Corpo Com Rev 2023
Corpo Com Rev 2023
Corpo Com Rev 2023
Q: What is a corporation?
*the life of the corporations starts from the issuance of the Certificate of
Incorporation.
2. Special Law public corporations are created through special laws called
charters. Private corporations cannot be created by special laws.
ANS: No. Corporations cannot come into existence by mere agreement of the
parties as in the case of partnerships. They require special authority or grant
from the State. This power is exercised by the State through the legislature,
either by a special incorporation law or charter which directly creates the
corporation or by means of a general corporation law under which individuals
desiring to be and act as a corporation may incorporate.
2
ANS: No. A corporation can only act through its duly authorized officers and
agents, and should not bound by the acts of anyone else, while in a
partnership, each member binds the firm when acting within the scope of the
partnership business. In entering into a partnership, the identity of the
corporation is lost or merged with that of another and the direction of its
affairs is placed in other hands than those provided by the law of its creation
(J.M. Tuason & Co. Inc, v. Bolanos, G.R No. L-4935, May 28, 1954, citing
Wyoming-Indiana Oil Gas Co. v. Weston, 80 A.L.R., 1043).
Exception: A corporation may enter into a joint venture with another, when
the nature of that venture is in line with the business authorized by their
charters. Thus, a corporation may be represented by another person, natural
or juridical, in a suit in court, where there is nothing in the record to indicate
that this venture in which the former is represented by the latter as its
managing partner is not in line with the corporate business of either of them.
ANS: The tests for determining the corporate nationality of a corporation are:
1.Place of Incorporation test; and,
2.Control test
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ANS: Under the control test, the nationality of the corporation may be
determined by the nationality of the majority of the stockholders on whom
equity control is vested based on the theory that they would be able to elect
the majority of the Board of Directors.
Under the control test, a corporation organized under Philippine law shall be
regarded as a Philippine national if at least 60% of its voting shares is owned
and held by Filipino citizens. Otherwise, it is still foreign (R.A. No. 7042,
otherwise known as the Foreign Investments Act of 1991, Sec. 3(a)).
ANS: No. The place of incorporation test is the primary and general test to be
used in determining the nationality of a corporation (CORPORATION CODE,
Sec. 123). The control test is an exceptional test used only: (1) in times of war,
or (2) in determining compliance with constitutional and statutory foreign
equity restrictions (Narra Nickel Mining & Development Corp. v Redmont
Consolidated Mines Corp., G.R. No. 195580 April 21, 2014).
ANS: This test is applied for corporations organizes for the purpose of
exploiting natural resources, owning and operating public utilities, mass
media, advertising, and other corporations subject to foreign equity
restrictions under Sec. 11 of Article XIl and Sec. 11 of Article XVI of the
Constitution (Roy III v. Herbosa, G.R. No 207246, November 22, 2016).
This test is also applied in times of war (War-Time Test) (Filipinas Compania
De Seguros v. Christern, G.R. No. L-2294, May 25, 1951).
the same shall be subject to sanctions imposed under applicable law, rules,
and regulations (Narra Nickel Mining & Development Corp. v. Redmont
Consolidated Mines Corp., Supra).
In effect, the FIA clarifies, reiterates, and confirms the interpretation that the
term "capital" in Section 11, Article XII of the 1987 Constitution refers to
shares with voting rights, as well as those subject to full beneficial ownership
of Filipinos (Heirs of Gamboa v. Teves, G.R. No. 176579, Resolution of October
9, 2012).
The Supreme Court held, in no uncertain terms, that what the Constitution
requires is that full and legal beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, must
rest in the hands of Filipino nationals (Roy III v. Herbosa, G.R. No. 207246,
Resolution of April 18, 2017).
For example, ABC Corp. (parent) owns 100 shares in XYZ Corp
(target/subject). The foreign equity ownership of parent ABC Corp will be
determined how many of its shares in target XYZ Corp. will be considered
Filipino. If at least 60% of parent ABCC Corp. is owned by Filipinos, then all its
100 shares in target XYZ Corp. are deemed to be "Filipino".
