CORPORATION LAW

(PART 2)

Atty. Maria Zarah R. Villanueva-Castro

GENTLE REMINDER TO PLS STAY
AT HOME!
 CORPORATE POWERS
Limited Capacity

Ultra Vires Rule

No corporation shall possess or exercise corporate

powers other than those conferred by this Code
or by its articles of incorporation and except as
necessary or incidental to the exercise of the
powers conferred. (Sec. 44, RCC)
 EXPRESS POWERS
1. to sue and be sued
2. perpetual existence
3. corporate seal
4. amendment of articles of incorporation
5. Bonded indebtedness
6. by-laws
7. issue stocks
8. deal in properties
 EXPRESS POWERS
9. partnership, JV, M&C
10. donation (but foreign company not allowed to
donate – political purposes)
11. pension, retirement fund
12. catch-all
(Sec. 35, RCC)
 APPROVAL REQUIREMENTS

 BOARD

 STOCKHOLDERS OR MEMBERS
 APPROVAL REQUIREMENTS
 SEC
 2/3 VOTE
1. Amendment of AOI
2. SLEMP
3. Bonded Indebtedness
4. Investment (in another corp/purpose other than
primary)
5. Merger/Consolidation
6. Dissolution
7. Capital increase/decrease
8. Delegation amendment to By-laws
 2/3 VOTE
9. Ratification (self-dealing/corporate opportunity)
10. Removal (directors)
11. Plan (distribution of assets of n-s corp)
 MAJORITY VOTE

1.Amendment of By-laws
2.Management contract
3. Compensation to directors
4. Revocation delegation of authority to amend
5. Issued price of no –par value shares
 NON-VOTING SHARES
Can vote on:
1.Amendment of AOI
2. Adoption and amendment of by-laws
3. SLEMP
4. Bonded Indebtedness
5. Increase or decrease of Capital Stock
6. Merger or consolidation
7. Investment
8. Dissolution
 AMENDMENT OF AOI
 Board and 2/3 vote of the OCS/members
 SEC (but deemed approved if no action within
6 months)
 CHANGE OF NAME
The mere change in the corporate name is not
considered under the law as the creation of a new
corporation; hence, the renamed corporation remains
liable for the illegal dismissal of its employee separated
under that guise.
Amendment of AOI is not a mode of dissolving a
corporation. (Zuellig Freight & Cargo Systems vs. NLRC, G.R.
No. 157900, July 22, 2013)
 SLEMP
 Subject to the "Philippine
Competition Act” and other
related laws
 all or substantially all of the
corporation's properties and
assets - net asset value (latest
financial statements).
 A sale or other disposition shall
be deemed to cover substantially
all the corporate property and
assets if thereby the corporation
would be rendered incapable of
continuing the business or
accomplishing the purpose of
which it was incorporated.
SALE OF ASSETS
 Mt. Arayat Development Co.
Inc. (MADCI)- real estate
 James Yu – bought golf and
country club shares at MEDCI
 But when Yu visited the site –
no golf course
 Yu claimed for refund (sum of
money) vs. MADCI and its
President
 SALE OF ASSETS
 Later on, Yu impleaded YILPI and YICRI.
 YILPI and YICRI acquired substantially all
assets of MADCI
 Transfer is fraudulent.
 SALE OF ASSETS

 Issue:
 Liability of the buyers, YICRI and YILPI
 GEN. RULE –NELL DOCTRINE
YES.
Generally, where one corporation sells or otherwise
transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the
transferor, except:
1. Where the purchaser expressly or impliedly agrees
to assume such debts
2. Where the transaction amounts to a consolidation or
merger of the corporations
 GEN. RULE – NELL DOCTRINE
3. Where the purchasing corporation is merely a
continuation of the selling corporation; and

4. Where the transaction is entered into

fraudulently in order to escape liability for such
debts.
(Y-I Leisure Philippines, Inc. vs. Yu, G.R. No. 207161
September 8, 2015 citing 15 SCRA 415).
 BUSINESS ENTERPRISE TRANSFER

In such transfer, the transferee corporation’s interest

goes beyond the assets of the transferor’s assets and
its desires to acquire the latter’s business enterprise,
including its goodwill.
Here, the transferee purchases not only the assets of
the transferor, but also its business. As a result of the
sale, the transferor is merely left with its juridical
existence, devoid of its industry and earning capacity.
(Id.)
BUSINESS-ENTERPRISE TRANSFER

 Transferee is liable for

the debts and liabilities
of his transferor arising
from the business
enterprise conveyed
and does not require
the existence of fraud
against the creditors
before it takes full force
and effect.
BUSINESS ENTERPRISE TRANSFER
 Here, given that YILPI and YICRI acquired not only
the assets but also the business of MADC, then
the liabilities of the latter are inevitably assigned
to the former.

 The continuity of MADCI's land developments is

now in the hands of YILPI and YICRI, with all its
assets and liabilities. There is absolutely no
certainty that Yu can still claim its refund from
MADCI with the latter losing all its assets.
ABANDONMENT OF SALE
MERGER & CONSOLIDATION
AJA!
 MERGER AND CONSOLIDATION
1. Legal requirements
2. Effects on:
(a) legal personalities
(b) on properties, rights, claims, etc..
(c) on liabilities
 SEC CERTIFICATE
The issuance of the certificate of merger is crucial
because not only does it bear out SEC’s approval but it
also marks the moment when the consequences of a
merger take place.
 LEGAL CONSEQUENCES
 Single corporation
 Separate existence cease (exc. Surviving
entity)
 Rights of the surviving entity
 rights, privileges, immunities and franchises,
properties, receivables. subscriptions to
shares and other choses in action
 all the liabilities and obligations of each constituent
corporation as though such surviving or consolidated
corporation had itself incurred such liabilities or
obligations

 pending claim, action or proceeding brought by or

against any constituent corporation
 rights of creditors or liens upon the property of
constituent corporations shall not be impaired (Sec.
79, RCC)
 EFFECTS ON RIGHTS, PROPERTIES
AND EXISTENCE
 By operation of law, upon the effectivity of the merger, the
absorbed corporation ceases to exist but its rights and
properties, as well as liabilities, shall be taken and deemed
transferred to and vested in the surviving corporation.
(Mindanao Savings and Loan Association, Inc. vs. Willkom,
G.R. No. 178618 October 20, 2010)
 EMPLOYMENT CONTRACTS
Employment contracts automatically assumed
by the surviving corporation in a merger even in
the absence of an express stipulation in the
articles of merger or the merger plan
 EMPLOYMENT CONTRACTS
 However, nothing shall impair the right of an
employer to terminate the employment of the
absorbed employees for a lawful or authorized cause
or the right of such an employee to resign, retire or
otherwise sever his employment, whether before or
after the merger, subject to existing contractual
obligations.

(BPI vs. BPI Employees Union-Davao Chapter-Federation of

Unions in BPI Unibank, G.R. No. 164301, 19 October 2011)
EMPLOYMENT CONTRACTS
It is well-settled that termination of
employment by virtue of a union security clause
embodied in a CBA is recognized in our
jurisdiction (Id.)
 MERGER VS. SALE OF ASSETS
Merger – results in dissolution; Sale does not result to
dissolution of the selling company

Merger allows the surviving entity acquire all assets of the

absorbed corporations; Sale is limited to the assets
contractually covered

Merger renders the surviving company liable for the debts

of the absorbed corporation/s; Sale does not automatically
render the buyer-company liable for such debts
SUBJECT TO PCA

 Should not be anti-competitive

When it substantially prevents, restricts or lessens

competition in the relevant market or in the market
for goods or services as may be determined by the
Commission shall be prohibited. (Sec. 20)

 Comply with compulsory notification

 ANTI-COMPETITIVE M&As
Merger –joining of two (2) or more entities into an existing
entity or to form a new entity

