Corporation Law Lectures

8/12/2019 Corporation Law Lectures

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Lecture Notes On CorporationsNovember 2005

Introduction

In The Philippines, Business Enterprises Are Organized Principally InOne Of Four Forms, The Single Proprietorship, The GeneralPartnership, The imited Partnership, And The !orporation" The !hoiceOf The Form Of Organization Is #sually $ade By The OriginalOrganizers And Is %ictated By The &e'uirements Of The Business"

(ormally, A Single Proprietorship )ill Be &esorted To If There Is ASingle O*ner )ho +as The (ecessary &esources For The IntendedBusiness Acti ity" &esort To Partnerships And !orporations Are%etermined, To A arge E-tent, By The (eed For &esources And

imitation Of ia.ility" The !hoice Bet*een A Partnership And A!orporation On The Other +and, Is %etermined By Economic Factors"

Perhaps, The $ost Significant Economic &eason For The !ontinued #seOf Partnerships Is Ta- Based" A Partnership/s %istri.uta.le Income IsTa-ed Once, )hile That Of The !orporation Is Ta-ed T*ice, Once AtThe !orporate e el And Once Again At The Stoc0holder e el" ThenAgain, The Same &eason $ay Be Ad anced In Fa or Of A !orporateStructure As The Imposition Of Ta- At The Stoc0holder e el $ay Be

%elayed #ntil There Is A %eclaration Of %i idends"

Another, Though (ot (ecessarily ess Significant, Is The (ature Of TheBusiness" Traditionally, Partnerships Are Ideal For Short Term Business1entures, )here The Organizers %o (ot Foresee The !ontinuance OfTheir #nion After !ompletion Of The Business Acti ity And )ould i0eTo i'uidate Their In estments 2uic0ly"

(onetheless, )hat Is Pre alent Is The #se Of The !orporate StructureAs The Preferred Business Organization" &easons Ad anced For Its #se

Are3 imitation Of ia.ility, !apital Generation From E'uity, %e.t AndIncome &etention, Organizational !ontrol, Free Transfera.ility OfO*nership, And Succession"

%etermining )hether Such #tilization Is Appropriate Is (ot The O.4ectOf These (otes5 &ather, This Is An Attempt At Trying To Simplify Basic!orporate a* )ith The End In 1ie* Of Being A.le To #nderstand Its(uances"


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Su.4ect !o erage

These (otes !o er The !orporation !ode 6Batas Pam.ansa Blg 789,Sec !ode Of !orporate Go ernance, !orporate &eco ery 6Inclusi e Of

Suspension Of Payments, &eha.ilitation, And Insol ency Proceedings9,And Other &elated a*s"

%istinctions Bet*een A !orporation And A Partnership

As To3 6A9 The $anner Of !reation : A !orporation Is !reated Bya*, )hile A Partnership Is !reated By Agreement 6B9 To The (um.er

Of Incorporators; A !orporation Generally &e'uires A $inimum Of )hen A !orporation Is Said To Be !reated By Operation Of a*,It $eans That It !annot !ome Into E-istence )ithout The !onsent Or

Any Grant Of Authority From The So ereign Go ernment"6A9 !orporations Are Organized And Formed #nder The Pro isions OfThe !orporation !ode" They !an Also Be Formed #nder Special a*sOr !harters, )hich Then Shall Be The Primary a* That )ill Go ernThem, To Be Supplemented By The !orporation !ode" =

1 Section4, BP Blg 68


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6B9 %istinguishing Bet*een Primary Franchise )hich &efers To ThePri ilege En4oyed By Indi iduals To Form A !orporation, And TheSecondary Franchise )hich &efers To The Pri ilege En4oyed By The!orporation To Be And To Act As A !orporation"

=" The !orporation Is Said To Be An Artificial Being Because It Is Auridical Person )ith A Personality Separate And %istinct From The

Persons !omposing It"

6A9 !onse'uently, The Principal Effects Are3 6=9 It $ay (ot Be +eldAns*era.le For Acts Of ia.ilities Of The Stoc0holders 6>9 It $ayAc'uire And Possess Property As )ell As Bring egal Action6 9Property So Ac'uired Or !on eyed To The !orporation Is The PropertyOf The !orporation And 1ice 1ersa" The Interest Of AStoc0holder?$em.er Is Inchoate 6J9 It +as (o Personality To BringAction For &eco ery Of Property Belonging To Stoc0holder Or Its$em.ers 6> Scra 7=, 6!iting $am.ulao9 For Breach Of TheFiduciary %uty &e'uired Of A Ban0, A !orporate !lient $ay !laim$oral %amages )hen Its Good &eputation Is Besmirched By TheBreach, And Social +umiliation &esults Therefrom"6!laim %enied %ueTo ac0 Of E idence9

6B9 The Principle Though Is Su.4ect To An E-ception, If The %octrineOf Piercing The 1eil Of !orporate Fiction Applies" This %octrine Is Also

no*n As The %octrine Of %isregarding The Fiction Of !orporate EntityOr !orporate Alter Ego %octrine" It Is An E-ception Because TheApplication Of The %octrine See0s To +old The Stoc0holder Or$em.ers Of The !orporation Personally ia.le For !orporateO.ligations"

6!9 For The %octrine To Apply, Any Of Follo*ing !ircumstances $ustO.tain3 6=9 !orporate Fiction Is Being #sed To %efeat Pu.lic


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!on enience" The !on enience Is The !reation Of A Separate And%istinct Person From The Stoc0holder Or $em.ers To Facilitate TheTransaction Of Business" An E-ample Is )hen A Stoc0holder Or$em.er )ho +as An #nsa ory &eputation #tilizes !orporate Fiction To+ide +is True Identity For Illegal Purposes, Or 6>9 It ustifies A )rong,

Protects Fraud Or %efends !rime"

6%9 The &e'uisites Of The Instrumentality &ule Are3 6=9 There Is!omplete %omination Or !ontrol Of Policy And Business Practice 6>9The !ontrol Is #sed To !ommit The Fraud 6 9 The !ontrol #sed Is ThePro-imate !ause Of In4ury Or oss" See3 anuza 1s" !a Gr = = DJ,$ar >8 @9 E-press Po*ers Are %etermined By The anguage Of The a*And Its !harter )hile Implied Po*ers $ay !hange According To Time,Place And !ircumstances"

6 9 Test Of E-press Po*ers Is )hether They Are Found In The)ords Of The a* ? !harter )hile The Test Of Implied Po*ers Is


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)hether They Are Purely Incidental To Its E-press Po*ers And Is&easona.ly (ecessary To Their Being !arried Out"

="< The &ight Of Succession &efers To Its !ontinued E-istence#naffected By Anything That +appens To Its Stoc0holders Or $em.ers

imited Only By The Term Stated In Its Articles Of Incorporation"

inds Of !orporations

=" There Are T*o Basic inds Of !orporations" A Stoc0 !orporationIs One )hose !apital Stoc0 Is %i ided Into Shares And Are AuthorizedTo %istri.ute To The +olders Of Such Shares %i idends Or AllotmentsOf The Surplus Profits On The Basis Of The Shares +eld >" A (on Stoc0!orporation Is One )here (o Part Of Its Income Is %istri.uta.le As%i idends To Its $em.ers, Trustees Or Officers, And )hen Any ProfitIs O.tained As An Incident If Its Operations Shall, )hene er(ecessary Or Proper Be #sed For The Furtherance Of The Purpose?SFor )hich The !orporation )as Organized"

Additional %istinctions Bet*een !orporations

=" As To The State Of Incorporation; It Is A %omestic !orporation IfIncorporated #nder Philippine a* Or A Foreign !orporation IfIncorporated #nder The a*s Of Another !ountry" (ote Though ThatFor Purposes Of Transacting Business In The Philippines, It $ust BeOne )hose State Of Incorporation Allo*s Filipino !orporations Or!itizens To %o Business Therein" J

>" As To )hether It Is Open To The Pu.lic Or (ot; It Is A !lose!orporation )hen It imits Stoc0holders To A (um.er (ot E-ceeding>@, +as imitations On Transfers And %oes (ot ist In The Stoc0E-change Or $a0es Any Pu.lic Offering Of Its Shares < Or It Is An Open!orporation )hen Its Stoc0s Are Pu.licly Traded 7"

>"= A !orporation That Goes From !lose To Open Is Said To Be

Going Pu.licH, )hile One That Goes From Being Open To !lose Is SaidTo Be Going Pri ateH"

2 Supra, Section 33 Supra, Section 874 Supra, Section 1235 Supra, Section 966 Page 108, Merriam Web ter !ictionar" o# $a%, Page 108, 1996


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" As To )hether It Is A Pu.lic Or Pri ate !orporation; A Pu.lic!orporation Is One That Is Formed For The Go ernment Of A PortionOf The State For The General Good, )hile A Pri ate !orporation Is OneThat Is Formed To #nderta0e A Pri ate Acti ity, But IncludesGo ernment O*ned Or !ontrolled !orporations" It Also Includes

2uasi;Pu.lic !orporations That +a e Accepted From The State AFranchise In ol ing The Performance Of A Pu.lic Acti ity For Profit"

J" As To egal &ight To E-ist; It Is %e ure, %e Facto Or A!orporation By Estoppel"

J"= A %e ure !orporation Is One That Is !onsidered As A egally!onstituted !orporation, +a ing Fully !omplied )ith All The&e'uirements Of The a*"

J"> A %e Facto !orporation Is One That Is So %efecti ely !reated As(ot Be A %e ure !orporation, But (e ertheless Is The &esult Of ABona Fide Attempt To Incorporate #nder E-isting Statutory Authority!oupled )ith The E-ercise Of !orporate Po*ers, And Is &ecognized ByThe !ourts As Such #pon Grounds Of Pu.lic Policy In All ProceedingsE-cept #pon A %irect Attac0 By The State 2uestioning Its !orporateE-istence"

J">"A The &e'uisites Of A %e Facto !orporation Are 6=9 ThereIs A 1alid a* #nder )hich The !orporation $ay Be Organized6>9There Is A Bonafide Attempt In Good Faith To Incorporate 6 9ThereIs An Actual 1alid E-ercise Of !orporate Po*ers

J">"B In General, A %e Facto !orporation Is %eemed To +a eSu.stantial egal E-istence E-cept As Against The State"!onse'uently, It +as The Same !orporate Po*ers And ia.ilities i0e A%e ure !orporation" It Is O.liged To Pay Ta-es, !ontracts That AreEntered Into Are 1alid And Binding, It Is Allo*ed To Bring Suit"

J">"! Its E-istence Is (ot Open To A !ollateral Attac0" The Only )ayBy )hich Is !an Be Attac0ed Is By )ay Of 2uo )arranto 8 Proceedings

To %etermine The &ight To The #se Or E-ercise Of A Franchise OrOffice And To Oust The +older From +is En4oyment Of The Same, ThatIs Initiated By The Solicitor General Because 6=9 It Is The State/s &ightOr Authority That Is #surped 6>9 It )ould Produce Endless !onfusionIf It/s E-istence Is 2uestioned In E ery Suit That It Is A Party To 6 9 It

7 8 &letc'er 638 Supra,Section 20


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Is In The Pu.lic Interest To $aintain The 1alidity Of The BusinessTransactions Entered Into )ith %e Facto !orporations"

J" A !orporation By Estoppel Arises )hen Persons Assume To ActAs A !orporation no*ing It To Be )ithout Authority To %o So" In This

!ase, Said Persons Shall Be ia.le As General Partners For All %e.ts,ia.ilities And %amages And It !annot #se Its ac0 Of Personality As A

%efense, (either !an One %ealing )ith It &esist Performance" (either!an One )ho Assumes An O.ligation To An Ostensi.le !orporation AsSuch, !annot &esist Performance Thereof On The Ground That There)as In Fact (o !orporation" D

!omponents Of A !orporation

The !omponents Of A !orporation Are3 6=9 !orporators; Those )ho!ompose The !orporation Either As Stoc0holders Or $em.ers 6>9Incorporators : Those Stoc0holders Or $em.ers $entioned In TheArticles As Originally Forming The !orporation And Are SignatoriesThereof