If not, then only the proportionate number of the 100 shares as related to
Filipino ownership in ABC Corp. is Filipino For example, if only 40% of parent
ABC Corp is owned by Filipinos, then only 40 shares in target XYZ Corporation
shall be considered Filipino, while the other 60% shall be treated as foreign-
owned shares (ld.).
ANS: The Grandfather Rule applies only when the 60-40 Filipino-foreign
equity
ownership is in doubt as a result of various indicia that "beneficial ownership"
and "voting control" of a subject corporation does not in fact reside in Filipino
shareholders but in foreign stakeholders through the medium or practice of
corporate layering (Narra Nickel Mining& Development Corp. v. Redmont
Consolidated Mines Corp., supra).
ANS: The Double 60% rules states that where a (parent) corporation and its
non-Filipino stockholders own stocks in a SEC-registered enterprise
(target/subject), at least 60% of the outstanding capital stock and entitled to
vote of both corporations and at least 60% of the members of the board of
directors of both corporations must be Filipino citizens before the (target)
corporation will be considered a "Philippine national" (R.A. No. 7042, Sec.
3(a)).
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ANS: Under the LLR, a stockholder is personally liable for the financial
obligations of the corporation only to the extent of his subscription, paid or
unpaid. While stockholders are generally not liable to satisfy corporate debts
with their own property, the stockholders may be held liable if they have not
fully paid the subscription price, to the extent of the amount unpaid (Halley v.
Printwell, Inc, G.R. No. 157549, May 30, 2011).
2. Right to bring Actions. - It may bring civil and criminal actions in its own
name in the same manner as natural persons (Civil Code, Art. 46)
ANS: Yes. A corporation can be held liable for tort, if the tortious act is
committed by an officer or agent under the express direction or authority
from the stockholders or members acting as a body or from the directors as
the governing body (Philippine National Bank y. CA G.R. No, L-27155, May 18,
1978).
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ANS: No. A corporation cannot be held liable for a crime since it cannot have
the
essential element of malice. Moreover, the difficulty, if not the impossibility, of
imposing the penal sanction of imprisonment on a corporation, would
undermine the criminal law system of the country.
ANS: Under Sec. 158 of the Revised Corporation Code. “If, after due notice and
hearing, the Commission finds that any provision of this Code, rules or
regulations, or any of the Commission’s orders has been violated, the
Commission may impose any or all of the following sanctions, taking into
consideration the extent of participation, nature, effects, frequency and
seriousness of the violation:
(a) Imposition of a fine ranging from Five thousand pesos (P5,000.00) to Two
million pesos (P2,000,000.00), and not more than One thousand pesos
(P1,000.00) for each day of continuing violation but in no case to exceed Two
million pesos (P2,000,000.00);
(d) Dissolution of the corporation and forfeiture of its assets under the
conditions in Title XIV of this Code.”
Q: Who shall be held liable for the criminal acts done on behalf of a
corporation?
ANS: The officers of the corporation may be held liable. It is settled that an
officer of a corporation can be held criminally liable for acts or omissions done
in behalf of the corporation only when the law directly requires the
corporation to do an act in a given manner and makes the person who fails to
perform such act in the prescribed manner criminally liable. Although the
performance of an act is an obligation directly imposed on a corporation, the
responsible officer who performed the act must be the one to assume criminal
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liability; otherwise this liability as created by the law would be illusory and
would deter the effect of the law (Sia v. People, G.R. No. L-30896, April 28,
1983).
Note: The Supreme Court implied that the award of moral damages of
corporations is not a hard and fast rule, that although corporations may
recover such damages, there must still be proof of the existence of the factual
basis of the damage and its causal relation to the defendant's acts (Crystal v.
BP, G.R, No. 172428, November 28, 2008).
ANS: Under the doctrine of the piercing of the corporate veil, the court looks
at the corporation as a mere collection of individuals or an aggregation of
persons undertaking business as a group, disregarding the separate juridical
personality of the corporation unifying the group. Another formulation of this
doctrine is that when two business enterprises are owned, conducted, and
controlled by the same parties, both law and equity will, when necessary,
protect the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or as one and the
(Kukan Intemational Corp. v. Hon. Amor Reyes, G.R. No. 182279, September
29,
2010)
Q: What are the different classifications of "piercing the corporate veil" cases?
