Review Notes in Corporation Law 2023

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CENTRAL PHILIPPINE UNIVERSITY

College of Law
Iloilo City

REVIEW NOTES IN BUSINESS ORGANIZATION II


(Corporation Law)
Atty. Zacarias D. Bedona, Jr.
Answered by: RENDON, AMG
January 6, 2023

MEETINGS

a. What are the kinds of meetings of directors, trustees,


stockholders or members?

The two kinds of meetings are: regular meetings and special


meeting. Regular meetings are those held monthly, unless otherwise
provided in the by-laws On the other hand, special meetings may be held at
anytime upon the call of the president or as provided in the by-laws.

b. What are the dates of the regular meetings of the directors or trustees,
stockholders or members?

The dates of the regular meetings of the directors or trustees,


stockholders or members depend upon the notice that will be sent at least
two days prior to the scheduled meeting. The notice shall state the date,
time and place of the meeting that must be sent to every director or trustee.
However, it must be noted that the requirement of notice may be waived
either expressly or impliedly by a director or trustee.

c. What is quorum in meetings of the directors or trustees, stockholders or


members?

To constitute a quorum in the meetings, there must be the presence


of the majority (1/2 +1) of the directors or trustees, stockholders or
members. Unless the AOI or the by-laws provides for a greater majority.
Directors or trustees who cannot physically attend may do so via remote
communications such as videoconferencing or other alternative modes of
communication as provided by one of the salient changes in the Revised
Corporation Code.

II

QUORUM

a. Omega Corporation has fifteen members of the Board of Directors.

b. Give the number of the Board of Directors to constitute a quorum.

The number of the Board of directors that would constitute a quorum


is 8. The Revised Corporation Code provides that to constitute a quorum in
a meeting, majority of the directors or trustees, stockholders or members
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must be present. Thus, to constitute a meeting in the Omega Corporation, 8


members of the Board of Directors must be present.
c. Give the vote needed to consider every decision to be valid corporate act.

As a general rule, to consider a decision a valid corporate act, there


must have at least majority of the directors or trustees present at a meeting
at which there is a quorum. Provided that it is not election of the officers.
Election of the officers requires a vote of majority of all of the members of
the board (Sec 52).

d. What is quorum for stockholders or members?

To constitute a quorum for stockholders or members, it shall consist


of the stockholders representing a majority of the outstanding capital stock
in a stock corporation or a majority of the members in the case of non-
stock corporations. Unless otherwise provided in the Revised Corporation
Code or by-laws.

e. What is quorum for Board of Directors and Board of


Trustees?

To constitute a quorum for the Board of Directors and Board of


Trustees, there must be a presence of the majority of the members of the
Board of Directors or Board of Trustees. Unless, the AOI or the by-laws
provides for a greater majority.

III

REMOVAL OF STOCKHOLDERS, DIRECTORS, AND OFFICERS

a.

Edgar is a board director in Alpha Corporation. A majority of the board of


directors wanted to remove him and to sell his shares at public auction for his
critical temperament, so he can no longer attend and participate in stockholders’
meetings.

Can the board of directors remove Edgar as board director and


stockholder without cause? Explain.

No, Edgar cannot be removed as a board of director in the Alpha


Corporation. The Revised Corporation Code provides that any director may
be removed from his office by the vote of the stockholders representing at
least 2/3 of the capital stock. It must be done in a meeting called for that
purpose after due notice. The removal may be with, or without a cause
provided that in the latter’s case, it will not be used to deprive minority
stockholders of the right of representation. In the case at bar, the power to
remove a board of director emanates from the stockholders. Furthermore,
Edgar cannot be removed as such sans any delinquency status. His
corresponding shares cannot be sold at auction without complying with
the procedures laid down in section 66 of the Revised Corporation Code on
payment of balance of subscription. Thus, Edgar cannot be removed by the
Board of Directors.
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b.

