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Flashcards in RFBT - CORPORATIONS Deck (254)
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1
Q

When was the Revised Corporation Code of the Philippines approved? Effected?

A

Approved: Feb 20,2019
Effected: Feb 23, 2019

2
Q

What is a corporation?

A

A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.

3
Q

What are the elements/attributes of a corporation? Briefly explain each.

A
  1. ) It is an artificial being - (CORPORATE ENTITY THEORY/DOCTRINE OF SEPARATE PERSONALITY) it has a PERSONALITY DISTINCT AND SEPARATE FROM THE STOCKHOLDERS AND MEMBERS WHICH COMMENCES UPON THE ISSUANCE OF ITS CERTIFICATE OF INCORPORATION.
  2. ) It is created by operation of law - persons desiring to form a corporation must comply with the requirements of the law governing its creation.
  3. ) It has the right of succession - the corporation exists for the period for which it has been formed regardless of changes in ownership. Its existence is unaffected by death/insolvency/incapacity of its stockholders or members.
  4. ) It has the powers,attributes, and properties expressly authorized by law or incident to its existence
4
Q

Explain the Doctrine of piercing the veil of corporate entity.

A

It is the doctrine to the effect that the separate personality of a corporation may be disregarded when the veil of the corporation is used as a shield to perpetuate fraud, defeat public convenience, justify wrong, or defend crime. The corporation will then be treated as merely an association and the individuals composing it will be treated identically and liability will attach personally or directly to the officers and stockholders.

It has three requisites:

  1. Control of the corporation by a stockholder/parent corporation
  2. Fraud or fundamental unfairness imposed on the plaintiff
  3. Harm or damage caused to the plaintiff by the fraudulent or unfair act of the corporation
5
Q

What is the doctrine of limited capacity?

A

It states that the corporation can only exercise:

  1. The power conferred upon it by law and its articles of incorporation
  2. Powers implied from such powers expressly granted
  3. Powers that are incident to its existence
6
Q

What is the theory of concession?

A

It states that the corporation EXISTS BY GRANT OF THE STATE.

7
Q

What is the Genossenschaft Theory?

A

It states that the corporation EXISTS BECAUSE THE PARTIES WANT IT TO EXIST.

8
Q

What kind of corporations are made by the corporation code?

A

Only private corporations.

Public corporations and GOCCs in the interest of common goods and subject to test of economic viability are CREATED BY SPECIAL LAWS.

9
Q

Are corporations entitled to moral damages? When can it claim moral damages?

A

Generally, NO since it has no feelings or emotions and therefore cannot experience physical suffering, mental anguish, etc.

It can claim MD when it has a reputation that is debased, resulting in humiliation in the business realm such as in cases of civil action for damages on the ground of libel or defamation.

10
Q

What is the classification of corporations as to whether stocks are issued or not?

A
  1. ) Stock Corporations

2. ) Non-stock Corporations

11
Q

What is the classification of corporations as to the state or country under whose laws it was created?

A
  1. ) Domestic Corporations

2. ) Foreign Corporations

12
Q

What is the classification of corporations as to the number of persons composing them?

A
  1. ) Corporation Aggregate
  2. ) Corporation sole
  3. ) One-person corporation
13
Q

What is the classification of corporations as to its purpose?

A

1.) Public Corporation - organized for the government (barangays, municipalities)

  1. ) Private Corporation - formed for a private purpose
    a. GOCC - created under special laws other than those for government purposes but majority of it is owned by the govt (SSS, GSIS)
    b. Quasi-public corporations - those organized for profit which are granted for a franchise by the state to perform public service (MERALCO)
14
Q

What is the classification of corporations as to publicity?

A
  1. ) Open Corporation - open to any person

2. ) Close Corporations - limited to select persons

15
Q

What is the classification of corporations as to religious purpose?

A
  1. ) Ecclesiastical Corporation -religious purpose

2. ) Lay corporation - other than religious purpose

16
Q

What is the classification of corporations as to charitable purposes?

A
  1. ) Eleemosynary Corporations - for charity

2. ) Civil Corporations - for business/profit

17
Q

What is the classification of corporations as to legal right to corporate existence?

A
  1. ) De jure corporations - strictly complied with all legal requirements
  2. ) De facto corporations - Defectively created but there is an exercise of corporate rights and franchise resulting from an attempt in good faith to incorporate on the part of its members
18
Q

What is the classification of corporations as to relations to other corporations?

A
  1. ) Parent corporation - owns more than 50% of another corporation
  2. ) Subsidiary corporation
19
Q

What is the classification of corporations as to whether true or limited sense?

A

1.) True corporation

  1. ) Quasi-corporation
    a. ) Corporation by prescription - exercised corporate powers for such length of time without interference by the State, which by fiction of law is granted the status of a corporation.

b.) Corporation by estoppel

20
Q

What instances are nonvoting shares allowed to vote?

A

ADAMSIII
Amendment of AoI
Dissolution of corporation
Adoption OR amendment of bylaws
Merger or Consolidation of corporation
Sale/lease/exchange/mortgage/pledge/other
disposition of ALL OR SUBSTANTIALLY ALL OF THE CORPORATE PROPERTY.
Incurring/creating/increasing bonded indebtedness
Increase/decrease of capital stock
Investment of corporate funds in another corporation
UNLESS the investment is necessary for the
accomplishment of the corporation’s primary purpose

21
Q

What shares may be deprived of voting rights?

A

Preferred and redeemable shares.

22
Q

What corporations are prohibited from issuing no-par shares?

A
BPITBPO
Banks
Pre-need companies 
Insurance companies
Trust companies
Building and loan associations
Public Utilities
Other corporations AUTHORIZED TO ACCESS PUBLIC FUNDS WHETHER PUBLICLY LISTED OR NOT.
23
Q

What are the rules on No-par shares?

A

No-par value shares must be issued for a consideration of at least Five pesos (₱5.00) per share: Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not be available for distribution as dividends.

No-par shares PRICE need not be indicated in the AoI as it may be fixed by the BoD after incorporation, but the fact that they are no-par must be stated in the AoI.

24
Q

What are the rules on founders shares?

A

Founders’ shares may be given certain rights and privileges not enjoyed by the owners of other stock. Where the EXCLUSIVE RIGHT TO VOTE AND BE VOTED FOR in the election of directors is granted, it must be for a LIMITED PERIOD NOT TO EXCEED FIVE (5) YEARS FROM THE DATE OF INCORPORATION: Provided, That such exclusive right shall not be allowed if its exercise will violate

a. Commonwealth Act No. 108, otherwise known as the “Anti-Dummy Law”;
b. Republic Act No. 7042, otherwise known as the “Foreign Investments Act of 1991”; and otherwise known as “Foreign Investments Act of 1991”; and
c. other pertinent laws.

25
Q

What are the rules on redeemable shares?

A

a. ) It must be expressly provided in the AoI
b. ) It must be purchased or taken up by the corporation upon the expiration of the fixed period REGARDLESS OF THE EXISTED OF UNRESTRICTED RETAINED EARNINGS
c. ) Terms and conditions are stated in the AoI

26
Q

What are the rules on the term of a corporation and its extension?

A

A corporation shall have PERPETUAL EXISTENCE unless its articles of incorporation provides otherwise.

Corporations with certificates of incorporation issued prior to the effectivity of this Code and which continue to exist shall have perpetual existence, UNLESS the corporation, upon a vote of its stockholders representing a MAJORITY of its outstanding capital stock NOTIFIES THE COMMISSION that it elects to retain its specific corporate term.

NO EXTENSION MAY BE MADE EARLIER THAN THREE (3) YEARS PRIOR TO ORIGINAL OR SUBSEQUENT EXPIRY DATE UNLESS there are justifiable reasons for an early extension as determined by SEC. Such extension shall take effect in the day following said expiry date.

27
Q

What are the rules on expiry of corporate term? What corporations require recommendations before revival?

A

A corporation whose term has expired may APPLY FOR THE REVIVAL OF ITS CORPORATE EXISTENCE, together with all the rights and privileges under its certificate of incorporation and subject to all of its duties, debts and liabilities existing prior to its revival. Upon approval by the SEC, the corporation shall be deemed revived and a CERTIFICATE OF REVIVAL OF CORPORATE EXISTENCE shall be issued, giving it perpetual existence, unless its application for revival provides otherwise.

Corporations requiring favorable recommendation by appropriate government agencies for revival of corporate existence: BBPIT NCOP

a. Banks
b. Banking and quasi-banking institutions
c. Pre-need
d. Insurance
e. Trust
f. NSSLAs (Non-stock savings and loan associations)
g. Corporations engaged in money services
h. Other financial intermediaries
i. Pawnshops

28
Q

How many incorporators are allowed for private corporations? For OPCs?

A

Private Corp: Minimum of 2, Maximum 15.

OPC: 1 incorporator

29
Q

How many directors/trustees are allowed for private corporations?

A

Directors: (not more than 15) 2-15
Trustees: Not less than 5 and may be more than 15

30
Q

Explain the arbitration agreement of under RA 11232.

A

An arbitration agreement may be provided in the articles of incorporation or bylaws of a corporation. When such an agreement is in place, DISPUTES BETWEEN THE CORPORATION, ITS STOCKHOLDERS OR MEMBERS WHICH ARISE FROM THE IMPLEMENTATION OF THE ARTICLES OF INCORPORATION OR BYLAWS OR FROM INTRA-RELATIONS, SHALL BE REFERRED TO ARBITRATION.

A dispute shall be nonarbitrable when it involves criminal offenses and interests of third parties.

The arbitration agreement shall be binding on the corporation, its directors, trustees, officers, and executives or managers.

To be enforceable, the arbitration agreement should indicate the number of arbitrators and the procedure for their appointment.
The power to appoint the arbitrators forming the arbitral tribunal shall be granted to a designated independent third party. Should the third party fail to appoint the arbitrators in the manner and within the period specified in the arbitration agreement, the parties may request the Commission to appoint the arbitrators. In any case, arbitrators must be accredited or must belong to organizations accredited for the purpose of arbitration.

The arbitral tribunal shall have the power to rule on its own jurisdiction and on questions relating to the validity of the arbitration agreement. When an intra-corporate dispute is filed with a Regional Trial Court, the court shall dismiss the case before the termination of the pretrial conference, if it determines that an arbitration agreement is written in the corporation’s articles of incorporation, bylaws, or in a separate agreement.

The arbitral tribunal shall have the power to grant interim measures necessary to ensure enforcement of the award, prevent a miscarriage of justice, or otherwise protect the rights of the parties.

A final arbitral award under this section shall be executory after the lapse of fifteen (15) days from receipt thereof by the parties and shall be stayed only by the filing of a bond or the issuance by the appellate court of an injunctive writ.

The Commission shall formulate the rules and regulations, which shall govern arbitration under this section, subject to existing laws on arbitration.. A dispute shall be nonarbitrable when it involves criminal offenses and interests of third parties.

The arbitration agreement shall be binding on the corporation, its directors, trustees, officers, and executives or managers.

To be enforceable, the arbitration agreement should indicate the number of arbitrators and the procedure for their appointment. The power to appoint the arbitrators forming the arbitral tribunal shall be granted to a designated independent third party. Should the third party fail to appoint the arbitrators in the manner and within the period specified in the arbitration agreement, the parties may request the Commission to appoint the arbitrators. In any case, arbitrators must be accredited or must belong to organizations accredited for the purpose of arbitration.

The arbitral tribunal shall have the power to rule on its own jurisdiction and on questions relating to the validity of the arbitration agreement. When an intra-corporate dispute is filed with a Regional Trial Court, the court shall dismiss the case before the termination of the pretrial conference, if it determines that an arbitration agreement is written in the corporation’s articles of incorporation, bylaws, or in a separate agreement.

The arbitral tribunal shall have the power to grant interim measures necessary to ensure enforcement of the award, prevent a miscarriage of justice, or otherwise protect the rights of the parties.

A final arbitral award under this section shall be executory after the lapse of fifteen (15) days from receipt thereof by the parties and shall be stayed only by the filing of a bond or the issuance by the appellate court of an injunctive writ.

