LAW ON PRIVATE CORPORATIONS

LAW ON PRIVATE CORPORATIONS BUSINESS LAW 74 ATTY. RAMON ANTONIO A. RUPERTO BATAS PAMBANSA BLG. 68 (CORPORATION CODE OF THE PHILIPPINES) Corporation - an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. (Sec. 2) Elements of a Corporation 1. Created by operation of law 2. An artificial being 3. Powers, attributes, and properties expressly authorized by law and those incidental to its existence 4. Has the right of succession A corporation is juridical entity separate and distinct from its directors and stockholders. Instances where a director/officer may be liable personally 1. the director/officer acted in evident malice or bad faith 2. when the director/officer/stockholder agreed to be solidarily liable with the corporation 3. when the DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION applies: 1. complete dominion over the corporation 2. such control must have been used to commit fraud or wrong 3. the aforesaid control and breach of duty must proximately cause the injury or loss Distinctions between a partnership and a corporation Partnership MANNER OF Mere agreement by parties By law CREATION NUMBER OF PARTIES

Organized by at least two persons

COMMENCEMENT OF JURIDICAL PERSONALITY

Execution of contract of partnership

POWERS

Any power authorized by partners provided it is not contrary to law, morals, public policy Unless otherwise agreed upon, every partner is an agent Partners can sue a co-partner who mismanages

MANAGEMENT EFFECT OF MISMANAGEMENT RIGHT OF SUCCESSION

No right

Corporation

Requires at least five incorporators (except a corporation sole) Date of issuance of certificate of incorporation by the SEC (Sec. 19) Powers expressly granted by law or implied from those granted or incidental to its existence Vested with the Board of directors or trustees Suit against a member of the board who mismanages must be in the name of the corporation Has right to succession

Partners (except limited partners) are liable personally and subsidiarily (sometimes solidary) for partnership debts to third persons TRANSFERABILITY Partner cannot transfer his OF INTEREST interest in the partnership so as to make the transferee a partner without the consent of all the other existing partners TERM OF Any period stipulated by partners EXTENT OF LIABILITY TO THIRD PERSONS

EXISTENCE

DISSOLUTION LAW GOVERNING

May be dissolved at any time by this will of any or all partners Civil Code

CLASSES OF CORPORATIONS (Sec. 3) Stock Corporations created and operated for the purpose of making profit which may be distributed in the form of dividends to stockholders on the basis of their invested capital Stockholders Board of Directors

Stockholders are liable only to the extent of their investments as represented by the shares subscribed by them Stockholder has the right to transfer his shares without prior consent of other stockholders Not to exceed 50 years extendible to not more than 50 years in every instance Can only be dissolved with consent of the State Corporation Code

Non Stock Corporations Do not issue stock and distribute dividends to their members and are not usually created for profit but for public good and welfare Members Board of Trustees

Non-Voting Shares Where the Articles of Incorporation provide for non-voting shares, the holders of such shares shall nevertheless be entitled to vote on the following matters: (Sec. 6) 1. Amendment of the articles of incorporation; 2. Adoption and amendment of by-laws; 3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property; 4. Incurring, creating or increasing bonded indebtedness; 5. Increase or decrease of capital stock; 6. Merger or consolidation of the corporation with another corporation or other corporations; 7. Investment of corporate funds in another corporation or business in accordance with this Code; and 8. Dissolution of the corporation. Founders' shares – holders may be given certain rights and privileges not enjoyed by the owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years subject to the approval of the SEC (Sec. 7) Treasury Shares (Sec. 9) Redeemable Shares (Sec. 8) shares of stock which have been issued may be issued by the corporation when LAW ON PRIVATE CORPORATIONS Business Law 74

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and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. May be deprived voting rights ONLY when it remains in the treasury May be redeemed only if there are retained earnings

expressly so provided in the Articles and may be purchased by the corporation upon the expiration of a fixed period May be deprived of voting rights Must be redeemed even if there is no surplus earnings even before dissolution