On May 15, 2021, XYZ Corporation passed a board resolution removing


Peter from his position as General Manager of the said corporation. The By-Laws
of XYZ Corporation provide that the officers are President, Treasurer, and
Corporate Secretary. Peter filed a complaint with SEC, and he alleged that a
General Manager could only be removed by the affirmative vote of the
stockholders representing two-thirds of the outstanding capital stock. Is the
contention of Peter legally valid?

No, the contention of Peter is invalid. The Revised Corporation Code


provides that any director of a corporation may be removed from his office
by a vote of the stockholders’ representing at least 2/3 of the outstanding
capital stock. In other words, his contention only applies to the Board of
Directors. In the case at bar, he is simply a General Manager of the XYZ
Corporation. Therefore, he can be removed by a mere board resolution.

c.

Romeo is an undesirable and unreasonable director of RST Corporation.


Majority of the directors wanted to remove Romeo from office as director.

1) May Romeo be removed as director without a just cause? Explain.

No, Romeo cannot be removed by the members of the Board of


Directors. However, he may be removed by the stockholders’ representing
at least 2/3 of the capital stock in a meeting called for that purpose with due
notice given at least two days prior to such meeting. Furthermore, he may
be removed as such if given that it will not deprive the minority
stockholders from the right of representation. Therefore, Romeo may not
be removed from the members of the board by the majority of directors.

2) May Romeo claim a permanent seat in the board? Explain.

No, Romeo cannot claim a permanent seat in the board. If Romeo


claims a permanent seat in the board, it will be a violation of the Section 27
and Section 28 of the Revised Corporation Code. Therefore, Romeo cannot
claim a permanent seat in the Board of Directors.

d.

Who may remove corporate officers, directors or trustees? Explain.

Corporate officers may be removed by the members of the Board of


Directors while any director or trustee of a corporation may be removed
from office by a vote of the stockholders holding or representing at least
2/3 of the outstanding capital stock, or if the corporation be a non-stock
corporation, a trustee may be removed by a vote of at least two-thirds (2/3)
of the members entitled to vote at the meeting called for such purpose in a
notice given at least two days prior for such removal.

e.
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What constitutes valid removal of directors or trustees?

The Revised Corporation Code provides that for a removal of a


director to be valid, there must be at least 2/3 of the votes of the
stockholders representing the outstanding capital stock. In the case of a
trustee, his removal may be valid by the vote of at least 2/3 of the members
who are entitled to vote. Furthermore, it must be held in a meeting called
for such purpose with a notice given at least two days prior from such
meeting.

IV

TERM

a.

A is a director in a Travel Corporation, who was elected for a one-year


term on January 15, 2021. On March 5, 2021, A resigned due to health issues,
and was replaced by B, who assumed as director on March 31, 2021. On May
30, 2021, B died. C was elected in his place. Until which time should C serve as
director? Explain.

C can only serve the unexpired term of his predecessor B until


January 15, 2022. The Revised Corporation Code provides that a director or
trustee elected to fill a vacancy shall be referred to as a replacement
director or trustee and shall serve only until the unexpired term of the
predecessor in office. In the case at bar, C is only a replacement director of
A. Thus, his term of office shall be reckoned from January 9, 2021 when A
was elected as a director in a Travel Corporation. Therefore, C can only
serve until January 15, 2022.

b.

The term of CCC Corporation in accordance with its Articles of


Incorporation ended last June 1, 2015. The term was not extended. What will
happen to the corporation?

It will be deemed dissolved. If the life of the corporation as stated in


the AOI expired without a valid extension having been effected, the
corporation will be deemed dissolved by such expiration without a need for
further action of the corporation or the State.

c.

Give the number and term of directors; trustees of a non-stock


corporation, and trustees of non-stock educational corporations.