The Commission shall formulate the rules and regulations, which shall govern arbitration under this section, subject to existing laws on arbitration.

31
Q

What is the vote required for the AMENDMENT OF ARTICLES OF INCORPORATION and what are the rules on its implementation?

A

MAJORITY VOTE OF BOD/TRUSTEES AND A 2/3 VOTE WRITTEN ASSENT OF OUTSTANDING CAPITAL STOCK/MEMBERS, without prejudice to the appraisal right of dissenting stockholders.

Amendments to the articles SHALL BE INDICATED BY UNDERSCORING THE CHANGES MADE, and a copy thereof duly certified under oath by corporate secretary and majority of BoD/T.

The amendments shall take effect upon their approval by the Commission or from the date of filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable to the corporation.

32
Q

What are the corporations requiring recommendation by appropriate government agencies for approval of its AoI by SEC?

A

BBPIT NCOP

a. Banks
b. Banking and quasi-banking institutions
c. Pre-need
d. Insurance
e. Trust
f. NSSLAs (Non-stock savings and loan associations)
g. Corporations engaged in money services
h. Other financial intermediaries
i. Pawnshops

33
Q

What is a de facto corporation? What are its requisites?

A

It is one that is defectively created but there is an exercise of corporate rights and franchise resulting from AN ATTEMPT IN GOOD FAITH TO INCORPORATE ON THE PART OF ITS MEMBERS.

It has all the powers of a de jure corporation BUT ITS DUE EXISTENCE CANNOT BE ATTACKED COLLATERALLY OR AS AN INCIDENT TO A PROCEEDING. Such inquiry may be made by the SOLICITOR GENERAL in a QUO WARRANTO proceeding (Direct Attack).

It has the following requisites:

  1. There is a valid law under which it is incorporated
  2. Bonafide intent to incorporate under such valid law
  3. Actual exercise in good faith of its corporate power
  4. A certificate of incorporation is issued despite the defect in its incorporation.
34
Q

What is a corporation by estoppel?

A

One which in reality is not a corporation but is considered as one with respect to those who are precluded by their admission or conduct from denying its existence. The persons involved shall be LIABLE AS PARTNERS FOR ALL DEBTS, LIABILITIES, AND DAMAGES INCURRED AS A RESULT THEREOF.

It shall NOT BE ALLOWED TO USE ITS LACK OF CORPORATE PERSONALITY AS A DEFENSE.

35
Q

Explain the effects of non-use of corporate charter and continuous inoperation if a corporation under BP 68 and RA 11232.

A

BP 68 - failure to renew corporate term within the deadline under BP 68 results to AUTOMATIC DISSOLUTION BY OPERATION OF LAW

RA 11232 :
If the corporation FAILS TO FORMALLY ORGANIZE AND COMMENCE ITS BUSINESS FIVE (5) YEARS FROM THE DATE OF INCORPORATION -

Its Certificate of Incorporation shall be deemed REVOKED and ipso facto DISSOLVED BY OPERATION OF LAW.

If the corporation is FORMALLY ORGANIZED BUT SUBSEQUENTLY BECOMES INOPERATIVE FOR FIVE (5) CONSECUTIVE YEARS AND AFTER DUE NOTICE AND HEARING, THE CORPORATION SHALL BE PLACED UNDER DELINQUENT STATUS.

The delinquent corporation shall have a period of TWO (2) YEARS TO RESUME OPERATIONS AND COMPLY WITH ALL REQUIREMENTS, upon the fulfillment of which, SEC shall lift its delinquent status.

Failure to comply with requirements and resumption of operations within 2 years shall cause the REVOCATION OF THE CERTIFICATE OF INCORPORATION.

36
Q

What are the number and qualifications of incorporators under RA 11232?

A
  1. Not more than 15 (2-15 incorporators)
  2. Any person, partnership, corporation or association (Must be SEC registered)
  3. Natural persons must be of LEGAL AGE and sign the AoI
  4. Must own/subscribe to AT LEAST ONE SHARE OF STOCK

The residency requirement has been removed

37
Q

What are the number and qualifications of directors/trustees under RA 11232?

A
  1. Not more than 15 directors and may be more than 15 trustees
  2. Owner of at least one share
  3. Ownership must be in the name of the director
  4. Possess all the qualifications and none of the disqualifications
  5. If the corporation is VESTED WITH PUBLIC INTEREST, the BoD shall also elect a COMPLIANCE OFFICER.
  6. Majority must be resident of the Philippines except activities exclusively for PH
  7. Those indicated in the By-laws
38
Q

Are no-par preferred shares allowed?

A

No.

39
Q

What is the qualification of a President?

A

Must be a director.

40
Q

What is the qualification of a secretarty?

A

Must be a resident and citizen of the Philippines.

41
Q

What is the qualification of a treasurer?

A

Must be a resident of the Philippines.

42
Q

What positions are concurrently allowed in a corporation?

A
  1. President + Secretary = NOT ALLOWED
  2. President + Treasurer = NOT ALLOWED
    • Allowed for OPCs, must post a BOND.
  3. Treasurer + Secretary = ALLOWED
43
Q

How are directors/trustees/officers disqualified?

A

If within FIVE (5) YEARS PRIOR TO ELECTION OR APPOINTMENT TEMPORARY DISQUALIFICATION IS IMPOSED UNDER RA 11232 (PERMANENT UNDER BP 68),
a. Convicted by final judgment of an offense:
1. PUNISHABLE BY IMPRISONMENT FOR A PERIOD
EXCEEDING 6 YEARS
2. For violating RA 11232
3. For violating RA 8799 “ Securities Regulation
code”

b. Administratively liable for any OFFENSES INVOLVING FRAUDULENT ACTS
c. Similar to A and B by foreign courts.
d. Other disqualifications provided in the By-laws

44
Q

What is an independent director?

A

An independent director is a person who apart from shareholdings and fees received from the corporation, IS INDEPENDENT OF MANAGEMENT AND FREE FROM ANY BUSINESS OR OTHER RELATIONSHIP WHICH COULD REASONABLY BE PERCEIVED TO MATERIALLY INTERFERE WITH THE EXERCISE OF INDEPENDENT JUDGMENT IN CARRYING OUT THE RESPONSIBILITIES AS A DIRECTOR.

Independent directors MUST BE ELECTED BY THE SHAREHOLDERS PRESENT OR ENTITLED TO VOTE IN ABSENTIA DURING THE ELECTION OF DIRECTORS.

Independent directors shall be subject to rules and regulations governing their qualifications, disqualifications, voting requirements, duration of term and term limit, maximum number of board membership and other requirements that the Commission will prescribed to strengthen their independence and align with international best practices.

45
Q

What corporations are required to have independent directors?

A

The Board of corporations VESTED WITH PUBLIC INTEREST shall have independent directors CONSTITUTING AT LEAST TWENTY (20%) OF SUCH BOARD:

a. Sells equity/debt securities to the public that are required to be registered with SEC.
b. Have assets IN EXCESS OF PHP 50,000,000 and AT LEAST 200 SHAREHOLDERS who own at least 100 SHARES EACH.
c. Whose equity securities are listed on an Exchange
d. Grantees of secondary license from SEC
e. BBPIT NCOP
f. Other corporations vested with public interest as determined by SEC.

46
Q

How are directors/trustees elected?

A

Except when the exclusive right is reserved for holders of founders’ shares, each stockholder or member shall have the right to nominate any director or trustee who possesses all of the qualifications and none of the disqualifications and none of the disqualifications set forth in RA 11232.

47
Q

What are the rules in election of directors/trustees?

A
  1. The election must be by ballot if requested by any voting stockholder or member.

2.) Stockholders entitled to vote shall have the right to vote the number of shares of stock standing in their own names in the stock books of the corporation. The said stockholder may:
(a) vote such number of shares for as many persons
as there are directors to be elected;

(b) Cumulate said shares and give one (1) candidate
as many votes as the number of directors to be
multiplied by the number of shares owned; or

(c) distribute them on the same principle among as
many candidates as may be seen fit

  1. ) That the total number of votes cast shall not exceed the number of shares owned by the stockholders as shown in the books of the corporation multiplied by the whole number of directors to be elected.
  2. ) That no delinquent stock shall be voted.
  3. ) Unless otherwise provided in the articles of incorporation or in the bylaws, members of non-stock corporations may cast as many votes as there are trustees to be elected but may not cast more than one (1) vote for one (1) candidate.
48
Q

What happens after election of directors/trustees/officers?

A

The corporation must submit to SEC the details about said elected directors/trustees/officers WITHIN 30 DAYS AFTER ELECTION.

49
Q

What happens when elections of directors/trustees/officers are not conducted?

A

The non-holding of elections and the reasons thereof shall be reported to SEC WITHIN 30 DAYS FROM THE DATE OF THE SCHEDULED ELECTION.

The report shall SPECIFY A NEW DATE FOR THE ELECTION WHICH HALL NOT BE LATER THAN SIXTY(60) DAYS FROM THE SCHEDULED DATE.

If no new date has been designated or if the rescheduled election is not held, SEC MAY, UPON THE APPLICATION OF ANY MEMBER OF THE CORPORATION SUMMARILY ORDER THAT AN ELECTION BE HELD.

50
Q

What happens when a director/trustee/officer dies or resigns or in any other manner ceases to hold office?

A

SEC shall be notified WITHIN 7 DAYS from the knowledge thereof in writing.

51
Q

What are the rules on Removal of directors/trustees?

A
  1. ) Removal may be with or without cause, however, REMOVAL WITHOUT CAUSE MAY NOT BE USED TO DEPRIVE MINORITY STOCKHOLDERS THE RIGHT OF REPRESENTATION.
  2. ) Removal shall take place at either a regular/special meeting called for the purpose, with a previous NOTICE to the stockholders.

3.) A SPECIAL MEETING for removal may be called by:
a. Secretary on orders of the President
b. Upon WRITTEN DEMAND OF THE MAJORITY
STOCKHOLDERS/MEMBERS

  1. ) Removal requires AT LEAST 2/3 VOTE OF THE OUTSTANDING CAPITAL STOCK OR 2/3 OF MEMBERS ENTITLED TO VOTE.
  2. ) SEC shall motu proprio or upon verified complaint after due notice and hearing, order the removal of a director/trustee elected.
52
Q

How are vacancies in the office of director/trustee filled? What are the rules involved?

A

1.) If vacancy is NOT DUE TO REMOVAL or EXPIRATION OF TERM -

MAJORITY OF BOD IF STILL CONSTITUTING A QUORUM.

2.) If vacancy is DUE TO REMOVAL or EXPIRATION OF TERM or INCREASE IN NUMBER OF DIRECTORS, OR OTHER THAN REMOVAL/INCREASE/EXPIRATION BUT WAS REFERRED BY THE BOD TO STOCKHOLDERS -

STOCKHOLDERS/MEMBERS IN A MEETING CALLED FOR THE PURPOSE.

53
Q

When should a vacancy be filled in the office of director/trustee when such vacancy is due to term expiration?

A

An election to fill the vacancy must be held no later than the day of such expiration in a meeting called for the purpose.

54
Q

When should a vacancy be filled in the office of director/trustee when such vacancy is due to removal?

A

Election may be held on the same day of the meeting authorizing the removal, but must be stated in the agenda.

55
Q

When should a vacancy be filled when such vacancy in the office of director/trustee is NOT DUE TO REMOVAL OR EXPIRATION?

A

An election must be held WITHIN 45 DAYS FROM THE TIME THE VACANCY AROSE.

56
Q

What happens when a vacancy in the office of director/trustee prevents the BoD from constituting a quorum and EMERGENCY ACTION IS REQUIRED?

A

Vacancy may temporarily be filled from among the officers of the corporation by UNANIMOUS VOTE OF THE REMAINING DIRECTORS/TRUSTEES. SEC must be notified of such creation of emergency board within 3 days from creation. The emergency director/trustee shall only be limited to the emergency or when a new director is elected, whichever comes earlier.