Acquisition – purchase of securities or assets through contract

or other means, for the purpose of obtaining control xxx(Sec. 4)
 ANTI-COMPETITIVE M&As
 Each party to M&A shall submit a notification
 PCC has 15 days from submission to determine if the form
and other requirements have been completed.
 After notice of sufficiency, PCC shall review within 30 days.
PCC is allowed to request for supplementary documents
which has the effect of extending the period within which the
M&A may not be consummated for another 60 days (but in
no case shall the PCC period to review exceed 90 days)
 When above periods have expired and no decision has been
promulgated, the M&A is deemed approved.
 ANTI-COMPETITIVE M&As
 Each party to M&A shall submit a notification
 PCC has 15 days from submission to determine if the
form and other requirements have been completed.
 After notice of sufficiency, PCC shall review within 30
days. PCC is allowed to request for supplementary
documents and is granted an additional 60 days. The
period shall not exceed 90 days from determination of
sufficiency.
 When above periods have expired and no decision has
been promulgated, the M&A is deemed approved.
 ANTI-COMPETITIVE M&As
An agreement consummated in violation of this
requirement to notify the Commission shall be
considered void and subject the parties to an
administrative fine of one percent (1%) to five
percent (5%) of the value of the transaction. (Sec.
17)
 THRESHOLDS FOR COMPULSORY
NOTIFICATION
Parties to a merger or acquisition are required to provide
notification to the PCC:

1) The aggregate annual gross revenues in, into or from the

Philippines, OR value of the assets in the Philippines of the
ULTIMATE PARENT ENTITY of at least one of the acquiring or
acquired entities, including that of all entities that the ultimate
parent entity controls, directly or indirectly, exceeds 6
BILLION PESOS; AND
2) The Size of Transaction exceeds 2.4 Billion Pesos
DIVIDENDS
 Cash, Stock and other
property
 Board approval
 For Stock div – requires
2/3 vote of OCS
 Delinquent
stockholders
 DIVIDENDS

 Dividends should be declared

where - surplus profits in
excess of 100% of paid-in
capital stock
 Exceptions:
(a) expansion projects or
programs
(b) loan agreement
(c) retention is necessary – ex.
need for special reserve for
probable contingencies.
 MANAGEMENT CONTRACT
 manage or operate all or substantially all of
the called services contracts, operating
agreement or otherwise
 5 yrs – max. term
 Gen Rule: Board and Majority of the OCS
 ADOPTION OF BY-LAWS
 Adoption of Bylaws – Board and majority of OCS/members
(Note that the 30 day period from incorporation to submit has
been taken out by the RCC)

 Bylaws maybe adopted and filed prior to incorporation –

should be approved and signed by all incorporators and
submitted to the SEC, together with the AOI (Sec. 45, RCC)
 AMENDMENT TO BY-LAWS
 Board and majority of
the OCS
 2/3 of the
OCS/members can
delegate the power to
amend or repeal or
adopt the By-laws TO
THE BOARD
 Revocation of delegated
power - majority of the
OCS/members
NOT AUTOMATICALLY DISSOLVED
A corporation which has failed to file its by-laws within
the prescribed period does not ipso facto lose its
powers as such.
The SEC Rules on Suspension/Revocation of the
Certificate of Registration of Corporations, details the
procedures and remedies that may be availed of before
an order of revocation can be issued.
(Sawadjaan vs. Court of Appeals, G.R. No. 141735 June 8,
2005)
 THIRD PARTIES NOT GENERALLY
BOUND

The rule is that generally third parties are not affected

by the by-laws. Nonetheless, in order to be bound, a
third party must have acquired knowledge of the
pertinent by-laws at the time the transaction or
agreement between said third person and the
shareholder was entered into. (China Banking
Corporation vs. Court of Appeals, G.R. No. 117604
March 26, 1997)
 INVESTMENT OF FUNDS
--in any other corporation,
business
-- for any purpose other
than the primary purpose
for which it was organized

Board and 2/3

OCS/members (Sec. 41,
RCC)
 ISSUANCE OF SHARES
The power to issue stocks is lodged with the Board of Directors
and no stockholders meeting is required to consider it because
additional issuances of stock (unlike increase in capital stock)
does not need approval of the stockholders.

What is only required is the board resolution approving the

additional issuance of shares. The corporation shall also file the
necessary application with the SEC to exempt these from the
registration requirements under the SRC. (Majority of
Stockholders of Ruby Industrial Corp. v. Lim, G.R. No. 165887,
June 6, 2011)
 SUBSCRIPTION CONTRACT
Any contract for the acquisition of unissued stock in
an existing corporation or a corporation still to be
formed shall be deemed a subscription within the
meaning of this Title, notwithstanding the fact that
the parties refer to it as a purchase or some other
contract. (SEC. 59, RCC)

NOTE THAT THE 25% PRE-INCORPORATION

SUBSCRIPTION HAS BEEN REMOVED BY THE RCC
 INTEREST ON SUBSCRIPTION
 Subscribers to stocks shall be liable to the
corporation for interest on all unpaid
subscriptions from the date of subscription, if
so required by and at the rate of interest fixed
in the subscription contract. (Sec. 65, RCC)
 NATURE OF SUBSCRIPTION
 Indivisibility
 No certificate of stock shall be issued to a
subscriber until the full amount of the
subscription together with interest and
expenses (in case of delinquent shares), if any
is due, has been paid. (Sec. 63, RCC)
 Serves to secure payment of subscription
 Price cannot be watered
 TRUST FUND DOCTRINE
Donina Halley, impleaded in the sum of money
case filed by Printwell against BPMI
 TRUST FUND DOCTRINE
Stockholders of a corporation are liable for the
debts of the corporation up to the extent of
their unpaid subscriptions.

They cannot invoke the veil of corporate

identity as a shield from liability, because the
veil may be lifted to avoid defrauding corporate
creditors.

(Halley vs. Printwell, G.R. No. 157549, May 30, 2011)

 TRUST FUND DOCTRINE
Legal bases:
 Dividend Declaration

 Acquisition of Shares

 Appraisal Right

 Dissolution
STOCKHOLDER’S
RIGHTS
Right to Attend Meetings

Regular mtg – annual (date

fixed in the By-laws; if
none, any date after Apr
15) (Sec. 49, RCC)
 NOTICE OF ST MEETING
 written notice of regular meetings - electronic mail or
such other manner as the SEC shall allow
 Notice of meeting – 21 days (regular)
- 1 wk (special)

 Notice may be waived – BUT, general waiver in the

AOI/By-laws – NO WAY!
 Attendance at the meeting is generally a waiver (unless
purpose is to question the meeting for having been not
lawfully called) (Sec. 49, RCC)
CALL FOR STOCKHOLDERS/MEMBERSHIP
MEETING
 no person authorized or the person authorized unjustly
refuses to call a meeting, - any stockholher/member may
petition before the SEC
 Such stockholder or member can call a meeting subject to
proper notice required
 He can preside thereat until at least a majority of the
stockholders or members present have chosen from among
themselves, a presiding officer. (Sec. 49, RCC)
 CALL FOR STOCKHOLDERS
MEETING
Oversight Committee has no authority to call a
meeting.

As the Special Stockholders' Meeting was called

neither by the President nor by the Board of Directors
(as required in the By-laws) but by the Oversight
Committee, the meeting cannot have any legal effect.
Accordingly, the removal of board members and their
replacement is invalid.
(Jose A. Bernas v. Jovencio F. Cinco, G.R. Nos. 163356-57/163368-
69; July 10, 2015)
 CONTENTS OF NOTICE
1) Agenda
2) proxy submission
3) requirements for remote participation
4) if agenda includes election, process for nomination
and election (Sec. 50, RCC)
 NOTICE OF MEETING
The law only requires the sending/mailing of the
notice of a stockholders’ meeting to the stockholders
of the corporation.
Sending/mailing is different from filing or
service under the Rules of Court. Had the
lawmakers intended to include the
stockholder’s receipt of the notice, they would
have clearly reflected such requirement in the
law. (Guy vs. Guy, 790 SCRA 288, G.R. No. 184068 April 19, 2016)
 MATTERS TO BE PRESENTED
Board to endeavor to present:
1. Minutes of recent stockholders meeting
(a) description of the voting and the vote tabulation procedures used in
the previous meetings;
(b) opportunity to ask questions and record thereof the question s asked
and answers give
(c) Voting results
(d) Resolutions adopted
(e) List of attendees
(f) Other matters to secure minority interest
 MATTERS TO BE PRESENTED
2. assessment of the corporation's performance
3. Financial report
4. Dividend policy
5. Directors profile/attendance in meetings
6. Performance appraisal of directors
7. Compensation of directors
8. Disclosure on self-dealing and related party contracts
(Sec. 49, RCC)
 PLACE OF MEETING

 principal office of the corporation as set forth in the AOI, or if

not practicable, in the city or municipality where the principal
office of the corporation is located:
 any city of municipality in Metro Manila, Metro Cebu, Metro
Davao, and other Metropolitan areas shall, for purposes of
this section, be considered a city or municipality.
 PRESIDING OFFICER
 Chairman
 QUORUM
 Majority
 Exception: RCC or Bylaws provide a different quorum
requirement
QUORUM

