Corporation Notes - Business Law PDF

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BSA 1203- BUSINESS LAWSection 1 – “The Corporation Code of the Philippines” Batas Pambansa Blg. 68  May 1, 1980 – effectivity dateSection 2 – “A corporation is an artificial being created by the operation of law, having the right of succession and the powers, attributes and properties expressly au...

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BSA 1203- BUSINESS LAW Section 1 – “The Corporation Code of the Philippines”  Batas Pambansa Blg. 68  May 1, 1980 – effectivity date Section 2 – “A corporation is an artificial being created by the operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.”  A corporation is a legal or juridical person with a personality separate and apart from its stockholders.  Doctrine of corporate entity or Doctrine of corporate fiction  Doctrine of piercing the veil of a corporate entity  Can disregard the corporation’s separate personality if only created to: 1. Protect fraud 2. Justify a wrong 3. Defeat public convenience 4. Defend a crime Section 3 – Classes of Corporations 1. Stock corporation – Ordinary business corporation created and operated for purpose of making a profit and may be distributed on the basis of their invested capital.  2 elements: a. Have capital stock divided into shares; b. Authorized to distribute to the holders of such shares based on the shares held. 2. Non-stock corporation – Does not issue stock and are created not for profit but for the public good and welfare. OTHER CLASSIFICATIONS: 1. 2. 3. 4. 5. 6. 7. 8.

Corporation aggregate – Consists of more than 1 member. Corporation sole – Consists of only one member and his successors. Ecclesiastical corporation – Organized for religious purposes. Lay corporation – Organized for other than religious purposes. Eleemosynary corporation – Established for charitable purposes. Civil corporation – Established for business/profit. Domestic corporation – Incorporated under the laws of the Philippines. Foreign corporation – Formed, organized and exists under any laws other than those of the Philippines. 9. De jure corporation – Corporation existing in fact and in law. 10.De facto corporation – Corporation existing in fact but not in law. 11. Close corporation – One which is limited to selected persons. 12.Open corporation – One which is open to any person.

13.Parent or holding corporation – One which is so related to another corporation that it has the power to elect the majority of directors of other corporation. 14.Subsidiary corporation – One which is so related to another corporation that the majority of its directors can be elected by other corporation. 15.True corporation – Exists by statutory authority. 16.Quasi-corporation – One which exists without formal legislative grant. a. Corporation by prescription – One which have never exercised corporate powers for an indefinite period without interference on the part of the sovereign power and which, by fiction of law, is given the status of corporation. b. Corporation by estoppel – One which in reality is not a corporation but is considered one for only those who are precluded from asserting that it is not a corporation. 17. Public corporation – Formed or organized for the government of a portion of the state. 18. Private corporation – Formed for some private purpose, benefit or end. a. Government-owned / controlled corporations – Directly created by special law or organized under the general corporation law. b. Quasi-public corporations – Accepted from state the grant of a franchise or contract involving rendition/performance of public duty/service but which are organized for profits. Section 4 – Special Laws or Charters  The enactment of a special act creating a private corporation is subject to the constitutional limitation that such corporation shall be owned/controlled by the government and must be supplemented by the provisions of this Code. Section 5 – Corporators/ Incorporators/ Stockholders and Members 1. Corporators – Those who compose the corporation whether stockholder or members. 2. Incorporators – Corporators mentioned in the Articles of Incorporation. They incorporate the corporation to become a body politic and corporate under the law. QUALIFICATIONS OF INCORPORATORS:     

Natural person; Capacity to enter to a contract; Stockholder; Not less than 5, no more than 15 in numbers; Majority are residents in the Philippines.

3. Stockholders – Owners of shares of stocks in a corporation. 4. Members – Corporators which has no capital stock. 5. Promoters – Persons who bring together the incorporators/persons interested in the enterprise. 6. Subscribers – Persons who have agreed to take and pay for original, unissued shares of a corporation. 7. Underwriter – A person, usually an investment banker.

Section 6 – Classifications of Shares 1. Par value shares – One with a specific money value fixed in the Articles of Incorporation and appearing in the Certificate of Stock for each share of stock of the same issue. 2. No par value share – One without any stated par value appearing on the face of the Certificate of Stock. 3. Voting share – A share with a right to vote. 4. Non-voting share – A share without a right to vote. 5. Watered stock – Issued without consideration/inadequate consideration. 6. Common share of stock – Stock which entitles the holder thereof a pro rata division of profits. 7. Preferred share of stock – Stock which entitles the holder thereof to certain preferences over the holders of common stock. 8. Promotion share – Share issued to promoters those in some way interested in the company. 9. Share in escrow – Share subject to an agreement by virtue. 10. Convertible stock – Convertible/changeable by the stockholder from one class to another class. 11. Founder’s share – Shares issued to the organizers and promoters of a corporation in consideration of some supposed right or property. 12. Redeemable share – aka “Callable share”, usually preferred, which by its terms is redeemable at a fixed date at a certain redemption price. 13. Treasury shares – Share which has been lawfully issued by the corporation and fully paid for and later re-acquired by either purchase, etc. Section 11 – Corporate Term  A corporation shall exist for a period not exceeding 50 years.  The birthday of the corporation is the moment SEC issues the Certificate of Incorporation.  If desired to be extended, an amendment of the Articles f Incorporation shall be provided with no extension can be made 5 years prior to the expiry date. Section 12 – Minimum Capital Stock Required for Stock Corporations  Shall not be required to have any minimum Authorized Capital Stock except as otherwise provided by special law.  Stock ownership has a limitation in the Constitution – At least 60% of stocks shall be owned by Filipinos. Section 13 – Amount of Capital Stock to be Subscribed and Paid for Purposes of Corporation  At least 25% of Authorized Capital Stock must be subscribed and at least 25% of the total subscription must be paid upon subscription.  No case shall the paid-up capital be less than 5,000 pesos.  ACS – Authorized Capital Stock  Sold to the public.