Other !omponents Are 6=9 Promoters; Those )ho Bring A.out TheIncorporation And Organization Of A !orporation =@ 6>9 Su.scri.ers;Those )ho +a e Agreed To Ta0e Out And Pay For Original #nissuedShares Of A !orporation Formed Or To Be Formed" ==

(um.er And 2ualifications Of Incorporators

The &e'uired (um.er And 2ualification Of Incorporators Are3 6=9 Fi e(o $ore Than =< Persons, E-ception )hen It Is A !orporation Sole6>9!apacity To Enter Into !ontract, The Act Of Forming A !orporationBeing !ontractual In (ature" Further The Articles $ust BeAc0no*ledged To Secure The State Against The Possi.ility Of AFictitious (ame To Be Su.scri.ed And To Furnish Proof Of Signatures6 9 A $a4ority $ust Be &esidents Of The Philippines" It Is A $andatory&e'uirement Because The Business Is To Be !onducted In ThePhilippines 6J9 They $ust Be !itizens Of The Philippines If

&e'uired By egal Or !onstitutional &e'uirements 6

9 Supra,Section 2110 Ste(en an) $ar en, *a e on *orporation , Page 18111 Supra, Section 512 Supra, Section 10


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See3 g Summit +oldings, Inc" 1s" !a, J< &ule Because They Are (otIncorporators" Such +o*e er Is %e.ata.le As Section = StatesAuthorized !apital Stoc0 )ithout 2ualification

Process Of Incorporation

The Process Of Incorporation Begins )ith The E-ecution Of TheArticles Of Incorporation, )hich #pon &eturn By The Sec, Together)ith The !ertificate Of Incorporation !onstitutes It As The !harter OfThe !orporation"

=" The Articles Of Incorporation Is The %ocument Prepared By ThePersons Originally !omposing The !orporation And Su.se'uently Filed)ith The Sec !ontaining &e'uirements Of a*" )hen A Group OfPersons )hich To !reate A !orporation, They )ill +a e To E-ecute%ocuments And !omply )ith The &e'uirements Of The State BeforeBeing Gi en uridical Personality, Since Such Is A $ere Pri ilege" ThisIs no*n As The !oncession Theory

>" The !ontents=13 Supra, Section 12 an) 1314 Section 8+3, - 8791, BSP *ircular 257, -ugu t 15, 200015 Supra, Section 14 an) 15


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Be $ade A*are )hether The !orporations Is Transacting )ithin ItsAuthority"

" Place )here Principal Office Is ocated Is &e'uired For Effecti e&egulation ? Super ision" It &efers To The Place )ere The Boo0s And

&ecords Are ept"

"= !hange Of Address To Another !ity Or $unicipality &e'uires AnAmendment Of The Articles" If Other*ise, (otice Is Sufficient"

J" Statement Of (ame, (ationalities And &esidences OfIncorporators %etermines Prima Facie !ompliance )ith !onstitutional: egal &e'uirements

?Of Stoc0holders Or $em.ers, )ho Shall +a e The &ight Of AppraisalA aila.le >=

>


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Of Assets And ia.ilities, Including The (ame Of The %efunct!orporation To The (e* One Is To Be Attached To Articles"

6Sec" =>>9

7" (um.er Of %irectors Or Trustees )hich Shall (ot Be ess Than 9 Adoption Or Amendment OfBy a*s 6 9 Sale, ease, E-change, Pledge Or Other %isposition Of AllOr Su.stantially All Of !orporate Property 6J9 Increase?%ecrease Of!orporate Bonded Inde.tedness 69 !annot Be Issued For ess Than Php


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Such Other Terms And !onditions Stated In The Articles And The!ertificate Of Stoc0" >< (ote Thought That The Supreme !ourt +as +eldIn The !ase Of &epu.lic Planters Ban0 1" Agana,Sr" >7 That The!orporation After &edemption, $ust +a e Sufficient Assets In ItsBoo0s To !o er %e.ts ia.ilities Inclusi e Of !apital Stoc0" As A &ule,

&edeema.le Shares Are (ot To Be &e;Issued #nless Allo*ed By ItsArticles 6 9 Treasury Shares Are Shares That +a e Been Issued AndPaid For But Su.se'uently &eac'uired By Purchase, &edemption,%onation Or Any Other a*ful $eans" > It $ay Again Be %isposed OfFor A &easona.le Price As %etermined By The Board" (ote That ItsAc'uisition $ust Be Al*ays Be Funded By Surplus Profits, Other*ise It1iolates The Trust Fund %octrine As !apital Is Impaired"

D" If (on;Stoc0, Amount Of !apital, (ames, (ationalities,&esidences Of !ontri.utors And Amounts"

=@" Such Other $atters (ot Inconsistent )ith a*, )hich TheIncorporators $ay %eem (ecessary And !on enient" (ote, If The!orporation Is To Engage In A (ationalized Business Acti ity, AProhi.ition $ust Be Stated That It )ill (ot Allo* Any Transfer Of Stoc0Or Interest That )ill &educe Its O*nership To ess Than ThePercentage &e'uired By a*"

The Articles, As )ritten In Filipino Or English, $ust Be AccompaniedBy 6=9 Treasurer/s Affida it Indicating !ompliance )ith The >< &ule6>9 A Fa ora.le &ecommendation, If &e'uired, And 6 9 It Should BeAc0no*ledged To Guard Against Fictitious (ames And Signatures"

Procedure For Amendment

#nless Other*ise Pro ided By The !ode Or Special a*, Amendments$ay Ta0e Place By3 6=9 A $a4ority 1ote Of The Board, And 6>9 >?1ote Or )ritten Asset Of Outstanding !apital Stoc0 Or $em.ers 6 9The Original And Amended Articles Are Then Su.mitted To The Sec)ith #nderscorings, %uly !ertified By !orporate Secretary And A$a4ority Of The %irectors That It +as Been %uly Appro ed By The

&e'uired 1ote 6J9 In !ase Of !orporations That Are &egulated ByAnother Go ernment Agency, A Fa ora.le &ecommendation $ust BeSu.mitted i0e*ise"

25 Supra, Section 826 269 S* - 127 Supra, Section 9


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=" The &ule That Allo*s )ritten Assent %oes (ot Apply )hen TheO.4ect Of The Amendment Is To E-tend Or Shorten The Term >8 Or ToIncrease Or %ecrease !apital Stoc0" >D +ence, A $eeting Is (ecessary"

>" The Amendments Are Effecti e 6=9 #pon Appro ed By The Sec,

Or 6>9 From %ate Of Filing )ith The Sec If (ot Acted #pon )ithin 7$onths From %ate Of Filing For A !ause (ot Attri.uta.le To The!orporation" @ This &ule Is (ot Applica.le To An Amendment ToShorten The Term As A $eans To %issol e The !orporation" =

" If It Is A Foreign !orporation Amending Its Articles, It $ust File)ithin 7@ %ays, A %uly Authenticated !opy Of Its Articles OfIncorporation )hich Should (ot Enlarge Or Alter The Purpose For)hich It )as Granted A icense" >

J" Amendments $ay Be &e4ected Or %isappro ed If 6=9 (otSu.stantially In Accordance )ith The Prescri.ed Form 6>9 Purpose Is#nconstitutional, Illegal, Immoral Or !ontrary To Go ernment &ules Or&egulations 6 9 Treasurer/s Affida it Is False 6J9 &e'uired PercentageOf O*nership Of !apital Stoc0 +as (ot Been !omplied )ith 6


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=" +e $ust O*n At east = Share Or At east It Should Be isted In+is (ame As O*ner, If It Is A (on Stoc0 !orporation, +e $ust Be A$em.er"

="= The Presumption Is That One )ho +as Financial Sta0e )ill

%e ote Attention To The Business"

="> )hat $atters Is egal Title To The Share" A Person )ho %oes(ot +old Beneficial Title, i0e The 1oting Trustee In A 1oting TrustAgreement Is Allo*ed To Elected As A %irector" A Pledgee?$ortgageeOn The Other +and !annot Be Elected" One )ho +as Been Elected%irector As A (ominee Of The Pcgg )hich +olds The Shares PursuantTo Se'uestration Is A %e Facto %irector As The Shares $ay Only Be1oted By Its O*ners Or Pro-ies" J

=" O*nership Is A.solute (ecessary #pon Assumption To The OfficeOf An Elected %irector"

="J Bet*een +us.and And )ife, If Both Are isted As O*ners, TheyAre 2ualified To Be Elected But Only One !an Be Elected, #nless TheyO*n Shares isted In Their Indi idual (ames"

>" E ery %irector $ust !ontinuously O*n At east A Share %uring+is Term, Other*ise, +e Shall !ease As A %irector" Any Su.se'uent&epurchase %oes (ot &eturn The %irector To +is Pre ious Position

" A $a4ority $ust Be &esidents Of The Philippines As The BusinessIs Primarily #nderta0en In The Philippines

J" +e $ust (ot +a e Been !on icted By Final udgment Of AnOffense Punisha.le By A Period In E-cess Of 7 ears Or A 1iolation OfThe !ode, !ommitted )ithin A Period Of < ears Prior To The %ate OfElection" J8


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An Educational !orporation That Is Organized By A &eligious Order Or$ission Board"


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>" Ad4ournments Are Allo*ed If (o Election !an Be +ad BecauseThe &e'uired $a4ority Of S?+ Or $em.ers !annot Be +ad, But It!annot Be Ad4ourned Sine %ie Or Indefinitely" (either Is 1oting ByLones Allo*ed As Implied From Section >J )hen It Says That A

$a4ority Of The !apital Stoc0 Or $em.ers Is &e'uired To Be PresentIn A $eeting"

" But If The Stoc0 Is %elin'uent, It %oes (ot +a e 1oting &ights"

(um.er Of %irectors?Trustees

The (um.er Of %irectors To Be Elected In A Stoc0 !orporation Are " Should A 1acancy Arise %ue To !auses Other Than &emo al OrE-piration, It $ay Be Filled By The Board By $a4ority 1ote Of The

&emaining %irectors If Still !onstituting A 2uorum" Other*ise, The1acancy Should Be Filled By The Stoc0holders Or $em.ers In A&egular Or Special $eeting, The Stoc0holder Or $em.er So%esignated Or Elected Shall Only Ser e The #ne-pired Portion Of TheTerm" 7> %esignating The osing !andidate )ho Polled The +ighest(um.er Of 1otes In The Immediate Preceding Election To Fill #p A1acancy )hich Is Automatic In (ature Is !ontrary To a* As AnElection Is &e'uired" 7

" )here A !orporate Office Is (ot Specifically Indicated In The&oster Of !orporate Offices In The By; a*s Of A !orporation, TheBoard Of %irectors $ay Also Be Empo*ered #nder The By; a*s To!reate Additional Officers As $ay Be (ecessary" 7J

J" If The By; a*s Pro ide, The Board $ay !reate A Board OfAd isers )hose Function Should Be Purely Ad isory And Should (ot InAny $anner Be Granted The Authority To Participate In The$anagement And !ontrol Of The Affairs Of The !orporation Since TheyBelong E-clusi ely To The Board" 7" The &e'uisites Of A 1alid Board $eeting Are3 6A9 $eeting Of The%irectors ? Trustees %uly Assem.led As A Board" %irectors?Trustees!annot Attend Or 1ote By Pro-y As Their Personal udgment Is&e'uired 6B9 Presence Of A &e'uired 2uorum 6!9 The %ecision Is&eached By A $a4ority 1ote Of The 2uorum Or By Entire Board As&e'uired By a* 6%9 $eet At The Time, Place And $anner Pro ided InThe By; a*s"

>"= In The A.sence Of A Pro ision In The By; a*s, A $a4ority Of The%irectors?Trustees As Stated In The Articles Of Incorporation Shall!onstitute A 2uorum" The Formula To %etermine The $a4ority Is One+alf Plus One Of The Entire (um.er Of %irectors?Trustees(ot*ithstanding The E-istence Of 1acancies In The Board" 78

>"> A 2uorum Once Esta.lished Is (ot Bro0en By The Su.se'uent)ithdra*al Of A Part Or A Faction Of Those Present, #nless TheTransaction &e'uires The Affirmati e 1ote Of A Greater Proportion" 7D

)hat Is !orporate Go ernance And !orresponding The General&esponsi.ility Of %irectors?Trustees