Classification of Capital Stocks 1. AUTHORIZED CAPITAL STOCK (ACS) – the amount of capital stock as specified in the Articles of Incorporation 2. OUTSTANDING CAPITAL STOCK (OCS) – portion of the capital stock which is issued and held by persons other than the corporation itself 3. SUBSCRIBED CAPITAL STOCK – the amount of the capital stock subscribed, whether fully paid or not 4. PAID-UP CAPITAL STOCK – that portion of the subscribed or outstanding capital stock that is actually paid Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At least 25% of the ACS must be subscribed at the time of incorporation, and at least 25% of the total subscription must be paid upon subscription, the balance to be payable on a date or dates fixed in the contract of subscription (Sec. 13) Example: Suppose the Articles of Incorporation of X Corporation provides that the authorized capital stock of said corporation is P1,000,000.00 divided into 10,000 shares of the par value of P100.00 per share. At its incorporation, only P250,000.00 of the authorized capital stock was subscribed. At least 25% of the subscription is required to be paid; thus, only P62,500.00 was paid to the treasurer of the corporation. Therefore, the authorized capital stock of X Corporation is P1,000,000.00, the subscribed and outstanding capital stock is P250,000.00, the paid-up capital stock is P62,500.00 and the unissued capital stock is P750,000.00 Contents of the Articles of Incorporation (Sec. 14) 1. Name of Corporation - must not be identical or confusingly similar to that of any existing corporation or to any other name already protected by law (Sec. 18) 2. Purpose(s) 3. Principal Place of Office (must be in the Philippines) 4. Term (Sec. 11) - not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. - may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the Articles (No extension can be made earlier than five (5) years prior to the original or subsequent expiry dates) 5. Incorporators (names, nationalities, residences) (Sec. 10) - Natural persons not less than 5 but not more than 15, all of legal age and a majority of whom are residents of the Philippines LAW ON PRIVATE CORPORATIONS Business Law 74

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must own or be a subscriber to at least one (1) share of the capital stock of the corporation 6. Number of Directors/Trustees (composed of 5-15) 7. Directors (names, nationalities and residences) 8. Authorized capital stock; par value, subscribers, subscription, amount paid (stock) 9. Amount of capital (non-stock) 10. Other matters Ground for Disapproval/Rejection of Articles (Sec. 17) 1. the purpose of the corporation is patently unconstitutional, illegal, immoral, or contrary to law 2. the Articles or any amendment thereto is not substantially in accordance with the form prescribed by law 3. the treasurer's affidavit concerning the amount of capital stock subscribed and/or paid is false 4. the required percentage of ownership of the capital stock to be owned by citizens has not been complied with Corporate existence commences from the date the SEC issues a certificate of incorporation (Sec. 19) Grounds of Revocation of Certificate of Incorporation 1. refusal to comply with or defiance of a lawful order of the SEC 2. serious misrepresentation as to what the corporation can do or is doing to the great prejudice of, or damage to the general public 3. continuous inoperation for a period of at least 5 years 4. failure to file by-laws within the required period 5. failure to file required reports in appropriate forms as determined by the commission within the prescribed period 6. fraud in procuring its certificate of incorporation BOARD OF DIRECTORS OR TRUSTEES (Sec. 23) - Shall exercise the corporate powers of all corporations - controls all business conducted and all property of such corporations - to be elected from among the holders of (voting) stocks, or where there is no stock, from among the members of the corporation - shall hold office for 1 year Qualifications of a Director 1. every director must continuously own at least 1 share of stock 2. each director must own one (1) share of stock 3. the share of stock held by the director must be registered in his name on the books of the corporation 4. majority of the directors must be a resident of the Philippines Disqualified: those convicted by final judgment of (Sec. 27): a. an offense punishable by imprisonment for a period exceeding 6 years, or b. a violation of the Corporation Code committed within five (5) years prior to the date of his election

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Methods of Voting - Every stockholder entitled to vote shall have the right to vote in person or by proxy the numbers of shares of stock standing in his own name on the stock nooks of the corporation, in any of the following ways: 1. Straight voting – every stockholder “may vote such number of shares for as many persons as there are directors” to be elected” Example: A owns 100 shares of stock in a corporation with 5 directors to be chosen. A is entitled to 500 votes (100 shares x 5 directors). He may give to the 5 candidates of his choice 100 votes each. 2. Cumulative voting for one candidate – stockholder allowed to concentrate his votes and “give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal.” Example: A owns 100 shares of stock in a corporation with 5 directors to be chosen. A is entitled to 500 votes, all of which he may cast in favor of any one candidate. 3. Cumulative voting by distribution – stockholder may cumulate his shares by multiplying also the number of his shares by the number of directors to be elected and distribute the same among as many candidates as he shall see fit. Example: A owns 100 shares of stock in a corporation with 5 directors to be chosen. A is entitled to 500 votes (100 shares x 5 directors). He may distribute his votes to candidates of his choice, such as 300 to choice 1 and 200 to choice 2. Formula to determine the votes needed in cumulative voting: D = [A x B] / [C +1] + 1 E=DxC Where:

A = total number of outstanding shares entitled to vote B = number of directors desired to be elected C = total number of directors to be elected D = number of shares necessary to elect desired number of directors E = number of votes required to elect desired number of directors Example: AB Corp. is a stock corporation with 10,000 shares and a nine-man board of directors. Maria, a stockholder owning 4,000 shares, seeks control of the company and desires to elect five (5) directors. How many votes will she need to secure the election of five directors? D = [A x B] / [C + 1] + 1 E=DxC D = [10,000 x 5] / [9 + 1] + 1 = [50,000] / [10] + 1 = 5,000 + 1 = 5,001

E = 5,001 x 9 E = 45,009 votes, which may be distributed to the 5 candidates of choice

Quorum – such number of the membership of a collective body as is competent to transact its business or do any other corporate act Removal of Directors (with or without cause) (Sec. 28) LAW ON PRIVATE CORPORATIONS Business Law 74

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1. Vote by the stockholders representing 2/3 of the outstanding capital stock 2. A special meeting is duly called for the purpose 3. Notice of the time and place of meeting 4. A new director is then after elected in the same special meeting * If due to resignation, abandonment, vacancy due to increase in number of directors, and death, it is filled by mere majority vote of the Board if still constituting a quorum (Sec. 29) Corporate Officers - Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time. (Sec. 25) LIABILITY OF DIRECTORS UNDER THE CORPORATION CODE 1. Directors/Officers acting with evident malice or bad faith (Sec. 31) a. willfully and knowingly vote for or assent to patently unlawful acts of the corporation b. who are guilty of gross negligence or bad faith in directing the affairs of the corporation c. acquires any personal or pecuniary interest in conflict with their duties 1) in violation of his duties 2) concerning any interest adverse to the corporation in respect to any matter which has been reposed in him in confidence 3) attempts to acquire or acquires it d. consents to the issuance of watered stocks or who having knowledge thereof, does not forthwith file with the corporate secretary his written objections thereto

2. SELF-DEALING directors (Sec. 32) – occurs when a contract is entered between corporation and one or more of its directors Effect: Contract is Voidable (at the option of Corporation) UNLESS: a. his presence was not required to constitute a quorum b. his vote was not necessary to constitute majority c. the contract is FAIR and reasonable * absence of (a) and (b) may be ratified by 2/3 vote of stockholders provided there is full disclosure of adverse interest

3. INTERLOCKING directors (Sec. 33) – occurs when a contract is entered between two or more corporations having interlocking (same) directors Effect: Contract is Valid provided that it is fair and reasonable under the circumstances * in case the interest of the interlocking directors is greater than 20% in one Corporation and less in the other, the rule on SELF-DEALING directors applies (the nominal corporation has the option to annul the contract).

4. Disloyalty of directors (Sec. 34) - Where a director acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he must account to the latter for all such profits by refunding the same LAW ON PRIVATE CORPORATIONS Business Law 74

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Exception: Act ratified by a vote of the stockholders owning or representing at least 2/3 of the outstanding capital stock EXECUTIVE COMMITTEE (Sec. 35) - the by-laws of a corporation may create an executive committee, composed of not less than three members of the board, to be appointed by the board. Said committee may act, by majority vote of all its members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board, except: (1) approval of any action for which shareholders' approval is also required; (2) the filing of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new by-laws; (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or repealable; and (5) a distribution of cash dividends to the shareholders. POWERS OF THE CORPORATION (Sec. 36) 1. To sue and be sued through its Board 2. To adopt and use a corporate seal 3. To enter into with other corporations merger or consolidation 4. To establish pension, retirement and other plans for the benefit of its directors and trustees 5. To amend its Articles 6. Of succession 7. To sell or issue stocks to subscribers 8. To purchase or receive, real or personal property of other corporations as the lawful transaction may require 9. To adopt by-laws, not contrary to law, morals, or public policy and to amend or repeal the same 10. To make reasonable donations to charity except political parties 11. To exercise powers essential to carry on its purpose Corporate Acts Vote Required Corporate Action

Amend Articles Sale, etc. of all or substantially all Assets (Sec. 40) Investment in other (different) business (Sec. 42) Increase/decrease of Capital stock (Sec. 38) Incur, increase Bonded indebtedness (Sec. 38) Adopt/Amend By-laws (Sec. 46/48) Delegate to Board power to amend Revoke delegated power (Sec. 48) LAW ON PRIVATE CORPORATIONS Business Law 74

Board

Stockholders/ Members

Non-voting shares can vote?