EX 9 members of the BOD are ABCDEFGHI
If E is removed by the vote of stockholders, then the replacement will be decided by the SH also, since the cause is removal even if the remaining constitute quorum

If the term of E expired, still it will be filled up by the SH

If A resigned, B died and C retired, the remaining directors constituting quorum can elect the replacement since they still constitute quorum

57
Q

What are the rules on compensation of directors?

A

GR: Directors are not entitled to compensation except for REASONABLE PER DIEMS

Exceptions:

  1. ) Compensation is provided for in the bylaws
  2. ) MAJORITY OCS/MEMBERS GRANT THE DIRECTORS COMPENSATION IN A MEETING CALLED FOR THE PURPOSE.
  3. ) Compensation shall NOT EXCEED 10% OF THE NET INCOME BEFORE INCOME TAX OF THE PRECEDING YEAR.
58
Q

What are the liabilities for violation of the threefold duties in corporations?

A

Those involved shall be liable JOINTLY AND SEVERALLY FOR ALL DAMAGES/PROFITS RESULTING THEREFROM TO THE CORPORATION.

59
Q

Explain dealings of directors/officers/members with the corporation.

A

A contract entered into by the corporation with one or more of its directors/officers/trustees/OR THEIR SPOUSES AND RELATIVES WITHIN THE 4TH CIVIL DEGREE OF CONSANGUINITY is VOIDABLE AT THE OPTION OF THE CORPORATION, unless all the following conditions are present:

a. That the presence of such director in the board meeting wherein the contract was approved WAS NOT NECESSARY TO CONSTITUTE A QUORUM FOR SUCH MEETING.
b. That the VOTE OF SUCH DIRECTOR WAS NOT NECESSARY FOR THE APPROVAL OF THE CONTRACT.
c. That the contract is FAIR AND REASONABLE UNDER THE CIRCUMSTANCES.
d. ) In cases of corporations vested with public interest, material contracts are APPROVED BY AT LEAST 2/3 OF THE ENTIRE MEMBERSHIP OF THE BOARD, WITH AT LEAST MAJORITY OF THE INDEPENDENT DIRECTORS VOTING IN APPROVAL
e. ) In case of an officer, the contract has been previously authorized by the BoD

Where any of the first 3 conditions are absent, the contract with a director or trustee MAY BE RATIFIED BY THE VOTE OF AT LEAST 2/3 OF OCS OR MEMBERS IN A MEETING CALLED FOR THE PURPOSE, provided that the adverse interest of the director/trustee is disclosed.

60
Q

What is the rule on the contracts entered into by interlocking directors?

A

GR: Contracts entered into by interlocking directors are valid PROVIDED THAT THERE IS NO FRAUD AND IT IS REASONABLE UNDER THE CIRCUMSTANCES.

EX: If the interest of the interlocking director in one corporation is SUBSTANTIAL and the other is merely nominal, THE CONTRACT SHALL BE SUBJECT TO THE SAME CONDITIONS AS THOSE MENTIONED IN DEALINGS OF DIRECTORS.

61
Q

What is considered substantial for purposes of interlocking directors?

A

20% of the OCS shall be considered substantial.

62
Q

What is the liability of a disloyal director or one who acquires for himself opportunities which should belong to the corporation?

A

Such disloyal director shall be liable to the corporation for such profits by refunding the same, UNLESS HIS ACTS HAS BEEN RATIFIED BY A 2/3 VOTE OF THE OCS/members.

63
Q

Explain the Executive committee of a corporation.

A

IF THE BYLAWS PROVIDE, the BoD may form an Executive Committee composed of AT LEAST 3 DIRECTORS.

Said committee may act by majority vote of its members on specific matters delegated to it by the bylaws or majority of the board. IT HAS NO POWER TO:

a. approve action requiring SH approval
b. file vacancies in the board
c. amend/repeal/adopt bylaws
d. amend or repeal any resolution of the BoD
e. Distribute dividends to SH

The BoD’s decision shall be superior to that of the Executive Committee.

64
Q

What are the EXPRESS POWERS OF A CORPORATION mentioned in RA 11232? Which power requires stockholders vote?

A

Every corporation incorporated under this Code has the power and capacity:

(a) To sue and be sued in its corporate name; - NO
(b) To have perpetual existence unless the certificate of incorporation provides otherwise; - NO
(c) To adopt and use a corporate seal; - NO
(d) To amend its articles of incorporation in accordance with the provisions of this Code; - YES
(e) To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the same in accordance with this Code; - YES
(f) In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a nonstock corporation; - NO
(g) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the constitution; - YES
(h) To enter into a partnership, joint venture, merger, consolidation, or any other commercial agreement with natural and juridical persons; - YES
(i) To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation shall give donations in aid of any political party or candidate or for purpose s of partisan political activity; - NO
(j) To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers, and employees; and - NO
(k) To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation. - NO

65
Q

Can corporations give donations in aid of any political parties?

A

Domestic Corporations CAN GIVE REASONABLE DONATIONS TO POLITICAL PARTIES

Foreign Corporations SHALL NOT GIVE ANY DONATIONS TO ANY POLITICAL PARTY OR CANDIDATE.

66
Q

What are the rules on extending/shortening corporate term?

A
  1. ) It must be APPROVED BY MAJORITY OF THE BOD
  2. ) It must be RATIFIED BY 2/3 OF OCS.
  3. ) Any dissenting stockholder may exercise his right of appraisal.
67
Q

What are the rules on increasing/creating/incurring bond indebtedness?

A
  1. ) It must be APPROVED BY MAJORITY OF THE BOD
  2. ) It must be APPROVED BY 2/3 OF OCS.
  3. ) A CERTIFICATE IN DUPLICATE SIGNED BY THE MAJORITY OF DIRECTORS AND COUNTERSIGNED BY THE CHAIRPERSON AND SECRETARY CONTAINING THE DETAILS OF THE INCREASE/CREATION/INCURRENCE OF BOND INDEBTEDNESS.
  4. ) Bonds issued shall be registered with SEC, who shall determine the sufficiency thereof.
68
Q

What are the rules on increasing/decreasing capital stock?

A
  1. ) It must be APPROVED BY MAJORITY OF THE BOD
  2. ) It must be APPROVED BY 2/3 OF OCS.
  3. ) A CERTIFICATE IN DUPLICATE SIGNED BY THE MAJORITY OF DIRECTORS AND COUNTERSIGNED BY THE CHAIRPERSON AND SECRETARY CONTAINING THE DETAILS OF THE INCREASE/DECREASE OF CAPITAL STOCK.
  4. ) Requires APPROVAL OF SEC. Application must be made WITHIN 6 MONTHS AFTER APPROVAL OF BOD AND SH. Application must be accompanied by a SWORN STATEMENT OF THE TREASURER THAT AT LEAST 25% OF THE INCREASE IN CAPITAL STOCK HAS BEEN SUBSCRIBED AND 25% OF WHICH HAS BEEN PAID IN ACTUAL CASH.
69
Q

What are the rules on power to deny pre-emptive rights?

A

GR: All stockholders of a stock corporation shall ENJOY PRE-EMPTIVE RIGHTS TO SUBSCRIBE TO ALL ISSUES OR DISPOSITION OF SHARES OF ANY CLASS.

EX:

  1. ) Right is denied in the AoI
  2. ) Shares to be issued is in COMPLIANCE WITH LAWS REQUIRING STOCK OFFERINGS OR MINIMUM STOCK OWNERSHIP BY THE PUBLIC
  3. ) Shares issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock in exchange for property needed for corporate purposes or in payment of previously contracted debt.
70
Q

What are the rules on sale or disposition of assets?

A
  1. ) A sale/disposition of all or substantially all assets of a corporation requires MAJORITY VOTE OF THE BOD AND AUTHORIZATION OF AT LEAST 2/3 OCS.
  2. ) A sale or disposition to be deemed substantial, must render the corporation incapable of continuing business or accomplishing the purpose for which it was incorporated.
  3. ) The determination on whether it covers all or substantially all must be computed based on its NET ASSET VALUE AS SHOWN IN THE LATEST FINANCIAL STATEMENTS.fimp
  4. ) Authorization of OCS not required if the sale is in the usual course of business OR when the PROCEEDS ARE TO BE APPROPRIATED FOR THE CONDUCT OF ITS REMAINING BUSINESS.
  5. ) It must comply with RA 10667 (Philippine Competition Act)
71
Q

What are the rules on acquiring own shares?

A
  1. ) Must have unrestricted RE and for legitimate purpose.
  2. ) Approved by MAJORITY OF BOD

3.) Legitimate purposes include:
a. Elimination of fractional shares
b. Collect or compromise an indebtedness to the
corporation ARISING OUT OF UNPAID
SUBSCRIPTION in a delinquency sale, and to
purchase delinquent shares
c. To pay DISSENTING SH exercising their appraisal
right

72
Q

What are the rules on investing corporate funds in another corporation or business or for any other purpose?

A
  1. ) If other than primary purpose - it requires MAJORITY VOTE OF THE BOD AND RATIFIED BY 2/3 OF OCS, subject to the rights of dissenting SH to exercise their appraisal right
  2. ) For exercise of its primary purpose - approval of the SH or members not necessary.
73
Q

What are the rules on the declaration of dividends?

A

Only the Board of Directors can declare dividends out of unrestricted retained earnings.

74
Q

What is the rule on cash and property dividends?

A
  1. ) If the stock is delinquent, the cash dividend is applied first to its unpaid balance then to its cost and expenses.
  2. ) Does not require approval of SH
75
Q

What is the rule on stock dividends?

A
  1. ) If the stock is delinquent - the stock dividends are withheld until the full subscription is paid
  2. ) Requires APPROVAL OF 2/3 OF THE OCS AND QUORUM OF THE BOD.
76
Q

What are the rules on surplus profits?

A

GR: STOCK CORPORATIONS ARE PROHIBITED FROM RETAINING SURPLUS PROFITS IN EXCESS OF 100% OF THEIR PAID-IN CAPITAL STOCK.

EX:

  1. APPROPRIATION for definite corporate expansion projects
  2. Corporation is prohibited under loan agreement with financial institutions or creditors to declare dividends
  3. Retention is necessary under special circumstances such as need for reserve in case of probable contingencies
  4. If provided by law (appropriation for treasury shares)
77
Q

What are the rules in entering into a management contract?

A

1.) IF a stockholder/s REPRESENTING THE SAME INTEREST OF BOTH MANAGING AND MANAGED CORPORATIONS OWN/CONTROL MORE THAT 1/3 OF TOTAL OCS OR WHEN MAJORITY OF THE BOD OF THE MANAGING CORPORATION ALSO CONSTITUTE MAJORITY OF THE MANAGED CORPORATION’S BOD -
MANAGEMENT CONTRACT MUST BE APPROVED BY 2/3 OCS/MEMBERS.

2.) In general - must be APPROVED BY THE BOD AND MAJORITY OF OCS.

MANAGEMENT CONTRACTS MUST NOT BE LONGER THAN 5 YEARS IN ONE TERM.
Exception - exploration, development, exploitation or utilization of natural resources is subject to pertinent laws/regulations.

78
Q

What is the treatment of Ultra Vires Acts of corporations?

A

If illegal or in violation of formalities for ratification, VOID

If outside the primary and secondary purpose of the corporation, VOIDABLE.

If unauthorized acts by BoD, UNENFORCEABLE.

79
Q

What are the rules on the adoption of bylaws?

A

1.) Adoption of bylaws BEFORE incorporation - Approved and signed by all incorporators along with the AoI

2.) Adoption of bylaws AFTER incorporation -
Requires MAJORITY VOTE OF OCS/MEMBERS

80
Q

What are the rules on amendments of bylaws?

A

VOTE OF MAJORITY OF BOD ALONG WITH MAJORITY OF OCS MAY AMEND THE BYLAWS.

OR

2/3 of OCS MAY DELEGATE TO THE BOD THE POWER TO AMEND THE BYLAWS OR ADOPT NEW BYLAWS. Such power may be revoked by MAJORITY OF OCS.

The new bylaws shall only be EFFECTIVE UPON ISSUANCE BY THE SEC OF CERTIFICATION.

81
Q

When are proxy votes allowed?