!orporate Go ernance Is A System )here.y Shareholders, !reditors,And Other Sta0eholders Of A !orporation Ensure That $anagementEnhances The 1alue Of The !orporation As It !ompetes In An

Increasingly Glo.al $ar0et Place"@

It Prescri.es That The Board Of%irectors Is Primarily &esponsi.le For The Go ernance Of A!orporation"67 Supra, Section 4468 S * pinion, &ebruar" 20, 198769 S * pinion, anuar" 25, 199070 Sec, ., !e#inition , S * *o)e o# *orporate =o(ernance, Memoran)um *ircular >o+ 2, Serie o#2002


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+ence, A %irector/s Office Is One Of Trust And !onfidence" +e ShouldAct In The Best Interest Of The !orporation In A $anner !haracterizedBy Transparency, Accounta.ility And Fairness" +e Should E-ercise

eadership, Prudence And Integrity In %irecting The !orporation

To*ards Sustained Progress O er The ong Term" A %irector Assumes!ertain &esponsi.ilities To %ifferent !onstituencies Or Sta0eholders,)ho +a e The &ight To E-pect That The Institution Is Being &un In APrudent And Sound $anner" =

Three Fold %uties Of %irectors

=" They $ust Be %iligent" !ompliance )ith The %uty Of %iligence&e'uires The E-ercise Of &easona.le !are, Prudence, Ade'uate

no*ledge And S0ill"

="= The $eaning And E-tent Of The %uty Of %iligence Is To Be#nderstood To $ean That Those )ho 1oluntarily Ta0e The Position Of%irectors #nderta0e That They Possess, At east, Ordinary no*ledgeAnd S0ill, And That They )ill #se Such In The Performance Of TheirO.ligations"

="> The e el Of !are, S0ill And %iligence That Is &e'uired Is That)hich An Ordinary Prudent $an )ould E-ercise In Similar!ircumstances" > Such, +o*e er, 1aries, %epending On The (ature OfThe Business Of The !orporation" E-ample3 A %irector Of A Ban0ing!orporation Is +eld To A +igher Standard Of %iligence As !omparedTo A %irector In A $anufacturing !orporation"

=" !onse'uently, A %irector Should E-ert Effort To O.tain A Basic#nderstanding Of The Business Of The !orporation" +e $ust BeFamiliar )ith Its Operations" +e Should Be A.le To Prepare +imselfFor Board $eetings To To Be A.le To $a0e An Informed %ecision"

="J This %uty Is Specifically Imposed By The !orporation !ode,)hen It Pro ides That3 %irectors Or Trustee )ho )illfully And

no*ingly 1ote For Or Assent To Patently #nla*ful Acts Of The!orporation Or )ho Are Guilty Of Gross (egligence In %irecting ItsAffairs Shall Be ia.le ointly And Se erally For All %amages &esulting

71 Sec+ ..+6+a, 1 t Par+, S * *o)e o# *orporate =o(ernance, Memoran)um *ircular >o+ 2, Serieo# 200272 *ampo an) $ope?@*ampo ,pp 472@478


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Therefrom Suffered By The !orporation, Its Stoc0holders Or $em.ers,And Other Persons"

="< !orollary To This %uty Of %iligence Is The Protection Afforded To%irectors #nder The Business udgment &uleH" If In The !ourse Of

$anagement, They Arri e At A %ecision For )hich There Is &easona.leBasis And They Acted In Good Faith, As The &esult Of TheirIndependent udgment, And #ninfluenced By Any !onsideration, OtherThan )hat They Belie e To Be For The Best Interest Of The!orporation, It Is (ot The Function Of The !ourt To Say That It Should+a e Acted %ifferently And To !harge The %irectors For Any oss OrE-penditures Incurred" J

>" They $ust Be oyal By eeping The Interest Of The !orporationA.o e Personal $oti es" !ompliance )ith This %uty &e'uires That The%irector Act In $anner !haracterized By Transparency, Accounta.ilityAnd Fairness"

>"= The Basic Principle To Be O.ser ed Is That A %irector Should (ot#se +is Position To $a0e Profit Or To Ac'uire Benefit To Ad antage For+imself And?Or +is &elated Interests" +e Should A oid Situations That$ay !ompromise +is Impartiality" If An Actual Or Potential !onflict OfInterest Should Arise On The Part Of %irectors Or Seniors E-ecuti es,It Should Be Fully %isclosed And The !oncerned %irector Should (otParticipate In The %ecision $a0ing" A %irector )ho +as A !ontinuing!onflict Of Interest Of A $aterial (ature Should !onsider Inhi.iting Or&esigning"

>"> This %uty Is Specifically Imposed By The !orporation !ode InThe Pro isions &egarding Self;%ealing %irectors "A The General &ule Is A !ontract Bet*een A Self %ealing%irector?Trustee Or Officer And The !orporation Is 1oida.le At TheOption Of The !orporation" (ot*ithstanding, The !ontract Shall Be1alid )hen3 6A9 Presence Of The %irector?Trustee In The Board

$eeting In )hich The !ontract )as Appro ed )as (ot (ecessary To!onstitute A 2uorum 6B9 +is 1ote Is (ot (ecessary To Appro e The!ontract 6!9 That The !ontract Is Fair And &easona.le #nder The73 Supra, Section 3174 &i)uciar" !utie o# *orporate !irector un)er t'e S *A >e% *o)e o# *orporate =o(ernance,Sole)a) M+ *agampang@)e *a tro, citing *a e" ( Woo)ru##, 49 >+ +S+ 2) at p+ 64375 Supra, Section 3276 Supra, Section 3377 Supra, Section 34


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!ircumstances" In The !ase Of An Officer, The !ontract +as Pre iouslyBeen Appro ed By The Board"

If +o*e er, !onditions 6A9 And 6B9 Are A.sent, The !ontract $ay Be&atified By >? 1ote Of The Outstanding !apital Stoc0 In A $eeting

%uly !alled For Such Purpose )ith Full %isclosure Of The Ad erseInterest Being $ade At The $eeting And That The !ontract Is(e ertheless Fair And &easona.le" (ote That There Is (o &e'uirementThat The !orporation Suffer %amage

>">"B The &ule That O.tains As Far As !ontracts Bet*een !orporations)ith Interloc0ing %irectors Is That The !ontract Is 1alid As ong AsThere Is (o Fraud And The !ontract Is Fair And &easona.le" +o*e er,If A %irector/s Interest In One !orporation Is Su.stantial And +isInterest In The Other !orporation?S Is (ominal, The !ontract Shall BeSu.4ect To The Pro isions Of Section > Insofar As The !orporation?S)here +e +as A (ominal Share As It Is As If The !orporation IsTransacting )ith A Self %ealing %irector" Shareholdings In E-cess Of>@K Of The Outstanding !apital Stoc0 Shall Be !onsideredSu.stantial"

>">"! A %irector Is %isloyal If By 1irtue Of +is Office, +e Ac'uires For+imself A Business Opportunity )hich Should Belong To The!orporation, There.y O.taining Profit, +e $ust Account For It By&efunding The Same To The !orporation, E en If The %irector &is0ed+is O*n Funds In The 1enture, #nless, +is Act Is &atified By A 1ote OfThe Stoc0holders O*ning Or &epresenting >? Of Outstanding !apitalStoc0" This Is Also no*n As The %octrine Of !orporate Opportunity"

The Pro ision %oes (ot Apply If3 6A9 +e Acts In Good Faith, Or, 6B9The !orporation Is #na.le To #nderta0e The Opportunity Or The SameIs (ot Essential To The !orporation"

The %uty Of oyalty Of A %irector Precludes The %irector FromAc'uiring An Opportunity That Is Open To The !orporation Because

That Is In Effect !ompeting )ith The !orporation, Oftentimes )ithThe Ad antage Of Inside Information Thus %epri ing It Of The ProfitsThat It )ould +a e Other*ise Earned" )hether The ParticularOpportunity Is One )hich Properly Belongs To The !orporation Is A2uestion Of Fact )hich $ust Be %ecided In The ight Of The!ircumstances Of Each !ase" This &ule Is Premised On The PrinciplesOf Trust"H It Is The Position Of %omination And !ontrol That $a0esThe Ta0ing Of !orporate Opportunity O.4ectiona.le"


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>">"% %istinguishing Bet*een Section = And Section J, The FormerSpea0s Of The Ac'uisition Of Any Personal Or Pecuniary Interest In!onflict )ith +is %uty In &espect To A $atter &eposed In +im In!onfidence As To )hich E'uity Imposes A %isa.ility To %eal In +is

O*n Behalf, +e Shall Be ia.le As A Trustee And $ust Account For AllProfits That )ould +a e Other*ise Accrued To The !orporation" )hatIs 1iolated Is The Trust That Is Specifically &eposed, Thus There Is (o&atification, The atter Spea0s Of A 1iolation Of The General TrustThat Is &eposed On A %irector"

>" The Sanction For A 1iolation Of This %uty Is The ia.ility For%amages #nder Section = Of The !orporation !ode And Forfeiture OfThe Benefits O.tained"

" They $ust Be O.edient By eeping )ithin The Po*ers Of The!orporation" The %uty Of O.edience Simply $eans That %irectors AreBound To O.ser e The imits Of Their Authority" They Should (otPerform Acts )hich Are Beyond The Po*ers Of The !orporation, (orShould They Assume To Act In Situations )here The a* +as Gi enSuch Prerogati e To The Stoc0holders" Should They Go Beyond The

imits, They Are Personally &esponsi.le For Any %amages )hich The!orporation $ay Suffer #nless They Acted In Good Faith And )ith %ue!are In The E-ercise Of Their Business udgment"

=" This $eans That The Board $ust eep )ithin The Po*ers Of TheInstitution As Prescri.ed In The Articles Of Incorporation, By; a*s,And In E-isting a*s, &ules And &egulations" !onduct And $aintainThe Affairs Of The Institution )ithin The Scope Of Its Authority AsPrescri.ed In Its !harter And In E-isting a*s, &ules, And&egulations" 8

>" The A.o e Principle Is Em.odied In The !oncept Of #ltra 1iresPronounced In The !orporation !ode That3 (o !orporation #nder This!ode Shall Possess Or E-ercise Any !orporate Po*ers E-cept Those!onferred By This !ode In Its Articles Of Incorporation And E-cept

Such As Are (ecessary Or Incidental To The E-ercise Of The Po*ers So!onferred" D

Other ia.ilities Of A %irector

78 Section ..+6+b, S * *o)e o# *orporate =o(ernance, Memoran)um *ircular >o+ 2, Serie o#2002

79 Supra, Section 45


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Although (ot A $andatory &e'uirement, It +as Been +eld To Be%esira.le To +a e A Seal As It Is Prima Facie E idence That TheInstrument To )hich It Is Attached Is The Act Of The !orporation 6J9To Amend Its Articles In Accordance )ith The Pro isions Of The !ode"The Appropriate Pro ision Is Section =J As Far As Amendments

Pertaining To The (ame, Place Of Principal Business, Term, AndAuthorized !apital Stoc0 Of The !orporation 6


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>"= In !ase Of An E-tension, A Stoc0holder Is Allo*ed To E-ercise+is Appraisal &ight" This Is Also Allo*ed )hen The Term IsShortened" 8

>"> The General &ule Of Assumed Appro al #nder Section =7 Is (ot

Applica.le As The %ate Of Appro al By The Sec $ay Be Before TheEffecti ity %ate Of The E-tension, To %etermine !ompliance )ithSection == Or Shortening, )hich $ay Be In The (ature Of A 1oluntary%issolution )hich &e'uires The !onsent Of The State"

" Po*er To Increase Or %ecrease !apital Stoc0, Incur, !reate OrIncrease !orporate Bonded Inde.tedness Is #nderta0en By A $a4ority1ote Of The Board And 1ote Of >? Of The Stoc0holders +olding The!orporation/s Outstanding !apital Stoc0 Or $em.ers $ust Fa or TheIncrease Or %ecrease At A $eeting To )hich They +a e &ecei ed)ritten (otice Addressed To Their &esidences As Sho*n In The Boo0s%eposited At The Post Office Or %eli ered Personally" For (on Stoc0!orporations, The Same &e'uirement Is &e'uired )hen It !reates OrIncreases !orporate Bonded Inde.tedness