ANS: The different classifications of piercing the corporate veil cases are:
1. Fraud cases- the veil of separate corporate personality may be lifted when
such personality is used to justify wrong, protect fraud or defend crime: or
used as a shield to confuse the legitimate issues (China Banking Corporation v.
Dyne-Sem Electronics, GR No. 149237, June 11, 2006);
2. Alter ego cases (or Conduit Cases) the corporate entity is a mere farce since
the corporation is merely the alter ego, business Conduit, or instrumentality of
a person or another entity (Concept Builders, Inc. V. National Labor Relations
Commission, G.R. No 108734, May 29, 1996);
2. The main action should seek for the enforcement of pecuniary claims
pertaining to the corporation against corporate officers or stockholders, and
3. The corporate entity has been Used in the perpetration of the fraud or in
justification of wrong, or to escape personal liability.
Q: What are the tests to determine the application of the Alter Ego Theory?
Q: What are the indicia that a subsidiary company is merely an alter ego of its
parent corporation?
Note: However, the general rule is still to the effect that if used for legitimate
functions, a subsidiary's separate existence shall be respected, and the liability
of the parent corporation as well as the subsidiary will be confined to those
arising in their respective business (MR Holdings, Ltd. v. Bajar, G.R. No.
153478, October 10, 2012).
Q: What the jurisdictional requisites before the corporate veil may be pierced?
ANS: As a matter of due process, the corporate veil may only be pierced when:
1. The court has properly acquired jurisdiction over the corporation involved;
and
2. It was shown after a full-blown trial that the grounds to do so exists in fact
and law (Kukan International Corporation v. Reyes, G.R. No. 182729,
September 29, 2010).
ANS: A stock corporation is one which has capital stock divided into shares
and is authorized to distribute to the holders of such shares, dividends or
allotments of the surplus profits on the basis of the shares held.
Note: Any profit which a non-stock corporation may obtain as incident to its
operation shall, whenever necessary or proper, be used for the furtherance of
the purpose or purposes for which the corporation was organized (RCC Sec.
86).
ANS: No, as a matter of public policy, the acts of a de facto corporation are
deemed valid until its existence and due incorporation are inquired into by
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Note: If, after the incorporation, the incorporators discovered that they have
not complied substantially with the law and still continued transacting
business as a corporation, without doing anything to correct the defect, the
privilege of de facto existence can longer be invoked.
ANS: The following are examples of defects which do not preclude the
creation of a de facto corporation:
1. The articles of incorporation fail to state all the matters required by the
Code to be stated, or state some of them incorrectly;
2. The name of the corporation closely resembles that of a pre-existing
corporation that it will tend to deceive the public;
3. The incorporators or a certain number of them are not residents of the
Philippines;
4. The acknowledgment of the AOl or certificate of incorporation is insufficient
or defective in form or it was acknowledged before the wrong officer;
5. The percentage of Filipino ownership of the capital stock required for the
business is less than that prescribed by law;
6. The minimum paid-up capital stock has not been paid to and received by
the
corporate treasurer contrary to his affidavit; and
7.The failure to submit its by-laws on time (Sawadjaan v. CA, G.R. No. 141735,
June 8, 2005).
ANS: The corporate powers are exercised by the board of directors or trustees
(RCC, Sec. 22), unless otherwise provided. Close corporations and corporation
sole (RCC, Secs. 95 and 108).
Note: Under the Revised Corporation Code, a single stockholder shall be the
sole director and president of the One Person Corporation (REVISED
CORPORATION CODE, Sec. 121, effective February 23, 2019).
ANS: The answer must be qualified. As a rule, a director cannot arrogate unto
himself the exercise of corporate powers. However, just as a natural person
may authorize another to do certain acts in his behalf, so may the board
validly delegate some of its functions to individual officers or agents. Absent
such valid delegation, the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the course of, or connected
with the performance of authorized duties of such director, is held not binding
on the corporation (AF Realty & Devt v. Dieselman Freight Services, G.R.
No.111448, January 16, 2002).
