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Term of Existence
Limitations:
a. The term shall not exceed 50 years in any one instance.
Doctrine of Equality of Shares b. The amendment is effected before the expiration of
Where the articles of incorporation do not provide for corporate term, for after dissolution by expiration of the
any distinction of the shares of stock, all shares issued corporate term there is no more corporate life to extend.
by the corporation are presumed to be equal and enjoy c. The extension cannot be made earlier than 5 years prior to
the same rights and privileges and are also subject to the expiration date unless there are justifiable reasons as
the same liabilities. determined by the SEC.
Executive Committee
A body created by the by-laws and composed of some Special/Specific Powers
members of the board which, subject to the statutory 1. Power to extend or shorten corporate term;
limitations, has all the authority of the board to the 2. Increase or decrease corporate stock;
extent provided in the board resolution or by-laws. 3. Incur, create, or increase bonded indebtedness;
4. Sell, dispose, lease, encumber all or substantially all of
corporate assets;
5. Purchase or acquire own shares provided: Majority vote
a. there is an unrestricted retained earnings, and Number of Votes of Corporators:
b. it is for a legitimate purpose. 2/3 of OCS/ members
6. Invest corporate funds in another corporation or business
for other purpose other than primary purpose; 4. Sell, dispose, lease, encumber all or substantially all of
Power to declare dividends out of unrestricted retained corporate assets;
7.
earnings; No ratificatory vote needed:
Enter into management contract with another a. If it is necessary in the usual and regular course of business
8. corporation (not with an individual or a partnership- b. if the proceeds of the sale or other disposition of such
within general powers) whereby one corporation property and assets be appropriated for the conduct of the
undertakes to manage all or substantially all of the remaining business
business of the other corporation for a period not longer
than 5 years for any one term.
Salient Points:
Majority can vote
Corporate Acts Non-voting shares can vote
Appraisal right is available
1. Power to extend or shorten corporate term Notice is required
May be used as means to voluntarily dissolve a If sale is abandoned, directors action is sufficient, no
corporation need for ratification by stockholders
2. Power to increase or decrease capital stock Number of Votes for BOD:
Majority vote
Number of Votes of Corporators:
Ways of Increasing/Decreasing the Capital Stock (1998, 2001 2/3 of OCS/ members
Bar Exams)
a. By increasing/decreasing the number of shares and
retaining the par value;
b. By increasing/decreasing the par value of existing shares 5. Power to acquire own shares
without increasing/decreasing the number of shares; Instances:
c. By increasing/decreasing the number of shares and a. To eliminate fractional shares out of stock dividends
increasing/decreasing the par value. b. To collect or compromise an indebtedness to the
Number of Votes for BOD: corporation, arising out of unpaid subscription, in a
Majority vote delinquency sale and to purchase delinquent shares sold
Number of Votes of Corporators: during said sale
2/3 of OCS/ members c. To pay dissenting stockholders
d. To acquire treasury shares
e. Redeemable shares regardless of existence of retained
earnings
Tools Available to the Stockholder to Replenish Capital f. To effect a decrease of capital stock
(1999 Bar Exam) g. In close corporations, when there is a deadlock in the
a. Additional subscription to shares of stock of the management of the business
corporation by stockholders or by investors; Note: In letters a-c, there must be unrestricted retained
b. Advances by the stockholders to the corporation; earnings.
c. Payment of unpaid subscription by the stockholders; and
d. Loans from third persons.
2. Religious Corporation
A corporation composed entirely of spiritual persons and
which is organized for the furtherance of a religion or for
perpetuating the rights of the church or for the
Liquidation (1997, 2000, 2001 Bar Exams)
administration of church or religious work or property. It
The process by which all the assets of the corporation are
is different from an ordinary non-stock corporation
converted into liquid assets (cash) in order to facilitate the
organized for religious purposes.
payment of obligations to creditors, and the remaining
Kinds:
balance, if any, is to be distributed to the stockholders or
a) CORPORATION SOLE
members.
