Private Corporation Flashcards by Paul Robert CPA

Attributes of a Private Corporation
- Artificial Being
- Created by Operation of Law
- Right of Succession
- Corporate Powers

Yes

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Artificial Being

Doctrine of Separate Personality
(1) can possess properties
(2) can incur liability (limited liability rule)
(3) can sue and be sued

Yes

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Artificial Being

Doctrine of Piercing the Corporate Veil
(1) fraud cases
(2) alter ego cases - invoke separate personality only when convenient

This is not automatic
- need magdemanda → court will determine if will pierce the corporate veil or not

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Created by Operation of Law

Concession Theory
- Private Corporation → owes it existence to the state (RCC)

Can congress enact a law creating private corporation?

Can congress create a corporation?

No (Since Private Corp → RCC)
✔ GOCC, ✘ Private Corporation

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Right of Succession

Despite succession, corporation will not be dissolved.

Yes

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Corporate Powers

Doctrine of Limited Capacity
- what is the difference between Express, Implied, Incidental?

If outside the 3 powers → Ultra Vires Act (not necessary illegal)

Express → expressly stated in RCC, AOI
Implied → necessary to exercise express powers
Incidental → incidental to existence of corporation

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Due to RCC (✘ in the old)
- Any Corporation → can enter into a partnership or JV
- Only Domestic Corporation → can donate for political purpose

Yes

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Classes of Corporation

Stock vs Non Stock
- what is the distinction between them?

Stock
- can issue dividends

Non Stock
- cannot issue dividends

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Classes of Corporation

Domestic vs Foreign
Close vs Open
De Jure vs De Facto

Domestic vs Foreign
- created under which law

Close vs Open
- open to…

De Jure vs De Facto
- De Jure → exist in law

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De Facto Corporations

Requisites
1. Has a valid law which it may be incorporated
2. Attempt in good faith to incorporate (!!!)
3. Use of corporate powers
- Attempt in Good Faith = AOI → submitted to SEC

The personality of a de facto corporation
- Can always be directly attacked. True or False?
- Can always be collaterally attacked. True or False?

False
- can be directly attacked only if via quo warranto
- quo warranto → filed by solicitor general

False
- cannot be collaterally attacked

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Corporation by Estoppel
- no corporation
- liable as general partners
- lack of corporate personality → cannot be used as defense to avoid liability

Yes

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Classes of Corporation

Ecclesiastical vs Lay
- what is the distinction between them?

Ecclesiastical
- for religious purpose

Lay
- not for religious purpose
(1) eleemosynary → for charity
(2) civil → for profit

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Kinds of Shares

Common vs Preferred

Preferred
- in distribution of asset (liquidation)
- in distribution of dividends

What are 2 facts to remember in case of preferred stocks?

always par value shares (✘ non par)
may be deprived of voting rights

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Kinds of Shares

Voting vs Non Voting
- Exceptions where Non Voting can vote (ASIM ADII)

Amendment of AOI
Sale or transfer of all or substantially all of corporate property
Investment of corporate fund on another corp or business
Merger or Consolidation
Amendment or adoption of by-laws
Dissolution
Incurring, creating, increasing bonded indebtedness
Increase or decrease capital stock

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Kinds of Shares

Par vs Non Par

Par
- value → indicated in AOI
- issued only if → ≥ par value

Non Par
- value → not in AOI (but may be fixed by BOD)
- issued only if → ≥ P5

What is a watered stock? What is its effect?

Who cannot issue non par? (BITPBL)

Watered Stock
- par value shares issued less than par
- director / officers who consented → solidarily liable

Cannot Issue Non Par
- Banks
- Insurance Companies
- Trust Companies
- Public Utilities
- Building and Loan Association

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Kinds of Shares

Founder’s Shares
- with certain rights and privileges
- must be stated in AOI (✘ by-laws)
- what is the exception when it comes to rights and privileges?

Have the exclusive right to vote or be voted for BOD
- max of 5 years from date of incorporation
- not violate anti dummy law and foreign investment act

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Kinds of Shares

Redeemable vs Treasury

Redeemable
- can be redeemed upon expiration of fixed period
- What is the similarity with preferred stocks?