After The $eeting : A !ertificate In %uplicate $ust Be Signed By A$a4ority Of The %irectors, !ountersigned By The !hairman AndSecretary Of The $eeting Stating That3 6A9 &e'uirements Of ThisSection +a e Been !omplied )ith6>9Amount Of %ecrease Or%iminution Of !apital Stoc0 6 9 If !apital Is Increased 6A9Amount Of!apital Stoc0 Or (o" Of Shares Su.scri.ed : Total 6B9 (ames,(ationalities, &esidences Of Persons Su.scri.ing And The (o" OrAmount Su.scri.ed By Each, The Amount Paid In !ash Or Property 6!9Or, Amount Of !apital Stoc0 Or (um.er Of Par 1alue Stoc0 Allotted ToEach Stoc0holder If Such Increase Is For The Purpose Of $a0ingEffecti e A Stoc0 %i idend Therefore Authorized 88 6J9 Any BondedInde.tedness To Be Incurred, !reated Or Increased 6


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)ith The >< &ule" If !orporate Bonded Inde.tedness, The&egistration Of The Bond For The Sec To %etermine Sufficiency OfTerms"

From And After Sec Appro al And Issuance Of A !ertificate Of Filing,

The !apital Stoc0 Shall Stand Increased? %ecreased Or That BondedInde.tedness +as Been Incurred !reated Or Increased" Pro ided : (o%ecrease Shall Be Appro ed If !reditors Are Pre4udiced Or Terms OfBond Issue Is (ot Sufficient" 8D

"= imitations3 The %ecrease In !apital Stoc0 )ill (ot Be Allo*edIf It )ill &elie e Stoc0holders Of The O.ligation To Pay For TheirSu.scription )ithout 1alua.le !onsideration" +ence, All Su.scriptions$ust Be Paid"

"> (ote That An Increase In E-cess Of The Amount Stated In TheArticles Is #ltra 1ires As There $ust Be An Amendment Of The ArticlesAnd A &eduction ? Increase Of The !apital Stoc0 !an Only Ta0e PlaceIn The $anner Pro ided For By a*"

" )ays Of Increasing ? %ecreasing !apital Stoc0 Areas Follo*s36=9 Increase ? %ecrease The (um.er Of Shares )ithout Increasing ?%ecreasing Par 1alue 6>9Increase ? %ecrease Par 1alue )ithoutIncreasing The (um.er Or Shares 6 9Or Both

"J A &eduction !reates A Surplus If !apital Is (ot Impaired Byosses" The Surplus !an Be %istri.uted To Stoc0holders As ong As

The Surplus Is O er And A.o e The Par 1alue Of The Outstanding!apital Stoc0 As &educed And Other !orporate Inde.tedness, And TheAssets So %istri.uted )ill (ot Be &e'uired To !arry Out The Business"

"< Bonds Are #nderta0ings That Are Fully Secured" It +as Parties6A9 Borro*ing !orporation 6B9 Bond +older, And 6!9 Trustee Or+older Of The Security

J" Po*er To %eny Pre;Empti e &ights; Pre;Empti e &ights &efer ToThe &ight To Su.scri.e To All Issues Or %isposition Of Shares InProportion To A Stoc0holder/s Shareholdings"

J"= The &eason For Its Allo*ance Is To Preser e A Stoc0holder/s#naltered And #nimpaired Influence In The !orporation" It %oes (otApply To Shares Originally #nsu.scri.ed Or #ndisposed"89 Supra, Section 38


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J"> As A General &ule : It E-ists But $ay Be &estricted Or %enied ByThe Articles Or An Amendment" It )ill (ot E-ist )hen 6A9 The SharesAre Issued In !ompliance )ith a*s &e'uiring Stoc0 Offerings Or$inimum Stoc0 O*nership 6B9 The Shares Are Issued In Good Faith

)ith Appro al Of Stoc0holders &epresenting >? Of The Outstanding!apital Stoc0 In E-change For Property (eeded For !orporatePurposes Or In Payment Of A Pre iously !ontracted %e.t" D@

J" If The Pre;Empti e &ight Is Offered But (ot E-ercised, It %oes(ot Follo* That It )ill Be Offered To Other Stoc0holders"

J"J If &estricted By An Amendment, A Stoc0holder $ay E-ercise +isAppraisal &ight"


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Source Of %i idends But (ot All Profits Are %i idends #ntil So %eclaredOr Set Aside"

8"> The Board $ay %eclare %i idends Out Of #nrestricted &etainedEarnings 6Total Assets : ess ia.ilities And egal !apital9, Paya.le In

!ash, In Property Or In Stoc0 To All Stoc0holders On The Basis OfOutstanding Stoc0 +eld By Them" The Basis Is Total Su.scription"Pro ided, That Any !ash %i idend %ue On %elin'uent Stoc0 Shall FirstBe Applied To The #npaid Balance, !osts, And E-penses Or If It Be AStoc0 %i idend : It Is )ithheld #ntil The #npaid Su.scription Is Paid"Pro ided, Further, That Stoc0 %i idends $ay Only Be Issued )ithAppro al Of The Stoc0holders &epresenting >? Of The Outstanding!apital Stoc0 At $eeting %uly !alled For Such Purpose"

8" %i idends Are #sually %eclared At The End Of A Fiscal ear AsEarlier Profits $ay Be Offset By osses"

8"J Only Stoc0holders Are Entitled To A %i idend As It Is An IncidentOf Stoc0 O*nership" An E-ception Is )hen It Is $ade Paya.le To AStoc0holderon &ecord At A Specified %ate" If So, It Is The Seller )hoIs Entitled To The %i idend E-cept )hen There Is A !ontraryStipulation" The &ule Also Applies To Other #nrecorded %ispositions"

8"< The &ight Of A Stoc0holder To The %i idend Is Immediate If It IsA !ash %i idend" The !orporation Becomes A %e.tor Of TheStoc0holder" If It Is A Stoc0 %i idend, It Is Su.4ect To A Stoc0holder1ote And An Increase Of !apital Stoc0, If It !omes From A (e*Issuance"

8"7 %eclaration Of %i idends Is Generally %iscretionary, ButBecomes $andatory )hen Its Surplus Profits Are In E-cess Of =@@KOf Paid In !apital Stoc0" E-cept3 6=9 )hen ustified By %efinite!orporate E-pansion Pro4ects Or Programs Appro ed By The Board 6>9)hen It Is Prohi.ited By A oan Agreement )ith Any FinancialInstitution Or !reditor From %eclaring %i idends )ithout Its !onsent

And The !onsent Is (ot et O.tained 6 9 )hen It !an Be Sho*n ThatSuch &etention Is (ecessary #nder Special !ircumstances O.taining InThe !orporation, As There Is A (eed For A Special &eser e ForPro.a.le !ontingencies"

8" (o Action !an Be Brought Against A !orporation Because It Is(ot A $atter Of &ight But Of !onsensus" D 97 epublic Planter Ban ( -gana, 269 S* - 1


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8"8 inds Of %i idends Are3 6=9 !ash %i idend 6>9 Stoc0 %i idend6 9 Property %i idend 6J9 Optional %i idend : The Stoc0holder IsGi en The Option To &ecei e !ash?Stoc0?Property 6


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$a4ority Of The Board Of The $anaging !orporation i0e*ise!onstitute A $a4ority Of The Board Of The $anaged !orporation : The!ontract $ust Be Appro ed By >? 1ote Of The Outstanding !apitalStoc0 Or Of The $em.ers Of The $anaged !orporation"

D"= Any !ontract )here.y A !orporation #nderta0es To $anage OrOperate All Or Su.stantially All Of The Business Of Another!orporation : E en If !alled Ser ice !ontract Or Operating !ontract

D"> The %uration Of A $anagement !ontract !annot Be For Periodsonger Than < ears At Any Gi en Time" E-cept : )hen It &elates To

E-ploitation, %e elopment E-ploitation Or #tilization Of (atural&esources : Then It Is To Be Go erned By Pertinent a*s Or&egulations"

D" By )ay Of A imitation In A $anagement !ontract, InInterpreting Its Pro isions,It $ust Be &ead As Su.4ecting Its TermsTo The &ight Of The Board Of The $anaged !orporation To Gi eSpecific %uties Or &ecall The %elegation, As To +old Other*ise1iolates Section > Of The !ode"

=@" #ltra 1ires Acts Of The !orporation Are Acts That Are In 1iolationOf The !ode As It Pro ides That3 (o !orporation Shall Possess OrE-ercise !orporate Po*ers E-cept Those !onferred By The !ode, ItsArticles And E-cept As Such Are (ecessary Or Incidental To TheE-ercise Of The Po*ers So !onferred" DD

=@"= &atification Is Possi.le If (ot Illegal =@@

=@"> If The !ontract Entered Into By The !orporation Is #ltra 1ires,The Follo*ing Apply3 6=9 If $erely E-ecutory On Both Sides, It !annotBe Enforced By Either 6>9 If Fully Performed, (either Party !an Set ItAside 6 9 If Performed On One Side, &eco ery Is Allo*ed As &etentionOf Benefits )ithout Performance !annot Be Allo*ed"

=@" If #ltra 1ires In Part Only And If Separa.le, It Is 1alid As To ThePart (ot #ltra 1ires, In alid As To The Other Part"

=@"J The #ltra 1ires %octrine $ay Be In o0ed By3 6=9 The State As A!orporation Allo*s Its E-istence To The State, Its Po*ers Are imited

99 Supra, Section 45100 epublic ( -co e, 7 S* - 361


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By The Grant Of Authority By The State 6>9 Stoc0holders As They +a eA &ight To E-pect And Insist That The !orporation Adhere To The

imits Of Its Granted Po*ers 6 9 Strangers, If They Are Party To The!ontract 6J9 !ompetitors Only If Allo*ed By Statute 6 Procedure For Adoption

=">"= Before Incorporation : Appro ed And Signed By All IncorporatorsAnd Filed Simultaneously )ith The Articles

=">"> After Incorporation : )ithin A $onth After &eceipt Of The!ertificate Or Incorporation"

=">" By; a*s Are Adopted By The Affirmati e 1ote Of Stoc0holders Or$em.ers &epresenting A $a4ority Of The Outstanding !apital Stoc0 OrIts $em.ers" It Is To Be Signed By Stoc0holders Or $em.ers And Is

ept In The Principal Office Su.4ect To Inspection" A !opy !ertified ByA $a4ority Of The %irectors ? Trustees !ounter; Signed By The!orporate Secretary Is Filed )ith The Sec And Attached To TheArticles" =@=

=">"J The By; a*s Are &endered 1alid #pon The Issuance By The SecThat It Is (ot Inconsistent )ith The !ode" If &egulated By SpecificAgencies, It &e'uires A !ertification From Said Agency That The By;

a*s Are In Accord )ith Their &egulations"=" Elements Of 1alid By; a*s

6A9 They $ust (ot Be !ontrary To The !ode, It Is 1oid If !ontrary ToThe !ode 6B9(ot Be !ontrary To $oral Or Pu.lic Policy 6!9 $ust (otImpair O.ligations Of !ontract : As A General &ule 6%9 They $ust Be101 Supra, Section 46


39/83

General And #niform In Application 6E9 They $ust Be !onsistent )ithThe !harter ? Articles 6F9 They $ust Be &easona.le : !apa.le Of!ompliance"

=" "= By; a*s !annot Affect rd Persons That %eal )ith The

!orporation #nless They +a e Full no*ledge Of The Pertinent PortionOf The By; a*s Affecting Their Transaction" =@>

=" "> (o Pro ision Of The By; a*s $ay Be Adopted If It Is !ontrary Toa*" Tolerance !annot Be !onsidered &atification" The Practice (o

$atter +o* ong !ontinued !annot Gi e &ise To A 1ested &ight If It Is!ontrary To a*" =@