ANS: Under the Business Judgment Rule, courts cannot undertake to control
the
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ANS: Courts and other tribunals won't override the business judgment of the
board mainly because courts are not in the business of business, and the
laissez faire rule or the free enterprise system prevailing in our social and
economic set-up dictates that it is better for the State and its organs to leave
business to the businessmen; especially so, when courts are ill-equipped to
make business decisions. More importantly, the social contract in the
corporate family to decide the course of the corporate business has been
vested in the board and not with courts (Ong Yong v. Tiu, G.R. Nos. 144476 &
144629, April 8, 2003).
Q: What are the requirements for Business Judgment Rule to shield the
directors from liabilities?
ANS: The business judgment rule shields the directors only if the following
requirements are present.
1. The presence of a business decision including decisions on policy,
management and administration;
2. The decision must be intra vires and must comply with the procedural and
substantive requirements of law;
3. Good faith;
4. Due care in making the decision; and
5. The director must not have personal interest or not self-dealing.
Q: Are the directors liable for a corporate act done pursuant to a valid
corporate
objective but later on became unfavorable to the corporation?
ANS: No. Questions of policy or management are left solely to the honest
decision of officers and directors of a corporation and the courts are without
authority to substitute their judgment to the judgment of the board. The board
is the business manager of the corporation and so long as it acts in good faith
its orders are not reviewable by the Courts or the SEC. The directors are also
not liable to the stockholders in performing such acts (Montelibeno v.
Bacolod-Murcia Miling, G.R. No 15092, May 18, 1962).
Moreover, he shall be liable as a trustee for the corporation and must account
for the profits which otherwise would have accrued to the corporation. This
rule is sometimes referred to as a "claw back penalty.
Q: Are officers liable for the criminal acts done on behalf of the corporation?
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ANS: Yes. The officers of the corporation may be held liable. It is settled that
an officer of a corporation can be held criminally liable for acts or omissions
done in behalf of the corporation only where the law directly requires the
corporation to do such an act in a given manner and the same law makes the
person who fails to perform the act in the prescribed manner criminally liable
(Sia v. People, supra.).
ANS: Generally, the stockholders and officers are not personally liable for the
obligations of the corporation except only when the veil of corporate fiction is
being used as a cloak or cover for fraud or illegality, or to work injustice.
Absent any agreement, stockholders and officers shall not be held liable for
the corporation's obligations in their personal capacity (Bautista v. Auto Plus
Traders, Incorporated, G.R. No. 166405 August 6, 2008).
However, Section 1 of BP 22 expressly provides that if the corporation is the
drawer of the check, the person who actually signed the check on behalf of the
corporation shall be personally liable. BP 22 itself fused the criminal liability
with the corresponding civil liability of the corporation itself by allowing the
complainant to recover such civil liability, not from the corporation, but from
the person who signed the check on its behalf (Navarra v. People, G.R. No.
203750, June 6, 2016).
Note: Under Section 36 of the Revised Corporation Code, the power to have
perpetual existence and to enter into a partnership, joint venture, merger,
consolidation, or any other commercial agreement is added to the list of
general powers of a corporation.
ANS: Corporate term may be changed upon compliance with the following:
(NARS)
1. Written Notice of the proposed action and the time and place of meeting
served to each stockholder or member either by mail or personal service;
2. Approval by a majority vote of the board of directors/trustees:
3. Ratification by the stockholders representing at least 2/3 of the outstanding
capital stock or 2/3 of the members in case of non-stock corporations; and
4. A copy of the amended articles of incorporation Submitted to the SEC for
Approval.
Note: The required 25% subscription shall be based on the additional amount
by which capital stock is increased and not on the total capital stock as
increased.
(RCC, Sec. 37).
ANS: The requirements are the same as for the exercise of the power to
increase or decrease a corporation's authorized capital stock.
Q: What are the requirements in order for a corporation to sell or dispose its
corporate assets?
Note: The vote of the majority of the trustees in office will be sufficient
authorization for the corporation to enter into any transaction authorized by
Section 40 in case of non- stock corporations where there are no members
with voting rights.