- A special form of corporation, usually associated
Methods:
with the clergy, consisting of one person only and his
1. By the corporation itself through its board of The definition espouses the incorporation test and the
directors/trustees; reciprocity rule and is significant for licensing purposes.
2. By a trustee to whom the corporate assets have been It is not permitted to transact or do business in the
conveyed; and Philippines until it has secured a license for that
3. By a management committee or rehabilitation receiver purpose from the SEC and a certificate of authority from
appointed by the SEC. the appropriate government agency.
Note: The 3-year period of liquidation does not apply to
Methods 2 and 3 as long as the trustee or the receiver is
appointed within the said period. Resident Agent
The termination of the life of a juridical entity does not An individual, who must be of good moral character and of
by itself cause the extinction or diminution of the rights sound financial standing, residing in the Philippines, or a
and liabilities of such entity nor those of its owners and domestic corporation lawfully transacting business in the
creditors alike (see Sec. 145). Philippines, designated in a written power of attorney by a
The word trustee as sued in the corporation statute foreign corporation authorized to do business in the
must be understood in its general concept which could Philippines, on whom any summons and other legal processes
include the counsel to whom was entrusted the may be served in all actions or other legal proceedings
prosecution of the suit filed by the corporation. (Spouses against the foreign corporation.
Gelano vs. CA 103 SCRA 90)
BAR Q: XYZ Corp. shortened its corporate life by Test of Doing or Transacting Business in the Philippines
amending its articles of incorporation. It has no (1998, 2002 Bar Exams)
debts but owns several real estate properties in The Corporation Code does not define the phrase doing or
Metro Manila. How would said property be transacting business.
liquidated among the 5 stockholders of said A. Jurisprudential Tests
corporation. Discuss the two methods of 1. Twin characterization test
liquidation. a) Whether the foreign corporation is maintaining or
SA: The real estate properties of XYZ Corp. can be continuing in the Philippines the body or substance of
liquidated among the five stockholders after the the business for which it was organized or whether it has
property has been conveyed by the corporation to substantially retired from it and turned it over another
the 5 stockholders, by dividing or partitioning it (Substance Test); and
among themselves in any of the following ways: (1) b) Whether there is continuity of commercial dealings
physical division or partition based on the and arrangements, contemplating to some extent the
proportion of the value of their stockholdings; or performance of acts or works or the exercise of some
(2) selling the property to a 3rd person and dividing functions normally incident to and in progressive
the proceeds among the 5 stockholder in proportion prosecution of, the purpose and object of its
to their stockholdings; or (3) after determination organization (Continuity Test).
of the value of the property, by assigning or 2. Contract Test
transferring the property to one stockholder with Whether the contracts entered into by the foreign
the obligation on the part of the said stockholder corporation, or by an agent acting under the control and
to pay the other four stockholders the amount in direction of the foreign corporation, are consummated in
proportion to the value of the stockholdings of the Philippines.
each. B. Statutory Tests
1. Foreign Investment Act of 1991 (R.A. No. 7042)
Acts constituting doing business:
a) Soliciting orders, service contracts, opening offices,
whether called liaison offices or branches;
FOREIGN CORPORATION b) Appointing representatives or distributors domiciled
(1995, 2002 Bar Exams) in the Philippines or who in any calendar year stay
in the country for a period or periods totaling 180
days or more;
Definition: A corporation formed, organized or existing under
any law other than those of the Philippines, and whose laws
allow Filipino citizens and corporations to do business in its
own country or state. (Sec. 123)
c) Participating in the management, supervision or b) However, it may sue and be sued for isolated
control of any domestic business, firm or entity or transactions, as well as for those which are casual or
corporation in the Philippines; and incidental thereto.
d) Any other act or acts that imply a continuity of B. On contracts
commercial dealings or arrangements, and The contracts contemplated are those that satisfy the
contemplate to that extent the performance of acts contract test or those that make a foreign corporation as
or works, or the exercise of some of the functions one doing business in the Philippines.