 Phil-Ville (Real estate business)

 Owners – Geronima & 6 children
 Geronima died – shares distributed to Cecilia, et al
(reflected in GIS)
 QUORUM
 Two groups -- Carolina group & Cecilia group
 QUORUM
 Cecilia - elected BOD and officers
 Carolina – sought cancellation of Geronima’s
share distribution;
 election contest (quorum, among other
things)
 Quorum in the meetings called by Cecilia
should have included all shares (including the
disputed shares)
 UNISSUED SHARES
It is settled that unissued stocks may not be voted or
considered in determining whether a quorum is
present in a stockholders' meeting. Only stocks actually
issued and outstanding may be voted.
 DISPUTED SHARES

For stock corporations, the quorum is based on

the number of outstanding voting stocks.
The distinction of undisputed or disputed shares of stocks
is not provided for in the law or the jurisprudence.
Ubi lex non distinguit nec nos distinguere debemus —
when the law does not distinguish we should not
distinguish.
 QUORUM
Thus, the 200,000 outstanding capital stocks of Phil-Ville
should be the basis for determining the presence of a
quorum, without any distinction.
 to constitute a quorum, the presence of 100,001 shares
of stocks in Phil-Ville is necessary.
 only 98,430 shares of stocks were present during the
subject stockholders meeting, therefore, no quorum had
been established.

(Carolina Que Villongco, et al., v. Cecilia Que Yabut, et al.,

G.R. No. 225022, February 05, 2018)
 SHARES OF DECEASED
STOCKHOLDER
On the death of a shareholder, the executor or
administrator duly appointed by the court is vested
with the legal title to the stock and entitled to vote
it.

Until a settlement and division of the estate is

effected, the stocks of the decedent are held by the
administrator or executor.
(Lopez Realty, Inc. and Asuncion Lopez-Gonzales v. Sps.
Tanjangco, G.R. No. 154291, November 12, 2014)
 QUORUM (NON-STOCK)
Dead members are not to be counted in determining
the requisite vote in corporate matters or the requisite
quorum in the
members’ meeting.

(Tan vs. Sycip, G.R. No. 153468,

August 17, 2006)
 LACK OF QUORUM
Consequence of lack of quorum

Any act or transaction made during a meeting

without quorum is rendered of no force and
effect, thus, not binding on the corporation or
parties concerned. (Id)
 RIGHT TO VOTE
Presumption is “all shares are voting”
Non-voting (limited voting rights)
Rule on:
a. delinquent shares
b. unpaid shares
c. sequestered shares
d. pledged/mortgaged shares
e. Shares of a deceased stockholder
 SEQUESTERED SHARES
Coconut levy funds are not only affected with public
interest, they are in fact prima facie public funds.

Having been acquired with public funds, the shares

belong, prima facie, to the government.
Government should be allowed to vote for the
questioned shares, because they belong to it as the
prima facie beneficial and true owner. (Cocofed vs.
Republic, G.R. Nos. 177857-58; September 17, 2009)
DEPOSIT ON STOCK
SUBSCRIPTION
 REMOTE VOTING
 Participation thru remote communication – Bylaws
or Board approval

 The right to vote of stockholders or members may be

exercised in person, through remote communication
or in absentia.
 INTERNAL PROCEDURE
 Mechanism – identify stockholder
 Measure – opportunity to participate
 Mechanism – vote
 Procedure – document meeting
 Procedure –recording
 Other admin, logistical and technical matters

(SEC MC 6, 2020)
 PROXY

- Must be in writing and generally valid only for the mtg

intended
- Continuing –max. period is 5 years
- Revocable in general, unless coupled with interest
- If there is solicitation – SRC requires SEC clearance

- NOTE AGAIN: Board members (in BOD meetings) CANNOT

attend thru proxy.
TRUST YOURSELF!
 VOTING TRUST
 Right to vote is conferred
 Max period is 5 years
 Certified copy of the VTA – SEC, else,
ineffective/unenforceable
 Stockholder loses legal title
 Should not circumvent laws against: anti-
competitive agreements, abuse of dominant position,
anti-competitive mergers and acquisitions, violation
of nationality and capital requirements, or for the
perpetuation of fraud.
 VOTING TRUST
 separation of the voting rights of a stockholder from his other
rights such as the right to receive dividends, etc.

 To distinguish a voting trust agreement from proxies and other

voting pools and agreements, it must pass three criteria or
tests, namely:
(1) the voting rights of the stock are separated from the
other attributes of ownership;
(2) the voting rights granted are intended to be irrevocable
for a definite period of time; and
(3) the principal purpose of the grant of voting rights is to
acquire voting control of the corporation.
 VOTING TRUST
 by virtue of the voting trust agreement executed in 1981
disposed of all their shares through assignment and delivery
in favor of the DBP, as trustee.
 Consequently, the petitioners ceased to own at least one
share standing in their names on the books of ALFA as
required under the law.
 They also ceased ceased to be directors. (Lee vs. CA, G.R. No.
93695, February 4, 1992)
 RIGHT OF INSPECTION
 bound by confidentiality rules under prevailing laws,
such as the rules on trade secrets, IPC, Data Privacy,
SRT, RoC
 NOT ENTITLED:
(1) Not a stockholder or member
(2) a competitor, director, officer, controlling stockholder
or otherwise represents the interests of a competitor
(Sec. 73, RCC)
RIGHT OF INSPECTION
No requirement on the count of shares to
inspect corporate records.

The Corporation Code has granted the right to

inspect the corporate books and records to all
stockholders. It did not require any specific
amount of interest for the exercise of the right
to inspect. (Terelay Investment and Development Corp vs.
Yulo, G.R. No. 160924, August 5, 2015)
RIGHT OF INSPECTION
 Revocation of a corporation’s
Certificate of Registration
does not automatically extinguish the corporation itself such
that its rights and liabilities are likewise altogether extinguished.
 Thus, the revocation of

BMTODA's registration does not automatically strip off Ongjoco

of his right to examine pertinent documents and records relating
to such association.

(Roque vs. People, G.R. No. 211108 June 7, 2017)

 RIGHT OF INSPECTION
In the absence of evidence, the PCGG cannot
unilaterally deny a stockholder from exercising his
statutory right of inspection based on an unsupported
and naked assertion that private respondent’s motive
is improper or merely for curiosity or on the ground
that the stockholder is not in friendly terms with the
corporation’s officers. (Philippine Associated Smelting and Refining
Corporation vs. Lim, 804 SCRA 600, G.R. No. 172948 October 5, 2016)

Rationale - intelligent participation in the governance

of the corporation as a business organization that they
partially own.
 PRE-EMPTIVE RIGHT

 Prevent dilution of interest

 Not available when:
1. denied in the AOI
2.shares issued to comply with legal
requirement re minimum public ownership
3. property acquisition
4. for debt
 APPRAISAL RIGHT
 demand payment of the fair value of the shares
(return of investment) – 30 days
 Available when:
(1) AOI amendment which: (a) restrict/change shareholders
rights; (b) superior preferences; or (c) extension/shortening
of term
2) SLEMP
3) M & C
4) investment (Sec. 80, RCC)
 APPRAISAL RIGHT
 Although dissenting stockholders have the right of appraisal,
the law provides that no payment shall be made to any
dissenting stockholder unless the corporation has
unrestricted retained earnings in its books to cover the
payment. (Turner vs. Lorenzo Shipping Corporation, G.R. No.
157479, 24 November 2010)

 Effect is suspension of right; if not thus paid, rights are

restored (Sec. 82, RCC)
 APPRAISAL RIGHT
Unrestricted retained earnings

No payment shall be made to any dissenting

stockholder unless the corporation has unrestricted
retained earnings. Thus, for an action to prosper,
the Corporation must have Unrestricted Retained
Earnings at the time of the filing of the complaint.
(Turner vs. Lorenzo Shipping Corporation
G.R. No. 157479, November 24, 2010)
 TRANSFER OF SHARES
The statutory rule that, no transfer of shares of stock
shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation
cannot be applied when the Corporation unduly
refused to recognize the assignment of the shares.
(Interport Resources Corp. vs. Securities Specialist Inc. & R.C. Lee
Securities , Inc., G.R. No. 154069; June 06, 2016)
 TRANSFER OF SHARES
Period to effect transfer of shares
The right to have the transfer registered exists from the
time of the transfers and it is to the transferee’s
benefit that the right be exercised early.

