Corporation Law (Sundiang) Flashcards
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| 15356482156 | Corporation | 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. | 0 | |
| 15356482157 | Attributes of a Corporation | 1. It is an artificial being with separate and distinct personality; 2. It is created by operation of law; 3. It has the right to succession; and 4. It has the powers and attributes conferred by law or incident to its existence. | 1 | |
| 15356482158 | Artificial Personality | A corporation is a legal or juridical person with a personality separate and apart from individual stockholders or members and from any other legal entity into which it may be connected or related. | 2 | |
| 15356482159 | Requirement for the Creation of Corporation | GR: A legislative grant or authority is required for the creation of a corporation, either by a special incorporation law or charter or by means of general corporation law. XPN: For corporations by prescription, such authority is not necessary. | 3 | |
| 15356482160 | Concession Theory | A corporation is conceived as an artificial person owing existence through creation by a foreign power. Further, a corporation has without any existence until it has received the imprimatur of the State acting according to law, through the SEC. (Tayag v. Benguet Consolidated) | 4 | |
| 15356482161 | Is a Local Water District created under PD 198, as amended, a GOCC subject to the audit jurisdiction of COA? | LWDs are GOCCs subject to the audit jurisdiction of COA. The Constitution and existing laws mandate COA to audit all government agencies, including GOCCs with original charters. An LWD is a GOCC with an original charter. LWDs are not private corporations because they are not created under the Corporation Code (Feliciano vs. COA). | 5 | |
| 15356482162 | Is the Philippine National Red Cross a private corporation? | NO. Although the PNRC was created by a special charter, it cannot be considered as a GOCC in absence of the essential elements of ownership and control by the government. It does not have government assets and does not receive any appropriation from the Philippine Congress. PNRC enjoys a special status as an important ally and auxiliary of the government in the humanitarian field in accordance with its commitments under international law (Liban vs. Gordon). | 6 | |
| 15356482163 | May a Corporation Enter into a Partnership? | GR: Corporations have no power to enter into partnership. XPN: The SEC allowed corps. to enter partnerships with other corps. provided: 1. The authority to enter into partnership relation is expressly conferred by the Charter or the AOI and the nature of the business venture to be undertaken by the partnership is in line with the business authorized by the charter or the AOI; 2. The partnership must be a limited partnership and the corporation must be a limited partner; 3. If it is a foreign corporation, it must obtain a license to transact business in the country. | 7 | |
| 15356482164 | May a Corporation Enter into a Joint Venture? | YES. It may enter into a joint venture with another where the nature of that venture is in line with the business authorized by its charter. (Aurbach v. Sanitary Wares Manufacturing Corporation) | 8 | |
| 15356482165 | Classification of Corporations as to Organizers | a) Public corporations - by State to serve public good and welfare and governed by special laws; b) Private corporations - by private persons alone or with the State for some private purpose governed by the law on private corporations. | 9 | |
| 15356482166 | Classification of Corporations as to Existence of Shares of Stock | a) Stock corporation - a corporation whose capital stock is divided into shares and which is authorized to distribute to shareholders dividends or allotments of the surplus profits on the basis of the shares held; b) Non-stock corporation - One which do not issue shares and are created for public good and welfare and where no part of its income is distributable as dividends to its members, trustees, or officers (Sec 87). | 10 | |
| 15356482167 | Classification of Corporations as to Legal Right to Corporate Existence | a) De jure - organized in accordance with the requirements of law; one existing both in fact and in law; b) De facto - organized with a colorable compliance with the requirements of a valid law. Its existence cannot be inquired collaterally. Such inquiry may be made by the Solicitor General in a quo warranto proceeding; one existing in fact but not in law. Note: A de jure corporation can successfully resist a suit by a state brought to challenge its existence; a de facto corporation cannot sustain its right to exist. | 11 | |