A

Stockholder meeting - ALLOWED

Director meeting - NOT ALLOWED

82
Q

What is the manner of voting in directors and stockholders meetings?

A

Directors meeting - director must VOTE IN PERSON, or through teleconferencing/remote communication/other alternative modes of communication to allow them reasonable opportunities to participate

Stockholders meeting - right to vote may be done in person, or through a proxy, or through REMOTE COMMUNICATION OR IN ABSENTIA WHEN AUTHORIZED IN THE BYLAWS, all of which the SH shall be deemed present for purposes of quorum.

83
Q

What is the date of meeting for directors? For stockholders?

A

DIRECTORS MEETING - REGULAR MONTHLY MEETING unless bylaws provide otherwise.

SPECIAL MEETING - upon call of the president or as provided in the bylaws. At least 2 days notice prior to said meeting is needed, unless bylaws provide for a different period.

STOCKHOLDERS MEETING -

REGULAR MEETING ANNUALLY as fixed by the bylaws. If not so fixed, on any date AFTER APRIL 15 of every year as determined by the BoD, provided that written notice shall be sent 21 DAYS PRIOR SAID MEETING unless another period is required in the bylaws.

SPECIAL MEETING may be held at any time deemed necessary, provided that 1 week written notice be sent to all SH

84
Q

Where shall meetings take place for stockholders? For Directors?

A

Directors - anywhere in or outside the Philippines unless bylaws provide otherwise.

Stockholders - at the principal office of the corporation as set forth in the AoI, OR IF NOT PRACTICABLE, any place in the city or municipality where the principal office is located.

85
Q

What is the effect of an improperly held or called meeting for stockholders?

A

Improperly held meeting shall be VALID if

  1. ) ALL SH ARE PRESENT OR DULY REPRESENTED
  2. ) The business transacted IS WITHIN THE POWERS/AUTHORITY OF THE CORPORATION
  3. ) NOT ONE OF THEM EXPRESSLY STATES AT THE BEGINNING OF THE MEETING THAT THE MEETING IS NOT LAWFULLY CALLED/CONVENED.
86
Q

What is the quorum for directors meeting? For stockholders meeting?

A

Directors meeting - MAJORITY OF BOD as fixed in the AoI unless the AoI or bylaws provide for a GREATER MAJORITY.

Stockholders meeting - Majority of OCS/members

87
Q

Who shall preside meetings?

A

The chairman or in his absence the president, unless the bylaws provide otherwise.

88
Q

When shall stock and transfer book prior to meetings be closed?

A

Unless the bylaws provide for A LONGER PERIOD, the stock and transfer book shall be CLOSED

A. AT LEAST TWENTY (20) DAYS PRIOR REGULAR MEETINGS

B. AT LEAST 7 DAYS PRIOR SPECIAL MEETINGS

89
Q

What is the rule on postponement of stockholder’s meetings?

A

In case of postponement of SH regular meetings, A WRITTEN NOTICE AND REASON THEREFOR SHALL BE SENT TO ALL SH AT LEAST TWO (2) WEEKS PRIOR THE DATE OF MEETING, unless the bylaws provide a different period.

90
Q

Who is the proper person to call a meeting?

A
  1. ) PERSON DESIGNATED IN THE BYLAWS
  2. ) DIRECTOR/OFFICER ENTRUSTED WITH MANAGEMENT OF THE CORPORATION in absence of provision in bylaws
  3. ) SEC, upon petition of a SH showing good cause, may issue an order to the petitioning SH directing him to call a meeting by giving a proper notice.
  4. ) For SPECIAL MEETINGS FOR THE PURPOSE OF REMOVAL OF DIRECTORS/TRUSTEES, it must be CALLED BY THE SECRETARY ON ORDER OF THE PRESIDENT, OR ON THE WRITTEN DEMAND OF THE SH REPRESENTING AT LEAST MAJORITY OF OCS
  5. ) SPECIAL MEETINGS OF BOD UPON CALL BY PRESIDENT OR AS PROVIDED IN THE BYLAWS.
91
Q

When can a SECURED CREDITOR vote instead of his stockholder?

A

Secured creditors can only vote when SUCH RIGHT HAS BEEN EXPRESSLY GIVEN TO THE SECURED CREDITOR, WHICH MUST BE WRITTEN IN THE CORPORATE BOOKS.

92
Q

When can an administrator/executor/other legal representative vote instead of the stockholder?

A

Administrator/executor/other legal representative APPOINTED BY THE COURT may vote in behalf of the SH WITHOUT ANY WRITTEN PROXY

93
Q

What happens to voting when there is joint ownership of said stock?

A

The consent of all co-owners is necessary in voting shares of stock jointly owned by 2 or more persons, UNLESS THERE IS A WRITTEN PROXY SIGNED BY ALL CO-OWNERS AUTHORIZING ONE OR SOME OF THEM TO VOTE SUCH SHARES.

If the shares are owned in an “AND/OR” CAPACITY, an one of them can vote on said shares.

94
Q

What are the voting rights of treasury shares?

A

Treasury shares have no right to vote as long as it remains in treasury.

95
Q

What are the rules on proxies?

A
  1. It must be in WRITING
  2. It must be SIGNED BY SH
  3. FILED BEFORE THE SCHEDULED MEETING WITH THE CORPORATE SECRETARY
  4. VALID ONLY FOR THE MEETING FOR WHICH IT WAS INTENDED
  5. IF PROXY IS WITH A PERIOD, VALID ONLY WITH A LIMIT OF 5 YEARS.
96
Q

What is the rule on voting trusts?

A
  1. It must be in WRITING AND NOTARIZED
  2. SPECIFY THE TERMS AND CONDITIONS
  3. A CERTIFIED COPY OF SUCH AGREEMENT MUST BE FILED WITH SEC AND THE CORPORATION, OTHERWISE THE TRUST SHALL BE INEFFECTIVE AND UNENFORCEABLE.
  4. PERIOD OF AGREEMENT NOT TO EXCEED 5 YEARS, after which it will automatically expire unless renewed.
  5. Original certificate of stock is cancelled and the trustee shall be issued a VOTING TRUST CERTIFICATE.
  6. The voting trustee may vote by proxy or in any manner provided in the bylaws, unless the agreement provides otherwise.
97
Q

What are the rules on subscription for a corporation still to be formed?

A

BEFORE SUBMISSION OF AOI TO SEC
- Subscription is IRREVOCABLE FOR A PERIOD OF AT LEAST 6 MONTHS FROM DATE OF SUBSCRIPTION UNLESS:

A. All other subscribers consent to the revocation
B. The incorporation fails to materialize or as may be stipulated in the contract of subscription

AFTER SUBMISSION OF AOI TO SEC
- NO PRE-INCORPORATION SUBSCRIPTION MAY BE REVOKED.

98
Q

Give examples of considerations that are not allowed in exchange for the issuance of shares.

A
  1. ) Future service

2. ) Promissory notes

99
Q

How shall intangible assets like patent/trademark be valued in consideration for the issuance of shares?

A

The valuation thereof shall be determined by the SH or BoD, subject to the approval of SEC

100
Q

How shall issue price of no-par shares be determined?

A

The issued price of no-par shares may be fixed in the AoI or by the BoD, or if not so fixed, BY THE MAJORITY OF OCS IN A MEETING CALLED FOR THE PURPOSE.

101
Q

How shall transfers of stock be valid against all?

A

Shares of stock issued are personal property and may be transferred by mere delivery of such certificates by the owner or other persons legally authorized to make the transfer.

NO TRANSFER, HOWEVER, SHALL BE VALID, EXCEPT AS BETWEEN THE PARTIES UNTIL THE TRANSFER IS RECORDED IN THE BOOKS OF THE CORPORATION SHOWING THE NAMES OF THE PARTIES TO THE TRANSACTION.

102
Q

When shall stocks be issued to a subscriber?

A

Stocks are to be issued to a subscriber ONLY WHEN THE FULL AMOUNT ON THE SUBSCRIPTION TOGETHER WITH INTEREST AND EXPENSES, HAVE BEEN PAID.

103
Q

What is the liability of directors/officers who issue watered stocks?

A

Directors or officers who consents or has knowledge of insufficient consideration for stocks but does not file a written complaint with the corporate secretary shall be LIABLE SOLIDARILY WITH THE STOCKHOLDER CONCERNED FOR THE DIFFERENCE BETWEEN THE VALUE OF THE STOCK AND THE CONSIDERATION.

104
Q

Explain the right of stockholders to bring suits.

A
  1. ) Derivative suit - brought by one or more stockholders/members IN THE NAME AND BEHALF OF THE CORPORATION TO REDRESS WRONGS COMMITTED AGAINST IT OR TO PROTECT/VINDICATE CORPORATE RIGHTS, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold control of the corporation.
  2. ) Individual suit - action brought by a stockholder against the corporation for DIRECT VIOLATION OF HIS CONTRACTUAL RIGHTS AS SUCH INDIVIDUAL STOCKHOLDER. Any recovery by the stockholder belongs to him.
  3. ) Representative suit - When a wrong is committed against a group of stockholders, a stockholder may bring suit in behalf of himself and all the other stockholders who are similarly situated.
105
Q

What are the remedies for the payment of stock subscriptions?

A
  1. ) Extra judicial sale at a public auction
  2. ) Judicial action
  3. ) Collection from cash dividends and withholding of stock dividends
  4. ) Denial of delinquent shares the right to vote -
106
Q

Explain the extra-judicial sale at public auction remedy for the payment of subscription.

A

Subscribers to stock shall be liable to the corporation for interest on all unpaid subscriptions from the date of subscription, if so required by and at the rate fixed in the subscription contract, if none, AT THE LEGAL RATE.

Failure to pay on due date SHALL RENDER THE ENTIRE BALANCE DUE AND PAYABLE.

IF WITHIN 30 DAYS FROM SAID DATE NO PAYMENT HAS BEEN MADE, all stocks covered SHALL BECOME DELINQUENT AND SHALL BE SUBJECT TO SALE, unless BoD orders otherwise.

The BoD shall place the delinquent stocks on sale, which shall NOT BE LESS THAN 30 TO 60 DAYS FROM THE DATE THE STOCKS BECAME DELINQUENT.

Delinquent stocks shall be sold to the BIDDER WHO OFFERS TO PAY THE FULL AMOUNT OF THE BALANCE OF THE SUBSCRIPTION PLUS EXPENSES FOR THE SMALLEST NUMBER OF SHARES.

The corporation may acquire such shares if there are no bidders. Such shares shall be held as treasury shares.

107
Q

Explain the judicial action remedy for the payment of stock subscription.

A

It is the collection by action in a court of proper jurisdiction for the amount due on any unpaid subscription with interests and expenses due.

108
Q

Explain the collection from cash dividend and withholding stock dividends remedy for the payment of stock subscription.

A

Cash dividends due on the delinquent stock dividends shall first be applied to the unpaid balance on the subscription plus costs and expenses while stock dividends shall be withheld until the subscription is fully paid.

109
Q

Explain the denial of delinquent shares the right to vote remedy for the payment of stock subscription.

A

The delinquent shares shall be denied the right to vote and the representation until the same is fully paid.

110
Q

What are the rights of a delinquent stockholder?

A

A delinquent stockholder’s right is only TO RECEIVE CASH/PROPERTY DIVIDENDS, which shall be applied first to his unpaid subscription and any expenses thereof.

111
Q

What are the procedures to be followed for lost or destroyed certificates of stock?

A
  1. ) Owner of the stock shall file with the corporation an affidavit in TRIPLICATE setting forth how the certificate was lost/stolen/destroyed/ and the numbers of share it represented and the serial number of such certificate.
  2. ) After verification of said affidavit and other information, corporation shall publish a notice in a newspaper of general circulation in the place where it has its principal office for THREE CONSECUTIVE WEEKS at the expense of the owner of stock. The publication shall state that AFTER THE EXPIRATION OF 1 YEAR FROM THE DATE OF LAST PUBLICATION, IF NO CONTEST HAS BEEN PRESENTED, THE RIGHT TO CONTEST SHALL BE BARRED AND THE CORPORATION SHALL CANCEL THE LOST/DESTROYED/STOLEN CERTIFICATE and shall issue a new stock to the owner.