However, since the law does not prescribe any period

within which the registration should be effected, the
action to be enforced the right does not accrue until
there has been a demand and a refusal to record the
transfer. (Interport Resources Corp. vs. Securities Specialist Inc.
& R.C. Lee Securities, Inc., G.R. No. 154069; June 06, 2016)
 REGISTRATION OF TRANSFER OF
SHARES
The surrender of the certificate of
stocks by the transferee to the
corporation is not a requisite before
registration of the transfer maybe
made in the corporate books.
(Anna Teng v. SEC; G. R. 184332; Feb
17, 2016)

But such surrender of original stock

certificate to issue a new stock
certificate to the transferee (Id.)
 STREET CERTIFICATE

When a stock certificate is endorsed in blank by the owner

thereof, it constitutes what is termed as “street certificate”,
so that upon its face, the holder is entitled to demand its
transfer into his name from the issuing corporation. Such
certificate is deemed quasi-negotiable, an as such the
transferee thereof is justified in believing that it belongs to
the holder and transferor. An endorsement in blank of the
stock certificates coupled with its delivery, entitles the
holder thereof to demand the transfer of said stock
certificates in his name from the issuing corporation.

(Guy v. Guy, 5 September 2012)

SUITS INVOLVING THE
CORPORATION
INTRA-CORPORATE DISPUTE
 INTRA-CORPORATE DISPUTE
Tests – Relationship and Nature of Controversy
 RELATIONSHIP TEST
Conflict is:
(1) between the corporation, partnership, or association
and the public;
(2) between the corporation, partnership, or association
and the State insofar as its franchise, permit, or license
to operate is concerned;
(3) between the corporation, partnership, or association
and its stockholders, partners, members, or officers; and
(4) among the stockholders, partners, or associates
themselves.
 NATURE OF CONTROVERSY TEST
Controversy is not only rooted in the existence of an
intra-corporate relationship, but also in the
enforcement of the parties' correlative rights and
obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the
corporation.
(San Jose, et al. vs. Jose Ma.Ozamiz, G.R. No.190590,
July 12, 2017)
 CIVIL CASE- NOT INTRA-
CORPORATE
 Sylvia and Alexander (H & W)
 Alexander died; Sylvia – administratrix
 Sylvia – motion to sell shares of Alexander (in various
companies)
 Father of Alexander sought recovery of the shares
(shares were just placed in the name of Alexander
but Father was the one who paid for these shares)
 Filed a case to nullify his transfer to Alexander of the
shares
 CIVIL CASE- NOT INTRA-
CORPORATE
Is this an intra-corporate case?
 CIVIL CASE- NOT INTRA-
CORPORATE
NO.
 Relationship involves vendor-vendee

 Question is whether or not there was indeed a

sale in the absence of cause or consideration.
 The determination whether a contract is
simulated or not is an issue that could be
resolved by applying pertinent provisions of
the Civil Code, particularly those relative to
obligations and contracts.
 CIVIL CASE- NOT INTRA-
CORPORATE
 Disputes concerning the application of the
Civil Code are properly cognizable by courts of
general jurisdiction. No special skill is
necessary that would require the technical
expertise of the SEC.
 INTRA-CORPORATE DISPUTE
 Mrs. Moreno – owns a unit
and parking slots at Chateau Condo
(Properties)

 Properties used as collateral

for her 16M loan from Oscar
 INTRA-CORPORATE DISPUTE
 Condo Corp can enforce lien upon the unit in
case of non-payment of dues (Condominium
Act)
 Moreno failed to pay her dues
 Condo Corp initiated auction sale of the
Properties
 Oscar -TRO/Injunction
 INTRA-CORPORATE DISPUTE
 Moreno- intra-corp case vs. Chateau (how
assessment was computed; accounting of
dues)
Is this an intra-corporate case?
 INTRA-CORPORATE DISPUTE
YES.
Moreno spouses ask for an accounting of the
association dues and question the manner the dues
were calculated.

Completion of the foreclosure sale did bar questions

on the amount of the unpaid dues that gave rise to the
foreclosure and to the subsequent sale of their
Properties. (Chateau de Baie Condominium Corp. v. Sps.
Moreno, 644 SCRA 288, G.R. No. 186271, February 23,
2011)
 FORCIBLE ENTRY
 Mariam sued the Petitioners (employees/contractors) of
BIRI – forcible entry
 Property – 5.2 hectare spring property owned by BIRI
 Petitioners’ defense - BIRI, as owner of the spring
property, merely exercised its legal right to prevent
unauthorized persons from entering its property;
deployment of licensed security guards was intended to
secure its property
 FORCIBLE ENTRY
 While the case purports to be one for forcible entry
filed by Mariam against BIRI's employees and
contractors in their individual capacities, the true
nature of the controversy is an intra-corporate
dispute between BIRI and its shareholder, Mariam,
regarding the management of, and access to, the
corporate property subject of the MOA.
The true nature of the controversy is that of a
shareholder seeking relief from the court to contest the
management's decision to:
(1) post guards to secure the premises of the property;
(2) padlock the property; and
(3) deny her access to the same on due to her alleged
default on her contract with BIRI. (Tumangan vs.
Mariam Kairuz, G.R. No. 198124, Sept. 12, 2018)
 WISE CASE
 Wise Holdings is the parent company of Wise Choice
Foods)
 Wise Holdings allegedly organized Sunrich and
 Transferred to it the assets of Wise Choice (share
swap)
 Wise Choice should have issued all shares of Sunrich
to Wise Holdings (being the sole stockholder of Wise
Choice)
 WISE CASE
 Wise Holdings sued Sunrich’s shareholders of record
(allegedly hold the shares in trust for Wise Holdings)
for having transferred their shares to the Garcias.

 Intra-corporate?
 NOT WISE TO FILE INTRA-CORP
CASE
 No corporate relationship as while Wise
Holdings asserts ownership of the shares of
Sunrich , - shares not recorded in its name
 Action seeks to reconvey property held in
trust
 (trust relationship – Civil Code) (Wise Holdings
vs. Garcia, G.R. 199174, JUNE 10, 2019)
 DISMISSAL OF OFFICER-
INTRACORPORATE DISPUTE
 The Chairman of the Board, informed Maglaya
of the termination of his services and
authority as the President of the University on
April 27, 2009.
 Maglaya filed on March 22, 2011 the present
illegal dismissal case against WUP with the
NLRC
DISMISSAL OF OFFICER
 One who is included in the Bylaws
of a corporation in its roster of corporate officers is an officer
of said corporation and not a mere employee.
 The Corporation Code mandates that the President shall be a
director.
 The alleged “appointment” of Maglaya instead of “election”
as provided by the bylaws neither convert the president of
university as a mere employee, nor amend its nature as a
corporate officer.
 DISMISSAL OF OFFICER
 A corporate officer's dismissal is always a corporate act, or
an intra-corporate controversy which arises between a
stockholder and a corporation, and the nature is not
altered by the reason or wisdom with which the Board of
Directors may have in taking such action.
 The issue of the alleged termination involving a corporate
officer, not a mere employee, is not a simple labor problem
but a matter that comes within the area of corporate
affairs and management and is a corporate controversy in
contemplation of the Corporation Code. (Wesleyan
University-Philippines vs. Maglaya, Sr., G.R. No. 212774
January 23, 2017)
 DISMISSAL OF OFFICER
 The NLRC erred in assuming jurisdiction over
the case, as this is an intra-corporate case as
it involves dismissal of corporate officer
 SANDIGANBAYAN - NO JURISDICTION ON INTRA-
CORPORATE CASES

The mere fact that a corporation's shares of stocks are

owned by a sequestered corporation does not, by itself,
automatically categorize the matter as one involving
sequestered assets, or matters incidental to or related to
transactions involving sequestered corporations and/ or
their assets. (Roberto V. San Jose, et al., vs. Jose Ma. Ozamiz,
G.R. No. 190590, July 12, 2017)
 ELECTION CONTEST
 Fernandez seeks the invalidation of corporate acts of
VVCCI on the ground of lack of authority of the Board
members to suspend the club membership of Fernandez,
and the lack of due process which attended his
suspension.
 Fernandez questions the authority of the petitioners
to act as the BOD of VVCCI and approve the board
resolution suspending his club membership
 15-DAY PERIOD