 OCS – Outstanding Capital Stockholder  Enjoys all privileges but not the Certificate of Stock (Given only if fully paid on subscription) Section 14 – Contents of the Articles of Incorporation 1. 2. 3. 4. 5. 6. 7. 8. 9.

Name of the corporation Specific purpose/s Place where the principal office is located Term Names/nationalities/residencies of Incorporators Number of directors/trustees Names/nationalities/residencies of the directors/trustees If stock corporation, the amount of its ACS and par value per share If non-stock corporation, the amount of its capital and names/nationalities/residencies of its contributors and the amount contributed by each. 10. Such other matters. Section 16 – Amendment of articles of Incorporation 1. Majority of votes of the Board of Directors; 2. At least 2/3 votes of the OCS. Section 17 – Grounds where the Articles of Incorporation or Amendment may be Rejected 1. 2. 3. 4.

Articles of Incorporation is not in the prescribed form; Purpose/s of the corporation is illegal; Treasure’s affidavit is false; The percentage of ownership to be owned by Filipinos has not been complied with.

Section 18 – Corporate Name LIMITATIONS: 1. 2. 3. 4.

Must not be identical; Must not be confusingly similar; Must not be deceptive; Must not be contrary to law.

Section 22 - Effects of Non-use of Corporate Charter and Continuous Inoperation of Corporation  Continuous non-operation for 2 years – Dissolved/revocation of Certificate of Incorporation  Continuous non-operation for 5 years – Ground for revocation of Certificate of Incorporation

Section 23 – Board of Directors/Trustees/Officers  Governing body of corporation.  Corporate officers: a. President b. Treasurer c. Secretary d. Vice-president (if provided by by-laws)  Qualifications for a director is the same for qualifications of an incorporator. Section 24 – Election of Directors/Trustees  Only natural persons can be incorporators.  A corporation cannot be incorporators of another entity.  Existing corporation can be a stockholder of other corporations provided by power to invest in shares of another corporation.  Board of Directors holds the power.  Board resolution and secretary certificate must be provided if corporation has a representative.  Who elects the Directors? = OCS  Who elects the Corporate Officers? = Board of Directors Treasurer’s Affidavit – “Salaysay ng ingat yaman” 1. Elected treasurer; 2. That the corporation complied the at least 25% subscription requirement and at least 25% paid-up capital. FILIPINO PERCENTAGE OWNERSHIP a. Business controlled/under Flag law = 75% b. Pawnshop business = 70% c. Retail business = 100%  General rule: The rest are 60%. Section 25 – Corporate Officers; Quorum QUALIFICATIONS OF A: a. President – Must be a director.  Shall preside at all meetings. b. Treasurer – May or may not be a director. c. Secretary – Must be a resident and a citizen of the Philippines.  Treasurer and Secretary could hood more than 1 position, except for the President.

Quorum – Number of membership in a collective body as is competent to transact/do another corporate act. QUORUM FOR: a. Amendment of Articles of Incorporation = Majority of BOD, 2/3 OCS b. Amendment of By-laws = Majority of BOD and OCS c. Election of Corporate officers = All of the BOD  Can the OCS delegate to BOD the amendment of By-laws? = Yes (2/3 OCS and Majority of BOD)  Can the OCS delegate to BOD the amendment of Articles of Incorporation? = No INSTANCES THE SEC APPROVED THE ARTICLES OF INCORPORATION 1. SEC issued the Certificate of Incorporation; 2. Enaction of SEC within 6 months. (Still approved if exceeded) Section 26 – Report of Election of Directors/Trustees/Officers  The secretary or any corporate officer must report to SEC the results of election within 30 days after election. Section 27 – Disqualification of Directors  A person cannot be held as a director if he/she has been sentenced for more than 6 years (Perpetual disqualification)  A person cannot run as a director if he/she violated the laws/rules of the Corporation Code for 5 years. (Temporary disqualification) Section 28 – Removal of Directors  2/3 votes of OCS  Quorum: Majority of OCS - If majority votes, he/she will be removed regardless of reason. - If minority only, he/she cannot be removed without just cause/reason. Section 29 – Vacancies INSTANCES THAT THERE IS A VACANCY (OCS will fill up if one of these is present) 1. 2. 3. 4.