="J !ontents Of By; a*s

The By; a*s Should !ontain The Follo*ing3 6A9 Time, Place, $annerOf !alling And !onduct And &egular Or Special $eetings Of %irectorsOr Trustees, Stoc0holders Or $em.ers 6B9 &e'uired 2uorum In$eetings Of Stoc0holders Or $em.ers And The $anner Of 1oting 6!9Form Of Pro-ies Of Stoc0holders Or $em.ers And The $anner Of1oting Them 6%9 2ualifications, %uties And !ompensation Of %irectors,Trustees Officers, And Employees 6E9 Time Of The +olding Of ElectionsOf %irectors?Trustees And The $anner Of Gi ing (otice Thereof 6E9$anner Of Election Or Appointment And The Terms Of Officers OtherThan %irectors?Trustees 6F9 Penalties For 1iolation Of By; a*s 6G9 InStoc0 !orporation $anner Of Issuing !ertificates 6+9 Such Other$atters As $ay Be (ecessary For The Proper !onduct Or !on enientTransaction Of Its !orporate Business And Affairs" =@J

="< Amendment Of By; a*s !an Be #nderta0en By A $a4ority 1oteOf The Board And $a4ority 1ote Of Stoc0holders Or $em.ers In A$eeting %uly !alled For That Purpose Or By 1ote Of The Board, If ThePo*er To Amend +as Been %elegated By >? 1ote Of The Outstanding!apital Stoc0 Or $em.ers" Pro ided, It $ay Be &e o0ed By $a4ority1ote Of Stoc0holders Or $em.ers At A &egular Or Special $eeting"(ote3 Omission Of The Place At A $eeting %uly !alled For The

Purpose"=@$ *, 277 S* - 462, *'ina Ban ing *orporation ( *ourt o# -ppeal , 270S* - 503103 =race *'ri tian /ig' Sc'ool ( *ourt o# -ppeal , 281 S* - 133104 Supra, Section 47105 Supra, Section 48


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Secretary And A $a4ority Of The Board Is Filed )ith The Sec" It IsEffecti e #pon Issuance By Sec Of A !ertification That It Is (otInconsistent )ith The !ode"

="7 %istinguished From Articles

6A9 Articles Is The Fundamental a*" By; a*s Pro ides &ules Or&egulations 6B9 Articles E-ecuted Before Incorporation, By; a*s Are#sually E-ecuted After Incorporation 6!9 The Filing Of Articles Is A!ondition Precedent To Incorporation, )hile The Filing Of By; a*s Is A!ondition Su.se'uent"

Meetings

)hen +eld

=" &egular $eetings Of Stoc0holders?$em.ers Are +eld AnnuallyOn The %ate Fi-ed In The By; a*s Or On Any %ate In April As%etermined By The Board, Special $eetings Are +eld At Anytime As%eemed (ecessary Or As Fi-ed In The By; a*s" =@7

>" &egular $eetings Of %irectors?Trustees Are +eld $onthly #nlessOther*ise Pro ided, Special $eetings Are +eld At Anytime #pon !allOf The President" =@

(otice &e'uirements

=" &egular $eetings Of Stoc0holders?$em.ers &e'uire > )ee0(otice, )hile Special $eetings &e'uire = )ee0 (otice, #nless The By;

a*s Pro ide Other*ise"

>" &egular $eetings Of %irectors?Trustees &e'uire One %ay(otice #nless Other*ise Pro ided"

" (otice !an +o*e er Be Impliedly Or E-pressly )ai ed"

)here $eeting Is To Be +eld

=" Stoc0holders?$em.ers Are To Be +eld In The !ity Or$unicipality )here The Principal Office Is ocated" =@8

106 Supra, Section 50107 Supra, Section 53108 Supra, Section 51


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>" Board $eetings !an Be +eld Any*here In Or Outside Of ThePhilippines #nless The By; a*s Pro ide Other*ise" =@D

)ho Presides

=" In All Instances, The President Presides #nless Other*isePro ided" ==@

>" )here The $eeting Is !alled By A Stoc0holder Or A $em.er#pon Sho*ing Of Good !ause To The Sec, The Stoc0holder Or $em.erIs Allo*ed To Preside #ntil A Presiding Officer Is Elected" ===

)ho !alls

=" The Person %esignated In The By; a*s, A %irector? Trustee OrOfficer Entrusted )ith $anagement, The Petitioning Stoc0holder Or$em.er, In !ases Of &emo al, The !orporate Secretary Or AStoc0holder Or $em.er In Proper Instances"

1alidity Of Actions

=" In Stoc0holder Or $em.er $eetings, There Being A 2uorum!onsisting Of A $a4ority Of The Outstanding !apital Stoc0 ==> , TheBusiness So Transacted Shall Be 1alid If )ithin The Po*ers Of The!orporation" E en If $eeting Is Improperly !alled Or +eld, Acts AreStill 1alid If )ithin The Po*ers Of The !orporation And AllStoc0holders Or $em.ers Are Present Or %uly &epresented" ==

>" (ote The Follo*ing Instances )hen Only A $a4ority 1ote Is&e'uired Of Stoc0holders Or $em.ers3 6A9 Election Of $em.ers OfThe Board ==J 6B9 &emo al Of %irectors Or Trustees ==< 6!9 Appro al Of$anagement !ontracts ==7 6%9 Adopt By a*s?Amend?Or &epeal Or

109 Supra, Section 53110 Supra, Section 54111 Supra, Section 50112 Supra, Section 52113 Supra, Section 51114 Supra, Section 24115 Supra, Section 28116 Supra, Section 44


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&e o0e Po*er %elegated To The Board == 6E9 Fi- Issued Price Of (o Par1alue Shares ==8 6F9 Fi-ing !ompensation Of %irectors ==D

>" In %irectors Or Trustees $eetings, There Being A 2uorum =>@, All

Acts Are 1alid" But If (ot #nderta0en In A %uly !on ened $eeting,They Are Generally In alid But $ay Be &atified"

)hy Are $eetings (ecessary $eetings Are (ecessary Because !orporate Po*ers Are 1ested In TheBoard Or Stoc0holders Or $em.ers As A Body And (ot As Indi iduals"It Ser es As Protection And Assurance To Stoc0holders Or $em.ers AsIt Affords Them An Opportunity To Be +eard And To %iscuss The$atter At +and And 1ote Thereon"

&e'uisites Of A 1alid $eeting Of Stoc0holders Or $em.ers

The &e'uisites Are3 6A9 +eld At The Proper Place 6B9 +eld At TheStated %ate And Time Or At A &easona.le Time Thereafter 6!9 !alledBy The Proper Person 6%9 Pre ious (otice $ust Be Gi en 6E9 There$ust Be A 2uorum"

)hen Are $eetings (ot (ecessary

The Instances )hen $eetings Are (ot (ecessary Are 6A9 )hen A!orporation Amends Its Articles And )ritten Asset Is Sufficient =>= 6B9)hen There Is An Agreement To Be Bound %espite The A.sence Of A$eeting 6!9 )hen The Articles Of A !lose !orporation Allo*s %irectorsTo Ta0e Action )ithout A $eeting =>>

!an $eetings Be Postponed

As A &ule, $eetings $ay Be Postponed But Annual $eetings !annot BePostponed If The Purpose Is To E-tend The Term Of Office Of %irectorsOr Trustees"

!ompensation For Attending Stoc0holder Or $em.er $eetings

117 Supra, Section 48118 Supra, Section 62119 Supra, Section 30120 Supra, Section 25121 Supra, Section 16122 Supra, Section 101


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They Are (ot Entitled To Payment For Attending $eetings As They AreE-ercising A &ight (ot &endering A Ser ice" (ote That Section J 6


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They !annot Attend Or 1ote By Pro-y;%istinguish From Pro-y Of A!orporation; Ps.a 1s" eano, => Scra 8&e'uisites Of A 1alid Pro-y

The &e'uisites Are 6A9 It $ust Be In )riting And Signed By The S?+ Or$ 6B9 Filed Before The Scheduled $eeting )ith The !orporateSecretary 6!9 It Should (ot Be 1alid And Effecti e For A Period Of !onsecuti e )ee0s

In The Auction Sale3

=" The )inning Bidder Shall Be The One )ho Shall Pay The FullAmount Of The Balance And All E-penses For The east (um.er OfShares 6(o %eficiency Because The )inning Bid !annot Be ess ThanThe Amount %ue9

>" The Stoc0 So Purchased Is Transferred In The (ame Of ThePurchaser, The &est If Any Goes To The %elin'uent S?+

" If There Is (o Bidder The !orporation $ay Purchase The Shares

(ote3 That The +ighest Bidder/s Bid $ay Be &e4ected By The Board AsIn A Pu.lic Auction Sale, The !orporation Is (ot $a0ing An Offer ToSell But &ather The Purchaser Is Offering To Buy 6Article = >7 (cc9

If %elin'uent Stoc0 Is Sold

It $ay Be &eco ered On The Ground

=" There Is A %efect Or Irregularity In The (otice Of Sale

>" There Is A %efect Or Irregularity In The Sale Itself

Pro ided, Party Bringing The Action Pays To The Person +olding The

Stoc0 The Sum Paid N egal Interest From %ate Of Sale And TheAction Is Brought )ithin Si- $onths From %ate Of Sale

+o*e er, (othing Pre ents The !orporation From !ollecting The#npaid Su.scription By udicial Action 6Section @9 But A !all Is Still(ecessary


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Once Paid : )ith Interest And E-penses : A Stoc0 !ertificate $ay (o*Be Issued : 6Section 7J9 See Bitong 1" !a >D> Scra 9 A!ertificate )as Issued For ess Than The (um.er Su.scri.ed Pro idedThe Par 1alue Of Each Of The Stoc0s &epresented By The !ertificate+as Been Fully Paid" Basis Is Sec Of The Old a*" +ence, By; a*sOf Older !orporations $ay !arry Such A Pro ision"

)hat Is )atered Stoc0

Stoc0 Issued 6(ot Su.scri.ed9 (ot In E-change For Its E'ui alent In!ash, Property, Shares, Stoc0 %i idends Or Ser ices"

It Includes Stoc0 That Is Issued 6A9 )ithout !onsideration 6B9 IssuedAs Fully Paid )hen The !orporation &ecei es A Sum ess Than Par OrIssued 1alue 6!9Issued For A !onsideration Other Than !ash, The Fair1aluation Of )hich Is ess Than Par Or Issued 1alue 6%9 Stoc0%i idend )ithout Sufficient &eturned Earnings Or Surplus"

The %irector Or Officer !onsenting Or +a ing no*ledge, And %oes(ot E-press That Same In )riting And Files It )ith The !orporateSecretary Shall Be3 Solidarily ia.le )ith The S?+ To The !orporationAnd It !reditors For The %ifference Bet*een The Fair 1alue &ecei edAt The Time Of Issuance And Its Actual Par Or Issued 1alue"

Basis Of ia.ility : Because A Party Gi ing !redit To A !orporation IsEntitled To &ely #pon Its Ostensi.le !apitalization As The Basis ForThe !redit Gi en, Thus If )atered Stoc0 Is Issue, The Ostensi.le!apital Is In E-cess Of &eal Assets, There.y +e &eco er ess"

(ote That 6A9 Only Originally Issued Stoc0 $ay Be )atered : As ASu.se'uent Transfer Is A Sale, The Pro ision Says Issuance 6B9


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Su.se'uent Increase In 1alue )ill (ot Eliminate )ater, astParagraph Of Section 7< States That Point Of &ec0oning Of ia.ility IsIssuance"

(ature Of Stoc0 !ertificates

Stoc0 !ertificates Are In The (ature Of Personal Property" +ence,Transfer $ay Be Effected By %eli ery And Indorsement" But (oTransfer Shall Be 1alid Bet*een The Parties #nless It Is &ecorded InThe Boo0s Of The !orporation" )hat Is &ecorded Is The (ame, %ate,(um.er Of Shares And (um.er Of The !ertificate" It $ust Be&ecorded By The !orporate Secretary : If (ot It Is In alid" 6Torres 1"!a > 8 Scra D 9

But (o Share O er )hich The !orporation +olds An #npaid !laim 6A%elin'uency;!hina.an0 1s" !a, > @ Scra D (cc9 &e'uiring The !onsent Of The !reditor

&easons For &e'uiring &egistration

=" Ena.le The !orporation To no* At All Times )ho Its S?+ Are As$utual &ights And O.ligation E-ists Bet*een Them"