| 15356482168 | Classification of Corporations as to Number of Persons Composing Them | a) Corporation aggregate - corporation consisting of more than one member or corporator; the CC requires that these corporations must be formed by not less than 5 person; b) Corporation Sole - religious corporation which consists of one member or corporator only and his successor. | 12 | |
| 15356482169 | Classification of Corporation as to whether they are for Religious Purpose or Not | a) Ecclesiastical corporation - one organized for religious purpose; b) Lay corporation - one organized for a purpose other than for religion. | 13 | |
| 15356482170 | Classification of Corporation as to whether they are for Charitable purpose or not | a) Eleemosynary (charitable) - one established for religious purposes; b) Civil - one established for business or profit. | 14 | |
| 15356482171 | Classification of Corporation as to the Country under or by whose laws they have been Created | a) Domestic ‐ one incorporated under the laws of the Philippines; b) Foreign ‐ one formed, organized, or existing under any laws other than Philippine laws and whose laws allow Filipino citizens and corporations to do business in its own country or state (Sec. 123, CC). | 15 | |
| 15356482172 | Classification of Corporation as to whether they are Open to the Public or not | a) Close - one which is limited to selected persons or members of the family (Sec. 96‐ 105); b) Open - one which is open to any person who may which to become a stockholder or member thereto. | 16 | |
| 15356482173 | Classification of Corporations as to Relationship of Management and Control | a) Holding corporation - one which controls another as a subsidiary by the power to elect management. It is one that holds stocks in other companies for purposes of control rather than for mere investment; b) Subsidiary corporation - one which is so related to another corporation that the majority of its directors can be elected directly or indirectly by such other corporation; c) Affiliate corporation - company which is subject to common control of a mother holding company and operated as part of the system; d) Parent and subsidiary corporation - separate entities with power to contract with each other. | 17 | |
| 15356482174 | Classification of Corporations as to Whether they are Corporations in a True sense or only in a Limited sense | a) True - one which exists by statutory authority; b) Quasi - one which exist without formal legislative grant. | 18 | |
| 15356482175 | Classification of Corporations under Quasi Corporations | a) Corporation by prescription ‐ one which has 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 a corporation; b) Corporation by estoppel ‐ one which in reality is not a corporation because it is so defectively formed, but is deemed a corporation in relation to those who, by reason of theirs acts or admissions, are precluded from asserting that it is not a corporation (Sec. 21, CC). Note: A corporation by estoppel cannot be permitted to deny its existence in an action under said transaction. It is neither de jure nor de facto. | 19 | |
| 15356482176 | Corporation vs. Partnership | 1. As to Manner of Creation - Partnership is created by mere agreement; the existence of the corporation commences only from the issuance of a Certificate of Incorporation by the SEC or in proper cases, passage of a special law; 2. As to Number of Organizers - Even 2 persons may form a partnership; a corporation needs at least 5 incorporators; 3. As to Powers - a corporation is more restricted in its powers because of its limited personality; a partnership is subject only to what may be agreed upon by the partners; 4. Authority of those who Compose - there is mutual agency in partnership and each general partner can represent and bind the partnership; stockholders are not agents of the corporation in the absence of express authority; 5. Transfer of interest - corporate shares are freely transferable without the consent of other stockholders (unless there is a stipulation); interest in the partnership cannot be transferred without the consent of the other partners; 6. Succession - there is no right of succession in partnership as death of a general partner dissolves the partnership; there is right of succession in corporations. | 20 | |
| 15356482177 | De Facto vs. De Jure Corporations | 1. De jure is one created in strict or substantial conformity with the statutory requirements for incorporation; De facto is one which actually exists for all practical purposes as a corporation but which has no legal right to corporate existence as against the State; | 21 | |