The Revised Corporation Code provides that stock corporations can


have a maximum of 15 members of the Board of Directors and whom shall
serve a one year term. Trustees of a non-stock corporation shall be fixed in
the AOI or by laws which may or may not be more than 15 and whom shall
serve office for not more than 3 years. On the other hand, trustees of non-
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stock educational corporations shall not be less than five nor more than 15.
Provided that the number of trustees shall be in multiples of 5 and whom
shall serve the term of office of 1/5 of their number and shall expire every
year. Thereafter, trustees elected to fill the vacancies caused by expiration
shall hold office for 5 years.

f.

RR Corporation (RR) owns a beach resort with 15 cottages. Julius, the


President of RR, occupied one of the cottages for residential purposes. After
Julius’ term expired, RR wanted to recover possession of the cottage. Julius
refused to surrender the cottage, contending that as stockholder and former
President, he has right to possess the cottage and enjoy the properties of RR.

Is the contention of Julius correct? Explain.

No, the contention of Julius is incorrect. One of the attributes of a


corporation is being an artificial being with a distinct and separate
personality. Thus, it is regarded as a person under Article 44 of the Civil
Code. It can acquire rights and properties which are separate and distinct
from its stockholders of members. In the case at bar, the beach resort with
15 cottages is owned by the RR Corporation and not by Julius. Therefore
he has no right to possess the cottage and enjoy the properties of RR
because it is its own properties.

EXECUTIVE COMMITTEE

The Board of Directors of Yankee Corporation created an Executive


Committee pursuant to its By-Laws to manage the affairs of the corporation
between board meetings. The Board of Directors appointed the following
members of the Executive Committee: The President; and two directors, Henry
and George. The Executive Committee met and decided on the following
matters:

a. Shorten the corporate term of Yankee Corporation;


b. Purchase a delivery truck for its lumber business;
c. Declaration of PhP100.00 per share cash dividend;
d. Purchase a house and lot for its office;
e. Declaration and approval of 13th month pay bonus.

Are the actions of the Executive Committee valid? Why?

No, not all of the acts of the Executive Committee are valid. The only
valid acts are b, d and e. The Revised Corporation Code provides that if the
by-laws provide, the board can create an executive committee composed of
at least three directors. They may act by majority vote of all its members on
specific matters within the competence of the board as may be delegated
to them in the by-laws. However, it is subjected to exceptions. One of it is
the distribution of cash dividends. Thus, it is not within the purview of the
committee to declare Php 100.00 as cash dividends. Furthermore, another
prohibition is the amendment or repeal of the by-laws or the adoption of
the new by-laws. Therefore, it is not within the power of the executive
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committee to shorten the corporate term of the Yankee Corporation. The


remaining others are valid.

VI

SALARY/COMPENSATION OF DIRECTORS/TRUSTEES

The majority and controlling members of the Board of Directors of X


Corporation passed a Resolution granting compensation to the Chairman, Vice
Chairman, Corporate Treasurer and Corporate Secretary. The majority or
controlling members of the Board are also the officers of the said corporation.

a. Is the grant of salary or compensation to the directors valid?


Explain.

As general rule, directors or trustees shall not receive compensation


except for their reasonable per diems. However, the Revised Corporation
Code provides that compensation may be granted to the directors if it is
fixed in the by-laws of the corporation and if the stockholders representing
at least majority of the outstanding capital stock grants them
compensation and approve the amount thereof in a regular or special
meeting. Therefore, a grant of salary or compensation to the directors is
valid.

b. Is the grant of salary or compensation to the directors who are also


officers of the corporation valid? Explain.

No, it is not valid. The Revised Corporation Code provides that


directors should not participate in the determination of their compensation
because there may be a conflict of interest in such matter. Therefore,
granting a salary or compensation to the directors who are also the officers
is invalid.

VII

INDIVIDUAL SUITS, CLASS SUITS AND DERIVATIVE SUITS

a.

What are individual suits, class suits and derivative suits?