>" To Afford The !orporation A &ight Or Opportunity To O.4ect Or&efuse !onsent To A Transfer In !ase It +as A !laim"

" To A oid A Fictitious Or Fraudulent Transfer"

Effects Of An #nregistered Transfer

=" 1alid Bet*een Transferor ? Transferee

>" In alid Against The !orporation E-cept If (otice Is Gi en

" In alid Against !orporate !reditors 6Piercing ? )atered Stoc0s9

J" In alid Against !reditors Of Transferors


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&emo e %irectors 6!9 Appro e !orporate Acts 6%9 Adopt ? Amend By;a*s 6E9 !ompel The !alling Of A $eeting 6F9 Issuance Of A Stoc0

!ertificate 6G9 &ecei e %i idends 6+9 &ecei e Property #pon%issolution 6I9 Transfer Stoc0 6 9 Pre;Emption 6 9 Inspection Of Boo0s6 9 Secure Financial Statements 6$9&eco er Stoc0 At %elin'uency If

#nla*fully Sold 6(9Enter Into 1oting Trust Agreements 6(9 E-erciseThe &ight Of Appraisal 6O9Participate In %issolution 6P9 Bring%eri ati e Suits" Summary : &ight To %i idends, Participate In$anagement, Share In !orporate Property #pon %issolution

%eri ati e Suit

A %eri ati e Suit Is One Brought By One Or $ore Stoc0holder?S Or$em.er?S In The (ame Of The !orporation And In Its Behalf To&edress )rongs !ommitted Against It Or To Protect Or 1indicate!orporate &ights )hene er The Officials Of The !orporation &efuse ToSue, Are The Ones To Be Sued Or +old !ontrol Of The !orporation"

=" It Is An A aila.le &emedy In !ases )here The Officers Are O er!ompensated Or There Is A &efusal To Ta0e Action )ithout SufficientE-planation"

>" The &e'uisites For Its Institution Are3 6A9 There $ust Be AnE-isting !ause Of Action 6B9 That %emand To Sue +as Been $ade,#nless %emand Is #seless =>J 6&eyes 1" Tan Scra =D89 6!9 That +e$ust +a e Been A Stoc0holder Or $em.er At The Time The Act )as!ommitted #nless It Be !ontinuing =>< 6%9 Action Is Brought In The!orporate (ame"

" %o (ot !onfuse )ith Suit Brought In S?+ (ame : Indi idualSuit : Or If !ommitted Against A Group It Is A; &epresentati e Suit"

J" The (um.er Of Shares +eld Is Of (o !onse'uence" )hat Is&e'uired Is That The Party Bringing Suit Is A Stoc0holder )ithout&egard To The (um.er Of Shares +eld"

Corporate Boo!sThe Follo*ing !orporate Boo0s And &ecords $ust Be ept AndPreser ed At Its Principal Office 6=9 &ecord Of All BusinessTransactions 6>9 $inutes Of Stoc0holders Or Board $eetings, SettingForth3 Time And Place, +o* Authorized, (otice Gi en, )hether

124 e"e ( Can, 3 S* - 198125 Bitong ( *ourt o# -ppeal , 292 S* - 503


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&egular Or Special, Those Present?A.sent, E ery Act %one Or Ordered"#pon %emand, The Time That The A %irector, Trustee Or OfficerEntered Or eft, The eas And The (ay, And Any Protest $ay Be&ecorded In Full 6 9 Stoc0 And Transfer Boo0 )hich Should !ontain A&ecord Of All Stoc0s, (ames Of Stoc0holders, Installments

Paid?#npaid, Statement Of Alienation, %ate Thereof And Other $attersPrescri.ed By The By; a*s" (ote Though That The Stoc0 And TransferBoo0 !an Be ept )ith The Stoc0 And Transfer Agent Or OnePrincipally Engaged In The Business Of &egistering Transfers Of Stoc0sIn Behalf Of A !orporation" =>7

=" All Boo0s Are A aila.le For Inspection At &easona.le +ours OnBusiness %ays, And In !ases Of &ecords Other Than The Stoc0 AndTransfer Boo0, A %emand In )riting For E-cerpts !an Be $ade

>" Any Officer Or Agent &efusing Inspection Shall Be ia.le For%amages And A 1iolation Of The !ode" Pro ided, That If &efusal Is%ue To A &esolution Or Order Of The Board, ia.ility )ill Attach ToThe %irector Or Trustee 1oting For It" Further, It Is A 1alid %efenseAgainst Party See0ing Information Or Inspection That 6=9 +e +asImproperly #sed Any Information Ser ed In A Prior E-amination E enOf Another !orporation 6>9 (ot Acting In Good Faith 6 9 Purpose Is(ot egitimate"

" A Stoc0holder $ay E-amine The Boo0s And &ecords Of A )hollyO*ned Su.sidiary As ong As It #tilizes The Same Office And +asIdentical %irectors As The Parent !orporation" =>

&ight Of S?+ Or $em.er To Financial Statements

A Stoc0holder +as The &ight To &e'uest In )riting A !opy Of FinancialStatements, )hich The !orporation $ust !omply )ith )ithin =@ %aysFrom &eceipt, By Furnishing The Party $a0ing The &e'uest )ith!opies Of The !orporation/s Balance Sheet And Profit Or ossStatement Sho*ing In &easona.le %etail Its Assets And ia.ilities AndThe &esult Of Its Operations"

At The &egular $eeting Of The Stoc0holders, The Board $ust PresentA Financial &eport Of Operations For The Preceding ear, To IncludeFinancial Statements %uly Signed And !ertified By A !pa E-cept )henIts Paid #p !apital Is ess Than Php


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!ertificate #nder Oath By The Treasurer Or &esponsi.le Officer IsSufficient" =>8

Mergers An" Conso$i"ations

)hat Are $ergers And !onsolidations

$ergers &efer To The A.sorption By One !orporation By Another,)hich Is !alled The Sur i ing !orporation, )hile !onsolidations &eferTo The !om.ination Of T*o Or $ore !orporations To Form A (e*!orporation, !alled The !onsolidated !orporation

=" The Procedure For A $erger Or !onsolidation Is As Follo*s3

="= The Board Of Each !orporation Shall E-ecute A Plan Of $ergerOr !onsolidation Setting Forth3 6A9 (ames Of The !orporationsProposing To $erge Or !onsolidate 6B9 The Terms Of The $erger Or!onsolidation And The $anner Of !arrying It Into Effect 6!9Statement Of !hanges, If Any, In The Articles Of The Sur i ing!orporation, In !ase Of A $erger Or )ith &espect To The !onsolidated!orporation, All Statements &e'uired By Section =J To Be !ontainedIn The Articles Of Incorporation 6%9 Such Other Pro isions That $ayBe %eemed (ecessary

="> #pon Appro al By A $a4ority 1ote Of Each Of The Boards, ThePlan Of $erger?!onsolidation Shall Be Su.mitted To The Stoc0holdersOf Each Of The !orporations At Separate $eetings %uly !alled, (oticeOf )hich +a ing Been Gi en At east > )ee0s Prior To The %ate OfThe $eeting, Personally Or By &egistered $ail" (ote3 >? 1ote Is&e'uired, Pro ided A %issenting Stoc0holder $ay E-ercise The &ightOf Appraisal, )hich !an Be E-tinguished If The Plan Is A.andoned"Any Amendment Of The Plan Shall Be Su.4ect To The Same Procedure"

=" After Appro al, The Articles Of $erger?!onsolidation )ill Be

E-ecuted By Each Of The !onstituent !orporations Signed By ThePresident Or 1ice President, !ertified By The !orporate Secretary OrAssistant !orporate Secretary Stating3 6A9 The Plan Of $erger Or!onsolidation 6B9 In Stoc0 !orporations, The (um.er Of SharesOutstanding And In (on Stoc0 !orporations, The (um.er Of $em.ers



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6!9 In Each !orporation, The (um.er Of Shares Or $em.ers 1otingFor Or Against The Plan =>D 6Section 89

="J Articles Of $erger?!onsolidation Signed And !ertified Shall BeSu.mitted To The Sec For Appro al Together )ith A Fa ora.le

&ecommendation In !ases Of Ban0s, Building oans, Trust!ompanies, Insurance !ompanies, Pu.lic #tilities, And EducationalInstitutions 6Section D9

>" Effecti ity Of The $erger?!onsolidation Is #pon The Issuance ByThe Sec Of A !ertificate Of $erger?!onsolidation"

>"= In A !ase, The Issue &esol ed By The !ourt )as3 %oes TheSur i ing !orporation +a e A &ight To Enforce A !ontract Entered IntoBy The A.sor.ed !ompany Su.se'uent To The %ate Of The $erger ButPrior To Issuance Of A !ertificate Of $erger By The SecH" The !ourt+eld In The Affirmati e As The $erger Agreement !ontains AStipulation That All &eferences To The A.sor.ed !orporation Shall Be%eemed A &eference To The Sur i ing !orporation" = @

>"> (ote3 If After In estigation, The Sec +as &eason To Belie eThat It Is !ontrary To a*, It $ay Gi e The !orporations AnOpportunity To Be +eard After (otice Of Time, %ate, And Place IsGi en To Each !orporation, At east > )ee0s Prior To The +earing"

" Effects Of A $erger Or !onsolidation

=" The !onstituent !orporations Become The Sur i ing !orporationIn !ase Of A $erger, And The !onsolidated !orporation In !ase Of A!onsolidation

>" Separate E-istence Of The !onstituent !orporations Shall !easeE-cept That Of The Sur i ing Or !onsolidated !orporation

" The Sur i ing Or !onsolidated !orporation Shall Possess All The&ights, Pri ileges Immunities And Po*ers And Shall Be Su.4ect To Al

%uties And ia.ilities Of A !orporation Organized By Or #nder The!orporation !ode

J" The Sur i ing?!onsolidated !orporation Shall Thereupon AndThereafter Possess All The &ights, Pri ileges Franchise Of Each Of The!onstituent !orporations And All Property, &eal Or Personal, And All

129 Supra, Section 78130 - ociate) Ban ( *ourt o# -ppeal , 291 S* - 511


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&ecei a.les %ue On )hate er Account, Including Su.scriptions OfShares And Other !hooses Of Action And All And E ery Interest Of OrBelonging To Or Each Of The !onstituent !orporations Shall Be Ta0enAnd %eemed Transferred And 1ested In The Sur i ing?!onsolidated!orporation )ithout Further Act Or %eed

6 9 In A $erger Or !onsolidation,There Is !ontinuance Of The Enterprise, In The Sale Of Asset, A

i'uidation Is #sually !ontemplated 6J9 In A $erger Or!onsolidation, Title To Assets Is Transferred 1irtue Of a*, In ASale Of Assets, Title Is Transferred By 1irtue Of !ontract 6


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!orporate Ta0e;O er Is The Process Of Ac'uisition Of !ontrol OrPossession O er A !orporation"

Poison Pill Is A Financial Tactic Or Pro ision #sed By A !ompany To

$a0e An #n*anted Ta0eo er Prohi.iti ely E-pensi e Or ess%esira.le" E-ample3 Sale Of Assets At A %iscount To Stoc0holders"

%ig&t O' Appraisa$

The &ight Of Appraisal Is The &ight Of Stoc0holder To %emandPayment Of The Fair 1alue Of +is Shares After %issenting From AProposed !orporate Action In ol ing A Fundamental !hange In The!orporation In The !ases Pro ided For By a*" =

=" It E-ists )hen 6=9 Articles Are Amended And +as The Effect Of!hanging Or &estricting The &ights Of A S?+ Or A !lass Of Shares OrAuthorizing Preferences In Any &espect Superior To Those OutstandingShares Of Any !lass 6>9 E-tending Or Shortening The !orporateTerm = J 6 9 In !ases Of Sale, ease, E-change Transfer, $ortgage,Pledge Or %isposition Of All Or Su.stantially All Of !orporate Assets OrProperty = < 6J9 In !ases Of $ergers?!onsolidations = 7 6


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6A9 If (o %emand Is $ade )ithin @ %ays, +e Is %eemed To +a e)ai ed The E-ercise Of The &ight