| 15356482246 | 2. De jure's right to exist cannot be successfully attacked even in a direct proceeding by the State; De facto's right to exist can be successfully attacked in a direct proceeding by the State (quo warranto). | 22 | ||
| 15356482178 | How are Corporations Created? | 1. General law - private corporations are generally created under the provisions of the Corporation Code. Done by filing the appropriate AOI with the SEC; the life of the corporations starts from the issuance of the Certificate of Incorporation; 2. Special law - public corporations are created thru special laws. GR: Private corporations cannot be created by special laws. XPN: GOCCs which are actually private corporations. | 23 | |
| 15356482179 | Corporation's Right of Succession | It is that capacity to have continuity of existence despite the changes on the persons who compose it. Thus, the personality continues despite the change of stockholders, members, board members or officers. | 24 | |
| 15356482180 | Theory of Special Capacities or the Limited Capacity Doctrine | No corporation shall possess or exercise any corporate powers, except those conferred by law, its Articles of Incorporation, those implied from express powers and those as are necessary or incidental to the exercise of the powers so conferred. If the act of the corporation is not one of those express, implied or incidental powers, the act is ultra vires. | 25 | |
| 15356482181 | Limited Liability Rule | A stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription. While stockholders are generally not liable, the stockholders may be liable if they have not or have not fully paid the subscription price. (Halley vs. Printwell). | 26 | |
| 15356482182 | Incorporation Test | Generally, the corporation is considered a national of the country where it was incorporated. | 27 | |
| 15356482183 | Control Test (War-Time Control Test) | Nationality of corporations are determined by the nationality of the controlling stockholders or members. This test is applied in times of war. | 28 | |
| 15356482184 | Grandfather Rule | It is a method of determining the nationality of a corporation which owns shares in another corporation by breaking down the equity structure of the shareholders of the corporation. | 29 | |
| 15356482247 | Note: It traces the nationality of stockholders of investor corporations so as to ascertain the nationality of the corporation where the investment is made. | 30 | ||
| 15356482185 | When does the Grandfather Rule apply? | 1. If the Filipino equity is less than 60% of the outstanding capital of a corporation that owns shares in a partly nationalized enterprise - at least 60% must be owned by Philippine nationals; or | 31 | |
| 15356482248 | 2. When there is an attempt to circumvent the nationalization requirement or when there is doubt as to the real owners. | 32 | ||
| 15356482186 | Doctrine of Separate Juridical Personality or Corporate Entity | A corporation has a juridical personality separate and distinct from that of its directors, trustees, officers, stockholders or members. | 33 | |
| 15356482187 | Consequences of Separate Personality | 1. Liablity for acts or contracts - obligations incurred by a corporation, acting thru its authorized agents are its sole liabilities; 2. Right to bring actions - may bring civil and criminal actions in its own name in the same manner as natural persons; | 34 | |
| 15356482249 | 3. Right to acquire and possess property - it is entitled to own properties in its own name and its properties are not the properties of the stockholders, directors or officers; hence, properties of its stockholders, directors or officers are not properties of the corporation; | 35 | ||
| 15356482250 | 4. Acquisition of court of jurisdiction - service of summons may be made on the president, general manager, corporate secretary, treasurer or in-house counsel; | 36 | ||
| 15356482251 | 5. Rights of a corporation - rights belonging to the corporation cannot be invoked by stockholders even if the latter owns substantial majority of shares; | 37 | ||
| 15356482252 | 6. Constitutional rights - corporations are entitled to certain constitutional rights. a) Due process; b) Equal protection of the law; c) Right against unreasonable searches and seizures (Stonehill vs. Diokno). | 38 | ||
| 15356482253 | Note: A corporation is not entitled to invoke the right against self-incrimination (Bataan Shipyard vs. PCGG). | 39 | ||
| 15356482254 | 7. Liability for torts - a corporaton may be liable for torts when the act was committed by the officer or agent under express direction or authority from stockholders or members acting as a body or generally from directors as the governing body. | 40 | ||