 To allow Fernandez to indirectly question the validity

of the February 23, 2013 election would be a clear
violation of the 15-day period to file an election
contest under the Interim Rules.
 Fernandez's complaint disputes the election of
petitioners as members of the BOD of VVCCI on the
ground of lack of quorum during the February 23, 2013
annual meeting.
 complaint is partly an "election contest" as defined
under Section 2, Rule 6 of the Interim Rules, which refers
to "any controversy or dispute involving title or claim to
any elective office in a stock or non-stock corporation, xx
(Elzemendi, Jr. et al. vs. Fernandez, G.R. No. 215280,
September 5, 2018)
 INTERIM RULES ON 15-DAY
PERIOD
• 15 days from the date of the election if the by-
laws of the corporation do not provide for a
procedure for resolution of the controversy,
or within fifteen (15) days from the resolution
of the controversy by the corporation as
provided in its by-laws;
 INDIVIDUAL SUIT
 An individual suit is brought by the stockholder in his
own name against the corporation, when a wrong is
directly inflicted against him. The cause of action
pertains to him and the action is meant directly to
protect his interest.

 e.g., denial of right to inspection and denial of

dividends to a stockholder.
 REPRESENTATIVE SUIT

 A representative suit is brought by the

stockholder for and on behalf of himself and
all other stockholders similarly situated, when
a wrong is committed against a class of
stockholders.
 REPRESENTATIVE SUIT
 If the cause of action belongs to a group of
stockholders, such as when the rights violated
belong to preferred stockholders, a class or
representative suit may be filed to protect the
stockholders in the group.
(Agdao Landless Residents Association, Inc. vs. Maramion,
G.R. No. 188642, 17 October 2016; Villamor vs. Umale, G.R.
No. 172843, 24 September 2014; Cua, Jr. vs. Tan, G.R. No.
181455, 4 December 2009)
 DERIVATIVE SUIT
A derivative suit is an action brought by minority
stockholders in the name of the corporation to
redress wrongs committed against it, for which
the directors refuse to sue. It is a remedy
designed by equity and has been the principal
defense of the minority stockholders against
abuses by the majority. (Western Institute of
Technology, Inc. vs. Salas, G.R. No. 113032, 21
August 1997)
 DERIVATIVE SUIT
Not based on any express provision of the
Corporation Code, or even the Securities
Regulation Code, but is impliedly recognized
when the said laws make corporate directors or
officers liable for damages suffered by the
corporation and its stockholders for violation of
their fiduciary duties.
 DERIVATIVE SUIT
In effect, the suit is an action for specific
performance of an obligation, owed by the
corporation to the stockholders, to assists its
rights of action when the corporation has been
put in default by the wrongful refusal of the
directors or management to adopt suitable
measures for its protection. (Villamor vs. Umale,
G.R. No. 172843, 24 September 2014)
REQUISITES OF DERIVATIVE SUIT

1. filed by a stockholder of record

2. cause of action is corporate
3. corporation is impleaded
4. intra-corporate remedies are exhausted
5. appraisal right is not available
6. not a nuisance or harassment suit
 ALLEGE WITH PARTICULARITY
 Kingsville Construction and Development
Corporation (Kingsville) project agreement with Fil-
Estate Properties, Inc. (FEPI) -- development of
Kingville land into Forest Hills Residential Estates and
Golf and Country Club.
 ALLEGE WITH PARTICULARITY
 FEPI was tasked to incorporate Forest Hills
Golf and Country Club, Inc. and to perform the
development and construction work as full
payment of its subscription to the authorized
capital stock of the club.

 FEPI assigned its rights and obligations over

the project to Fil-Estate Golf Development,
Inc. (FEGDI).
 ALLEGE WITH PARTICULARITY

 Due to delayed construction of the golf course,

Rainier Madrid, a stockholder of Forest Hills, wrote
demand letters to the Board of Directors of FHGCCI
asking them to initiate legal action against FEPI and
FEGDI.

 The Board of Directors failed to act on the demand

prompting Madrid to file a Complaint for Specific
Performance with Damages before the RTC in a
derivative capacity on behalf of Forest Hills
 ALLEGE WITH PARTICULARITY

 FEPI and FEGDI argued that the action is not a proper

derivative suit as Madrid failed to exhaust all
remedies available under the Articles of
Incorporation and By-laws.
 ALLEGE WITH PARTICULARITY

 Rules require stockholder to exert all reasonable

efforts, and alleges the same with particularity in the
complaint, to exhaust all remedies available under
the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain
the relief he desires.


In this case, Madrid, as a shareholder of FHGCCI,

failed to allege with particularity in the Complaint
that he exerted all reasonable efforts to exhaust all
remedies available under the articles of
incorporation, by-laws, or rules governing the
corporation.

(Forest Hills Golf & Country Club vs. Fil-Estate

Properties, Inc. and Fil-Estate Golf Development, G.R.
 DERIVATIVE SUIT
Waiver of rental income due the corporation

Allegation that directors waived rental income in

favor of a law firm without consideration and
that they failed to take action when the law firm
refused to turn over the rental to the company –
these are wrongs that pertain to the company.
(Alfredo Villamor, Jr. v. John Umale, September 24,
2014)
 DERIVATIVE SUIT
Action aims to stop sale of lands and annul title to the
lands transferred

Derivative suit?
YES.
 Action does not entail the premature distribution of
corporate assets.
 The reliefs seek to preserve them for the corporate
interest of ALRAI.
 DERIVATIVE SUIT
 Any benefit that may be recovered is
accounted for, not in favor of respondents,
but for the corporation, who is the real party-
in-interest. Hence, derivative action.

(Agdao Landless Residents Association, Inc. vs.

Maramion, 806 SCRA 74, G.R. Nos. 188642; 189425,
G.R. Nos. 188888-89 October 17, 2016)
 DERIVATIVE SUIT
Where demand is useless, exhaustion of intra-
corporate remedies can be dispensed with.

xxx the threat of expulsion against respondents

is sufficient to forestall any expectation of
further demand for relief from petitioners.
Ultimately, to make an effort to demand
redress within the corporation will only result in
futility, rendering the exhaustion of other
remedies unnecessary. (Agdao)
 DEMAND IS USELESS
While the complaining stockholder must satisfactorily show
that he has exhausted all means to redress his grievances
within the corporation, such remedy is no longer necessary
where the corporation itself is under the complete control
of the person against whom the suit is being filed. (Hi-Yield
Realty, Inc. vs. Court of Appeals, G.R. No. 168863, 23 June
2009)
 DERIVATIVE SUIT IN A CLOSE
CORPORATION
Exhaustion of intra-corporate remedies cannot be
dispensed with even if the company is a family
corporation.

(Yu vs. Yukayguan, G.R. No. 177549, June 18, 2009)

 DISSOLVED COMPANY
 3 years to wind up affairs
 Whether dissolution be voluntary or
involuntary
 Either by Trustee or Receiver
 Excepted are companies dissolved due to
Merger or Consolidation
 DISSOLVED COMPANY
 Dr. Gil Rich lent
P1,000,000.00 to his
brother, Estanislao
Rich
 Collateral – REM on
Estanislao’s parcel of
 Property foreclosed
with Gil as highest
bidder
 DISSOLVED COMPANY
 But, before foreclosure, Estanislao also used
the same property as collateral for his loan
with MTLC
 President of MTLC sought equitable
redemption which the court granted
 DISSOLVED COMPANY
 if MTLC entered into the REM with Estanislao after its
dissolution – REM is void ab initio because of the non-
existence of MTLC's juridical personality.
 But, if MTLC entered into the REM agreement prior to its
dissolution, then MTLC's redemption of the subject
property, even if already after its dissolution (as long as it
would not exceed three years thereafter), would still be
valid because of the liquidation/winding up powers
accorded by Section 122 of the Corporation Code to
MTLC.
 DISSOLVED COMPANY
 Here, when MTLC executed the REM (2005), its
juridical personality has already ceased to exist
(2003) .
 REM is void as MTLC could not have been a
corporate party to the same.
 Hence, equity of Redemption null and void

(Dr. Gil Rich v. Guillermo Paloma III, G.R. No.