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Note further: The Bulk Sales Law regulates any sale, transfer, mortgage, or
assignment of a stock of goods, wares, merchandise, provisions, or materials
otherwise than in the ordinary course of trade and the regular prosecution of
the business, or sale transfer, mortgage or assignment of all, or substantially
all, of the business or trade theretofore conducted by the vendor, mortgagor,
transferor, or assignor, or of all, or substantially all, of the fixtures and
equipment used in and about the business of the vendor, mortgagor,
transferor, or assignor, shall be deemed to be a sale and transfer in bulk (Act
No. 3952, otherwise known as The Bulk Sales Law, Sec. 2).
ANS: The SEC's approval is NOT required because such power really affects
the
business enterprise level of corporate set-up, an area left by the State to the
judgment of management, and does not in any way affect or alter the Juridical
entity granted by the State.
Note: A sale or other disposition shalt be deemed to cover substantially all the
corporate property and assets if thereby the corporation would be rendered
incapable of continuing the business or accomplishing the purpose for which
it was incorporated. Assets must be computed based on its net asset value, as
shown in its latest financial statements. The value of the assets must be
computed based on its net asset value, as shown in its latest financial
statements.
Q: What are the instances when the sale or disposition of corporate assets do
not require the ratification by the stockholders or members?
Exceptions:
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1.Where the sale of all corporate assets is entered into Fraudulently to escape
liability for transferor's debts (CIVIL CODE, Art. 1388);
2.Where the transferee corporation expressly or impliedly agrees to assume
the transferor's debts (CIVIL CODE, Art. 2947):
3.Merger and consolidation of corporations. If the transfer of assets of one (1)
corporation to another amounts to a merger or consolidation, then the
transferee corporation must take over the liabilities of the transferor (RCC,
Sec. 79); and
4.When the transaction involves a Business Enterprise Transfer such that the
transferee corporation assumes the debts and liabilities of the transferor
corporation because it is merely a continuation of the latter's business (Y-I
Leisure Philippines, Inc. v. Yu, G.R. NO 207161, September 8, 2015).
Q: What are the instances when the corporation can acquire its own shares?
Q: What are the conditions before the corporation can acquire its own shares?
Q: For what purposes may a corporation want invest its funds in another
corporation?
ANS: Corporate funds may be invested in another corporation to further its
own purpose or for purposes other than the primary purposes stated in its
Articles of Incorporation.
The other purposes for which the funds may be invested must be among those
enumerated as secondary purposes and must further comply with the
requirements of Section 41 of the RCC.
Note: Investment of funds includes not only investment of money but also
investment of property of the corporation. Lease of the property is included
in the term investment of funds.
ANS: No. Section 41 does not cover passive investment in shares. The same
may
justified in the exercise of the general power to purchase securities in other
corporations. Thus, a corporation with idle funds may invest in shares for the
purpose of generating income (RCC, Sec. 35(g).
ANS: Dividends are corporate profits allocated, lawfully declared and ordered
by the directors to be paid to the stockholders on demand Or at a fixed time
(SEC Memorandum Circular 11-09, Sec. 2)
Q: What are the requirements before the corporation can declare dividends?
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ANS: It is the amount of accumulated profits and gains realized out of normal
operations:
1. Not appropriated by the Board for corporate expansion
2. Not covered by a restriction under a loan agreement and
3. Not required to be retained under special circumstances
ANS: The following are the corporate acts which requires the existence of
unrestricted retained earnings:
1. Power to Acquire own shares (RCC, Sec. 40);
2. Power to Declare dividends (RCC, Sec 42); and
3. Payment of stocks to dissenting stockholder in exercise of his Appraisal
right (RCC, Sec. 81).
ANS: A management contract must not be longer than five (5) years for any
one (1) term except those contract which relate to the exploration,
development, exploitation or utilization of natural resources that may be
entered into for such periods as may be provided by pertinent laws or
regulations (RCC, Sec. 43).
Q: Can the management contract delegate the entire control over all officers
and
business of a corporation to another?
ANS: No. A management contract cannot delegate the entire supervision and
control over the officers and business of a corporation to another as this will
contravene Section 24 of the RCC.
ANS: With respect to acts affecting the rights of stockholders, in proper cases,
such as the sale of all or substantially all corporate assets or investment of
corporate fund another corporation, the dissenting stockholders can exercise
their appraisal right. (RCC, Sec. 80).