| 15356482188 | May Corporations be held Criminally Liable? | Corporations cannot be criminally liable because there is no law making them criminally liable. Corporations are incapable of intent, hence, they cannot commit felonies punishable under the RPC. | 41 | |
| 15356482255 | Note: If the crime is committed by a corporation, the directors, officers, employees or other officers responsible for the offense shall be charged and penalized for the crime because of the nature of the crime and its penalty. | 42 | ||
| 15356482256 | Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted, and if found guilty, may be fined. | 43 | ||
| 15356482189 | May Moral Damages be Awarded to Corporations? | It cannot be awarded in favor of corporations because they do not have feelings and mental state. | 44 | |
| 15356482257 | But in one case, the SC recognized that corporations can be entitled to moral damages if their financial reputation had been harmed. The Court held that in all cases of libel, slander or any other form of defamation, corporations can be awarded moral danages. | 45 | ||
| 15356482190 | Doctrine of Piercing the Veil of Corporate Entity | Where the legal fiction of corporate entity is being used as a cloak or cover for fraud or illegality, or to defeat public convenience, justify wrong, protect fraud, or defend crime, the courts will disregard this legal fiction and treat the individuals composing the corporation as identical. | 46 | |
| 15356482191 | What are the Elements for the Doctrine of Piercing the Veil of Corporate Entity? | 1. Complete control over the business; 2. Such control is used to commit fraud or wrong; 3. The said control and breach of duty must be the proximate cause of injury or loss. | 47 | |
| 15356482192 | Effects of Piercing the Corporate Veil | As a result, the individuals composing it will be treated identically. Courts will look at the corporation as an aggregation of persons undertaking the business as a group. | 48 | |
| 15356482258 | 3. The said control and breach of duty must have proximately caused the injury or unjust loss complained of (Concept Builders vs. NLRC) | 49 | ||
| 15356482193 | Grounds for the Application of the Doctrine of Piercing the Corporate Veil | 1. Parent corporation owns all of most of the capital stock of the subsidiary; 2. Parent and subsidiary corporations have common directors or officers; 3. Parent company finances the subsidiary; | 50 | |
| 15356482194 | Liability of Promoter | He is liable to contracts entered by him in behalf of proposed corporation. A promoter is an agent of the incorporators but not of the corporation. | 51 | |
| 15356482259 | 4. Parent company subscribed to all the capital stock of the subsidiary or otherwise causes its incorporation; 5. The subsidiary has grossly inadequate capital; | 52 | ||
| 15356482260 | 6. Subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation; | 53 | ||
| 15356482261 | 7. The papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own; | 54 | ||
| 15356482262 | 8. Parent corporation uses the property of the subsidiary as its own; 9. Directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their orders from the parent corporation; 10. The formal legal requirements of the subsidiary are not observed. | 55 | ||
| 15356482263 | Note: Mere ownership by a single stockholder or by another corporation of all or substantially all of the capital stock of the corporation does not justify the application of the doctrine. There must be other circumstances that must be present. | 56 | ||
| 15356482195 | Order of Distribution of Assets on the Dissolution of Non-Stock Corporation (Sec. 94) | 1. All its creditors shall be paid; 2. Assets held subject to return on dissolution shall be delivered back to their givers; | 57 | |
| 15356482264 | 3. Assets held for charitable, religious purposes, etc, without a condition for their return on dissolution, shall be conveyed to one or more organizations engaged in similar activities as dissolved corporation; and | 58 | ||
| 15356482265 | 4. All other assets shall distributed to members, as provided for in the Articles or by-laws. | 59 | ||
| 15356482196 | Incorporators | Those mentioned in the Articles of Incorporation as originally forming and composing the corporation, having signed the Articles, and acknowledged the same before a notary public. They have no powers beyond those vested in them by the statute. | 60 | |
| 15356482197 | Number and Qualifications of Incorporators | 1. Natural persons; 2. Not less than 5 but not more than 15; 3. Of legal age; 4. Majority must be residents of the Philippines; and 5. Each must own or subscribe to at least one share. | 61 | |