Removal of 2/3 votes of OCS; Expiration of a term; The board no longer constitutes a quorum; New seats exist because of the amendment of Articles of Incorporation, increasing the number of directors.

Section 30 – Compensation  Directors don’t receive compensation; they only receive per diems (allowance).  They can be given compensation, provided that majority of OCS votes win.  Compensations for directors shall not exceed within 10% of net income before taxation. Section 32 – Dealings of Directors  Influenced director looks for corporate product, he/she can sell it.  Transaction entered by directors is VOIDABLE; It needs 2/3 votes of OCS to be ratified. VALID ONLY IF SATISFIED 4 REQUIREMENTS 1. 2. 3. 4.

His presence is not necessary to constitute a quorum. His vote is not necessary for the approval of the project; It is fair and reasonable; If it is from a corporate officer, it must have been approved by the board.

Interlocking directors – Majority director of another, interlocking exists. -

2 corporations could do a transaction as long as: a. There is no fraud; b. It is fair and reasonable. c. Stock ownership exceeding 20% (they are also the stock owners of the exceeded 20% stock)

Sine die – Indefinite  Foreign corporations could be sued in the Philippines but they cannot sue here in the Philippines if not registered at SEC. Section 35 – Executive Committee  Aka “The Little Board” QUALIFICATIONS/CHARACTERISTICS: 1. Created by By-laws; 2. All members are directors; 3. Not less than 3 in numbers. 5 THINGS THE BOD CANNOT PASS TO THE LITTLE BOARD 1. 2. 3. 4. 5.

Filling up of vacancy; Adapt/amend/repeal By-laws; Amend/repeal resolution of the board; Those instances that needs the votes of OCS; Granting of cash dividends.

Section 36 – Corporate Powers 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Power to sue and to be sued; Power to succession; Power to adopt and use corporate seal; Power to adopt By-laws; Power to amend Articles of Incorporation; Power to enter into merger or consolidation; Power to invest its shares to another corporation; Power to own and dispose properties of all kinds; Power to make donations except partisan political parties; Power to make annuities, gratuities, give requests to employees.

Section 76 – Merger and Consolidation Merger – 2 or more corporation unite, 1 corporation which remains in being, absorbing or merging in itself the other which disappears as a separate corporation. Consolidation – 2 or more corporations unite, giving rise to a new corporate body and dissolving constituent corporations as separate corporations. Call and Delinquent Stockholder  Kahit may unpaid subscription, hindi ka pa din matatawag na “Delinquent stockholder”  Corporation follows the procedure, maniningil lang sila kapag gusto nila, and they will call for a board meeting that needs majority of votes to result for resoloution na magdemand na maningil ng unpaid subscription sa isang stockholder.  Has 30 days period to pay. If exceeded, a meeting again will be held and if it has majority of votes, he/she will be called a “Delinquent stockholder” Delinquent stockholder – All rights are revoked except the right to receive dividends.  If cash dividend is granted, it will not be fully given to a delinquent stockholder, there will be an offsetting, he/she will become an OCS again.  Stock dividends or Certificate of Stock won’t be given unless he/she pays the unpaid subscription.  Cash dividends are declared by the Board of Directors.  Stock dividends are declared by the majority of the BOD and 2/3 of OCS. Street Certificate – Proof that you are an owner of stock -

Kept by the corporate secretary at the principal place of office A certificate that is not in the possession of the corporate secretary

Consideration of Shares of Stocks  Valid payment for stock purchases: 1. Cash; 2. Property;

3. 4. 5. 6.

Labor performed/service rendered; Previously incurred indebtedness; Amounts transferred from unrestricted retained earnings to stated capital; Outstanding shares exchanged for stocks in the event reclassification or conversion.

Subscription contract – Agreement that you are purchasing a stock  Corporation exists. Pre-subscription contract – Wala pang existing corporation, may signature na.  Is irrevocable, only allows 2 instances to be revoked: 1. If all other subscribers consented thereto; 2. Failure to incorporate within 6 months. (cannot be used as reason para marevoke if the Articles are already filed sa SEC) Meetings     

   

OCS Regular meeting (annually) (April) (2 weeks prior notice) Special meeting (if necessary) (1-week prior notice) WHERE: Principal place of office if practicable; if not, within the vicinity of principal office. 2 REQUISITES THAT ALLOWS TO MEET IN OTHER PLACES: 1. If all OCS are present or represented; 2. Agenda is within the corporate powers. BOD Regular meeting (monthly) (1-day prior notice) Special meeting (if necessary) (1-day prior notice) WHERE: could be inside/outside of PH

Ultra-Vires Acts  Mga pumayag na hindi sang ayon sa purpose ng corporation is solidarily liable. Proxy  Written proxy, may hahalili.’  OCS could be represented, except for BOD....