210538, March 07, 2018)
STAY ORDER!
 TRANSFER OF SHARES
 FS Velasco Co – Angela gained 70.8% control
but when she died, shares were inherited by
her husband, Madrid
 Madrid called a special stockholders and re-
org meeting – BOD and officers elected
 At that time, shares of Madrid were already
reflected in the General Information Sheet
(GIS) BUT NOT YET REFLECTED IN THE STOCK
AND TRANSFER BOOK
700 × 467

Issue:

Can Madrid validly call a

stockholders meeting?
 TRANSFER OF SHARES
NO.
All transfers of shares of stock must be
registered in the corporate books (stock and
transfer book) in order to be binding on the
corporation.
The owner of shares of stock cannot be accorded the
rights pertaining to a stockholder — such as the right
to call for a meeting and the right to vote, or be voted
for — if his ownership of such shares is not recorded in
the Stock and Transfer Book.
 TRANSFER OF SHARES
No showing that the transfer of Angela’s shares to
Madrid had been registered in FS Velasco’s Stock
and Transfer Book when he made such call and
when the Meeting was held.
 GIS NOT CONCLUSIVE
The contents of the GIS, however, should not be
deemed conclusive as to the identities of the
registered stockholders of the corporation, as well
as their respective ownership of shares of stock, as
the controlling document should be the corporate
books, specifically the Stock and Transfer Book.
ARAL NA ARAL
CODAL LANG ANG PAHINGA
 NON-STOCK CORPORATIONS
 no part of its income is distributable as
dividends
 CONVERSION INTO STOCK
CORPORATION
 A non-stock corporation cannot be converted into a
stock corporation by mere amendment of its AOI
 Amounts to distribution the assets of the non-stock
corporation to its members to make them
stockholders
 GOVERNANCE
 Count of trustees – not to exceed 15
 Term of office of trustees – not to exceed 3
yrs

 Independent trustees of NS corp vested with

public interest need not be a member
 Members can directly elect officers

(Sec. 91, RCC)

 VOTING RIGHTS, ETC
 Right to vote of members may also be limited
or denied
 Proxy attendance is generally allowed (exc.
AOI/Bylaws)
 ASSET DISTRIBUTION
1. debts
2. donated properties subject to
reversion
3. Donated properties subject to
transfer to similar
institutions
4. Remaining assets – Members
5. Plan of distribution
ONE PERSON CORPORATION
 ONE PERSON CORPORATION
 The OPC used to be limited only to religious corporations
where the chief archbishop, rabbi, or presiding elder of
the religious denomination, sect or church can apply for
and become a sole corporation.

 Now, any single proprietor (or even anyone with a non-

profit endeavor) can become a corporation.

 No need for four other incorporators. No need for a

board of directors.
 ONE PERSON CORPORATION
 is especially beneficial for micro, small, and
medium-sized businesses.
 ONE PERSON CORPORATION
A One Person Corporation (OPC) is a
corporation with a single stockholder

Only a natural person, trust, or an estate may

form a One Person Corporation. (Sec. 116,
RCC)

Check also SEC MC 7, 2019

 ONE PERSON CORPORATION
 Trust, administrator, executor, guardian – proof of
authority
 The “trust” refers to the subject matter being managed
by a trustee
 NOT ALLOWED

Banks and quasi-banks, preneed, trust, insurance,

public and publicly-listed companies, and non-
chartered government- owned and - controlled
corporations may not incorporate as OPC (Sec. 116,
RCC)
 NOT ALLOWED

A natural person who is licensed to exercise a

profession may not organize as OPC for the
purpose of exercising such profession except
as otherwise provided under special laws.
(Sec. 116, RCC)
 TERM OF EXISTENCE
 Term of OPC is perpetual

 But for trust or estate – coterminous with the

existence of the trust or estate (hence,
dissolved upon proof of the termination of the
trust)
(SEC MC 7, 2019)
 ONLY AOI IS REQUIRED

OPC is not required to submit and file Bylaws

(Sec. 119, RCC)
OPC NAME
Indicate the letters “OPC” either
below or at the end of its
corporate name. (Sec. 120, RCC)

Ex. OPPAtrick
Transport Solutions, OPC
 ONE PERSON CORPORATION
The single stockholder shall be the sole
director and president of the OPC (Sec. 122,
RCC)
 ONE PERSON CORPORATION
Within 15 days from the issuance of its COI, OPC shall
appoint a treasurer, corporate secretary, and other
officers as it may deem necessary;

The single stockholder may not be appointed as the

corporate secretary. (Sec. 122, RCC)

but he may assume the role of TREASURER

 ONE PERSON CORPORATION
IF Single stockholder – self-appointed
Treasurer:

Bond requirement; renew every 2 yrs (Sec. 122,

RCC) See SEC MC 7, 2019, Sec. 10 for the
schedule of bond – depends upon ACS)
 RECORDS IN LIEU OF MEETINGS
When action is needed on any matter,
it shall be sufficient to prepare a
written resolution, signed and dated
by the single stockholder, and
recorded in the minutes book of the
OPC.

The date of recording in the minutes

book shall be deemed to be the date
of the meeting for all purposes under
this Code. (Sec. 128, RCC)
 ONE PERSON CORPORATION
A sole shareholder claiming limited liability has
the burden of affirmatively showing that the
corporation was adequately financed. (Sec. 130,
RCC)
 ONE PERSON CORPORATION
Where the single stockholder cannot prove that the
property of the OPC is independent of the
stockholder’s personal property, the stockholder
shall be jointly and severally liable for the debts and
other liabilities of the OPC.

The principles of piercing the corporate veil applies

with equal force to OPC (Sec. 130, RCC)
 ORDINARY CORP TO OPC
When a single stockholder acquires all the
stocks of an ordinary stock corporation, the
latter may apply for conversion into an OPC,
subject to the submission of such documents as
the Commission may require (Sec. 131, CC)

Eg. Buy out by Mr. Ogad of the shares of the other

stockholders
 OPC TO ORDINARY CORP
A OPC may be converted into an ordinary stock
corporation after due notice to the Commission
of such fact and of the circumstances leading to
the conversion (Sec. 132, RCC)

Ex. Mr. Ogad sells out his shares to various investors

 ASSUMPTION OF LIABILITIES
The ordinary stock corporation converted from
a OPC shall succeed the latter and be legally
responsible for all the latter’s outstanding
liabilities as of the date of conversion. (Sec. 132,
RCC)
 NOMINEE/ALTERNATE
The single stockholder shall designate a nominee and an
alternate nominee who shall, in the event of the single
stockholder’s death or incapacity, take the place of the
single stockholder as director and shall manage the
corporation’s affairs. (Sec. 124, RCC)

 Needs written consent of the nominee and alternate

nominee
 attach to the application for incorporation.
 consent may be withdrawn in writing any time before
the death or incapacity of the single stockholder.
 SS DIES
In case of death of the single stockholder, the nominee or
alternate nominee shall transfer the shares to the duly
designated legal heir or estate within seven (7) days from
receipt of either an affidavit of heirship or self-adjudication
executed by a sole heir, or any other legal document
declaring the legal heirs of the single stockholder and notify
the Commission of the transfer. (Sec. 132, RCC)

Corp Sec has duty to notify the nominee/SEC within 5 days

from occurrence of death/incapacity
 ONE PERSON CORPORATION
Within sixty (60) days from the transfer of the
shares, the legal heirs shall notify the SEC of
their decision to either
-- wind up and dissolve the OPC ; OR
-- convert it into an ordinary stock corporation.
(Sec. 132, RCC)
FOREIGN NATIONAL
 Yes, but subject to applicable
capital requirement/
constitutional and statutory
restrictions on foreign
participation

(Sec. 15, SEC MC 7, 2019)

Von Appetit, OPC
 COMPLIANCE REQUIREMENTS
An OPC needs to submit:
 Audited financial statement

 Disclosure of self dealing transactions

 Other reports the SEC may require

 ADVANTAGES OF OPC (as
compared to Sole Prop)
 Sole P – personal liability for the risks of the business
OPC - single stockholder enjoys limited liability as
corporate assets treated separately

 When the single proprietor dies, the assets of his

business (as well as the liabilities) are passed on to
his children/heirs – but not the license over the
business, which expires along with the individual
businessman.
 ADVANTAGES OF OPC (as
compared to Sole Prop)
 If the children or heirs want to continue the
business, they must secure a new license to
do business.
 With an OPC, succession and business
continuity is assured as the OPC’s life is
perpetual.
 This perpetuity is preserved even if the OPC
owner is a mortal.
 ADVANTAGES OF OPC (as
compared to Sole Prop)
 If a sole proprietorship gets bigger and would later
wish to change its form of business to a corporation,
cessation of business as a single proprietorship or the
transfer of assets to a regular corporation can have tax
costs.
 In case of OPC, without changing its registration or
disturbing continuity of life, an OPC can change into a
regular corporation where it can receive investors or
admit strategic partners. All the OPC needs to do is to
amend its articles of incorporation to follow the
required governance for regular corporation
 CLOSE CORPORATION
Characteristics:
1) Count of stockholders is up to 20