| 15356482198 | Kinds of Religious Corporations | 1. Corporation Sole 2. Religious Societies | 62 | |
| 15356482199 | Distinction Between Non-Stock (NSC) and Stock Corporations (SC) | 1. As to Components - Members; Shareholders; 2. As to Board Members - Trustees; Directors; 3. As to Existence of Shares - There is no capital stock divided into shares; There is a capital stock divided into shares; | 63 | |
| 15356482266 | 4. As to Dividends - No dividends are declared; Dividends are declared; 5. As to Purpose - The primary purpose is non-profit and it is limited to those specified under Sec. 87; The primary purpose is primarily business; | 64 | ||
| 15356482267 | 8. As to Transferability of Interest - Membership is generally non-transferable (Sec. 90); Shares are transferable; 9. As to Termination - Membership can be termimated (Sec. 91); Ownership of shareholder cannot be terminated until the transfer of the shares or liquidation; | 65 | ||
| 15356482268 | 6. As to Performance of Business - It can conduct business but only incidental to the primary purpose; The business purpose is the primary purpose; 7. As to Voting Rights - The voting rights can be modified, limited or broadened; One share - one vote; | 66 | ||
| 15356482269 | 10. Effect of Death - Death of a member termimates the membership and generally, membership is not transferred; Share can be acquired thru succession; 11. As to Dues - Payment of dues can be required; No dues are paid; | 67 | ||
| 15356482270 | 12. As to Board - There can be more than 15 members/trustees; Not more than 15 members/directors; 13. As to Term of Board Members - Staggered term; Term not staggered; | 68 | ||
| 15356482271 | 14. As to Voting - Cumulative voting not allowed unless provided for in the Articles or By-laws and Sec. 24 is limited to stock corporations; Cumulative voting is expressly allowed; | 69 | ||
| 15356482272 | 15. As to Liquidation - Generally, the members will not get a share in the assets unless provided for in the Articles and By-laws (Sec. 94(4)); Shareholders will get their share in the net assets known as liquidating dividends. | 70 | ||
| 15356482200 | Corporation Sole | Special form of corporation, usually associated with the clergy and consists of one person only and his successors, who are incorporated by law to give some legal capacities and advantages. | 71 | |
| 15356482201 | Effect of Separation of Members in a Corporation Sole | Members of the sect who left and who formed a separate religious group are NOT ENTITLED to any right over the properties of their former sect (Canete vs. CA). | 72 | |
| 15356482202 | Minimum Capital Stock and Subscription Requirements | 1. At least 25% of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of incorporation; 2. In no case shall the paid-up capital be less than P5,000.00 pesos. | 73 | |
| 15356482273 | 3. At least 25% of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon call for payment by the board of directors. | 74 | ||
| 15356482203 | Nationality of a Corporation Sole | A corporation sole does not have any nationality but for purposes of applying our nationalization laws, nationality is determined not by the nationality of its head, but by the nationality of the members constituting the sect in the Philippines. | 75 | |
| 15356482274 | Thus, the Roman Catholic Church can acquire land in the Philippines even if it is headed by the Pope (Roman Catholic Apostolic Church vs. Land Registration Commission). | 76 | ||
| 15356482275 | The opinion of the SEC is that for registered corporation sole, it can acquire land if its members constitute at least 60% Filipinos (SEC Opinion, Aug. 8, 1994). | 77 | ||
| 15356482204 | Corporate Term | Corporate term shall not exceed 50 years in any one instance. | 78 | |
| 15356482205 | Corporators | Those who compose a corporation, whether as stockholders or members. | 79 | |
| 15356482276 | CLASSIFICATION OF SHARES | 80 | ||
| 15356482206 | Common shares | The basic class of stock ordinarily and usually issued without extraordinary rights and privileges, and its owners are entitled to a pro rata share in the profits of the corporation and in its assets upon dissolution and also in the management of its affairs without preference or advantage. | 81 | |
| 15356482207 | Preferred Shares | Those issued with par value, and preferences either with respect to: (a) assets after dissolution; (b) distribution of dividends, or both, and other preferences. | 82 | |
| 15356482208 | Redeemable Shares | Permits the issuing corporation to redeem or purchase its own shares. | 83 | |