What type of share
- unrestricted RE is required
- if redeemed, deemed retired → cannot sell / dispose

may be deprived of voting rights
Treasury Share (Redeemable → unrestricted RE ✘)
Redeeemable Share (Treasury → can sell / dispose)

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Kinds of Shares

Subscription Contract
- to acquire unissued stock of a corporation

Pre-incorporation Subscription
- GR : Irrevocable → for a period of ? from date of subscription
- XPN : Revocable → all other subscribers consent
- XPN : Revocable → corporation fails to materialize

6 months
- Irrevocable → naipasa na sa SEC yung AOI
- kahit lagpas na ng 6 months, di na pwede irevoke

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Kinds of Shares

Subscription Contract

Valid Consideration
- actual cash
- property (tangile or intangible)
- labor / services
- previously incurred debt of corporation
- amounts tranferred unrestricted RE → SC
- outstanding shares exchanged for stocks (reclassification)
- shares in another corporation
- other generally accepted

Promissory Note and Future Service → X

Yes

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Kinds of Shares

Subscription Contract

Stock Certificate
- issued only if FULLY PAID
- can be transferred to other persons
- must be recorded in book of corporation

Yes

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Kinds of Shares

Subscription Contract

Subscription (unpaid)
- payment → with additional interest
- must be paid either on
(1) due date
(2) date stated in call of BOD

Subscription (delinquent)
- did not pay within 30 days

What are the rights of an unpaid subcriber?
What are the rights of a delinquent subcriber?

Subcriber (unpaid)
- has all rights of a stockholder
- XPN : exercise appraisal right

Subcriber (delinquent)
- loses all rights of a stockholder
- cannot vote, cannot be voted
- XPN : can still receive dividends

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Corporators vs Incorporators

Corporators
- Stock → stockholders
- Non Stock → members

Incorporators
- founders (original)
- mentioned and signatories of AOI

Yes

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Incorporators

Qualifications
(1) any person (whether natural or juridical)
- XPN : Natural Person → licensed
- XPN : Juridical Person → practice profession

(2) if natural person → legal age

(3) if stock corporation → owner or subscriber of 1 share

How many can be incorporators?

1 to 15
- ✘16

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For incorporation of stock corporation, no more
- 25% of Capital Stock → subscribed
- 25% of Subscribed → paid

Yes

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Commencement of Corporate Existence - when?

time SEC issued Certificate of Incorporation (COI)

Corporate Term Under RCC - perpetual - XPN : AOI provides otherwise Under Old CC - perpetual (AOI deemed amended) - XPN : vote of **?** Expired - perpetual (upon revival) - XPN : AOI provides otherwise

Under Old CC - Majority OCS

Articles of Incorporation - required document to become a corporation - what is the form required? - what is the vote required for amendment of AOI?

Form - signed + acknowledged by **ALL** incorporators - filed with SEC Amendment (to be valid) - Majority + 2/3 - Beware if General or Specific → **Stock** = Majority **BOD** + 2/3 **OCS** ## Footnote Amendment will be effective upon approval of SEC

By-Laws - rules that regulat internal affairs - what is the form required before incorporation? after incorporation? - what is the vote required for amendment of by-laws? to delegate power to BOD? to revoke power of BOD?

Form (Before Incorporation) - signed by **ALL** incorporators - filed with SEC Form (After Incorporation) - Majority OCS / Members Amendment (to be valid) - Majority + Majority - 2/3 OCS / Members → Delegate to BOD - Majority OCS / Members → Revoke power of BOD - Beware if General or Specific → **Stock** = Majority **BOD** + 2/3 **OCS** ## Footnote Amendment will be effective upon approval of SEC

Board (Regular Meeting) - when? - where? - when to give notice?

When - monthly Where - anywhere (in or out PH) When to give notice - 2 days prior meeting

Board (Special Meeting) - when? - where? - when to give notice?

When - any time as necessary Where - anywhere (in or out PH) When to give notice - 2 days prior meeting

Stockholder (Regular Meeting) - when? - where? - when to give notice?