If a contest has been presented, the corporation shall not issue a new certificate UNTIL THE COURT HAS REACHED A FINAL DECISION REGARDING OWNERSHIP OF THE CERTIFICATE.

112
Q

Discuss the liabilities of an officer or agent of a corporation who refuses to let a director/trustee/SH examine corporate records/minutes.

A
  1. ) Such officer/agent shall be liable to the director/trustee/SH for DAMAGES plus guilty of the VIOLATION OF DUTIES TO MAINTAIN RECORDS, INSPECTION/REPRODUCTION which shall have a penalty of PHP 10,000 to PHP 200,000 depending on the seriousness of the violation, and if it is detrimental to the public, a fine of PHP 20,000 to PHP 400,000.
  2. ) If such refusal is made in pursuant to a resolution or order of the BoD, such liability shall be imposed upon the directors WHO VOTED FOR SUCH REFUSAL.

Denial to examine/inspect/reproduce corporate records is proper when:

  1. PRIOR EXAMINATION has been IMPROPERLY USED
  2. Was NOT ACTING IN GOOD FAITH
  3. NOT FOR A LEGITIMATE PURPOSE IN MAKING A DEMAND TO EXAMINE/REPRODUCE
  4. The one requesting to examine/reproduce is A COMPETITOR OR AFFILIATED WITH A COMPETITOR.

If STOCKHOLDER WAS DENIED THE RIGHT TO INSPECT THE BOOKS, the aggrieved party MAY REPORT SUCH DENIAL OR INACTION TO THE SEC.

Within 5 DAYS FROM RECEIPT OF SUCH REPORT, SEC SHALL CONDUCT A SUMMARY INVESTIGATION AND ISSUE AN ORDER DIRECTING THE INSPECTION/REPRODUCTION OF SAID RECORDS.

113
Q

If a SH requests a copy of the FS, how long should it take the corporation to furnish the FS?

A

A corporation shall furnish the MOST RECENT FS to the SH within 10 DAYS FROM RECEIPT OF A WRITTEN REQUEST.

114
Q

What happens if the total assets or liabilities of a corporation are less than PHP 600,000?

A

If total assets or liabilities are LESS THAN PHP 600,000, the FS may be CERTIFIED UNDER OATH BY THE TREASURER AND THE PRESIDENT.

If total assets or liabilities are AT LEAST PHP 600,000, the FS MUST BE AUDITED BY A CPA.

115
Q

What vote is required for Merger/consolidation?

A

It requires majority vote of BoD and 2/3 vote of the OCS.

116
Q

What is appraisal right? What instances are it exercisable?

A

Appraisal right is the right to dissent and demand payment of the FAIR VALUE of his shares in the following instances:

  1. Amendment to AoI which has the effect of
    a. changing the rights of any SH or class of shares
    b. Authorizing preferences in any respect superior to
    those of outstanding shares of any class
    c. Extension/shortening of corporate term
  2. Sale/lease/other disposition of all/substantially all
    corporate assets.
  3. ) Merger/Consolidation
  4. ) Investment of corporate funds in another corporation/business or for any other purpose.
117
Q

How is appraisal rights exercised? What are the rules involved?

A
  1. Any stockholder who voted against proposed corporate action
  2. Make a WRITTEN DEMAND AGAINST THE CORPORATION WITHIN 30 DAYS AFTER THE DATE ON WHICH VOTE WAS TAKEN for the payment of his shares.
    FAILURE TO MAKE DEMAND SHALL BE DEEMED A WAIVER OF APPRAISAL RIGHT.
  3. Surrender of certificates of stock
  4. IF WITHIN 60 DAYS FROM THE DATE OF THE CORPORATE ACTION WAS APPROVED AND THE DISSENTING SH AND CORPORATION CANNOT AGREE ON THE FAIR VALUE OF THE SHARES, FAIR VALUE SHALL BE DETERMINED AND APPRAISED BY THREE (3) DISINTERESTED PERSONS:

1 chosen by dissenting stockholder
1 chosen by corporation
1 chosen by the 2 above

  1. Corporation must have enough retained earnings to cover such payment
  2. From the time of demand of payment, ALL RIGHTS OF THE STOCKHOLDER ARE SUSPENDED EXCEPT THE RIGHT TO RECEIVE PAYMENT OF THE FAIR VALUE THEREOF.

If the SH is not paid within 30 days after the award, HIS VOTING AND DIVIDEND RIGHTS ARE IMMEDIATELY RESTORED.

118
Q

Who shall bear the costs and expenses upon the exercise of appraisal right by a SH?

A

Costs and expenses shall be borne by the corporation, UNLESS the fair value ascertained by the appraisers is APPROXIMATELY THE SAME as the price which the corporation offered to the SH, in which case the SH shall bear the costs and expenses.

119
Q

What is a nonstock corporation?

A

It is one where NO PART OF ITS INCOME IS DISTRIBUTABLE AS DIVIDENDS to its members/trustees/officers. Any profit it may obtain shall be used to further the purpose for which it was organized.

120
Q

What is the difference between the number of directors/trustees of stock and nonstock corporations?

A

Stock - may not be more than 15 directors

Nonstock - may or may not be more than 15 trustees

121
Q

What is the difference between the term of directors/trustees of stock and nonstock corporations?

A

Stock - 1 year term only for directors or until their successors are elected.

Nonstock - NOT MORE THAN 3 YEARS until their successors are elected.

122
Q

What is the difference between manner of voting of directors/trustees of stock and nonstock corporations?

A

Stock - Cumulative voting, exercised in person, through a proxy, or when allowed by the bylaws, through remote communication or in absentia.

Nonstock - Each member, regardless of class, shall be ENTITLED TO ONE VOTE, unless so limited,broadened or denied in the AoI. May vote by proxy unless otherwise provided by the bylaws or AoI. Bylaws may authorize voting in absentia or remote communication.

123
Q

Directors or trustees do not automatically cease to hold office upon the expiration of their term if they have yet no successors. This principle is known as?

A

Principle of holdover.

124
Q

Explain the methods of voting.

A

It is designed to give minority shareholders representation in the BoD. Number of votes per person is determined by multiplying the number of shares held by the number of directors to be elected. Stockholder has the discretion as to how he votes, either:
a. Straight voting - 1 share 1 vote

CUMULATIVE VOTING - stockholder’s vote is determined by his shares owned and the number of directors to be voted for.

b. Cumulative voting in favor of one candidate - concentrate all votes in one candidate
c. Cumulative voting by distribution - distribute his votes as he may see fit

Ex: ABC Corp stockholders are to elect 5 directors. If X has 1000 shares, he gets 1000x5 = 5000 shares.
Cumulative voting in favor of one candidate - he may concentrate all votes to, say director B
Cumulative voting by distribution - vote as he may see fit

125
Q

What is the difference between the transferrability of membership/ownership of stock and nonstock corporations?

A

Stock - stocks are transferrable

Nonstock - Membership is PERSONAL AND NON-TRANSFERRABLE, unless otherwise provided by the AoI or bylaws.

126
Q

What is the difference between the required ownership of directors/trustees of stock and nonstock corporations?

A

Stock - At least owner of one share

Nonstock - Trustee has to be a member of the corporation, EXCEPT WITH RESPECT TO INDEPENDENT TRUSTEES OF CORPORATIONS VESTED WITH PUBLIC INTEREST.

127
Q

What is the difference between the meetings of stockholders/members of stock and nonstock corporations?

A

Stock - Principal office of the corporation, or if not practicable, in the city/municipality where the principal office is located.

Nonstock - any place in the Philippines

128
Q

What is the difference between the election of officers of stock and nonstock corporations?

A

Stock - officers are elected by the BoD

Nonstock - members may directly elect the officers, UNLESS otherwise provided in the AoI or bylaws.

129
Q

Explain the rules on distribution of assets of a nonstock corporation in case of dissolution.

A
  1. All liabilities shall be paid.
  2. Assets held with a condition requiring return/transfer upon dissolution shall be returned/transferred.
  3. Assets held and received by the corporation subject to limitations permitting their use only for the intended purpose and not subject to the conditions of the previous step shall be TRANSFERRED/CONVEYED TO A CORPORATION/SOCIETY in the Philippines engaged in the same activity.
  4. Assets not covered by the previous steps shall be distributed according to the provisions of AoI or bylaws
  5. In any other case, assets are to be distributed as specified in a plan of distribution.
130
Q

What is a close corporation? What are its characteristics?

A

A close corporation is one whose AoI provides that:

  1. Issued stock shall only be held by NOT MORE THAN 20 PERSONS
  2. Issued stock shall be subject to 1 OR MORE SPECIFIED RESTRICTION ON TRANSFER, which must appear on the AoI or bylaws or in the certificate of stock.
  3. Corporation IS NOT LISTED ON AN EXCHANGE OR MAKE ANY PUBLIC OFFERINGS ON ITS STOCK.

A corporation shall not be a close corporation when at least 2/3 OF ITS VOTING STOCK IS OWNED/CONTROLLED BY A CORPORATION THAT IS NOT A CLOSE CORPORATION.

131
Q

What are the corporations prohibited to organize as a close corporation?

A

BPI MOSEC

  1. Banks
  2. Public Utilities
  3. Insurance Companies
  4. Mining and Oil
  5. Stock Exchanges
  6. Educational Institutions
  7. Corporations VESTED WITH PUBLIC INTEREST
132
Q

In close corporations, may the stockholders manage the business of the corporations?

A

Yes, the AoI may provide that the business of the close corporations be managed by the stockholders rather than by a BoD. If this is the case:

  1. Stockholders shall be deemed as the directors
  2. Stockholders shall be subject to the liabilities of a director.
133
Q

Discuss the special nonstock educational corporation.

A
  1. Trustees of a nonstock educational institution shall NOT BE LESS THAN 5 NOR MORE THAN 15, PROVIDED THAT IT BE IN MULTIPLES OF 5.
  2. 1/5 OF THE TRUSTEES’ TERM SHALL EXPIRE EVERY YEAR, TRUSTEES’ TERM SHALL BE FOR 5 YEARS, unless otherwise provided in the AoI or bylaws.
  3. Majority of trustees shall constitute a quorum.
134
Q

Discuss religious corporations.

A

Religious corporations are classified into

  1. Corporation sole - may be formed by the chief presiding elder of such religious denomination by filing with SEC.
  2. Religious societies - any society/order of any religious denomination may, upon written consent OF AT LEAST 2/3 OF ITS MEMBERSHIP INCORPORATE FOR THE ADMINISTRATION OF ITS AFFAIRS.
135
Q

What is a One Person Corporation?

A

An OPC is a corporation with a single stockholder who is either a NATURAL, ESTATE, OR TRUST ONLY.

136
Q

What corporations are not allowed to form as a OPC?

A
  1. Banks and Quasi-banks
  2. Preneed companies
  3. Trust
  4. Insurance
  5. Public and publicly-listed companies
  6. Non-chartered GOCCs
  7. Natural persons licensed to exercise a profession for the purpose of exercising such profession EXCEPT as otherwise provided for under special laws.
137
Q

What is the minimum capital stock of a OPC?

A

No minimum capital stock, except as otherwise provided by special laws.

138
Q

What other additional details are to be included in the AoI of an OPC?

A
  1. ) If OPC has a trust or estate for its SH, the details of the trustee/executor/administrator/custodian/others exercising fiduciary duty together with PROOF OF AUTHORITY TO ACT ON BEHALF OF THE TRUSTEE OR ESTATE.
  2. ) Details of NOMINEE and ALTERNATE NOMINEE, and the EXTENT,COVERAGE AND LIMITATIONS OF THE AUTHORITY.
139
Q

What are the characteristics of a OPC?

A
  1. Single stockholder
  2. Only natural, estate or trust can be SH
  3. Not required to submit bylaws
  4. Must indicate OPC below or at the end of corporate name
  5. The single SH shall be the sole director and president of the OPC.

President + secretary - not allowed
President + treasurer - allowed but must post a bond as required by the SEC. The bond must be RENEWED EVERY 2 YEARS or as often as required.