| 15356482209 | Lien in Termination of Membership | Non-payment of dues may be a ground for termination or suspension of membership. The Articles or the by-Laws of a non-stock corporation may provide that unpaid dues shall constitute a lien on the member's share. | 84 | |
| 15356482277 | However, Sec. 68 does not apply if the membership shares are sold under the provisions that provide for the constitution of lien (Calatagan Golf & Country Club vs. Caram). | 85 | ||
| 15356482210 | Notice in Termination of Membership | For termination of membership to be valid, there should be reasonable notice to the member concerned and he must be given fair opportunity to be heard in his defense. | 86 | |
| 15356482211 | Effect of Death of Member | Membership in and all rights arising from a non-stock corporation are personal and non-transferable, unless the Articles of Incorporation or the by-laws of the corporation provide otherwise. | 87 | |
| 15356482278 | Deceased members who are dropped from the membership roster in the manner and for the cause provided for in the by-laws are not to be counted in determining the requisite vote in corporate matters or the requisite quorum for the annual members' meeting (Tan vs. Sycip). | 88 | ||
| 15356482212 | Treasury Shares | Shares that have been earlier issued as fully paid and have thereafter been acquired by the corporation by purchase, donation, and redemption or through some lawful means. | 89 | |
| 15356482213 | Founders' Shares | Shares issued to organizers and promoters of a corporation in consideration of some supposed right or property. | 90 | |
| 15356482214 | Voting Shares | With a right to vote. | 91 | |
| 15356482215 | Non-voting Shares | Without right to vote. | 92 | |
| 15356482216 | Escrow Stock | Deposited with a third person to be delivered to a stockholder or his assign after complying with certain conditions, usually payment of full subscription price. | 93 | |
| 15356482217 | Over-issued Stock | Stock issued in excess of the authorized capital stock. It is also known as spurious stock. Its issuance is considered null and void | 94 | |
| 15356482218 | Watered Stock | A stock issued not in exchange for its equivalent either in cash, property, share, stock dividends, or services. | 95 | |
| 15356482219 | Par Value Shares | With a value fixed in the certificates of stock and the articles of incorporation. | 96 | |
| 15356482220 | No Par Value Shares | Have no par value but have issued value stated in the certificate or articles of incorporation | 97 | |
| 15356482221 | Street Certificate | A stock certificate endorsed by the registered holder in blank and transferee can command its transfer to his name from the issuing corporation. | 98 | |
| 15356482222 | Convertible Share | Changeable by the stockholder from one class to another at a certain price and within a certain period. | 99 | |
| 15356482223 | Fractional Share | With a value of less than one (1) full share. | 100 | |
| 15356482224 | Promoter | A person who, acting alone or with others, takes initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor. | 101 | |
| 15356482225 | Liability of Corporation for Promoter's Contracts | Contracts by the promoter for and in behalf of a proposed corporation generally bind only him, subject to and to the extent of his representations, and not the corporation, unless and until after these contracts are ratified, expressly or impliedly, by its Board of Directors or Trustees. | 102 | |
| 15356482279 | Without ratification by a corporation after its due incorporation, a contract entered into in behalf of a corporation yet to be organized or still in the process of incorporation is VOID as against the corporation. | 103 | ||
| 15356482226 | Subscription Contract | Any contract for the acquisition of unissued stock in an existing corporation or a corporation still to be formed. The subscribed shares need not be paid in full in order that the subscription may be valid. | 104 | |
| 15356482280 | The subscription contract is a consensual contract that is perfected upon the meeting of the minds of the parties. The name of subscriber is recorded in the stock and transfer book, and from that time, such subscriber becomes a stockholder of record entitled to all the rights of a stockholder. | 105 | ||
| 15356482281 | Until the stocks are fully paid, it continues to be a subsisting liability that is legally enforceable. | 106 | ||
| 15356482227 | Pre-Incorporation Subscription Agreements | Subscription of shares of stock of a corporation still to be formed. Shall be irrevocable for a period of at least 6 months from date of subscription, unless: 1. All of the other subscribers consent to the revocation; | 107 | |
