specific property of a corporation that allows the holder of the share or certificate to use such property under certain terms and conditions. The holder, however, shall not be entitled to dividends from the corporation or to its assets upon its liquidation.
Non-proprietary share or certificate
312
The _________________________ or _______________ is the law that regulates the business of investment companies. It is one of the most common forms of Collective Investment Schemes (CIS) in the Philippines.
Investment Company Act (ICA); R.A No. 2629 (1960)
313
It was further described as a company that pools the funds of individuals and institutional investors to form a massive asset base which is entrusted to a full-time professional Fund Manager who develops and maintains a diversified portfolio of security investments.
*The 2018 Implementing Rules and Regulations of the Investment Company Act (ICA-IRR)*
open-end company or mutual fund
314
as one which offers for sale a fixed number of nonredeemable securities which are offered in an initial public offering and thereafter traded in an organized market as determined by the Commission and Exchange.
closed-end company
315
as one which offers for sale a fixed number of nonredeemable securities which are offered in an initial public offering and thereafter traded in an organized market as determined by the Commission and Exchange.
closed-end company
316
A shareholder will buy the shares at the prevailing __________________, while a unitholder will purchase the units based on the prevailing ________________________.
Net Asset Value per Share (NAVPS); Net Asset Value per Unit (NAVPU)
317
have a fixed return in the interest rate established in the bond or other debt agreements, hence, these are called fixed income securities.
Debt holders
318
are owners and bear the risks and benefits of ownership.
Their potential return is in a way unlimited by the price at which the market values the worth of the company at any given time. It’s a gain (or loss) in market price that is realized when the holder sells the shares.
Equity holders
319
have specific rights to the underlying assets as these rights are defined by the nature of the derivative contract, because there are varying derivative contract specimens.
Derivative holders
320
they enjoy the attributes of ownership: possession; right to use and enjoy the benefits of such use of the specific property identified; right to the fruits, i.e. dividends; right to dispose or sell the share; and participate in the distribution of residual assets in case of liquidation of the company. They also have voting rights.
Proprietary share or certificate holders
321
only have the right to enjoy the facilities of a specific property of the corporation. They have no voting rights.
Non-Proprietary share or certificate holders
322
have invested in the shares of the company on the basis of the representations made in the company’s Registration statement with the SEC of the nature of the company and its investment policies.
Investment Company/Unitholders/ Shareholders
323
have invested in the shares of the company on the basis of the representations made in the company’s Registration statement with the SEC of the nature of the company and its investment policies.
Investment Company/Unitholders/ Shareholders
324
Unitholders of a mutual fund have the right to vote as opposed to Shareholders who do not possess the same right but are entitled to be notified of material changes or information in the Registration Statement including the change of any investment objective, policy and strategy.
F. **Shareholders** of a mutual fund have the right to vote as opposed to **unitholders** who do not possess the same right but are entitled to be notified of material changes or information in the Registration Statement including the change of any investment objective, policy and strategy.
325
Debt instruments vs. Equities
**Debt instruments:**
repaid upon their maturity dates, and bear interest.
**Equities:**
• do not have to be repaid and exist for so long as the corporation exists.
• In case of liquidation, the equities holders are entitled to a proportionate share of the residual corporate assets after all debts are preferentially paid.
326
is any entity authorized by the SEC to offer to sell, sell or promote the sale to the public of its equity, bonds, instruments of indebtedness and other forms of securities.
Issuer
327
a “universal bank, investment house or any other financial institution duly licensed under the Investment Houses Law” (SRC Rules 12.1.1) who, in a public offering of securities, undertakes to sell all securities offered in the public offering (full underwriting) or to sell on a “best effort basis.”
Underwriter
328
holds securities accounts, provides central safe keeping and asset services, which may include the administration of corporate actions and redemptions, and plays an important role in helping to ensure the integrity of securities issues (that is, securities are not accidentally or fraudulently created or destroyed their details changed)
Securities Depository
329
TRANSFER AGENT “is any person who performs on behalf of an Issuer or by itself as Issuer any of the following activities:
- Countersigns, when applicable, certificates of securities upon their issuance;
- Monitors the issuance of securities to prevent unauthorized issuances;
- Registers the transfer of such securities;
- Exchanges or converts such Securities;
- Records the ownership of securities by bookkeeping entry without physical issuance of securities certificate.” (SRC. Rules 3.1.25)
330
is any broker dealer who has the right, pursuant to the rules of the Exchange or organized market, to trade in that Exchange or organized market.