140
Q

What are the rules on the officers of a OPC?

A

Within 15 days from issuance of Certificate of incorporation, the OPC shall appoint a secretary, treasurer and other officers and NOTIFY THE SEC WITHIN 5 DAYS OF THE APPOINTMENT.

141
Q

What are the special functions of the corporate secretary of an OPC?

A
  1. Maintain the minutes books and records.
  2. Notify the nominee or alternate nominee of the death or incapacity of the single SH which NOTICE shall be given no later than 5 DAYS FROM SUCH OCCURRENCE
  3. Notify the SEC of death of single SH within 5 days of occurrence
  4. Call the nominee or alternate nominee and known legal heirs to a meeting.
142
Q

What is the purpose of the nominee and alternate nominee of an OPC?

A

The nominee and alternate nominee shall, in the event of death or incapacity of the single SH, take the place of the single SH as director and manage the corporations affairs.

In case of incapacity of SH, the nominee shall only sit as director until the SH regains capacity.

In case of death of SH, the nominee shall sit as director and manage until the legal heirs have lawfully designated one of them to be the SH, or if they have agreed that the estate shall be the single SH.

The alternate nominee shall sit as director when the nominee is unable to do so.

143
Q

If the total assets/liabilities of a corporation is PHP 600,000 or more, who shall audit the FS? If below PHP 600,000?

A

PHP 600,000 or more - audited by an independent CPA

below PHP 600,000 - FS certified under oath by president and treasurer is sufficient.

144
Q

What happens when a corporation fails to comply with reportorial requirements of SEC?

A

If the corporation fails to comply with the reportorial requirements 3 TIMES CONSECUTIVELY WITHIN A PERIOD OF 5 YEARS, SEC CAN PUT THE CORPORATION UNDER DELINQUENT STATUS.

145
Q

What are the methods of dissolution of corporations?

A
  1. ) Voluntary dissolution where no creditors are affected
  2. ) Voluntary dissolution where creditors are affected
  3. ) Dissolution by shortening of corporate term
  4. ) Involuntary Dissolution
146
Q

Discuss Voluntary dissolution where no creditors are affected.

A

Requires MAJORITY VOTE OF BOD AND MAJORITY VOTE OF OCS in a meeting called for the purpose. Notice of such meeting shall be given AT LEAST 20 DAYS PRIOR SAID MEETING.

147
Q

Discuss Voluntary dissolution where creditors are affected.

A

Requires MAJORITY VOTE OF BOD AND 2/3 OCS with a petition signed by the BoD and the 2/3 OCS.

If the petition is sufficient, the SEC shall FIX A DEADLINE FOR FILING OF OBJECTIONS TO THE PETITION WHICH DATE SHALL BE 30-60 DAYS AFTER THE ENTRY OF THE ORDER.

Dissolution shall take effect only upon the ISSUANCE OF A CERTIFICATE OF DISSOLUTION.

148
Q

Discuss dissolution by shortening of corporate term.

A

It is done by amending the AoI which requires majority vote of BoD and 2/3 OCS.

149
Q

Discuss Involuntary Dissolution of a corporation.

A

The following are the grounds by which a a corporation may be dissolved.

  1. ) None use of the corporate charter within 5 years from date of incorporation
  2. ) Continuous inoperation for a period of 5 years
  3. ) Upon receipt of a lawful court order dissolving the corporation
  4. ) Upon finding by final judgment that the corporation acquired its incorporation by fraud, or is involved in illegal practices.
150
Q

What is a foreign corporation?

A

A foreign corporation is one formed under laws other than those of the Philippines.

151
Q

What is the effect of a foreign corporation doing business in the Philippines without a license?

A
  1. ) It cannot sue

2. ) It can be sued

152
Q

What is a resident agent in relation to foreign corporations?

A

A resident agent may either be an INDIVIDUAL OR DOMESTIC CORPORATION LAWFULLY TRANSACTING BUSINESS IN THE PHILIPPINES.

Failure to maintain a resident agent in the PH is ground for revocation of license.

153
Q

RA 8799 is known as? What is its purpose?

A

The Securities Regulation Code or “Blue Sky Law” aims to protect the public against the imposition of unsubstantial schemes and the securities based thereon.

154
Q

What is a Tender Offer?

A

A tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. It occurs when any person/group of persons acting in concert:

  1. INTENDS TO ACQUIRE AT LEAST 15% OF ANY CLASS OF ANY EQUITY SECURITY OF A LISTED CORPORATION WITH ASSETS OF AT LEAST PHP 50,000,000 AND HAVING 200 OR MORE SH WITH AT LEAST 1000 SHARES
  2. INTENDS TO ACQUIRE AT LEAST 35% OF SUCH EQUITY OVER A PERIOD OF 12 MONTHS

The two enumerated above shall make a tender offer to stockholders by FILING WITH SEC A DECLARATION TO THAT EFFECT, plus FURNISHING TO THE ISSUER A STATEMENT CONTAINING REQUIRED INFORMATION AS PRESCRIBED BY SEC.

155
Q

What are unlawful acts in relation to tender offer?

A
  1. Make any untrue statement of a material fact making the statement misleading
  2. Omit to state any material fact making the statement misleading
  3. Engage in any fraudulent/deceptive/manipulative acts or practices
156
Q

What is an insider?

A

An insider could refer to:

  1. Issuer
  2. Director or officer or performing the same function
  3. A person whose relationship or former relationship to the issuer GIVES HIM ACCESS TO MATERIAL INFORMATION THAT IS NOT GENERALLY AVAILABLE TO THE PUBLIC
  4. A government employee/director/officer of an exchange/clearing agency and/or self-regulatory organization who HAS ACCESS TO MATERIAL INFORMATION NOT GENERALLY AVAILABLE TO THE PUBLIC
  5. A person who learns of such information by a communication from any insider.
157
Q

When is an information material nonpublic?

A
  1. 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 after lapse of a reasonable time
  2. It would be considered by a reasonable person to be important under the circumstances in determining his course of action whether to hold, buy, or sell
158
Q

What is the vote required for retaining specific corporate term as stated in the articles of incorporation? (SEC 11)

A

MAJORITY OF OCS.

159
Q

What is the vote required for amendment of articles of incorporation? (SEC 15, 16)

A

MAJORITY OF BOD AND 2/3 OF OCS in a SH meeting called for the purpose. New AoI takes effect upon SEC’s approval or when SEC fails to act upon it w/in 6 months from date of filing.

160
Q

What is the vote required for election of directors/trustees? (SEC 23, 24, 29)

A

At all elections, there must be MAJORITY OF OCS OR MEMBERS PRESENT.

Directors are elected for a term of 1 year
Trustees are elected for a term NOT EXCEEDING 3 YEARS.

161
Q

What is the vote required for authorization of SH or members to vote through remote communication or in absentia? (SEC 23)

A

Voting through remote communication is allowed, if it is PROVIDED IN THE BYLAWS, or when it is allowed by MAJORITY OF THE BOD.

In corporations vested with public interest, SH may vote through remote communication/ absentia even without authorization in bylaws or vote of majority of BoD.

162
Q

What is the vote required for removal of directors or trustees? (SEC 27, 28)

A

2/3 of OCS or members in a meeting called for the purpose. May be with or without just cause, but if without cause, it must not deprive minority SH the right of representation.

163
Q

What is the vote required for calling of a special meeting for removal of a director or trustee? (SEC 27, 28)

A

Majority of SH or members upon written demand. It can also be called by the secretary on order of the president.

164
Q

What is the vote required for filing of vacancy OTHER THAN REMOVAL OR EXPIRATION OF TERM, and that THE REMAINING DIRECTORS STILL CONSTITUTE A QUORUM? (SEC 28, 29)

A

If vacancy is not due to removal or expiration, and that the BoD still constitutes a quorum, such vacancy may be filled up by the remaining BoD. Replacing director shall serve only the unexpired term.

165
Q

What happens when a vacancy occurs in the BoD but the BoD still constitutes a quorum?

A

If such vacancy is NOT due to REMOVAL OR EXPIRATION, it may be FILLED UP BY THE REMAINING BOD STILL CONSTITUTING QUORUM. Replacing director shall serve only the unexpired term.

166
Q

What is the vote required for filing of vacancy

a. Because of reasons other than removal/expiration, and there is no BoD quorum?
b. If due to expiration?
c. If due to removal?

A

a. Vacancy must be filled up by SH/members in a meeting called for the purpose, within 45 DAYS FROM THE TIME THE VACANCY AROSE.
b. Election should be held no later than the day of such expiration
c. Election may be held on the same day of removal

REMEMBER THAT IN ALL ELECTIONS, THERE MUST BE PRESENT AT LEAST MAJORITY OF OCS OR MEMBERS (SEC 23) FOR A B & C ABOVE.

Replacing director shall serve only the unexpired term.

167
Q

What is the vote required for fixing the compensation of directors? (SEC 29, 30)

A

If not so provided in the BYLAWS, directors are not entitled to compensation, except when the MAJORITY OF OCS OR MEMBERS GRANTS SUCH COMPENSATION AND APPROVES THE AMOUNT IN A MEETING CALLED FOR THE PURPOSE.

Compensation shall NOT EXCEED 10% OF NET INCOME BEFORE INCOME TAX OF PRECEDING YEAR.

168
Q

What is the vote required for ratifying the acts of self-dealing directors? (SEC 31, 32)

A

2/3 of OCS or members in a meeting called for the purpose.

169
Q

What is the vote required for ratification of interlocking directors? (SEC 32, 33)

A

2/3 of OCS or members in a meeting called for the purpose.

Stockholdings exceeding 20% of OCS shall be considered substantial for purposes of interlocking directors.

170
Q

What is the vote required for ratifying the act of a disloyal director? (SEC 33, 34)

A

For the act of a disloyal director to be valid, it must be ratified by 2/3 of OCS.

171
Q

What is the vote required for the delegation of power to the executive committee? (SEC 34, 35)

A

Delegation of power to the Executive committee requires the MAJORITY VOTE OF THE BoD or it can also be provided for in the bylaws.

172
Q

What is the vote required for the extension or shortening of corporate term? (SEC 36)

A

A corporation may extend or shorten its term as stated in the articles of incorporation when approved by a MAJORITY OF BOD, and RATIFIED BY 2/3 OF OCS OR ITS MEMBERS IN A MEETING CALLED FOR THE PURPOSE.

173
Q

What is the vote required for the increase or decrease in capital stock? (SEC 37)

A

It requires the MAJORITY VOTE OF THE BOD and 2/3 APPROVAL OF THE OCS.

Such increase/decrease must be ACCOMPANIED BY A SWORN STATEMENT OF THE TREASURER STATING THAT AT LEAST 25% OF INCREASE HAS BEEN SUBSCRIBED AND THAT 25% THEREOF HAS BEEN PAID AND TRANSFERRED TO THE CORPORATION.

174
Q

What is the vote required for incurring, creating, or increasing bonded indebtedness? (SEC 37)

A
  1. ) It must be APPROVED BY MAJORITY OF THE BOD
  2. ) It must be APPROVED BY 2/3 OF OCS.

A CERTIFICATE IN DUPLICATE SIGNED BY THE MAJORITY OF DIRECTORS AND COUNTERSIGNED BY THE CHAIRPERSON AND SECRETARY CONTAINING THE DETAILS OF THE INCREASE/CREATION/INCURRENCE OF BOND INDEBTEDNESS.

Bonds issued shall be registered with SEC, who shall determine the sufficiency thereof.

175
Q

What is the vote required for the denial of pre-emptive right through amendment of AoI? (SEC 38)

A

MAJORITY OF QUORUM OF THE BOD AND 2/3 OF OCS.

176
Q

What is the vote required for denial of pre-emptive right in exchange for property needed for corporate purposes or in payment of a previously contracted debt? (SEC 38)

A

APPROVAL OF 2/3 OF OCS.

177
Q

What is the vote required for the sale/disposition of all or substantially all of corporate property? (SEC 39)

A

MAJORITY OF BOD AND AUTHORIZATION OF 2/3 OF OCS.