2) No offering of shares in the stock market

3) Share transfer has limitations

NOT close corporation when at least two-thirds (2/3) of its

voting stock or voting rights is owned or controlled by an
open corporation (Sec. 95, RCC)
 NOT ALLOWED
 mining or oil companies
 stock exchanges
 Banks
 insurance
 public utilities
 educational institutions
 corporations vested with public interest (Sec. 95,
RCC)
 NO need to constitute a BOD - so long as the
AOI provides that the business shall be
managed by the stockholders. (Sec. 96, RCC)
 Authority of Zenaida Mendoza to redeem a property of
A-5 farms
 No board resolution
 While required provisions not in the AOI,
corporate structure, management and operation
-close corporation

 Board resolution unnecessary

 Actual/implied knowledge-no objection is raised
renders the action valid (Mendoza vs. Rico, G.R. No.
183022, November 21, 2018)
FEAR NOTHING!
FOREIGN
CORPORATIONS
FOREIGN CORPORATIONS
A. Concept of “doing business” and the
license requirement therefor; (See also Sec. 3
(d), RA 7042)

B. Personality to sue and

suability
RULES TO REMEMBER

If a foreign corporation is doing business in the

Philippines with the required license, IT CAN
SUE BEFORE PHILIPPINE COURTS ON ANY
TRANSACTION.
 FOREIGN CORPORATIONS
If a foreign corporation is doing business in the
Philippines without a license, IT CANNOT SUE
BEFORE THE PHILIPPINE COURTS.

(Exception: ESTOPPEL)

BUT, IT CAN BE SUED

If a foreign corporation is not doing
business in the Philippines:
it needs no license to sue before Philippine
courts on an isolated transaction or on a
cause of action entirely independent of any
business transaction
 TESTS ON DOING BUSINESS
(1) Substance Test — whether the foreign
corporation is continuing the body of the
business or enterprise for which it was
organized or whether it has substantially
retired from it and turned it over to another.
 TESTS ON DOING BUSINESS
 (2) Continuity Test — continuity of
commercial dealings and arrangements, and
contemplates, to that extent, the
performance of acts or works or the exercise
of some of the functions normally incident to,
and in the progressive prosecution of, the
purpose and object of its organization

(Agilent Technologies Singapore (Ptd.) Ltd. v. Integrated Silicon,

G.R. 154618, April 14, 2004, 427 SCRA 593)
 FOREIGN INVESTMENT ACT
Sec. 3(d) of RA 7042 or the Foreign Investment Act of 1991, the
phrase "doing business" shall include :
1) soliciting orders, service contracts, opening offices, whether
called "liaison" offices or branches;
2) appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for
a period or periods totaling 180 days or more;
3) participating in the management, supervision or control of
any domestic business, firm, entity or corporation in the
Philippines; and
 DOING BUSINESS
Catch all:
- any other act or acts that imply a continuity of
commercial dealings or arrangements, and
contemplate to that extent the performance of acts or
works, or the exercise of some of the functions
normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the
business organization
 NOT DOING BUSINESS
-- mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business,
and/or the exercise of rights as such investor;
-- having a nominee director or officer to represent its
interests in such corporation;
-- appointing a representative or distributor domiciled in
the Philippines which transacts business in its own name
and for its own account.
-- publication of a general advertisement through any print
or broadcast media;
 NOT DOING BUSINESS
--- Maintaining a stock of goods in the Philippines solely for the purpose
of having the same processed by another entity in the Philippines;

---- Consignment by a foreign entity of equipment with a local company to

be used in the processing of products for export;

---Collecting information in the Philippines; and

-- Performing services auxiliary to an existing isolated contract of sale

which are not on a continuing basis, such as installing in the
Philippines machinery it has manufactured or exported to the
Philippines, servicing the same, training domestic workers to operate
it, and similar incidental services.” (IRR of RA 7042)
DOING BUSINESS CASES
OFFLINE CARRIER
 OFFLINE CARRIER
 Offline carrier -
any international air carrier with no flight
operations to and from the Philippines.

 On-line carriers, on the other hand,

are international air carriers with flight
operations to and from the
Philippines.
 OFFLINE CARRIER

An offline carrier is “any foreign air carrier not certificated by the

CAB, but who maintains office or who has designated or
appointed agents or employees in the Philippines, who sells or
offers for sale any air transportation in behalf of said foreign air
carrier and/or others, or negotiate for, or holds itself out by
solicitation, advertisement, or otherwise sells, provides,
furnishes, contracts, or arranges for such transportation.”

Hence, doing business (Air Canada vs. Commissioner of Internal Revenue,

G.R. No. 169507 January 11, 2016)
 OFFLINE CARRIER
 An offline international air carrier selling
passage tickets in the Philippines, through a
general sales agent, is a resident foreign
corporation doing business in the Philippines.
 OFFLINE CARRIER
 Air Canada is a foreign corporation organized and
existing under the laws of Canada.
 was granted an authority to operate as an offline
carrier by the CAB
 As an off-line carrier, Air Canada does not have
flights originating from or coming to the Philippines
and does not operate any airplane in the Philippines
 OFFLINE CARRIER
 Air Canada engaged the services of Aerotel
Ltd., Corp. (Aerotel) as its general sales agent
in the Philippines.
 Aerotel sells Air Canada’s passage documents
in the Philippines
 OFFLINE CARRIER
Is Air Canada doing business in the Philippines?
 OFFLINE CARRIER
YES
DOING BUSINESS ---
 any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization:
 OFFLINE CARRIER
 Aerotel performs acts or works or exercises
functions that are incidental and beneficial to
the purpose of Air Canada’s business.
 The activities of Aerotel bring direct receipts
or profits to Air Canada.
 There is nothing on record to show that
Aerotel solicited orders alone and for its own
account and without interference from, let
alone direction of Air Canada.
 OFFLINE CARRIER
 On the contrary, Aerotel cannot "enter into
any contract on behalf of Air Canada without
the express written consent of the latter," and
it must perform its functions according to the
standards required by Air Canada.

 Through Aerotel, Air Canada is able to engage

in an economic activity in the Philippines.
 OFFLINE CARRIER
 Further, Air Canada was issued by the Civil
Aeronautics Board an authority to operate as
an offline carrier in the Philippines for a
period of five years
 SALE OF TICKETS
JAL was doing business in the Philippines, i.e., its
commercial dealings in the country were
continuous – despite the fact that no JAL aircraft
landed in the country – as it sold tickets in the
Philippines through a general sales agent, and
opened a promotions office here as well. (CIR
vs. JAL)
LEVEL UP
YOUR
EDGE!
 12 MARINE POLICIES
 Foreign Insurance appointed a settling agent here,
and issued 12 marine insurance policies.
 Transactions were not isolated or casual, but
manifested the continuity of the foreign
corporation’s conduct and its intent to establish a
continuous business in the country. (General Corp. of
the Phils. v. Union Insurance Society of Canton and
Fireman’s Fund Insurance)
 CREDIT TERM SHOWS INTENT TO
DO BUSINESS
 Eriks (Singapore Co.) sold its products sixteen times
over a five-month period to the same Filipino buyer
 90-day credit term
 sale by Eriks of the items covered by the receipts,
which are part and parcel of its main product line,
was actually carried out in the progressive
prosecution of commercial gain and the pursuit of
the purpose and object of its business
CREDIT TERM SHOWS INTENT TO
DO BUSINESS
 Hence, doing business and needs license

(Eriks Pte vs. CA, G.R. No. 11843, Feb. 6, 1997)