normally incident to, and in progressive prosecution General Rule: The contracts are unenforceable. They are
of, commercial gain or of the purpose of the enforceable only upon securing a license.
business organization. Exception: However, the contracts are null and void if they
2. Implementing Rules of R.A. No. 7042 are contrary to law, morals, good customs, public order and
Acts not constituting doing business: public policy.
a) Mere investment as a shareholder in a domestic
corporation and/or the exercise of rights as such
investor; Instances when a Foreign Corp may sue in the Philippines
b) Appointing a representative or distributor domiciled whether or not Licensed to do Business thereat
in the Philippines which transacts business in its 1. To seek redress for an isolated business transaction;
own name and for its own account; 2. To protect its corporate reputation, name, and goodwill;
c) Publication of a general advertisement through any 3. To enforce a right not arising out of a business transaction,
print or broadcast media; e.g. tort that occurred in the Philippines;
d) Maintaining a stock of goods in the Philippines solely 4. When the parties have contractually stipulated that
for the purpose of having the same processed by Philippines is the venue of actions; and
another entity in the Philippines; 5. When the party sued is barred by the principle of estoppel
e) Consignment by the foreign corporation of and/or principle of unjust enrichment from questioning the
equipment with a local company to be used in the capacity of the foreign corporation.
processing of products for export;
f) Collecting information in the Philippines; and
g) Performing services auxiliary to an existing isolated
contract of sale which are not on a continuing basis.
C. Jurisprudential Rules SEC REORGANIZATION DECREE
1. Doctrine of Isolated Transactions
Foreign corporations, even unlicensed ones, can sue or be
sued on a transaction or series of transactions set apart from Original and Exclusive Jurisdiction of the RTC (Sec. 5 in
their common business in the sense that there is no intention relation to Sec. 5.2 OF RA 8799):
to engage in a progressive pursuit of the purpose and object 1. Fraudulent devices and schemes employed by directors
of business transaction. (Eriks Pte.Ltd vs. CA, 267 SCRA 567) detrimental to the public interest and to other firms;
2. Intra-corporate disputes;
3. Disputes with the state in relation to their franchise and
right to exist as such;
4. Controversies in election, appointment of directors or
trustees;
2. In Pari Delicto Rule
5. Petition to be declared in a state of suspension of
the case of Top-Weld Manufacturing vs. ECED, S.A., the
payments;
Court denied the relief prayed for by petitioner when it ruled
6. Petition for rehabilitation; and
that the very purpose of the law was circumvented and
7. Appointment of rehabilitation receiver or management
evaded when the petitioner entered into the said agreements
committee (provisional remedies).
despite the prohibition contained in the questioned law. The
parties were considered as being in pari delicto because they
equally violated R.A. 5455
3. Estoppel Rule Note: A corporate officers dismissal is always a corporate
A party is estopped from questioning the capacity of a act and/or an intra-corporate controversy. However, the
foreign corporation to institute an action in our courts corporate officers contemplated are those whose offices are
where it had obtained benefits from its dealings with created by the Corporation Code or the by-laws.
such foreign corporations and thereafter committed a
breach or sought to renege on its obligations.
Intra-Corporate Dispute (1996, 1997, 2006 Bar Exams)
Elements:
1. Status or relationship of the parties controversy must
Effects of Lack of License be between and among corporators, between
A. On suits corporators and the corporation
1. Foreign corporation doing business in the Philippines: 2. Nature of the question intrinsic connection with the
a) may not sue or intervene in any action in any court or regulation or the internal affairs of the corporation
administrative agency of the Philippines; but Examples:
b) may be sued on any valid cause of action recognized 1. Action by a corporate officer to recover compensation
in the Philippines (under the doctrine of quasi- from the corporation
estoppel by acceptance of benefits). (Sec. 133) 2. Action by a stockholder to compel issuance of certificate
2. Foreign corporation not doing business in the of stocks
Philippines: 3. Action for recovery of corporate funds
a) Generally, it may not sue and be sued in any court or Note: Allegations in the complaint determines jurisdiction.