A. Individual suit is filed when the cause of action personally belongs to


the shareholder or member. The action must be brought under his name
and the cost of litigation must be paid by him. One example is a
shareholder being denied of his dividends;
B. Class suit is filed when the cause of action belongs to a group of
shareholders of members. These are claims arising from oppression of
minority shareholders, shareholder’s voting right and their pre-emptive
rights;
C. Derivative suit is an action initiated by a shareholder or member in the
name of the corporation against the management of the controllers of
corporation. The cause of action belongs to the corporation and arises out
of breach of duty, care and loyalty.
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b.

Dy is a minority stockholder of Sparrow Corporation. Go is a member of


the Board of Directors and at the same time President of Sparrow Corporation.

Dy believes that Go is mismanaging the Sparrow Corporation, hence, as a


stockholder and in behalf of the stockholders, he wanted to sue Go. Is Dy
permitted to institute a derivative suit for himself and in behalf of the
stockholders? Explain.

Yes, Dy can institute a derivative suit. The Revised Corporation Code


provides that an individual may institute a derivative suit in behalf of the
corporation and himself to protect corporate rights from damages resulting
from alleged mismanagement of the affairs of the corporation by its
directors or officers who are in control of the corporation. In the case at
bar, Go is a a member of the Board of Directors and Uy believes that he is
mismanaging the Sparrow Corporation. Therefore, a derivative suit is may
initiated.

VIII

LIQUIDATION/DISSOLUTION/TERMINATION

a.

FKC Corporation shortened its corporate life by amending its articles of


incorporation. It has no debts but owns a prime property located at Iloilo City.
How would the said property be liquidated among the five stockholders of FKC
Corporation?

The prime property of FKC Corporation may be liquidated through:

1. Physical division or partition based on the proportion of the values of


their stockholdings;
2. Selling the property to a third person and diving the proceeds among the
5 stockholders in proportion of their stockholdings;
3. After the determination of the value of the property, by assigning or
transferring the property to one stockholder with the obligation to pay the
other stockholders in amount proportion to their stockholding.

b.

XXX Corporation is a bank. The operation of XXX Corporation as a bank


was not doing well. So, to avert any bank run, XXX Corporation, with the
approval of the Monetary Board, sold all its assets and liabilities to ZZZ Banking
Corporation which includes all deposit accounts. In effect then, ZZZ will service
all deposits of all depositors of XXX Corporation.

Will the sale of all assets and liabilities of XXX Corporation to ZZZ Banking
Corporation automatically dissolve or terminate the corporate existence of XXX
Corporation?
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No, the sale of the assets and liabilities does not automatically
dissolve or terminate the corporate existence of XXX corporation. However,
it may opt to dissolve by any means under the Revised Corporation Code
of the Philippines (RCCP). The RCCP provides that a decision to dissolve
XXX Corporation would require a vote of the stockholders holding at least
2/3 of the outstanding capital stock or at least 2/3 of the vote of the
members in a meeting called for such purpose with a notice given at least
2 days prior to such meeting.

IX

INTRA-CORPORATE CONTROVERSY

a.

There is a controversy in the election of the Board of Directors of RS


Corporation which is questionable. Is controversy in the election of the Board of
Directors an intra-corporate controversy?

Yes, it is an intra-corporate controversy. Under Republic Act No.


8799 and the Securities and Exchange Commission Reorganization Act,
intra-corporate controversies are those arising from election or
appointment of directors, trustees, officers or managers of such
corporation, partnership or association. Therefore, it is an intra-corporate
controversy.

b.

If a suit were to be initiated as an intra-corporate controversy, should the


matter be submitted to SEC or the regular courts?

It should be submitted to the regular courts. As provided by the


Securities Regulation Code Section 5.2, intra-corporate controversies has
been transferred to courts of general jurisdiction. Therefore, it should be
submitted to regular courts.

MERGER

SS Corporation and YY Corporation have agreed to be merged into one


corporation. To facilitate the merger, both corporation agreed that the merger be
made effective March 15, 2021. The Securities and Exchange Commission
(SEC) approved the Articles of Merger on May 30, 2021. What is the effective
date of merger? Explain.