| 15356482282 | 2. The incorporation of said corporation fails to materialize with said period or within a longer period as may be stipulated in the contract of subscription; provided that no pre-incorporation subscription may be revoked after the submission of the Articles of Incorporation to the SEC. | 108 | ||
| 15356482228 | Consideration for Stocks | Stocks shall not be issued for a consideration less than the par or issued price thereof. May be any or a combination of any two (2) or more of the following: 1. Actual cash paid to the incorporation; | 109 | |
| 15356482283 | 2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and lawful purposes at a fair valuation equal to the par or issued value of the stock issued; | 110 | ||
| 15356482284 | 3. Labor performed for or services actually rendered to the corporation; 4. Previously incurred indebtedness of the corporation; | 111 | ||
| 15356482285 | 5. Amounts transferred from unrestricted retained earnings to stated capital; and 6. Outstanding shares exchanged for stocks in the event of reclassification or conversion. | 112 | ||
| 15356482229 | Articles of Incorporation | The document prepared by the persons establishing a corporation and filed with the SEC containing the matters required by the Code. It defines the charter of corporation and the contractual relationship between state and corporation, shareholders and state, corporation and shareholders. | 113 | |
| 15356482230 | Contents of Articles of Incorporation | 1. Name of corporation; 2. Purpose/s, indicating the primary and secondary purposes; 3. Place of principal office; | 114 | |
| 15356482286 | 4. Term of existence; 5. Names, citizenship and residences of incorporators; 6. Number, names, citizenship and residences of directors or trustees; | 115 | ||
| 15356482287 | 7. Names, nationalities, and residences of the persons who shall act as directors or trustees until the first regular ones are elected and qualified; | 116 | ||
| 15356482288 | 8. If a stock corporation, the amount of its authorized capital stock, number of shares and in case the shares are par value shares, the par value of each share; | 117 | ||
| 15356482289 | 9. Names, residences, number of shares, and the amounts subscribed and paid by each of the original subscribers which shall not be less than 25% of authorized capital stock; | 118 | ||
| 15356482290 | 10. If nonstock, the amount of capital, the names, residences, and amount paid by each contributor, which shall not be less than 25% of total subscription; 11. Name of treasurer elected by subscribers; | 119 | ||
| 15356482291 | 12. If the corporation engages in a nationalized industry, a statement that no transfer of stock will be allowed if it will reduce the stock ownership of Filipinos to a percentage below the required legal minimum. | 120 | ||
| 15356482231 | Requirements for Close Corporations | 1. The Articles of Incorporation must state that the number of stockholders shall not exceed 20; 2. The stocks cannot be listed in the stock exchange nor be publicly offered. | 121 | |
| 15356482292 | 2. The Articles of Incorporatio must contain restriction on the transfer of issued stocks (which must appear in the Articles of Incorporation, By-Laws and Certificate of Stock). | 122 | ||
| 15356482232 | Entities that Cannot be a Close Corporation | 1. Mining companies; 2. Oil companies; 3. Stock exchanges; 4. Banks; 5. Insurance companies; 6. Public utility; 7. Educational institution; and 8. Other corporation declared to be vested with public interest. | 123 | |
| 15356482233 | Pre-Emptive Right in Close Corporations | Shall extend to all stocks to be issued, including re-issuance of treasury shares, whether for money or property or personal services, or in payment or corporate debts, unless the articles of incorporation provide otherwise (Sec. 102). | 124 | |
| 15356482293 | Pre-emptive rights covers even those that are excluded in Sec. 39: a) issued in compliance with laws requiring stock offering or minimum stock ownership; b) in exchange of property needed for corporate purposes upon 2/3 vote of outstanding capital. | 125 | ||
| 15356482234 | Deadlocks | In case of irreconcilable disputes among the directors or shareholders, the SEC may be asked to intervene and the SEC issue any of the following orders: 1. Canceling or altering any provision contained in the articles of incorporation, by-laws or any stockholder's agreement; | 126 | |
| 15356482294 | 2. Canceling, altering or enjoining any resolution or act of the corporation or its board of directors, stockholders or officers; 3. Directing or prohibiting any act of the corporation or its board of directors, stockholders, officers, or other persons party to the action; | 127 | ||