administrative agency of the Philippines;
Grounds for Suspension or Cancellation of Certificate of 7. Submission of final rehabilitation plan to the RTC for
Registration (SEC. 6[L]) approval;
1. fraud in procuring registration; 8. The petition shall be dismissed (which results into the
2. serious misrepresentation as to objectives of automatic lifting of the stay order unless RTC ordered
corporation; otherwise) if no rehabilitation plan is approved after 180 days
3. refusal to comply with lawful order of SEC; from initial hearing;
4. continuous inoperation for at least 5 years; 9. Approval or disapproval of the rehabilitation plan by RTC.
5. failure to file by-laws within required period;
6. failure to file reports; and
7. Others similar grounds. Rehabilitation Receiver
A person appointed by the RTC, in behalf of all the
parties for the purpose of preserving and conserving the
Interim Rules of Procedute on Corporate Rehabilitation property and preventing its possible destruction or
(effective December 15, 2000) dissipation, if it were left in the possession of any of the
parties.
He acts in a fiduciary capacity and with impartiality
Corporate Rehabilitation towards all interested.
A process to try to conserve and administer the corporations He does not take over the management and control of
assets in the hope that it may eventually be able to return the debtor, but shall closely oversee and monitor the
from financial stress to solvency. operations of the debtor during the pendency of the
Nature: in rem, summary, and non-adversarial proceedings.
Applicability:These Rules apply to petitions for
rehabilitation filed by corporations, partnerships and
associations pursuant to P.D. 902-A
Steps: Powers and Functions of Management Committee and
1. Filing verified petition with the appropriate RTC by: Rehabilitation Receiver (Sec. 6[d], P.D. 902-A)
a. corporate debtor who foresees the impossibility of 1. To take custody of, and control over, all the existing
meeting its debts when they respectively fall due; or assets and property of such entities under management;
b. creditors holding at least 25% of the debtors total 2. To evaluate the existing assets and liabilities, earnings
liabilities; and operations of such corporations, partnerships or
2. The following shall be annexed to the petition: other associations;
a. audited financial statements at end of its last fiscal 3. To determine the best way to salvage and protect the
year; interest of the investors and creditors;
b. interim financial statement; 4. To study, review and evaluate the feasibility of
c. schedule of debts and liabilities; continuing operations and structure and rehabilitate
d. inventory of assets; such entities if determined to be feasible by the RTC;
e. rehabilitation plan; 5. To report and be responsible to the RTC until dissolved;
f. schedule of payments and disposition of assets and
effected within 3 months preceding the filing of the 6. May overrule or revoke the actions of the previous
petition; management and board of directors of the entity under
g. schedule of cash flow for the last 3 months management, notwithstanding any provision of law,
h. statement of possible claims; articles of incorporation or by-laws to the contrary.