ANS: No. The power to issue shares of stocks in a corporation is lodged in the
board of directors and no stockholders' meeting is required to consider it
because additional issuance of shares of stocks does not need approval of the
stockholders (Dee v. SEC G.R. No. L-60502, July 16, 1991).
ANS: The general rule is that a corporation, through its board of directors,
should act in the manner and within the formalities, if any, prescribed by its
charter or by the general law. Thus, directors must act as a body in a meeting
called pursuant to the law or the corporation's by-laws, otherwise, any action
taken therein may be questioned by any objecting director or shareholder
(Lopez Realty, Inc. v. Fontecha, G.R. No. 76801, August 11, 1995).
Q: What is the consequence when the Board of Directors (or Trustees) does
not
act according to the corporate charter?
ANS: A director or shareholder may object to the act of the Board. The Board
of
Directors must act as a body in a meeting called pursuant to the law or the
corporation's by-laws, otherwise, any action taken therein may be
questioned/by any objecting director or shareholder (Lopez Realty v.
Fontecha, G.R. No. 76801, August 11, 1995).
Q: Are the actions of the board of directors, during a meeting which failed to
abide by the requirements of its charter or the law, subject to ratification?
ANS: Yes. An action of the board of directors during a meeting, which was
illegal due to lack of notice, may be ratified either expressly, by the action of
the directors in subsequent legal meeting, or impliedly, by the corporation's
subsequent course of conduct (ld.).
ANS: The Ultra Vires Doctrine states that no corporation "shall possess or
exercise corporate powers other than those conferred by this Code or by its
articles of incorporation and except as are necessary or incidental to the
exercise of the powers so conferred" (RCC, Sec. 44).
ANS: An ultra vires act is one committed outside the object for which a
corporation is created as defined by the law of its organization and therefore
beyond the powers conferred upon it by law (Republic of the Philippines v.
Acoje Mining Company, Inc., G.R. No. L-18062, February 28, 1963).
On the other hand, ultra vires acts or those which are not illegal and void ab
initio but are outside the scope of the authority granted, or can be granted by
the articles of incorporation. Such acts are generally voidable and may become
binding and enforceable when ratified by stockholders (Pirovana v. De la
Rama Steamship Co., G.R. No. L-5377, December 29, 1954)
1. Acts done beyond the powers of the corporation as provided in the law or
its
articles of incorporation;
2. Acts or contracts, which are per se illegal as being contrary to law; and
3. Acts or contracts entered into in behalf of a corporation by persons who
have no corporate authority.
ANS: As a general rule, the effects of ultra vires acts often depend on who is
invoking it.
However, the following are deemed to have the right to invoke said doctrine:
1. State -as the grant of the charter is on the implied condition that the
corporation shall act within the powers conferred upon it, ultra vires acts,
whether wrong or not, are deemed a breach of this condition.
2. Stockholders- even thought all others consent to the ultra vires act, a
stockholder may still invoke said doctrine to protect himself from the
consequences of the subject act.
3. Stranger- it is a general rule that a plea of ultra vires cannot be interposed
by a stranger not a party of the contract, if he is not injured by such act or
contract. However, if he suffers any injury as a consequence of said act, he
may invoke the same.
4. Creditors- it is a general rule that a plea of ultra vires cannot be interposed
by a stranger not a party to the contract, at least if he is not injured by such act
or contract.
Q: What are the effects of an ultra vires act in executed and executory
contracts?
ANS Yes, ultra vires refers to an act outside or beyond corporate power,
including those that may ostensibly be within such powers but are, by general
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or special laws, either prohibited or declared illegal. Thus, though the Articles
if Incorporation grants the corporation a certain power, such cannot be
exercise if it is prohibited or declared illegal by law.
ANS: The capital stock, property and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors which
means that there can be no distribution of assets among the stockholders
without first paying corporate creditors. Hence, any disposition of corporate
funds to the prejudice of creditors is null and void.