| 15356482295 | 4. Requiring the purchase at their fair value of shares of any stockholder, either by the corporation regardless of the availability of unrestricted retained earnings in its books, or by the other stockholders; | 128 | ||
| 15356482296 | 5. Appointing a provisional director; 6. Dissolving the corporation; 7. Granting such other relief as the circumstances may warrant (Sec. 104). | 129 | ||
| 15356482235 | Characteristics of a Close Corporation | 1. The stockholders themselves can directly manage the corporation and perform the functions of directors without the need of election: a) when they manage, stockholders are liable as directors; b) there is no need to call a meeting to elect directors; c) the stockholders are liable for tort. | 130 | |
| 15356482297 | 2. Despite the presence of the requisites, the corporation shall not be deemed a close corporation if at least 2/3 of the voting stocks or voting rights belong to a corporation which is not a close corporation. | 131 | ||
| 15356482236 | Distinctions Between Close Corporation and Ordinary Corporation | 1. There is a limitation on the number of stockholders to a maximum of 20 (Sec. 96); There is no limit as to the number of shareholder; 2. There must be a restriction on the transfer of shares (Sec. 96); A restriction need not be provided for; 3. Specific qualifications to be eli | 132 | |
| 15356482237 | Purpose of Non-Stock Corporations | 1. Charitable; 2. Religious; 3. Educational; 4. Professional; 5. Cultural; 6. Fraternal; 7. Literary; 8. Scientific; 9. Social; 10. Civic service; and 11. Similar purposes, such as chambers or combinations trade, industry or agriculture. | 133 | |
| 15356482238 | Rights of Members in a Non-Stock Corporation | 1. Right to Vote - A member is entitled to 1 vote. However, such right may be broadened, limited or denied in the Articles of Incorporation or By-laws (Sec. 89). Thus, the by-laws of a non-stock corporation may provide for the desired voting rights of members, including the number of votes (SEC Opinion, October 10, 1989); and | 134 | |
| 15356482298 | 2. Right to Transfer Membership - As a general rule, a member cannot transfer his membership in a non-stock corporation. However, by way of exception, the Articles of Incorporation or By-laws may provide for their transferability (Sec. 90). | 135 | ||
| 15356482239 | Termination of Membership | The power to admit members pertain to the Board in the absence of any contrary provision in the Articles and by-laws. Consistently, it is also the Board of Trustees who has the power to terminate membership. | 136 | |
| 15356482240 | Standards in Termination of Membership | A non-stock corporation is authorized to terminate the membership in accordance with the standards fixed in the Articles of Incorporation or the by-laws (Sec. 91). | 137 | |
| 15356482241 | Conversion of Non-Stock and Stock Corporations | A non-stock corporation cannot be converted into a stock corporation thru mere amendment of its Articles of Incorporation. This would violate Section 87 which prohibits distribution of income as dividends to members. Giving the members shares is tantamount to didtribution of its assets or income (SEC Opinion, March 20, 1995). | 138 | |
| 15356482299 | A non-stock corporation can be converted into stock corporation only if the members dissolve it first and then organize a stock corporation. However, there is a resulting new corporation (SEC Opinion, May 13, 1992). | 139 | ||
| 15356482300 | A stock corporation may be converted into a non-stock corporation by mere amendment provided all the requirements are complied with. Its rights and liabilities will remain. | 140 | ||
| 15356482242 | How is Conversion from Corporation Sole to Corporation Aggregate Made? | A corporation sole may be converted to a corporation aggregate (Religious Corporation) thru amendment of its Articles of Incorporation. Concurrence of 2/3 of the members of the corporation sole (and not merely by the head of church or trustee) is necessary for the amendment of the Articles of Incorporation (IEMELIF vs. Bishop Lazaro). | 141 | |
| 15356482243 | Dissolution of Corporation Sole | By filing a VERIFIED declaration of dissolution stating: 1. The name of corporation; 2. Reason for dissolution; | 142 | |
| 15356482301 | 3. Authorization for the dissolution by the particular religious denomination, sect or church; 4. Names and addresses of the persons who will supervise the dissolution and winding up. | 143 | ||
| 15356482244 | Religious Societies | Non-stock corporation formed by a religious society, group, diocese, synod or district of any religious denomination, sect or church after getting the approval of 2/3 of its members (Sec. 116). | 144 |