i. affidavit of general financial condition;
j. at least 3 nominations for rehabilitation receiver;
k. certificate under oath that directors and stockholders
have irrevocably approved/ consented to all Mere disagreement among stockholders as to the affairs
actions/matters necessary under the rehabilitation of the corporation would not in itself suffice as a ground
plan. for the appointment of a management committee. At
3. The court shall issue the stay order not later than 5 days least where there is no imminent danger of loss of
from the filing of the petition, which among others, shall: corporate property or of any other injury to
a. appoint a rehabilitation receiver; stockholders, management of corporate business should
b. stay all actions for claims against the debtor, which not be wrested away from duly elected officers, who are
shall cover both secured and unsecured creditors; prima facie entitled to administer the affairs of the
c. set an initial hearing for the petition (not earlier corporation, and placed in the hands of the management
than 45 days but not later than 60 days from filing of committee. However, where the dissension among
the petition); and stockholders is such that the corporation cannot
d. direct the creditors to file their verified comment or successfully carry on its corporate functions the
opposition not later than 10 days before the initial appointment of a management committee becomes
hearing; their failure to do so would bar them from imperative. (Jacinto and Colayco vs. First Womens
any participating in the proceedings. Credit Corporation, G.R. No. 154049, August 28, 2003)
4. Publication of the stay order in a newspaper of general RA 8799 effectively amended Sec. 5 of PD 902-A,
circulation once a week for 2 consecutive weeks; jurisdiction over intra-corporate disputes is now vested
in the RTCs. However, while Sec. 5 was amended, there
5. Referral of rehabilitation plan to rehabilitation receiver;
6. Meetings between corporate debtor with creditors. is no repeal of Sec. 6 thereof declaring that the
Discussions on the rehabilitation plan; fraudulent acts or schemes, which the SEC shall
exclusively investigate and prosecute, are those in
violation of any law or rules and regulations
administered and enforced by the SEC alone. The filing
of civil/intra-corporate case before SEC does not
preclude the simultaneous and concomitant filing of a 7. Prepare, approve, amend or repeal rules and regulation
criminal action before the regular courts; such that a and orders, and issue opinions and provide guidance on
fraudulent act may give rise to liability for violation of and supervise compliance therewith;
the rules and regulations of the SEC cognizable by the 8. Enlist aid and support of and/or deputize any and all
SEC itself, as well as criminal liability for violation of the enforcement agencies of Government, as well as any
Revised Penal Code cognizable by the regular courts, private institution, corporation, firm, association or
both charges to be filed and proceeded independently, person in the implementation of its powers and
and may be simultaneously with the other. (Fabia vs. CA, functions;
G.R.No. 132684. September 11, 2002.) Issue cease and desist orders to prevent fraud or injury
9. to investing public;
Punish for both direct and indirect contempt;
Automatic Stay 10. Compel corporate officers to call meetings of
Effect of appointment of a management committee or 11. stockholders or members thereof under its supervision;
rehabilitation receiver Issue subpoena duces tecum and summon witnesses, and
All actions for claims against the corporation shall be 12. order the examination, search and seizure of all
suspended accordingly. documents, papers, file and records, tax returns, and
Purpose/justification: To enable the management books of accounts of any entity or person under
committee or the rehabilitation receiver to effectively investigation;
exercise its powers free from any judicial or Suspend, or revoke, after proper notice and hearing,
extrajudicial interference that might unduly hinder or franchise or certificate of registration of corporations,
prevent the rescue of the debtor company. (Rubberworld 13. partnerships or associations; and
v. NLRC) Exercise such other powers as may be provided by law,
No definite duration; deemed to apply during the entire implied from, or which are necessary or incidental to the
period that the corporate debtor is under management 14. carrying out of express powers.
committee or the rehabilitation receiver. (BF Homes v.
CA)
Securities
Shares, participation or interest in a corporation or in a
commercial enterprise or profit-making venture and
evidenced by a certificate, contract, instrument, whether
written or electronic in character. (Sec. 3)
Kinds:
SECURITIES REGULATION CODE a. Debt Instruments: bonds, debentures, notes, and other
(R.A. 8799) evidences of indebtedness, asset-backed securities;
b. Equity Instruments: shares of stock, certificate of
Securities Regulation (1995, 1996, 2001, 2004 Bar Exams) deposit for a future subscription, proprietary or
The Code is also known as the Blue Sky Law, because nonpropriety membership certificates in corporations;
it was enacted to protect the public from unscrupulous c. InvestmentInstruments:investmentcontracts,
promoters who stake business or venture claims which fractional undivided interests in oil, gas or other mineral
have really no basis and sell shares or interests therein rights;
to investors, who are then left holding certificates d. Derivatives: like options and warrants;
representing nothing more than a square of the blue sky. e. Trust Instruments: certificates of assignments,
The Code is self-executory and failure of SEC to issue certificates of participation, trust certificates, voting
rules and regulations shall not in any manner affect its trust certificates or similar certificates;
self-executory nature. (Subsec. 72.1) f. Catch-All: other instruments as may in the future
determined by the Commission.