Trading Participant
331
means any corporation principally and regularly engaged in the business of performing credit evaluation of corporation and business projects or of debt issues with the intentions of assessing the overall creditworthiness or of ascertaining the willingness and ability of the issuer to pay its financial obligations as they fall due, and which assessment is translated by credit ratings periodically and publicly announced. (SRC Rules 39.1.5.1)
Credit Rating Agency
332
shall refer to an independent third party entity duly authorized or accredited by the Bangko Sentral Ng Pilipinas (BSP) or the SEC to engage in the business of custody and safekeeping of investment assets. (ICA Rule 1.10)
Custodian
333
refers to a registered entity with an Investment Company Adviser license that is engaged in the business of managing the daily operations of an Investment Company in the investment, administration and accounting of fund assets and the monitoring of the activities of third party service providers such as custodian, transfer agent, and distributors. (Rule 1.16 of ICA-IRR)
Fund Manager
334
refers to a juridical person duly licensed or authorized by the Commission to distribute shares or units of an Investment Company as either principal distributor or sub distributor. (Rule 1.28 of ICAIRR)
Mutual Fund Distributor
335
refers to a juridical person duly licensed or authorized by the Commission to distribute shares or units of an Investment Company as either principal distributor or sub distributor. (Rule 1.28 of ICAIRR)
Mutual Fund Distributor
336
refers to a natural person of legal age duly licensed by the Commission and appointed by the Fund or the FM/MFD to solicit, sell or offer to sell the shares or units of an Investment Company to the public. (Rule 1 of ICA-IRR)
Certified Investment Solicitor (CISol)
337
also called interdealer brokers make deals on behalf of clients by matching buyers and sellers for each particular transaction. These clients are typically banks and financial institutions, rather than Individuals.
Voice Brokers
338
are the essential middlemen between one party who wants to buy a product on the markets for a certain price, and the party who wants to sell it. They facilitate the haggling process and charge a fee for doing so.
Inter-dealer brokers
339
is a person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefore
promoter
340
is the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through a registration statement filed with the Commission.
Prospectus
341
is the application for the registration of securities
required to be filed with the Commission.
Registration statement
342
any enterprise which primarily engages, whether regularly or on an isolated basis, in the underwriting of securities of another person or enterprise, including securities of the Government or its instrumentalities.
Investment House
343
means
(a) the issuer;
(b) a director or officer (or person performing similar functions) of, or a person controlling the issuer;
(c) a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public;
(d) a government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or
(e) a person who learns such information by a communication from any of the foregoing insiders.
Insider
344
(a) it has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or
(b) would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security.
Material non-public information
345
Who elects the board of directors of a corporation?
A. Common stockholder
B. Preferred stockholder
C. Bond holders
D. Management
A. Common stockholder
346
These corporate documents provide for the internal operations of the corporation and how the board of directors must act and run the corporation.
A. Articles of incorporation
B. By Laws
C. SEC Certificate of Registration
D. Certificate of Stock
B. By Laws
347
Which of the following is false regarding corporate term under the old corporation code:
A. A corporation can extend its corporate term within 5 years from the date of its expiration
B. Corporate term can only be a 50 years at a time
C. A corporation can shorten its corporate term
D. A corporation can extend its life for more than 50 years per instance
348
Which of the following statements is false?
A. Treasury shares are still considered issued capital
B. Treasury shares are not entitled to dividends
C. Treasury shares are outstanding
D. Treasury shares are not entitled to vote
349
What can not be amended in the Articles of
Incorporation?
A. Name of Corporation
B. Name of Incorporators
C. Address of the corporation
D. Purpose of the corporation
350
is one of the units into which the capital stock of the corporation is divided. It represents the intangible interest or right which an owner has in the management, profits and assets of the corporation. It is property, subject to conversion.
share of stock
351
is one of the units into which the capital stock of the corporation is divided. It represents the intangible interest or right which an owner has in the management, profits and assets of the corporation. It is property, subject to conversion.
share of stock
352
is the written acknowledgement by the corporation of the stockholder’s interest in the corporation and its property.
stock certificate
353
VOTES REQUIRED FOR THE COMPENSATION OF THE BOARD
• MAJORITY OF THE BOARD AND
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK
354
VOTES REQUIRED FOR AMENDED ARTICLES OF INCORPORATION
• MAJORITY VOTE OF THE BOARD AND
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK
355
VOTES REQUIRED FOR AMENDED BY-LAWS
• MAJORITY VOTE OF THE BOARD AND
• STOCKHOLDERS REPRESENTING MAJORITY OF THE OUTSTANDING CAPITAL STOCK
356
VOTES REQUIRED TO REMOVE A MEMBER OF THE BOARD
• STOCKHOLDERS REPRESENTING 2/3 OF THE OUTSTANDING CAPITAL STOCK.