The Trust Fund Doctrine is not limited to reaching the stockholder’s unpaid
subscriptions. The scope of the doctrine when the corporation is insolvent
encompasses not only the capital stock, but also other property and assets
generally regarded in equity as a trust fund for the payment of corporate
debts.
shares issued by the corporation are presumed to be equal and shall enjoy the
same rights and privileges as well as liabilities (RCC, Sec 6)
ANS: No, the board of directors has no authority to classify shares of stock
where the articles of incorporation are silent on the matter. Hence, a
corporation cannot, without express authority in the articles of incorporation,
and without amendment thereof, issue preferred shares with superior rights
and privileges than other shares.
The above rule does not apply to stock dividends however as the declaration
of dividends may be rescinded at any time before the actual issuance of the
stock dividend. Be that as it may, when stock dividends have already been
distributed, the amount declared ceases to belong to the corporation but is
distributed among the shareholders (ld.)
ANS: These are dividends in the form of other assets, such as tangible
products of the company or shares of stocks in a company affiliate or
subsidiary.
ANS: No. Dividends cannot be declared out of the capital. The Trust Fund
Doctrine would be violated if dividends are declared out of capital except only
in two instances:
1. Liquidating dividends, and
2. Dividends from investments in Wasting Assets Corporations (National
Telecommunications Commission v. Court of Appeals, G.R. No. 127937, July
28, 1999).
ANS: Yes. When a cash dividend is duly declared, the amount due a
stockholder
belongs to him and it cannot, without his consent, be reverted to the surplus
account of the corporation (SEC Opinion, January 29, 1971).
However, this does not apply to stock dividends as the declaration of such
may be rescinded at any time before the actual issuance of the stock.
Q: When does the right to dividends accrue? Does it require the approval of
the
SEC?
ANS: The right of the stockholder to be paid dividends accrues as soon as the
declaration is made. Neither the same board nor their successors can revoke
the declaration of legally declared dividend without the stockholders' consent.
The right to dividend accrues even if there is no SEC approval (SEC Opinions
dated October 10, 2002 and November 12, 1986).
ANS: As a rule, dividends given to stockholders of the same class must always
be pro rata, equal and without discrimination regardless of the time when the
shares were acquired (RCC, Sec. 6)
Q: What are the rights of the stockholders with respect to corporate books and
records?
ANS: The rights of the stockholders with respect to books and records are:
(Sec 73-74, RCC)
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1. Right to Inspect;
2. Right to demand a list of stockholders
3. Right to demand a detailed auditing of business expenditures
4. Right to examine books of the corporation's subsidiary; and
5. Right to financial Statements
Q: What are the books required to be kept under the Corporation Code?
ANS: A stockholder can inspect the books of the corporation. This is part of the
right of shareholders to information. It is a right that is personal to each
stockholder (Cua, Jr. v. Ocampo Tan, G.R. No. 181455-56 December 4, 2009).
ANS: Either of the following has the right to inspect the corporate books:
1. Any director, trustee, stockholder, or member;
2. Voting trust certificate holder
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ANS: The right to inspect corporate books does not extend to trade secrets.
Trade secrets are those which the corporation may undoubtedly keep secret
notwithstanding the right of inspection given to stockholders (Air Philippine
Corporation v. Pennswell, G.R. No. 172835, December 13, 2007).
It also does not extend to inspection of bank accounts. The Secrecy of Bank
Deposits Law makes all banks deposits of whatever nature absolutely
confidential in nature and the same may not be inquired into by any person
except under specified circumstances (RA. No. 1405, otherwise known as An
Act prohibiting Disclosure of or Inquiry into Deposits with any Banking
Institution and Providing. Penalty Therefor, Sec. 2).
Q: Can the stockholders of the parent company inspect the books of the
subsidiary corporations?
Note: However, the stockholders of the subsidiary cannot inspect the books of
the parent company as the subsidiary does not have an entire interest in the
affairs and assets of the parent corporation (Gokongwei v. SEC supra).
Q: What are the remedies of a stockholder who was denied of the right to
inspect corporate books?
ANS: If the inspection is denied, the following remedies may be availed of:
1. Mandamus;
2. Damages; and,
3. Criminal suit
Q: What are the elements that must be present for the imposition of criminal
liability for violation of the stockholders' right to inspect?