Appraisal Right? (Sec. 81)

Majority Majority

2/3 2/3

Yes Yes

Yes Yes

Majority

2/3

Yes

Yes

Majority Majority

2/3 2/3

Yes Yes

Majority n/a n/a

Majority 2/3 Majority

Yes

7

Merger/consolidation (Sec. 77) Approval of cash/property dividends (Sec. 43) Approval of stock dividends (Sec. 43) Enter into Management contract (Sec. 44) If Stockholders have 1/3 interest in both If same compose majority in both boards Voluntary Dissolution w/o creditors (Sec. 118) Voluntary Dissolution w/ creditors (Sec. 119) Extend/Shorten Corporate Term (Sec. 37)

Majority Majority

2/3 n/a

Yes

Majority Majority

2/3 Majority 2/3 2/3

Majority

2/3

Yes

Majority Majority

2/3 2/3

Yes

Yes

Yes

Actions where only the stockholder has to vote 1. to elect a director 2. to remove a director 3. to call a special meeting to remove a director 4. delegate to the board the power to amend or repeal the by-laws or adopt new by-laws 5. revoke the power delegated to the board of directors to adopt a new by-law Valid Denial of Pre-emptive Right 1. Denied by the Articles 2. With 2/3 vote, in payment of a previously contracted debt 3. Shares to be issued in compliance with laws 4. With 2/3 vote, in exchange for property needed for corporate purposes Power to Acquire own shares - A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate (Sec. 41) 1. Capital is not impaired 2. Legitimate corporate purposes a. To pay dissenting / withdrawing stockholders b. To collect or compromise indebtedness to corporation arising from unpaid subscription purchased by the corporation in a delinquency sale c. In a close corporation, where there is a deadlock, the dissenting stockholder may petition to the SEC and he may be paid the fair market value of his shares d. With respect to redeemable shares e. Eliminate fractional shares f. Shares reacquired to effect a decrease in the capital stock g. In cases of treasury shares 3. The corporation has unrestricted retained earnings Trust fund doctrine – considers the subscribed capital as trust fund for the payment of the debts of the corporation, to which the creditors look for satisfaction. Power to declare dividends - The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of outstanding stock held by them (Sec. 43) Requisites for declaration of dividends: LAW ON PRIVATE CORPORATIONS Business Law 74

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1. Existence of “unrestricted retained earnings” 2. Corporate resolution of the board declaring the payment of a portion or all of such earnings to stockholders Grounds for valid retention of surplus profits 1. When justified by definite corporate expansion projects 2. When the corporation is prohibited under any loan agreement 3. When it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation Requisites for the Exercise of Appraisal Rights 1) The dissenting stockholder must have voted against the corporate action 2) Must be exercised on the instances where appraisal rights are available 3) A written demand on the corporation for payment of his shares must be made by him within 30 days after the date the vote was taken 4) The price must be based on the fair market value of the shares as of the day prior to the date on which the vote was taken 5) Stockholder must transfer his shares to the corporation within 10 days 6) Payment of the shares must be made out of the unrestricted earnings of the corporation Instances where Appraisal Rights Are Available (A/MISC) 1) By AMENDMENT of the A/I to (a) extend corporate term, (b) changes or restricts rights of Shares, and (c) change in the purpose of the corporation 2) MERGER and consolidation 3) INVEST corporate funds in another corporation or business or for any other purposes 4) SALE or other disposition of substantially all of the Corporate Properties and Assets 5) In CLOSE corporations, for any reason, and only when the corporation has sufficient funds BY LAWS 1) must be general and uniform in their operation and not directed against particular individuals 2) must be consistent with the charter or a/i 3) must be reasonable 4) must not impair obligations of contracts 5) must not be contrary to morals and public policy 6) must not be contrary to existing laws or inconsistent with the corporation code Essential Requisites of a valid stockholder’s meeting 1) It must be held at the proper place as fixed in the by-laws 2) There must be a quorum 3) It must be held at the stated date and at the appointed time or at a reasonable time thereafter with previous notice 4) It must be called by the proper person MEETINGS Stockholders LAW ON PRIVATE CORPORATIONS Business Law 74