When - annually (or after April 15) Where - principal office (if not practicable → city) When to give notice - 21 days prior meeting

Stockholder (Special Meeting) - when? - where? - when to give notice?

When - any time as necessary Where - principal office (if not practicable → city) When to give notice - 1 week prior meeting

Merger and Consolidation - A+B = C (Consolidation) - what is the required votes for validity? - Effective → upon issuance of SEC of Certificate

Majority + 2/3

Dissolution and Liquidation When a corporation is dissolved - still continue for **3 years** → for liquidation and winding-up

Yes

Dissolution and Liquidation Voluntary Dissolution - send notice to stockholders → 20 days before meeting - publication in a newspaper → 1 time No Creditors Affected - file to SEC → **request** for dissolution - what is the vote required? With Creditors Affected - file to SEC → **petition** for dissolution - what is the vote required?

No Creditors Affected - majority + majority With Creditors Affected - majority + 2/3

Dissolution and Liquidation Expiration of Term - may be extended (if AOI is amended = Majority + 2/3) - filing of extension must be **?** Date of Incorporation → **within 5 years** - failed to formally organize - Effect → COI is revoked (automatic) Inoperative for **5 consecutive** yrs - Effect → Corporation is delinquent (after hearing) - if still inoperative for **2** yrs → COI is revoked

Expiration of Term - must be within 3 years from expiry date - earlier than that → ✘ (XPN : justifiable reason)

Board - exercise corporate powers - conduct business - control and hold properties How many members in BOD? in BOT?

BOD - 1 to 15 (✘16) - same as incorporators BOT - may be more than 15

What is the term (years) for BOD? What is the term (years) for BOT?

BOD - 1 year - until successor → elected AND qualified BOT - 3 years - until successor → elected AND qualified ## Footnote Hold Over Period

Qualifications for BOD - owner of at least 1 share (different to incorporators) - registered in their own name - Publicly Listed → at least 20% are independent Qualifications for BOT - member in good standing Disqualification for BOD/BOT convicted by final judgement - 5 yrs before appointment → violation of RCC - more than 6 years → imprisonment - violation of SRC

Yes

Election of Board - what is the vote requred?

Majority OCS / Majority Members - must have quorum Methods of Voting 1. Straight → 1,000 shares = 1,000 votes 2. Cumulative (**only** for stock corporation) → 1,000 shares, 5 vacant positions = 5,000 votes

Removal of BOD/BOT - may be with or without cause - XPN : **Minority** → must be **with** cause - by vote of?

2/3 OCS or 2/3 Members

Filling up of Vacancies By the stockholders **(REI)** - removal or expiration - increase in number of directors - other causes (no quorum anymore) By the board itself - other causes (if still constitutes a quorum)

By the board itself - Vote Required : majority of quorum - e.g. 12 members (Quorum = 7) 5 dead = 7 left = 4 votes - other causes - ✓ - majority of quorum - ✓ - VALID 6 dead = 6 left = 4 votes - other causes - ✓ - majority of quorum - ✗ - VOID

Compensation of BOD General Rule : X - XPN : reasonable per diems - XPN : in by-laws - XPN : ?

Majority OCS ## Footnote Limit of Yearly Compensation = 10% NI before Tax

Self-Dealing Directors are valid. True or False?

False → Voidable

Cases where Self-Dealing Director is VALID - presence of such director → not necessary for quorum - vote of such director → not necessary for approval - contract is fair and reasonable If the first 2 are not met, it can be ratified through vote of ?

2/3 OCS - with full disclosure of interest of director

Interlocking Directors are valid. True or False?