The effective date of the merger is on May 30, 2021. the Revised
Corporation Code provides that the effective date of the merger is always
the date of the approval of the Articles of Merger by the Securities and
Exchange Commission. Therefore, it is effective on May 30, 2021.

XI
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FOREIGN CORPORATION

a.

What is a Foreign Corporation?

The Revised Corporation Code provides that a foreign corporation is


one formed, organized and existing under laws other than those in the
Philippines. It allow Filipino citizens and corporations to do business in its
own country or state. Furthermore, it has the right to transact business in
the Philippines after obtaining a license for that purpose in accordance
with this Code and a certificate of authority from the appropriate
government agency.

b.

A foreign company has been exporting goods to a Philippine company for


several years now. When the Philippine company failed to pay the latest
exportation, the foreign company sued to collect in the Philippines. The Philippine
company interposed the defense that the foreign company was doing business in
the Philippines without a license hence, could not sue before a Philippine court.
Is this defense tenable? Explain your answer.

Yes the defense is tenable. The Revised Corporation Code provides


that no foreign corporation transacting a business without a license shall
not be permitted to maintain or intervene in any action, suit or proceeding
in any court of the the Philippines but such corporation may be sued
before Philippine courts for administrative tribunals on any valid cause
recognized under the Philippines.in the case at bar, the foreign corporation
did not secure a license in the Philippines that is why it is not deemed to be
doing business in the Philippines. Therefore, the defense is tenable.

XII

ONE PERSON CORPORATION (OPC)

a. Who can be stockholder of an OPC?

A One Person Corporation is a corporation with a single stockholder. The


Revised Corporation Code provides that only a natural person, trust, or an
estate may form a One Person Corporation.

b. Who may be appointed officers of an OPC?

The Revised Corporation Code provides that treasurer, corporate secretary and
other officer if deemed necessary may be appointed as office of the One Person
Corporation.

c. Is the single stockholder qualified to be president and treasurer or


corporate secretary?
10

No he is not. The Revised Corporation Code provides that a single


stockholder shall be the sole director and president of the One Person
Corporation and cannot assume to other positions simultaneously.
However, he may be allowed to be the president and treasurer if he will
execute a bond to the Securities and Exchange Commission in a sum that
may be required.

d. Is an OPC required to file Articles of Incorporation and By-laws?

The One Person Corporation is only required to file AOI and not the
by-laws as provided by the Revised Corporation Code.

XIII

BOOKS TO BE KEPT AT PRINCIPAL OFFICE

What books are required to be kept at the principal office?

The RCC provides that the following books must be kept at the principal
office:

(a) The articles of incorporation and bylaws of the corporation and all their
amendments;
(b) The current ownership structure and voting rights of the corporation,
including lists of stockholders or members, group structures, intra-group
relations, ownership data, and beneficial ownership;
(c) The names and addresses of all the members of the board of directors
or trustees and the executive officers;
(d) A record of all business transactions;
(e) A record of the resolutions of the board of directors or trustees and of
the stockholders or members;
(f) Copies of the latest reportorial requirements submitted to the
Commission; and
(g) The minutes of all meetings of stockholders or members, or of the
board of directors or trustees.

XIV

CERTIFICATE OF STOCK AND TRANSFER OF SHARES

a. Is the Chairman or President of a private corporation authorized to


make entries on the stock and transfer book? Why?

No, the Chairman or President of a private corporation is not


authorized to make entries in the stock and transfer book. In Torres Jr. Vs
Court of Appeals, the Corporate Secretary is the one who is responsible to
serve as a custodian of the records of the corporation and authorized to
make entries therein.

b. What is a “Trust Fund Doctrine”?


11

TRUST FUND DOCTRINE: This means that any part of the capital in
the possession of the stockholders cannot be disposed of because it
is merely being held in trust for the creditors of the corporation. In
other words, the creditors of the corporation can still get such amount
from the stockholders because it forms part of the capital although
not in the coffers of the corporation; thus, the stockholders can be
compelled to deliver such to the creditors. Simply stated, this doctrine
implies that the stockholders are holding the assets of the corporation
in trust for the creditors.