BID PARTICIPATION PARTAKES OF
DOING BUSINESS
 SBMA – bidding to develop and operate a
modern marine container terminal within the
Subic Bay Freeport Zone.
 3 bidders – one of them Hutchison
 SBMA bid com – awarded the project to
Hutchison
 Office of the Pres – directed rebid; SBMA
officers - Ombudsman
BID PARTICIPATION PARTAKES OF
DOING BUSINESS
 Project delay – Hutchison filed a case for specific
performance against SBMA
Is Hutchison doing business in the Philippines?
BID PARTICIPATION PARTAKES OF
DOING BUSINESS
 A single act or transaction may be considered as
"doing business"
 Participating in the bidding process constitutes
“doing business” because it shows the foreign
corporation’s intention to engage in business
here.
 The bidding for the concession contract is but an
exercise of the corporation’s reason for its
existence. (Hutchison Ports Philippines Limited v. SBMA,
G.R. No. 131367, August 31, 2000)
 ENGAGEMENT OF A FILIPINO TO
RUN BUSINESS
 PIL (Australian co) was sued by Todaro (money
claim)
 PIL questions the trial court’s exercise of
jurisdiction over it on the ground that it is a
foreign corporation not doing business in the
Philippines and because of this, the service of
summons on PIL did not follow the mandated
procedure.
 ENGAGEMENT OF A FILIPINO TO
RUN BUSINESS
 PIL insists that its sole act of "transacting" or
"doing business" in the Philippines consisted
of its investment in PPHI (holding co. of the
operating co, PCPI)
 ENGAGEMENT OF A FILIPINO TO
RUN BUSINESS
 The act of negotiating to employ a Filipino national
to run a foreign company’s pre-mixed concrete
operations in the Philippines are managerial and
operational acts in directing and establishing
commercial operations in the Philippines. These are
not mere acts of a passive investor.
 Evidence shows extent of PIL’s participation in
engaging Todaro to carry out such managerial acts.
 Hence, doing business.
(Pioneer International v. Guadiz, G.R. No. 156848, October 11,
2007)
 ESTOPPEL
BUT, a foreign corporation doing business in the Philippines may
sue in Philippine courts although not authorized to do business
here against a Philippine citizen who had contracted with and
been benefitted by said corporation. (Merrill Lynch Futures, Inc.
vs. Court of Appeals, 211 SCRA 824, G.R. No. 97816 July 24, 1992)

Here, the business relations spanned a period of seven (7) years

and the parties evidently found those relations to be of such
profitability as warranted their maintaining them for that no
insignificant period of time. (id)
 LICENSE AGREEMENT
 Surecomp, (from Netherlands) entered into a
software license agreement with Asian Bank for the
use of its IMEX Software System in the bank’s
computer system for a period of twenty (20) years.
 Asian Bank merged with Global Business, with
Global as the surviving corporation
 Global discontinued contract with Surecomp
 For failure of Global to pay its obligations under the
agreement despite demands, Surecomp filed a
complaint for breach of contract with damages
 LICENSE AGREEMENT
 Surecomp alleged that it is a foreign
corporation not doing business in the
Philippines and is suing on an isolated
transaction for Global’s failure to pay
notwithstanding the delivery of the product
and the services provided.
 COUNT OF YEARS
 not an isolated transaction since the contract
was for a period of 20 years.
 Hence, needs license to be able to sue in the
Phils.
 BUT, ESTOPPEL
Global is estopped from challenging Surecomp’s
capacity to sue.
A party is estopped from challenging the personality of
a corporation after having acknowledged the same by
entering into a contract with it.
The principle is applied to prevent a person contracting
with a foreign corporation from later taking advantage
of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the
contract. (Global Business Holdings, Inc. v. Surecomp
Software, B.V., G.R. No. 173463, October 13, 2010)
NOT DOING BUSINESS CASES
 IMPORTATION FROM PHILS
 Cargill, Inc. - registered in Delaware, USA
 Cargill & NMC (local co) – contract for NMC to
sell to Cargill molasses
 Contract was amended – increase
price, reduce volume, change
delivery dates
 IMPORTATION FROM PHILS
 NMC was required to post performance bond (Intra Strata)
 NMC was short in its deliveries

 Cargill sued NMC and Intra Stata-- signed a compromise

agreement (CA) which the court approved.

 NMC failed to comply with the CA terms. Collection case

proceeded.
 Court ordered Intra solidarily liable.
 IMPORTATION FROM PHILS
 Is Cargill doing business and thus needs
license to pursue Intra (as well as NMC)?
 ACTIVITY SHOULD INVOLVE
PROFIT MAKING
NO.
 The transaction does not bring any direct receipts
or profits to Cargill

 It was NMC, which derived income from the

transaction and not Cargill.
 To constitute “doing business,” the activity
undertaken in the Philippines should involve
profit-making.
 IMPORTATION FROM PHILS
 Cargill is a foreign company merely importing
molasses from a Philippine exporter
 A foreign company that merely imports goods from
a Philippine exporter, without opening an office or
appointing an agent in the Philippines, is not doing
business in the Philippines.
 Intra had no legitimate reason to refuse payment
under the performance and surety bonds when NMC
failed to perform its part under its contract with
Cargill. (Cargill, Inc. vs. Intra Strate Assurance, G.R.
No. 168266, March 15, 2010)
 EXPORTATION TO THE PHILS.

 BV Zuiden (HK Co)

 lace products
 GTVL (Fil. Co.) purchased lace products from BV
 Procedure: BV delivers the products purchased by
GTVL to Kenzar (a HK co) and the products are then
considered as sold, upon receipt by KENZAR of the
goods purchased by GTVL.
 EXPORTATION TO THE PHILS.
 KENZAR to deliver the products to GTVL
(Phils)
 Insofar as BV is concerned, upon delivery of
the goods to KENZAR in HK, the transaction is
concluded; and GTVL became obligated to pay
the agreed purchase price.
 GTVL failed to pay ZUIDEN.
 EXPORTATION TO THE PHILS.
Is BV doing business in the Phils?
EXPORTATION TO THE
PHILS.
NO.

The mere act of exporting from one’s own

country (HK), without doing any specific
commercial act within the territory of the
importing country (Phils), cannot be deemed as
doing business in the importing country
 EXPORTATION TO THE PHILS.
 To be doing or "transacting business in the
Philippines" the foreign corporation must actually
transact business in the Philippines, that is, perform
specific business transactions within the Philippine
territory on a continuing basis in its own name and
for its own account.
 Hence, BV does not need a license in order to initiate
and maintain a collection suit against GTVL for the
unpaid balance of its purchases.
 MAINTAINING STOCK OF GOODS
 Silicon (domestic) - business of manufacturing and
assembling electronic components
 HP-Singapore (HPS) and Silicon – 5 yr Value Added
Assembly Services Agreement (VAASA)
 Silicon - to locally manufacture and assemble fiber optics
for export to HPS
 MAINTAINING STOCK OF GOODS
 HPS was to consign raw materials to Silicon then
HPS to pay Silicon for the finished products
 HPS then assigned the VAASA to Agilent (foreign)
 Silicon sued Agilent (non-extension of VAASA)
 Agilent also sued Silicon – return equipment and
materials
 MAINTAINING STOCK OF GOODS
Is Agilent doing business in the Phils?
 MAINTAINING STOCK OF GOODS
 No.
 By the clear terms of the VAASA, Agilent’s activities
in the Philippines were confined to (1) maintaining a
stock of goods in the Philippines solely for the
purpose of having the same processed by Silicon;
and
(2) consignment of equipment with Silicon to
be used in the processing of products for
export.
MAINTAINING STOCK OF GOODS
Does not need license before it can sue
before our courts.
 DISTRIBUTOR
The appointment of a distributor in the Philippines is
not sufficient to constitute "doing business" unless it is
under the full control of the foreign corporation. On
the other hand, if the distributor is an independent
entity which buys and distributes products, other than
those of the foreign corporation, for its own name and
its own account, the latter cannot be considered to be
doing business in the Philippines.

(Steelcase, Inc. v. Design International Selections, Inc., 18 April

2012)
 ISOLATED TRANSACTION
The complaint for damages was dismissed on the
ground that plaintiff, being "a foreign corporation or
partnership not doing business in the Philippines, it
cannot exercise the right to maintain suits before our
Courts."

A foreign corporation not engaged in business in the

Philippines can file an action before Philippine courts
for isolated transactions. (Bulakhidas vs. Navarro, 142
SCRA 1, No. L-49695 April 7, 1986)
 ABSENCE OF LICENSE CAN BE
CURED
It must be noted though that lack of capacity to sue by
foreign corporation at time of execution of contract
cured by its subsequent registration here. (Home
Insurance Company vs. Eastern Shipping Lines, 123
SCRA 424, No. L-34382, No. L-34383 July 20, 1983)
GRATEFUL FOR NOT RECORDING
MAMA’S LECTURE