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Kind Frequency Venue Notice

Regular or Special At least once a year (regular) Principal office of the corporation Regular: at least 2 weeks prior to the meeting* Special: at least 1 week prior to meeting* President

Regular or Special At least once a month (regular) Anywhere in or outside of the Philippines at least one (1) day prior to the scheduled meeting*

Presiding President Officer * unless a different period is required by the by-laws Proxy Voting Trust Agreement (VTA) Requisites: Requisites: 1. In writing 1. In writing 2. Signed by the stockholder 2. Valid only for five years 3. Filed before the scheduled meeting3. Duly notarized with the corporate secretary 4. Must specify the terms and conditions No legal title to the shares of the stockholder giving the agency Revocable at anytime UNLESS coupled with interest Proxy can only act at the specified stockholder meeting Proxy votes only in the absence of the owner of the stock Usually short in duration Need not be notarized nor filed with the SEC Does not have the right to inspection

Acquires legal title to the shares of the transferring stockholder Irrevocable during the period Trustee is not limited to any particular meeting Trustee can vote and exercise all the rights of the transferring stockholder even when the latter is present Cannot exceed 5 years at any one time Must be notarized and filed with the SEC and the corporation Has the right to inspection

CERTIFICATE OF STOCK The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates endorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation (Stock and Transfer Book) showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. (Sec. 63) * No CERTIFICATE OF STOCK shall be issued to a subscriber until the full amount of his subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid. (Sec. 64) LAW ON PRIVATE CORPORATIONS Business Law 74

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Payment of balance of subscription - The board of directors of any stock corporation may at anytime declare due and payable to the corporation unpaid subscriptions to the capital stock Payment of any unpaid subscription, together with the interest accrued, if any, shall be made on the date specified in the contract of subscription or on the date stated in the call made by the board. If within 30 days from the said date no payment is made, all stocks covered by said subscription shall thereupon become delinquent and shall be subject to sale, unless the board of directors orders otherwise. (Sec. 67) Effect of delinquency (Sec. 71) – Cannot be voted for be entitled to vote or to representation at any stockholder's meeting Delinquency sale - The sale of delinquent stock which shall be made not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become delinquent. Notice of said sale shall be sent to every delinquent stockholder and published once a week for two (2) consecutive weeks in a newspaper of general circulation in the province or city where the principal office of the corporation is located. Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of the delinquent stock, the balance due on his subscription, plus accrued interest, costs of advertisement and expenses of sale, said delinquent stock shall be sold at public auction to such bidder who shall offer to pay the full amount of the balance on the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or fraction of a share. The stock so purchased shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in his favor. Should there be no bidder at the public auction, the corporation may bid for the same, and the total amount due shall be credited as paid in full in the books of the corporation. Title to all the shares of stock covered by the subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in accordance with the provisions of this Code. (Sec. 68) CORPORATE BOOKS AND RECORDS (Sec. 74) Every corporation shall keep and carefully preserve at its principal office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board of directors or trustees Records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any stockholder or member of the corporation at reasonable hours on business days Stock and Transfer Book - a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe. LAW ON PRIVATE CORPORATIONS Business Law 74