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Note: Where the officer or agent of the corporation sets up lawful defenses
against the demand for inspection, as authorized under Section 73, the
contrary must be shown or proved. Such authorized defenses are in the
nature of justifying circumstances that would exonerate those who raise and
are able to prove the same (Ang-Abaya, et al. v. Ang, GR No. 178511, December
4, 2008).
ANS: Whenever the capital stock of a corporation is increased and new shares
of stock are issued, the newly issued shares must be offered first to the
stockholders who are such at the time the increase was made in proportion to
their existing shareholdings and on equal terms with other holders of the
original stocks before subscriptions are received from the general public
(Benito v SEC, G.R No. L-56655, July 25, 1983).
ANS: The following are the exceptions to the exercise of the pre-emptive right:
1. When such right is denied by the Articles of incorporation or an amendment
thereto;
2. When Issued in compliance with Laws requiring stock offerings or
minimum
stock ownership by the public;
3. When Issued in good faith with the approval of the stockholders
representing
2/3 of the outstanding capital stock, in exchange for property needed for
Corporate purposes;
4. When Issued in good faith with the approval of the stockholders
representing 2/3 of the outstanding capital stock, in payment of previously
contracted Debt (RCC, Sec. 38).
ANS: Yes. A stockholder who neither desires nor intends to buy any of the
stocks being offered may waive such right. In which event, the shares may be
offered to any interested persons acceptable to the corporation (SEC Opinion
dated January 25, 1990). Waiver is a personal right, hence, the stockholder
should give such waiver individually or he can authorize somebody to execute
the same for and in his behalf by way of a special power of attorney (SEC
Opinion dated December 6, 1994).
ANS: For open corporations, the right of first refusal must first be granted in
the Articles of Incorporation or the By-laws.
ANS: The differences between pre-emptive right and right of first refusal are
as follows:
taken.
Defendant in the Action
ANS: The stockholder's right to institute a derivative suit is not based on any
express provision of The Corporation Code but is impliedly recognized when
the law makes corporate directors or officers liable for damages suffered by
the corporation and its stockholders for violation of their fiduciary duties
(Bitong V. Court of Appeals, G.R. No. 123553, July 13, 1998).
Q: May a person having only legal title over a shareholding, such as a trustee,
institute a derivative suit?
ANS: No. The mere trustee of shares registered in his name cannot file a
derivative suit for he is not a stockholder in his own right (Bitong v. CA, G.R.
No. 123553, July 19 1998).
who on a share can file the derivative action (Ching v. Subic Bay Golf and
Country Club, Inc., G.R. No. 121171, December 29, 1998).
ANS: No. The stockholder is only a nominal party in a derivative suit. The real
party in interest is the corporation (Filipinas Port v. Go, supra). The
corporation is an indispensable party who must be impleaded in the
derivative action (Asset Privatization Trust v. Court of Appeals, G.R. No.
121171, December 29, 1998).
ANS: No. Not every suit filed in behalf of the corporation is a derivative suit. It
is required that the minority stockholder must allege in his complaint that he
is suing on a derivative cause of action on behalf of the corporation and all
other stockholders similarly situated who may wish to join him in the suit
(Chua v. CA, G.R. No. 150793, November 19, 2004).
ANS: It shall have the right to transact business in the Philippines after it shall
have obtained a license to transact business in this country in accordance with
this Code and a certificate of authority from the appropriate government
agency (RCC, Sec 143).
ANS: Under the Foreign Investments Act, any act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization (R.A. No. 7042,
otherwise known as the Foreign Investments Act, Sec. 3(d)).
ANS: Jurisprudence has adopted the twin characterization test involving the
substance and continuity test. A foreign corporation shall be considered as
doing business in the Philippines when:
1. Substance test - Whether the foreign corporation is maintaining or
continuing in the Philippines the body or substance of the business for which
it was organized or whether it has substantially retired from it and turned it
over another; and
2. Continuity test Whether there is continuity of commercial dealings and
arrangements, contemplating to some extent the performance of acts or
works
or the exercise of some functions normally incident to and in progressive
prosecution of, the purpose and object of its organization (Mentholatum v.
Mangaliman, G.R. No. L-47701, June 27, 1941).
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