6B9 If The !ertificate Is (ot Su.mitted For (otation )ithin =@ %ays,

The !orporation $ay !onsider The E-ercise Of The &ight TerminatedAt Its Option

)hat +appens #pon %emand

All &ights Accruing To The Share Are Suspended Including 1oting&ights, Only The &ight To &ecei e The Fair 1alue Is (ot Suspended But, If There Is (o Payment )ithin @ %ays After The A*ard, +e Is&estored To All +is &ights"

+o*e er, The E-ercise Of The &ight After %emand Is $ade Shall !easeIf 6A9 Stoc0holder )ithdra*s +is %emand And The !orporation!onsents 6B9 Proposed Action Is A.andoned Or &escinded 6!9 Sec%isappro es The Action, If Its Appro al Is (ecessary 6%9 Sec%etermines That The Stoc0holder Is (ot Entitled To The E-ercise OfThe &ight" The Effect Is That +e Is &estored To All &ights AndAccrued %i idends Paid To +im" =J@

" The !orporation Then Pays The Stoc0holder The Fair 1alue #ponSurrender Of The !ertificate" The 1alue Paid Is The 1alue As Of The%ay Prior To The %ate On )hich The 1ote Is Ta0en, E-cluding Any%epreciation Or Appreciation In Anticipation Of The !orporate Action"

"= If The Fair 1alue !annot Be %etermined )ithin 7@ %ays FromThe %ate !orporate Action )as Appro ed, It Shall Be Appraised By %isinterested Persons One !hosen By The Stoc0holder, One !hosen ByThe !orporation And One !hosen By Both &epresentati es" A %ecisionOf A $a4ority Shall Be Final And The A*ard Paid )ithin @ %ays AfterSuch A*ard Is $ade"

)ho Shoulders !ost Of 1aluation 6A9 The !orporation : #nless The

Fair 1alue As Ascertained Is E'ual To Or Appro-imates That )hich ItOffered Or 6B9 The !orporation : If Suit Is Brought To &eco erPayment #nless The Stoc0holder Is Found To +a e An #n4ustifia.le&eason (ot To &ecei e Payment



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Pro ided, In All !ases 6A9 (o Payment !an Be $ade If The!orporation +as (o #nrestricted &etained Earnings, And 6B9 That TheStoc0holder Shall Forth*ith Transfer +is Shares To The !orporation

Effect Of A Transfer Pending E-ercise Of The &ight

The &ights Of The Transferor As A %issenting Stoc0holder Shall !easeAnd The Transferee Shall +a e All The &ights Of Stoc0holder IncludingThe %i idends )hich )ould +a e Accrued To The Shares As By SoBuying, It Indicates +is %esire To Be A Stoc0holder

Non toc! Corporations

It Is One )here (o Part Of Its Income Is %istri.uta.le As %i idends ToIts $em.ers, Trustees Or Officers Su.4ect To The Pro isions On%issolution, And )ho, )hen Profits Are O.tained As An Incident Of ItsOperations, )hene er (ecessary Or Proper, Shall #se The Same ForThe Furtherance Of The Purpose?S For )hich The !orporation IsOrganized" =J= (ote That A (on Stoc0 !orporation !annot EngagePrimarily In Business Acti ities But It $ay In est In Acti ities For ProfitBut $ust Be Stated In Articles"

=" The Pro isions On Stoc0 !orporations Apply In The A.sence OfSpecific Pro isions !o ering (on;Stoc0 !orporations"

Significant %ifferences Bet*een Stoc0 And (on Stoc0 !orporationsAre3

=" Su.4ect To The Articles Of Incorporation Or By; a*s, The &ightTo 1ote $ay Be imited, Broadened Or %enied To Some E-tent" #nlessSo Pro ided, Each $em.er Is Entitled To One 1ote" =J> In E-ercisingThe &ight, +e $ay 1ote By Pro-y And Also By $ail Or Other Similar

$eans As Authorized By The Articles Of Incorporation Or By; a*s )ithThe Appro al Of And #nder !onditions Prescri.ed By The Sec

>" $em.ership And All &ights Are Personal And (on Transfera.le#nless Pro ided In The Articles Of Incorporation Or By; a*s" =J It $ay



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Be Terminated In The $anner And For !auses Pro ided In The ArticlesOf Incorporation Or By; a*s" =JJ

" (ote That !ourts +a e (o Po*er To Strip $em.ership As It!onstitutes An #n*arranted And #ndue Interference )ith The &ight Of

A !orporation To %etermine Its $em.ership" =J<

"= Termination Of $em.ership !arries )ith It All &ights To PropertyAnd Other Pri ileges #nless The By; a*s Pro ide Other*ise" (ote ThatAdmission Is An E-pressly Granted Po*er In The !orporation !ode" =J7

J" It $ay +a e Any (um.er Of Trustees As Fi-ed In The Articles OfIncorporation Or By; a* From The &an0s Of Its $em.ership" TheTerm Of The Original Trustees Is Such That =? Of Their (um.er ShallSer e For A ear, The Second =? For T*o ears And The Third =?For Three ears" Trustees Su.se'uently Elected Shall Then Ser e For ATerm Of Three ears" Trustees Elected To Fill 1acancies, Shall OnlySer e For The #ne-pired Portion" =J


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!orporation Is (ot %istri.uting Assets )ithout %issolution, But &ather,They Are )ai ing Their &ights To Any Profits?%i idends" =JD

>" Cy Is A &ecreational !lu. )hich )as Organized To Operate AGolf !ourse For Its $em.ers )ith An Original Authorized !apital Stoc0

Of Php =@@,@@@,@@@"@@" The Articles Of Incorporation (or The By a*sPro ided For %eclaration Of %i idends Although There )as A Pro isionThat After Its %issolution All Its Assets Shall Be Gi en To A !harita.le!orporation" In This !ase, Cy Is A Stoc0 !orporation As The Po*er To%eclare %i idends Is Inherent In A Stoc0 !orporation And ThePro ision Allo*ing For %istri.ution Of Its Assets To A !harita.le!orporation %oes (ot Prohi.it A %eclaration Of %i idends Before%issolution" =


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Organizations )hether Organized For Profit Or (ot As Pro ided In ThePlan Of %istri.ution" =

Plan Of %istri.ution

It $ust Be !onsistent )ith Section DJ" This Is Adopted Pursuant To A$a4ority 1ote Of The Board Of Trustees, Then Is Su.mitted For TheAffirmati e 1ote Of >? Of The $em.ers +a ing 1oting &ights At A&egular Or Special $eeting, Prior (otice +a ing Been Gi en"

C$ose Corporations

A !lose !orporation Is A !orporation )hose Articles Pro ide That3 6=9All The !orporation/s Issued Stoc0 Of All !lasses, E-clusi e Of

Treasury Shares, Shall Be +eld Of &ecord By (ot $ore Than ASpecified Of Persons (ot To E-ceed >@ 6>9 All Issued Stoc0 Of All!lasses Shall Be Su.4ect To One Or $ore Specified &estrictions OnTransfer Permitted In This Title" Any &estriction !an Be Put Pro ided36A9 The &estriction $ust Appear In The Articles Of Incorporation?By;

a*s As )ell As The !ertificate Of Stoc0, Other*ise It Is (ot BindingOn A Purchaser In Good Faith 6B9 It Or They Should (ot Be $oreOnerous Than That Granting The E-isting Stoc0holders Or The!orporation The Option To Purchase The Shares )ith Such &easona.leTerms, !onditions Or Periods Stated Therein" If At The End?E-pirationOf The Period, A Stoc0holder?S Or The !orporation Fails To E-erciseThe Option To Purchase, The Transferring Stoc0holder $ay Sell +isShares To Any Third Person =< E-ample3 Fi-ing A Price Belo*Actual?$ar0et 1alue, Prescri.ing A onger +olding Period Or ATransfer )ithout !onsent Of The Board 6 9The !orporation $ust (ot

ist In Any Stoc0 E-change Or $a0e Any Pu.lic Offering Of Any Of ItsStoc0 Of Any !lass

(ot*ithstanding : If >? Of Its 1oting Stoc0 Or 1oting &ights Is O*nedOr !ontrolled By Another !orporation )hich Is (ot A !lose!orporation )ithin The $eaning Of The !ode, The !orporation Shall

(ot Be %eemed A !lose !orporation"=


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>" (o !lose !orporation !an Be Formed If It Is For Or )ill BeEngaged In The Follo*ing3 $ining, Stoc0 E-change, Ban0s, Insurance!ompany, Pu.lic #tility Or Educational !orporations Or Are Other*ise1ested )ith Pu.lic Interest

!ontents Of The Articles Of Incorporation Of A !lose !orporation

In Addition To )hat Is &e'uired By Section =J Of The !ode, TheArticles Of Incorporation Of A !lose !orporation $ay Pro ide For36=9!lassification Of Shares Or &ights And The 2ualifications ForO*ning Or +olding Then And &estrictions On Their Transfers 6>9!lassification Of %irectors Into One Or $ore !lasses Each Of )hich$ay Be 1oted For Or Elected Solely By A Particular !lass Of Stoc0s6 9Greater 2uorum Or 1oting &e'uirements For Stoc0holder Or Board$eetings 6J9 Pro ide That The !orporation/s Business Shall Be$anaged By The Stoc0holder &ather Than The Board As ong As3 6A9(o $eetings Of Stoc0holders Are (ecessary To Be !alled To Elect%irectors 6B9 #nless The !onte-t !learly &e'uires Other*ise,Stoc0holders Shall Be %eemed %irectors For The Purpose Of ApplyingThe Pro isions Of The !ode 6!9 Stoc0holders And The !orporationShall Be Su.4ect To All ia.ilities Of %irectors 6" If The Articles Of Incorporation State The (um.er Of Persons(ot E-ceeding >@ Entitled To Be +olders Of Stoc0 And The !ertificate



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For Such Stoc0 States Such Fact, The Person To )hom Stoc0 Is IssuedOr Transferred That )ill E-ceed The (um.er Is !onclusi ely PresumedTo +a e no*ledge Or (otice Of Such Fact"

" If Stoc0 !ertificate !onspicuously Sho*s A &estriction On

Transfer, The Transferee Is !onclusi ely Presumed To +a e (otice OfThe Fact That +e +as Ac'uired Stoc0 In 1iolation Of The &estriction, IfSuch Ac'uisition 1iolates The &estriction" =


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>" Agreement Bet*een > Or $ore Stoc0holders In )riting AndSigned By Them $ay Pro ide That In E-ercising Any 1oting &ights,The Shares +eld By Them Shall Be 1oted As Pro ided, As They $ayAgree Or As %etermined By The Procedure Agreed Bet*een Them"E-ample3 1oting Trust Agreements"

" (o Pro ision In Any )ritten Agreement Signed By A Stoc0holder&elating To Any Phase Of !orporate Affairs Shall Be In alidated AsBet*een The Parties On The Ground That Its Effect Is To $a0e ThemPartners Among Themsel es" E-ample3 !ontracts As To The #se Of%i idends

J" (either )ill An Agreement Among Some Or All Of TheStoc0holders In A !lose !orporation Be In alidated On The GroundThat It &elates To The !onduct Or Business Of The !orporation As To&estrict Or Interfere )ith The %iscretion Of The Board" Pro ided ThatSuch Shall Impose On Stoc0holders )ho Are Partners Thereto

ia.ilities For A $anagerial Acts Imposed On %irectors" E-ample3!onsultation Agreements (ot To %eal )ith Particular Entities Or %eal)ith Particular Entities Only"


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To Attend #nless +e Promptly Files A )ritten O.4ection )ith TheSecretary After +a ing no*ledge Therefore" =7=

Pre;Empti e &ights

In A !lose !orporation, Pre;Empti e &ights E-tend To All Stoc0 Issued,Including A &e;Issuance Of Treasury Shares, )hether For $oney,Property, Personal Ser ices Or In Payment Of !orporate %e.ts #nlessArticles Other*ise Pro ide" =7>

%eadloc0s

=" %eadloc0s Occur If %irectors Or Stoc0holders Are So %i ided&egarding The $anagement Of The !orporation/s Business And AffairsThat The (ecessary 1ote !annot Be O.tained, The !onse'uence Of)hich Is That The Business And Affairs Of The !orporation !an (o

onger Be !onducted To The Ad antage Of Stoc0holders"