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Rights of a Stockholder 1. right to INSPECT corporate books and records 2. right to FINANCIAL statements Common forms of Corporate Combinations 1) Consolidation – two (or more) corporations untie, giving rise to a new corporate body and dissolving the constituent corporations as separate corporations 2) Merger – two (or more) corporations unite, one corporation which remains in being, absorbing or merging in itself the other which disappears as a separate corporation 3) Sale of assets to another corporation – a corporation selling all or substantially all of its assets to another corporation 4) Sale of stock – the purpose of a holding (or parent) company is to acquire a sufficient amount of the stock of another corporation (subsidiary) for the purpose of control. 5) Lease of assets – a corporation leases its property to another corporation for which the lessor merely receives rental paid by the lessee Procedure for effecting a plan of merger or consolidation 1) Approval of plan by the board of each corporation 2) Submission to stockholders for approval of the plan 3) Execution of formal contract 4) Submission to SEC for approval 5) Conduct of hearing by SEC 6) Issuance of certificate by SEC Appraisal Right (Sec. 81) - refers to a stockholder’s right to demand payment of the fair value of his shares, after dissenting from a proposed corporate action, in the cases provided by law. When available: 1. amendment to articles with the effect of changing rights of stockholders or extending or shortening the term of corporate existence 2. Sale, lease, or other disposition of all or substantially all of the corporate property 3. merger of consolidation 4. when corporation decides to invest its funds in another business other than the primary purpose of the corporation How right is exercised: 1. Dissenting stockholder shall make a written demand (on the corporation) for payment of the fair value of his shares, within 30 days after the date on which the vote was taken (otherwise, there is a waiver of his appraisal right) 2. If the proposed corporate action is effected, the corporation shall pay to such stockholder, upon surrender of the corresponding certificates of stock amendment to articles with the effect of changing rights of stockholders or extending or shortening the term of corporate existence LAW ON PRIVATE CORPORATIONS Business Law 74

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3. Upon payment of the agreed price, the stockholder shall transfer the shares to the corporation CLOSE CORPORATIONS - one whose articles of incorporation provide that: (1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.

Corporations that cannot be incorporated as a CLOSE Corporation 1. Public Utility, Oil Companies, Educational institution, and Mining companies 2. Banks, Insurance Companies, Other corporations declared to be vested with public interest, and Stock exchanges Actions done by a Director in a close corporation is valid even without a meeting when 1) There is a written consent by all directors prior to the act 2) All the stockholders have actual or implied knowledge and made no prompt objections in writing 3) When the directors are accustomed to take informal actions with the express or implied acquiescence of all the stockholders 4) When all the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing SPECIAL CORPORATIONS Educational Corporations - Trustees of educational institutions organized as non-stock corporations shall not be less than five (5) nor more than fifteen (15): Provided, however, That the number of trustees shall be in multiples of five (5). Unless otherwise provided in the articles of incorporation on the by-laws, the board of trustees of incorporated schools, colleges, or other institutions of learning shall, as soon as organized, so classify themselves that the term of office of one-fifth (1/5) of their number shall expire every year. Trustees thereafter elected to fill vacancies, occurring before the expiration of a particular term, shall hold office only for the unexpired period. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for five (5) years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers and authority of trustees shall be defined in the by-laws. (Sec. 108) Religious Corporations

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a. Corporations sole - for the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect or church, a corporation sole may be formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or church (Sec. 110)

b. Religious societies - any religious society or religious order, or any diocese, synod, or district organization of any religious denomination, sect or church, unless forbidden by the constitution, rules, regulations, or discipline of the religious denomination, sect or church of which it is a part, or by competent authority, may, upon written consent and/or by an affirmative vote at a meeting called for the purpose of at least two-thirds (2/3) of its membership, incorporate for the administration of its temporalities or for the management of its affairs, properties and estate (Sec. 116) DISSOLUTION Voluntary Dissolution 1) by judgment of the SEC after hearing of petition for voluntary dissolution where creditors are affected (Sec. 119) 2) by amending its Articles to shorten the corporate term (Sec. 120) 3) by a vote of the Board (majority) and Stockholders (2/3) where no creditors are affected (Sec. 118) Involuntary Dissolution 1) expiration of the term provided for in the articles 2) by failure to formally organize and commence the transaction of its business within 2 years from the date of incorporation 3) failure to operate continuously for a period of at least 5 years 4) by order of the SEC Grounds for Dissolution: a) violation of the corporation code b) mismanagement c) suspension or revocation of certificate of registration 5) by legislative enactments General requisites for foreign corporations before it can operate in the Philippines 1. Corporation created by or under the law of another state 2. It is licensed to do business in the Philippines 3. There is reciprocity Cases where an unlicensed foreign corporation is allowed to sue in the Philippines 1. Cases of isolated transactions 2. Cases of incidental activities for which the corporation was not organized 3. When the exception is provided by states (infringement, unfair competition or false description of trademark, action to protect good name) 4. acts preliminary to doing business 5. where contract provides Philippine courts as venue for controversies

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6. license subsequently granted enables foreign corporation to sue on contracts executed before grant of license 7. Recovery of misdelivered property 8. where the unlicensed foreign corporation has a domestic corporation for a co-plaintiff

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