178
Q

What is the vote required for investing corporate funds in another corporation other than for its primary purpose? (SEC 41)

A

MAJORITY OF BOD AND RATIFICATION OF 2/3 OF OCS.

179
Q

What is the vote required for declaration of stock dividend? (SEC 42)

A

MAJORITY OF QUORUM OF BOD AND APPROVAL OF 2/3 OF OCS

180
Q

What is the vote required for entering into a management contract? (SEC 43, 44)

A

MAJORITY OF QUORUM OF BOD AND APPROVAL OF MAJORITY OF OCS. See exceptions and other instances.

SEE CODE!!! This part is confusing and long.

181
Q

What is the vote required for adoption of bylaws after incorporation? (SEC 45)

A

MAJORITY OF OCS.

If before incorporation, it need only be signed by the incorporators.

182
Q

What is the vote required for amendment to bylaws? (SEC 47)

A

MAJORITY OF BOD AND MAJORITY OF OCS.

183
Q

What is the vote required for the delegation of power to the BoD to amend the bylaws? (SEC 47)

A

2/3 of OCS

184
Q

What is the vote required for revocation of delegated power given to the BoD to amend the bylaws? (SEC 47)

A

Majority of OCS

185
Q

What is the vote required for choosing the presiding officer among the SH upon petition to call a meeting by the SH? (SEC 49)

A

MAJORITY OF STOCKHOLDERS PRESENT.

186
Q

What is a quorum of SH in meetings? (SEC 51)

A

Unless otherwise provided in this Code or in the bylaws, A QUORUM SHALL CONSIST OF MAJORITY OF OCS.

187
Q

What is a quorum of BoD in meetings? (SEC 52)

A

Unless the articles of incorporation or the bylaws provides for a greater majority, a A MAJORITY OF DIRECTORS OF BOD SHALL CONSTITUTE A QUORUM

188
Q

What is the vote required for authorizing SH or members to vote through remote communication or in absentia? (SEC 57)

A

MAJORITY OF BOD

189
Q

What is the vote required for fixing the issuance price of no-par value shares by the BOD when authorized by AoI? (SEC 61, 62)

A

MAJORITY OF QUORUM OF BOD.

190
Q

What is the vote required for fixing the issuance price of no-par value shares in the absence of price fixed in the AoI or authority given to BoD to fix the issuance price? (SEC 61, 62)

A

MAJORITY OF OCS.

191
Q

What is the vote required for merger or consolidation? (SEC 76)

A

MAJORITY OF BOD AND 2/3 OF OCS

192
Q

What is the vote required for adoption of a plan of distribution of assets of a nonstock corporation? (SEC 94, 95)

A

MAJORITY OF BOD AND 2/3 OF OCS.

193
Q

What is the vote required for corporate dissolution through voluntary dissolution where

a. no creditors are affected
b. when creditors are affected?

(SEC 134, 135, 118, 119)

A

a. Creditors not affected: MAJORITY OF BOD AND MAJORITY OF OCS
b. Creditors affected: MAJORITY OF BOD AND 2/3 OCS

194
Q

What is the vote required for adoption of bylaws prior to incorporation?

A

None, it only need be approved and signed by all incorporators.

195
Q

Differentiate the term of a director and a trustee.

A

Directors are elected for a term of 1 year

Trustees are elected for a term NOT EXCEEDING 3 YEARS.

196
Q

What vote is needed in acquiring own shares?

A

It must be APPROVED BY MAJORITY OF BOD.

197
Q

What are the tests to determine the nationality of a corporation?

A
  1. Incorporation test - the nationality of a corporation follows that of the country under whose laws it was incorporated
  2. Control test - nationality of a corporation follows that of the stockholders owning the controlling interest, and it is applied DURING WARTIME for the purpose of the security of the State. It is treated as a foreign corporation if controlled by foreigners.
198
Q

When is the control test applied?

A

It is applied for purposes of entitlement to certain financial privileges.

199
Q

When is the Grandfather rule applied?

A

The grandfather rule is applied only when THERE ARE QUESTIONS ABOUT COMPLIANCE WITH FILIPINO OWNERSHIP REQUIREMENTS.

200
Q

What is the Grandfather’s rule?

A

It is a method by which the percentage of Filipino equity in corporations engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution and other nationalization laws, is accurately computed and the diminution of said equity prevented.

The presence of corporate stockholders with alien stockholding would as a result diminish effective control of Filipinos, if this is not applied.

201
Q

How is the Grandfather Rule applied?

A

It tests whether the equity requirement of 60% Filipino 40% Foreign is complied with.
For example, if a parent corporation with 55-45 Filipino-Foreign equity invests 70% of a nationalized subsidiary PH corporation, and the remaining 30% is filled up by foreigners, the 60-40 rule of the subsidiary corporation would not be met:

Parent 
55% * 70% = 38.5% - Filipino 
45% * 70% = 31.5% - Foreign
30% remaining - foreign
Therefore the ratio of PH to foreign ownership is merely 38.5% to 61.5%, which is not allowed by our laws.
202
Q

T or F
A de facto corporation has all the powers of a de jure corporation but its existence may be attacked directly in a special civil action proceeding.

A

False.

A de facto corporation has all the powers of a de jure corporation but its existence may be attacked directly in a quo warranto proceeding.

203
Q

For a de facto corporation to exist, what conditions must be present?

A
  1. There must be a valid law under which it is incorporated
  2. There must be an attempt in good faith to incorporate
  3. There must be an actual exercise of corporate powers
  4. A certificate of incorporation is issued despite a defect in its incorporation
204
Q

What are the components of a corporation?

A
  1. Corporators - stockholders or members

2. Incorporators - Stockholders/members mentioned in the AoI as originally forming the corporation

205
Q

What is a promoter?

A

A promoter is a person, natural or juridical, who usually discovers a prospective business and brings persons interested to invest in it through the formation of a corporation. He usually facilitates the creation of a corporation.

A PROMOTER IS PERSONALLY LIABLE FOR CONTRACTS MADE FOR THE BENEFIT OF THE PROPOSED CORPORATION.

206
Q

T or F
A newly-formed corporation is not automatically liable for pre-incorporation contracts entered into by a promoter in its behalf.

A

True. It will become liable only by the adoption, ratification or novation of such contracts.

207
Q

T or F

A corporation is entitled to the constitutional right against self-incrimination.

A

False. A corporation is NOT ENTITLED to the constitutional right against self-incrimination.

208
Q

T or F

A corporation can now enter into a partnership and joint venture

A

True.

209
Q

Differentiate express, implied and incidental powers of a corporation.

A
  1. Express - authorized by the Corporation Code and other laws, and its AoI
  2. Implied - Those that can be inferred from or necessary for the exercise of express powers
  3. Incidental - those that are incidental to the existence of a corporation arising from its being a juridical person engaged in business. They flow from the nature of the corporation as a juridical person.
210
Q

T or F

All ultra vires acts or contracts are illegal.

A

False. Not necessarily all are illegal, such as when the corporation acts as an accommodating party

211
Q

What are the contents of the Articles of Incorporation?

A

(a) The name of corporation;
(b) The specific purpose or purposes for which the corporation is being formed. Where a corporation has more than one stated purpose, the articles of incorporation shall indicate the primary purpose and the secondary purpose or purposes: Provided, That a nonstock corporation may not include a purpose which would change or contradict its nature as such;
(c) The place where the principal office of the corporation is to be located, which must be within the Philippines;
(d) The term for which the corporation is to exist, if the corporation has not elected perpetual existence;
(e) The names, nationalities, and residence addresses of the incorporators;
(f) The number of directors, which shall not be more than fifteen (15) or the number of trustees which may be more than fifteen (15);
(g) The names, nationalities, and residence addresses of persons who shall act as directors or trustees until the first regular directors or trustees are duly elected and qualified in accordance with this Code;
(h) If it be a stock corporation, the amount of its authorized capital stock, number of shares into which it is divided, the par value of each, names, nationalities, and subscribers, amount subscribed and paid by each on the subscription, and a statement that some or all of the shares are without par value, if applicable;
(i) If it be a nonstock corporation, the amount of its capital, the names, nationalities, and residence addresses of the contributors, and amount contributed by each; and
(j) Such other matters consistent with law and which the incorporators may deem necessary and convenient.
(k) Notarial Acknowledgement

212
Q

T or F

Partnerships, associations and corporations can now be incorporators.

A

True, before it was only natural persons.

213
Q

Who are not allowed to organize a corporation?

A
  1. Natural persons who are licensed to practice a profession

2. Partnerships or associations organized to practice a profession

214
Q

T or F

A natural person that incorporates needs to have completed the residency requirement.

A

False, residency requirement has been removed.

215
Q

Explain the minimum subscription and paid-up capital.

A

At least 25% of the authorized capital stock must be subscribed and at least 25% must be paid AND IN NO CASE MAY THE PAID UP CAPITAL BE LESS THAN 5,000(BP 68).

UNDER RA 11232, THERE IS NO IMPLIED MINIMUM SUBSCRIPTION AND MINIMUM AUTHORIZED CAPITAL STOCK.

216
Q

T or F

Stocks another corporation may not be used as payment for the stocks of the issuing corporation.

A

False, under the amendment, stocks of another corporation may be consideration for an issuing corporation’s stock.

217
Q

T or F

Stocks may be issued for a consideration less than its par value or issue price

A

False.

218
Q

T or F
Outstanding capital stock is the total number of shares issued including whose subscribed and not yet fully paid, and including treasury shares

A

False, excluding treasury shares.

219
Q

Explain the No Transfer Clause.

A

No Transfer Clause - in case a corporation is REQUIRED TO MAINTAIN A REQUIRED MINIMUM PH OWNERSHIP, committing that no transfer shall be made which shall reduce the ownership of Filipino citizens to less than the required percentage.

THIS MUST BE INDICATED IN THE ARTICLES OF INCORPORATION

220
Q

Explain the Execution Clause.

A

It contains the names and signature of incorporators.

THIS MUST BE INDICATED IN THE ARTICLES OF INCORPORATION

221
Q

T or F

The name of the Treasurer duly elected must be indicated in the AoI

A

True

222
Q

Explain the Treasurer’s Affidavit

A

It contains the certification of the Treasurer under oath that the required 25% authorized capital stock has been subscribed, 25% of which has been paid and must not less than 5000.

THIS MUST BE INDICATED IN THE ARTICLES OF INCORPORATION

223
Q

What are the grounds for disapproval by the SEC for registration of a corporation?

A

(a) The articles of incorporation or any amendment thereto is not substantially in accordance with the form prescribed herein;
(b) The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to government rules and regulations;
(c) The certification concerning the amount of capital stock subscribed and/or paid is false; and
(d) The required percentage of Filipino ownership of the capital stock under existing laws or the Constitution has not been complied with.

224
Q

T or F
A temporarily disqualified director shall within 30 days from such disqualification, take appropriate action to remedy or correct the disqualification and if he fails to do so for unjustified reasons, the disqualification shall become permanent

A

False, 60 days

225
Q

Explain the Business Judgement Rule or Doctrine of Management Prerogative.

A

It means that the decision of the BoD on matters of management cannot be changed by the court unless such decision is ultra vires or destructive of the interest of minority shareholders.

226
Q

T or F

In non-stock corporations, cumulative voting is generally not allowed unless authorized in its by-laws.

A

True.

227
Q

Explain the Replacement of Hold-over director

A

In the event that a director after expiration of his term is not replaced since there was no election held, such director can continue to function in a HOLD-OVER CAPACITY. However, if he resigns, the stockholders will be the one to replace him even if the remaining directors continue to constitute a quorum.

Note that the power of the Board to fill up the vacancy is only if the director resigns BEFORE the expiration of his term; in this instance the term of the director already expired, he just continued in a hold-over capacity.

228
Q

Explain the Corporate Opportunity Doctrine

A

It states that a director cannot appropriate to himself the opportunity which should belong to the corporation. If he does, he shall be liable to account for the profits except if the acquisition is ratified by the SH representing 2/3 of the OS.