>" %eadloc0s Are &esol ed By The Sec, )ho #pon )ritten Petition,$ay Ar.itrate And In The E-ercise Of Its Po*ers 6A9 !ancel Or Alter APro ision In The Articles, By; a*s Or Agreements 6B9 !ancel, Alter OrEn4oin Any &esolution Or Act Of The !orporation Or Its Board,Stoc0holders, Officers Or Other Parties To The Action 6!9 Prohi.itingOr %irecting Any Act Of The !orporation, Its Board,Officers,Stoc0holders Or Parties Party To The Action 6%9 &e'uiring ThePurchase At Fair $ar0et 1alue Of The Shares Of A Stoc0holder, EitherBy The !orporation &egardless Of The E-istence Or A aila.ility Of#nrestricted &etained Earnings, Or By Any Other Stoc0holder 6E9Appointing A Pro isional %irector )ho Shall Be Impartial (either AStoc0holder (or A !reditor Of The !orporation, Its Su.sidiaries OrAffiliates ,And )hose Further 2ualifications, If Any $ay Be %eterminedBy The !orporation (ote3 6=9 +e Is (ot A &ecei er And %oes (ot +a eThe Po*ers Of A !ustodian Or &ecei er, +e %oes (ot +a e Title 6>9 +e+as The &ights And Po*ers Of A %uly Elected %irecting, Including The&ight To (otice, 1ote #ntil &emo ed By The Sec Or All Stoc0holders6 9 !ompensation As %etermined By Agreement )ith The

!orporation, Appro ed By The Sec, Or Fi-ed By Agreement 6F9%issol ing The !orporation 6G9 Granting Such Other &elief As The!ircumstances $ay )arrant

161 Supra, Section 101162 Supra, Section 102


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This Is Initiated By )ritten Petition By Any Stoc0holder(ot*ithstanding Any !ontrary Pro ision In The Article By; a*s OrAgreements" =7

)ithdra*al Or %issolution

)ithout Pre4udice To Other &emedies, A Stoc0holder $ay For Any&eason !ompel The !orporation To Purchase +is Shares At Their Fair$ar0et 1alue, )hich Shall (ot Be ess Than Par Or Issued 1alue )henThe !orporation +as Sufficient Assets To !o er %e.ts And ia.ilities,E-clusi e Of !apital Stoc0

Pro ided, Also, That A Stoc0holder $ay By )ritten Petition To The Sec!ompel %issolution )hen3 6A9 The Acts Of %irector, Officers OrPersons In !ontrol Are3 6=9 Illegal5 6>9 Fraudulent5 6 9 %ishonest5 6J9Oppressi e Or #nfairly Pre4udicial To The !orporation5 6


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&eligious !orporations

Are !orporations Incorporated By One Or $ore Persons !lassified As!orporation Sole Or &eligious Society And Is To Be Go erned By This

!hapter And Generally By Other Pro isions Go erning (on Stoc0!orporations" =78 6Section =@D9

%efinition : !orporation !omposed Of Entirely Spiritual Persons And)hich Is Organized For The Furtherance Of A &eligion Or ForPerpetrating The &ights Of The !hurch Or For The Administration Of!hurch Or &eligious )or0 Or Property

!lasses

!orporation Sole Is One Formed By The Arch.ishop, Bishop, Priest,$inister, &a..i, Or Other Presiding Elder Of A &eligious %enominationSector !hurch For The Purpose Of Administering And $anaging AsTrustee;The Affairs, Property And Temporalities 6$oney &e enues9 OfSuch &eligious %enomination, Sect, Or !hurch" =7D

Its Articles Of Incorporation $ust Pro ide 6A9 That +e Is TheArch.ishop Bishop, Priest, $inister, &a..i Or Presiding Elder 6B9 &ulesAre (ot Inconsistent )ith +is Becoming A !orporation Sole (or Is ItProhi.ited 6!9 That +e Is !harged )ith The Administration Of ItsTemporalities And The $anagement Of Its Affairs )ithin Its Territorial

urisdiction 6%9 The $anner 1acancies Are Filled 6E9 Place )here ThePrincipal Office Is ocated" = @

Incorporation Of A !orporation Sole

A !orporation Sole Is %eemed Incorporated Once The Articles AreSu.mitted To The Sec Together )ith An Affida it Of Affirmation"+enceforth +e Becomes A !orporation Sole" = =

Property $ay Be Bought Or Encum.ered By A !orporation Sole"Authority $ay Also Be O.tained From The &tc If (o Internal &ulesGo ern The Same" = >

168 Supra, Section 109169 Supra, Section 110170 Supra, Section 111171 Supra, Section 112172 Supra, Section 113


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Filling Of 1acancies

1acancies !an Be Filled By The Filing )ith The Sec Of +is !ommissionOr !ertificate Of Election Or Proof Of Assumption" = 6Section ==J9

%issolution

The %issolution Of A !orporation Sole Ta0es Place By The Filing )ithThe Sec Of A 1erified %eclaration Of %issolution Setting Forth3 6A9(ame 6B9 &eason For %issolution 6!9 Authorization For %issolution6%9 (ame And Address Of The Persons )ho )ill Super ise %issolutionOr )inding #p Of Its Affairs" #pon Sec Appro al, It !eases To !arryOn Its Operations" = J 6Section ==? 1ote Or)ritten !onsent Of Its $em.ers, )ho Then File Its Articles )ith TheSec, 1erified By Affida it Of The Presiding Elder, Secretary, !ler0 Or$em.er Stating That3 6A9 That The Society Is A &eligious OrganizationOf Some &eligious %enomination, Sect Or !hurch 6B9 That >? Of Its$em.er +a e Gi en Their )ritten !onsent Or 1ote To Incorporate At A%uly !on ened $eeting Of The Body 6!9 That It/s Incorporation Is (otFor.idden By !ompetent Authority Or By Is !onstitution, &ules,&egulations Or %iscipline Of The &eligious %enomination, Sect Or!hurch To )hich It Belongs 6%9 That Its Purpose Is To $anage OrAdminister Its Affairs, Properties Or Estate 6E9 ocation Of ItsPrincipal Office ,)hich $ust Be In The Philippines 6F9 (ames,(ationalities And &esidences Of The Trustees Elected To Ser e TheFirst ear Or Such Other Period As Prescri.ed, )hich Board $ust (otBe ess Than < Or $ore Than =" )inding #p Of !orporate Affairs, Payment Of %e.t, %istri.utionOf Assets

1oluntary %issolution

=" )ith (o !reditors )ho )ill Be Pre4udiced" It Is Initiated By A$a4ority 1ote Of The Board And A &esolution Adopted By >? Ocs Or$em.ers At A $eeting To Be +eld #pon !all Of %?T After Pu.lishing(otice Of The Time, Place And O.4ect For !onsecuti e )ee0s In A(e*spaper Or General !irculation And (otice To S?+ Or $em.er Gi enBy &egistered $ail Or %eli ered Personally @ %ays Prior To The$eeting" A !opy Of The &esolution Is Then !ertified By A $a4ority OfThe Board : !ountersigned By The Secretary Su.mitted To The Sec

Ta0es Effect : #pon Issuance By The Sec Of A !ertificate Of%issolution 6Section ==89

>" )ith !reditors Pre4udiced" It Is Initiated By The Filing Of APetition )ith The Sec, Signed By A $a4ority Of The Board Or OtherOfficers +a ing $anagement, 1erified By The President, Secretary OrOne Of Its %?T" The Petition )ill Set Forth3 6A9 All !laims And%emands Against It 6B9 That %issolution )as &esol ed #pon TheAffirmati e 1ote Of >? Of Ocs Or $ At A %uly !alled $eeting" If TheSec Finds The Petition To Be In Proper Form, An Order )ill Be Issued

Fi-ing %ate On Or Before )hich O.4ections $ay Be $ade, )hich %ateShall (ot Be ess Than @ %ays (or $ore Than 7@ %ays After TheEntry Of The Order" Pu.lication )ill Also &e'uired Once A )ee0 For )ee0s And Posted In Pu.lic Places" Fi e %ays After The %ate Fi-ed,The Sec )ill Try All Issues, O.4ections And If All $aterial AllegationsAre True, The %issolution Ta0es Effect; #pon udgment %irecting%isposition Of Assets And Payment Of %e.ts, And If &e'uired, AppointA &ecei er 6Section ==D9


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" Amendment To Shorten Term " It Is Initiated By A $a4ority 1oteOf The Board And Su.4ect To The Affirmati e 1ote Of >? Ocs Or$em.ers, Follo*ed By The Su.mission To The Sec Of The AmendedArticles Of Incorporation %uly !ertified By The Secretary And A

$a4ority Of The Board Together )ith An Affida it Of Pu.lication 6SecOpinion August @, =D889" The %issolution Ta0es Effect; #ponAppro al Of The Amendment 6Articles9 And The !orporation Is%eemed %issol ed #pon E-piration Of The Term )ithout FurtherProceedings 6Section =>@9

In oluntary %issolution

#nderta0en By The Sec #pon The Filing By A &eal Party In Interest OfA 1erified !omplaint, After Proper (otice Or +earing On The Follo*ingGrounds Or Instances !ontemplated By a*

=" E-piration Of The Term Pro ided In The Articles Of Incorporation6!an Also Be 1oluntary9

>" egislati e Enactment : Enactment Of a*s !arry )ith It ThePo*er To Amend Or &epeal But Is imited By The (on;Impairment!lause 6Section =J


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General &ule : S?+ !annot Sue To %emand %issolution #nless TheyAre #na.le To O.tain &edress And Protection For Their &ights Or1iolations )arrant 2uo )arranto Proceedings" See Financing!orporation Of The Philippines 1" Teodoro D P 7 8"

Effects Of %issolution

The Effects Of %issolution Are3 6=9 egal Title To !orporate Property Is1ested In S?+ 6>9 !orporation !eases As A Body Politic To !ontinueThe Business For )hich It )as Organized 6 9 It !annot Be &e i ed6J9 %issolution %oes (ot By Itself Imply The %iminution OrE-tinguishment Of &ights 69 Ena.le It To Settle And !lose ItsAffairs 6 9 Ena.le It To %ispose Of And !on ey Property And%istri.ute Assets But It Should (ot Be For The Purpose Of !ontinuingThe Business

$anner Of i'uidation

The !orporation !an #nderta0e i'uidation By 6A9 Itself 6B9 A %ulyAppointed &ecei er #nder Section ==D, 6!9 A Trustee, )here TheProperty Is !on eyed To The Trustee +olding The Same In Trust ForThe Benefit Of S?+, $, !reditors And Other Interested Parties" (oteThat &ecei ers?Trustees !an Act As Such Beyond The Statutory ear

Period Of i'uidation"%istri.ution Of Assets3

The Preference )ill Apply Only If Assets Are Insufficient To Pay The!laims" It Is As Follo*s3 6A9 !reditors 6B9 S?+, $em.ers, %irectors,Officers )ho Are Also !reditors 6!9 S?+ In Proportion ToShareholdings In The A.sence Of A !ontrary Pro ision" If The Shares


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Are %i ided Into !lasses3 6=9 Preferred S?+ 6>9 S?+ $ay Get $oreThan Fm " If Assets Are ust Enough, They Get The Par 1alue OrIssued 1alue 6 9 If !reditors Or S?+ !annot Be Found, The Assets )illBe Escheated In Fa or Of The $unicipality Or !ity )here The AssetsAre Found" (ote3 Assets !an Only Be %istri.uted #pon a*ful

%issolution And Payments Of %e.ts? ia.ilities" E-ceptions3 6A9%ecrease Of !apital Stoc0 #nder Section 8 6B9 &edeema.le Shares#nder Section 8 6!9 Treasury Shares #nder Section D 6%9 Ac'uisitionBy The !orporation Of Its O*n Shares #nder Section J= 6E9 %i idends#nder Section J 6F9 %eadloc0s #nder Section =@J 6G9 )ithdra*al#nder Section =@ 9

These !orporations !an Transact Business After It +as O.tained Aicense And A !ertificate Of Authority From The Appropriate

Go ernment Agency" !orporations Already %oing Business In ThePhilippines )ith

Corporation Law Lectures

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Transcript of Corporation Law Lectures