True

Cases where Interlocking Director is VOIDABLE - there is fraud Where - interest in 1 corporation → **more than** 20% - interest in the other corporation → less than 20%

It will be treated as Self-Dealing Director - thus can still be valid if met the criteria for SDD ## Footnote NOTE : - Interest in 2 corporations is both nominal → valid - Interest in 2 corporations is both substantial → valid

Executive Committee - may act on matters delegated in by-laws or by **majority BOD** - XPN : action where shareholders' approval is also required - XPN : BOD → filling up of vacancies - XPN : By-laws → amendment or adoption - XPN : Board Resolution → not repealable - XPN : **Cash** Dividend How many members?

at least 3 BOD ## Footnote 1st XPN : they cannot amend AOI → since Majority + 2/3

Qualifications of Officers - presi**D**ent → must be a **D**irector - se**CR**etary → **C**itizen and **R**esident of PH - t**R**easurer → **R**esident of PH - other officers provided in by-laws Can a person hold 2 officer positions at the same time? ## Footnote VP → only an officer if provided in by-laws

Depends - if president → focus lang dapat sa pagiging president (bawal maging secretary and treasurer)

Election of Officers - elected by BOD - what is the vote required?

Majority ALL members of BOD - not majority of quorum

Rights of a Stockholder Appraisal Right - right to dissent, if he loses in the vote → can demand payment of FV of shares Can be exercised only if **ASIM**. What is ASIM? ## Footnote NOTE : For close corporation → can exercise for any reason

- Amendment of AOI - Sale or transfer of all or substantially all of corporate property - Investment of corporate fund on another corp or business - Merger or Consolidation

Rights of a Stockholder How to exercise Appraisal Right? - submit written demand → within **?** from date when vote was taken - submit shares for notation of being dissenting → within **?** from date of written demand - receive payment → if proposed action is implemented Effect of Demand of Appraisal Right - all rights will be suspended - if still not paid within **30 days** → all rights will be resored - if paid → all rights will be terminated

- within 30 days - within 10 days

Rights of a Stockholder Right to Inspect Books - must be during reasonable hours on business days - subject to confidentiality rules Requirements - person has not improperly used information - person is in good faith or for legitimate purpose - person is not a competitor

Yes

Rights of a Stockholder Right to Financial Statements - furnished within **?** from receipt of **written** request

10 days

**Tips : For OCS → can only be Majority or 2/3** Evaluate the effect of act to shareholders - AOI > by-laws - thus AOI = 2/3, by-laws = Majority - Issuance of stocks will affect shareholders - thus 2/3 **Tips : For BOD → can only be Majority or None** - All acts → majority - XPN : BOD cannot participate if the matter relates to them - Majority of Quorum = daily operations - Majority of All = unusual transactions (amendment of AOI)

Yes

Voting Requierements - Non Voting can Vote (ASIM ADII)

- Amendment of AOI - Sale or transfer of all or substantially all of corporate property - Investment of corporate fund on another corp or business - Merger or Consolidation - Amendment or adoption of by-laws - Dissolution - Incurring, creating, increasing bonded indebtedness - Increase or decrease capital stock

Voting Requierements - Majority + 2/3 (ASIM II VE²D²)

- Amendment of AOI - Sale or transfer of all or substantially all of corporate property - Investment of corporate fund on another corp or business - Merger or Consolidation - Incurring, creating, increasing bonded indebtedness - Increase or decrease capital stock - Voluntary dissolution (creditors affected) - Enter management contract (1/3 of stock owned by stockholders of managing corporation) - Extend or shorten corporate term **(majority of quorum)** - Declare stock dividends **(other dividends → majority BOD only)** - Deny pre-emptive right ## Footnote still unsure for deny pre-emptive right

Voting Requierements - Majority + Majority (AVE)

- Amendment of by-laws **(a) signed by ALL incorporators** **(b) Majority OCS / Members only** → After Incorporation **(c) 2/3 OCS / Members only** → Delegate to BOD **(d) Majority OCS / Member only** → Revoke power of BOD - Voluntary dissolution (no creditors affected) - Enter management contract (general rule)

Voting Requierements - 2/3 OCS (DRR)

- Delegate to BOD → amendment of by-laws - Removal of BOD/BOT - Ratification for self-dealing directors

Voting Requierements - Majority OCS (BCC RE)

- By-laws → **form (after incorporation)** - Compensation of BOD - Corporate Term **(to retain under old CC)** - Revoke power of BOD to amend by-laws - Election of BOD **(must have quorum)**

Private Corporation Flashcards

(60 cards)