229
Q

E is a director of ABC Corp engaged in real estate. Z wanted to sell his land worth 100M for a discounted price of 80M. IF Z offered it to E first, and took the opportunity, what happens?

A

The opportunity should have belonged to the corporation. A is liable to account for such profits but his acts may be ratified by the 2/3 SH.

230
Q

E is a director of ABC Corp engaged in real estate. Z wanted to sell his land worth 100M for a discounted price of 80M. IF Z offered it to ABC but E went to Z and offered it to buy for 85M to which Z agreed. What happens?

A

E abused the confidence as a director. He shall be liable to the corporation for such profits AND E’s ACTS IS NOT SUBJECT TO RATIFICATION.

231
Q

T or F

Generally, a contract entered into by a self-dealing director is voidable.

A

True. The director might take advantage of his position.

232
Q

Explain the audit committee as per the Revised Code of Corporate Governance

A

The Audit Committee shall consist of at least three (3) directors, who shall preferably have accounting and finance backgrounds, one of whom shall be an independent director and another with audit experience. The chair of the Audit Committee should be an independent director. The committee shall have the following functions:

a) Assist the Board in the performance of its oversight
responsibility for the financial reporting process, system of internal control, audit process, and monitoring of compliance with applicable laws, rules and regulations;

b) Provide oversight over Management’s activities in managing credit, market, liquidity, operational, legal and other risks of the corporation. This function shall include regular receipt from Management of information on risk exposures and risk
management activities;

c) Perform oversight functions over the corporation’s internal and external auditors. It should ensure that the internal and external auditors act independently from each other, and that both auditors are given unrestricted access to all records, properties and personnel to enable them to perform their respective audit functions;

d) Review the annual internal audit plan to ensure its
conformity with the objectives of the corporation. The plan shall include the audit scope, resources and budget necessary to implement it;
e) Prior to the commencement of the audit, discuss with the external auditor the nature, scope and expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts;

f) Organize an internal audit department, and consider the appointment of an independent internal auditor and the terms and conditions of its engagement and removal;
g) Monitor and evaluate the adequacy and effectiveness of the corporation’s internal control system, including financial reporting control and information technology security;
h) Review the reports submitted by the internal and external auditors;

i) Review the quarterly, half-year and annual financial
statements before their submission to the Board, with
particular focus on the following matters:

  • Any change/s in accounting policies and practices
  • Major judgmental areas
  • Significant adjustments resulting from the audit
  • Going concern assumptions
  • Compliance with accounting standards
  • Compliance with tax, legal and regulatory requirements.

j) Coordinate, monitor and facilitate compliance with laws,rules and regulations;
k) Evaluate and determine the non-audit work, if any, of the external auditor, and review periodically the non-audit fees paid to the external auditor in relation to their significance to the total annual income of the external auditor and to the corporation’s overall consultancy expenses. The committee shall disallow any non-audit work that will conflict with his duties as an external auditor or may pose a threat to his independence. The non-audit work, if allowed, should be disclosed in the corporation’s annual report;

l) Establish and identify the reporting line of the Internal
Auditor to enable him to properly fulfill his duties and
responsibilities. He shall functionally report directly to the
Audit Committee.

The Audit Committee shall ensure that, in the performance of the work of the Internal Auditor, he shall be free from interference by outside parties.
For Philippine branches or subsidiaries of foreign
corporations covered by this Code, their Internal Auditor should be independent of the Philippine operations and should report to the regional or corporate headquarters.

233
Q

What is the Nomination Committee? What are its compositions?

A

A Nomination Committee, which may be composed of at least three (3) members and one of whom should be an independent director, to review and evaluate the
qualifications of all persons nominated to the Board and other appointments that require Board approval, and to assess the effectiveness of the Board’s processes and procedures in the election or replacement of directors;

234
Q

What is the Compensation/Remuneration Commitee?

A

A Compensation or Remuneration Committee, which may be composed of at least three (3) members and one of whom should be an independent director, to establish a formal and transparent procedure for developing a policy on remuneration of directors and officers to ensure that their compensation is consistent with the corporation’s culture, strategy and the business environment in which it operates.

235
Q

What is the vote required for the election of corporate officers?

A

It requires the majority of ALL MEMBERS OF THE BOARD. If there are 15 members of the BoD and there are only 9 present, a vote of 8 is needed to vote a corporate officer.

NO PROXY VOTING ALLOWED

236
Q

Under the Revised Code of Corporate Governance, what are the responsibilities of the Corporate Secretary?

A

The Corporate Secretary, who should be a Filipino citizen and a resident of the Philippines, is an officer of the corporation. He should -
(i) Be responsible for the safekeeping and preservation of the integrity of the minutes of the meetings of the Board and its committees, as well as the other official records of the corporation;

(ii) Be loyal to the mission, vision and objectives of the
corporation;

(iii) Work fairly and objectively with the Board, Management and stockholders;
(iv) Have appropriate administrative and interpersonal skills;
(v) If he is not at the same time the corporation’s legal counsel, be aware of the laws, rules and regulations necessary in the performance of his duties and responsibilities;

(vi) Have a working knowledge of the operations of the
corporation;

(vii) Inform the members of the Board, in accordance with the bylaws, of the agenda of their meetings and ensure that the members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval;
(viii) Attend all Board meetings, except when justifiable causes, such as, illness, death in the immediate family and serious accidents, prevent him from doing so;
(ix) Ensure that all Board procedures, rules and regulations are strictly followed by the members; and
(x) If he is also the Compliance Officer, perform all the duties and responsibilities of the said officer as provided for in this Code.

237
Q

Under the Revised Code of Corporate Governance, what are the responsibilities of the Compliance Officer?

A

The Board shall appoint a Compliance Officer who shall report directly to the Chair of the Board. He shall perform the following duties:

(i) Monitor compliance by the corporation with this Code and the rules and regulations of regulatory agencies and, if any violations are found, report the matter to the Board and recommend the imposition of appropriate disciplinary action on the responsible parties and the adoption of measures to prevent
a repetition of the violation;

(ii) Appear before the Commission when summoned in relation to compliance with this Code; and

(iii) Issue a certification every January 30th of the year on the extent of the corporation’s compliance with this Code for the completed year and, if there are any deviations, explain the reason for such
deviation.

238
Q

What are watered stocks?

A

It occurs when stocks are issued at less than its par/issue price.

239
Q

X Co. has 10M authorized capital stock divided into:
1. 5M shares at 1.00
2. 1M no par at 5.00
A acquired 1M of the par value for 0.8 and 100,000 no par at 4.00

How shall liability of directors issuing such shares be accounted for?

A

PAR - directors who consented to the issuance or were passive about it without written assent are SOLIDARILY LIABLE WITH A FOR THE DIFFERENCE OF 0.2

NO PAR - A cannot be held liable because the no par value shares are deemed fully paid and non-assessable. Accordingly only the directors or officers consenting will be liable.

240
Q

X subscribed to 10,000shares for its par value of 1 peso. He paid 9500. Is he entitled to the certificate of stock?

A

No, because the entire contract is indivisible and there can BE NO PARTIAL ISSUANCE OF CERTIFICATES, WHICH SHALL BE ISSUED ONLY UPON FULL PAYMENT OF THE ENTIRE SUBSCRIPTION PRICE.

241
Q

What are the rights of a subscriber to shares of stock?

A

A subscriber, even if not fully paid is entitled to exercise all the rights of a stockholder and the corresponding liability that attach thereunder, EXCEPT:

  1. For the issuance of a certificate of stock
  2. If his shares are declared delinquent
  3. When he exercises the appraisal right
242
Q

What are the rights of a delinquent subscriber?

A

He loses all rights, including the right to vote EXCEPT FOR THE RIGHT TO RECEIVE DIVIDENDS

  1. Cash dividend - first applied to unpaid balance on his subscription plus cost and expenses
  2. Stock dividend - withheld until his subscription is paid in full
243
Q

What are the rights of a shareholder?

A
  1. Participate in the management of the corporate affairs by exercising their right to vote and be voted upon either personally or by proxy
  2. To receive dividends and to compel their declaration
  3. Pre-emptive right
  4. To exercise their appraisal right
  5. To inspect the books of the corporation subject to limitations
  6. To be furnished the most recent FS
  7. To enter into a voting trust agreement
  8. To transfer shares of stock subject to restrictions
  9. To be issued a certificate of stock for fully paid shares
  10. To institute and file derivative suit
  11. To have the corporation dissolved within grounds provided for by law
  12. To participate in the distribution of assets upon dissolution
  13. Right of first refusal - SH who sells his shares must offer it first to the corporation or other SH
244
Q

What are voting trust agreements?

A

It refers to agreements whereby the SH confers upon a trustee the right to vote and other rights pertaining to the shares and it should not be used to circumvent the law against monopolies and illegal combinations in restraint of trade or for fraud

245
Q

What are the contents of the by-laws?

A

(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 and mode of notifying the stockholders or members thereof;
(c) The required quorum in meetings of stockholders or members and the manner of voting therein;
(d) The modes by which a stockholder, member, director or trustees may attend meetings and cast their votes;
(e) The form for proxies of stockholders and members and the manner of voting them;
(f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for setting the compensation of directors or trustees and officers, and the maximum number of other board representations that an independent director or trustee may have which shall, in no case, be more than the number prescribed by the Commission;
(g) The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof;
(h) The manner of election or appointment and the term of officers other than directors or trustees;
(i) The penalties for violation of the bylaws;
(j) In the case of stock corporations, the manner of issuing stock certificates; and
(k) Such other matters as may be necessary for the proper or convenient transaction of its corporate affairs for the promotion of good governance and anti-graft and corruption measures.

246
Q

What is the Stock and Transfer book?

A

It refers to the corporate book which contains the record of all stocks in the names of the SH ALPHABETICALLY ARRANGED; the INSTALLMENT PAID AND UNPAID ON ALL STOCK SUBSCRIPTION; A STATEMENT OF EVERY ALIENATION; SALE OR TRANSFER OF STOCK MADE; AND SUCH OTHER ENTRIES THE BY LAWS MAY PRESCRIBE

IT MUST BE SET UP AND REGISTERED WITH SEC WITHIN 30 DAYS FROM RECEIPT OF ITS CERTIFICATE OF REGISTRATION

ALL ENTRIES MUST BE MADE ONLY BY THE CORPORATE SECRETARY in the absence of the stock and transfer agent employed.

If any entry is made by any officer other than the secretary, such entry shall be null and void.

247
Q

When does the corporate existence of a CORPORATION SOLE commence?

A

From the filing of the verified articles.

248
Q

What is the emergency board in RA 11232?

A

It refers to the board created by the remaining directors who do not constitute a quorum when emergency action is required to prevent grave, substantial and irreparable loss or damage to the corporation.

249
Q

When may a vacancy in the board be filled up by the remaining directors/trustees who do not constitute a quorum to form an emergency board?

A

The remaining directors/trustees must vote unanimously

250
Q

T or F
Corporations vested with public interest are required to submit annual report of compensation of BOD/BOT to stockholders and SEC.

A

True.

251
Q

What are the remedies available to a stockholder in case the corporate officer in custody of corporate books or records refuses without justifiable reason to permit the inspection?

A

a. File a petition for mandamus against the said corporate officer
b. File an action for damages against the said corporate officer
c. File a criminal action for violation of BP 68 against the officer.

252
Q

Upon winding up of the corporate affairs, any asset distributable to any creditor or SH who is unknown and cannot be found shall be escheated and forfeited in favor of the?

A

National Government

253
Q

What is the penalty for criminal violations of the Old Corporation Code BP68?

A

Fine not less than PHP 1000 but not more than PHP 10,000 or by imprisonment for not less than 30 days but not more than 5 years or both

254
Q

What is the effect if there is non-compliance or violation of minimum Filipino ownership in an existing corporation?

A

The noncompliance is a NON-AUTOMATIC GROUND FOR DISSOLUTION MAKING A CORPORATION A DE FACTO CORPORATION, subject to DIRECT ATTACK BY THE STATE THROUGH THE OFFICE OF THE SOLICITOR GENERAL VIA QUO WARRANTO PROCEEDINGS