XV

SERVICE OF SUMMONS UPON CORPORATION

a. Is service of summons to a director of a domestic private


corporation who owns at least 2/3 of Outstanding Capital Stock
binding on the corporation? Discuss your answer.

No it is not binding. The Rules of Court provides that when a


defendant is a corporation organized under the Philippine laws with a
juridical personality, summons may only be made on the president,
managing partner, general, manager, corporate secretary, treasurer or in-
house counsel. The director who owns at 2/3 of the outstanding capital
stock is not within the list provided in the ROC. Thus, it is not binding.

XVI

NON-PROFIT, CHARITABLE AND NON-STOCK CORPORATION

a. CIR v. St. Luke’s Medical Center, Inc. (G.R. No. 195909, 26


September 2012}; Lung Center of the Philippines v. Quezon City (G.R. 144104,
29 June 2004)

a. Non-Profit, charitable, or non-stock corporation.

Non-stock corporation or association organized and operated exclusively


for religious, charitable, scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net income or asset belongs to or
inures to the benefit of any member, organizer, officer or any specific
person;

1) Characteristics:

a) A non-stock corporation or association

b) Organized and operated exclusively for:


i. religious,
ii. charitable,
iii. scientific,
iv. athletic, or
12

v. cultural purposes, or
vi. for the rehabilitation of veterans,

c) No part of its net income or asset belongs to or inures to the benefit of


any member, organizer, officer or any specific person

Corporate purposes:
a) Religious purposes – refers to the promotion, propagation and
accomplishment of any form of religion, creed or religious belief
recognized by the Government of the Republic of the Philippines.

b) Charitable purposes – refers to activities extending relief to the poor,


distressed and underprivileged and shall include fighting against juvenile
delinquency and community deterioration, and provision for free goods
and services to the public

2) Actual operation: A corporation is exempt from tax on its income if it


meets two tests: (a) It is organized and operated for one or more of the
above-specified purposes; and (b) no part of its net income or assets
inures to the benefit of private stockholders or individuals.

Corporations falling under Section 30 of the NIRC, as amended, must be


non-profit. "Non- profit" means that "no net income or asset accrues to or
benefits any member or specific person, with all the net income or asset
devoted to the institution's purposes and all its activities conducted not for
profit".

Notwithstanding the provisions in the preceding paragraphs, the income of


whatever kind and character of the foregoing organizations from any of
their properties, real or personal, or from any of their activities conducted
for profit regardless of the disposition made of such income, shall be
subject to tax imposed under this Code

XVII

SECURITIES

a. What are Securities?

Securities are shares, participation or interests in a corporation or in a


commercial enterprise or profit-making venture and evidenced by a
certificate, contract, instrument,whether written or electronic in character.

b. The Revised Securities Act (B.P. Blg. 178) is designed, in main, to


protect public investors from fraudulent schemes by regulating the sale and
disposition of securities, creating, for this purpose, a Securities and Exchange
Commission to ensure proper compliance with the law. (SEC c. CA, G.R. Nos.
106425 and 106431-32, July 21, 1995)

b. Define:

Insider Trading- any person who violates insider’s duty to


disclose when trading material non public information.
13

Tender Offer Rule- means a publicly announced intention by a


person acting alone or in concert with other persons to acquire
outstanding equity securities of a public company.

Disclosure Rule- it is the primary means of protecting the


investing public and keep important financial information.
Broker- person engaged in a business of buying and selling
securities for the account of others.
Issuer- originator, maker, obligor or creator of the security.

Dealer- any person who buys and sell securities for his or her
own account in the ordinary course of business.

Promoter- is a person who acting alone or with others takes


initiative in founding and organizing the business or enterprise of
the issuer and receives consideration therefore.

XXX

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