Corporation and Securities Law

I. INTRODUCTION
General
Kinds of Business Organizations
Sole Proprietorship
Partnership
Joint Venture
Corporation
Historical Background

II. DEFINITION AND ATTRIBUTES

Concession theory (Sec. 2)
Case: Tayag vs Benguet Consolidated, Nov. 29, 1968*
Doctrine of corporate entity/separate personality; artificial being
As to property
Case: Wise & Co. vs Man Sung Lung, 69 Phil 309*
Saw vs CA, 195 SCRA 740*
As to obligations
Case: Vasquez vs De Borja, 74 Phil 560*
As to rights
Case: Stonehill vs Diokno, June 19, 1967*
Manila Gas Corp vs CIR, 62 Phil 895*
As to torts
Case: PNB vs CA. 83 SCRA 237, 1978*
Entitlement to moral damages
Case: Meralco vs TEAM Electronics, Dec. 13, 2007*
Eternal Gardens vs Perlas, Sept. 7, 2020*
Noelle Whessoe vs Independent Testing, Nov. 7, 2018*
As to criminal liability
Case: Ching vs Secretary of Justice, Feb. 6, 2006*
Doctrine of Limited Capacity/Theory of Special Capacities
Advantages of corporate form of business
Disadvantages
Distinctions between a corporation and partnership
Government power in relation to corporations

III. CLASSIFICATION OF CORPORATIONS

Stock and non-stock (Sec. 3, 86, 87)
Case: BCDA vs CIR, June 20, 2018*
Corporations created by special law
Case: PNOC-EDC vs NLRC
Public and Private
 Case: PNB vs Pabalan, GR L-33112, June 15, 1978*
Philippine Mining vs Aguinaldo, GR 245273, July 27, 2021* (en banc) –
GOCCs incorporated under Corp Code
PNCC vs NLRC, GR 248401, June 23, 2021 – GOCCs*

Ecclesiastical and Lay

Aggregate and sole
One Person Corporation
Close and Open
Parent/Holding, Subsidiaries and Affiliates
Case: Maricalum Mining vs Florentino, July 23, 2018*
Domestic and Foreign
Quasi-Public
Quasi Corporations
De Jure Corporation
De Facto Corporation
Requisites
Case: Missionary Sisters vs Alzona, Aug. 6, 2018*
Seventh Day Adventist vs Northeastern Mindanao, July 21, 2006*
Sawadjaan vs CA, June 8, 2005*
Corporation by estoppel
Case: Intl Express Travel vs CA, Oct. 19, 2000*
Corporations vested with public interest

IV. FORMATION AND ORGANIZATION

Process of Incorporation
Contents of the Articles of Incorporation
Prefatory Paragraph
Corporate Name
Case: De La Salle Montessori vs Dela Salle Brothers, Feb. 7, 2018*
See: SEC Memorandum Circular no. 13 (2019)
Purpose Clause
Principal Office
Case: Sy vs Tyson Enterprises, GR L-56763, Dec. 15, 1982*
Term of existence
Doctrine of Relations/Relating Back
Case: Alhambra Cigar vs SEC, July 29, 1968*
Incorporators (Sec. 5)
Number, Qualifications and disqualifications (Sec. 10, 107, 116)
See: SEC Memorandum Circular no. 16 (2019)
Directors and Trustees
Number (Sec. 13, 95, 96, 106, 107, 114f, 116, 121)
Qualifications and disqualifications (Sec. 22, 26)
Capitalization
 Authorized capital stock, subscribed capital, paid-up capital, outstanding
capital stock, capital under the 1987 Constitution
Read: Gamboa vs Teves, June 28, 2011*
Heirs of Gamboa vs Teves, GR 176579, Oct. 9, 2012*
Roy vs Herbosa, GR 207246, April 18, 2017*
Shares of stock and classification
Doctrine of equality of shares (what shares can be denied voting rights)
Purpose of classification
Common shares
Preferred shares
Read: Republic Planters vs Agana, GR 51765, March 3, 1997*
Par and no-par value shares
Limitations on issuance of no-par value shares
Founders shares
Redeemable shares
Read: De Leon vs PLDT, GR 211389, Oct. 6, 2021*
Voting and non-voting shares
Instances when non-voting shares may vote
Treasury shares
Case: Salido vs Aramaywan Metals, GR 233857, March 18, 2021*
Other matters consistent with law
Restrictions and preferences
Arbitration agreement
No-transfer clause
Treasurer elect
Undertaking to change name
Execution clause
Acknowledgment
Commencement of Corporate Existence
Defectively formed corporations
De facto corporations
Organization and Commencement of Business
Corporate Organization
Commencement of Business Transaction

V. CORPORATE CHARTER AND ITS AMENDMENTS

The Corporate Charter
The Corporate Entity Theory
Piercing the Veil of Corporate Fiction (exception to doctrine of corporate entity)
Case: IAME vs Litton*
Francisco Motors vs CA, 309 SCRA 721*
Total Petroleum vs Lim, June 23, 2020 (requisites to hold director/officer
liable for corporate obligation)
Concept Builders vs NLRC*
 WPM International Trading vs Labayen, Sept. 17, 2014 (elements for
piercing of corporate veil based on alter ego theory)
PNB vs Ritratto Group
Pacific Rehaus Corp vs CA
Maricalum Mining vs Florentino, July 23, 2018*
Sps Fernandez vs Smart Communications, GR 212885, July 17, 2019 *
ABS-CBN Broadcasting vs Hilario, GR 193136, July 10, 2019*
HSBC vs Sps Galang, GR 199565, June 30, 2021*
The Linden Suites vs Meridien Far East, GR 211969, Oct. 4, 2021*

Amendments of the Corporate Charter

Special Amendments
Provisions subject to amendment
Change in corporate name
Amendment of corporate term
Revival of Corporate Term

VI. DIRECTORS/TRUSTEES AND CORPORATE OFFICERS

Powers of the board
Case: Colegio Medicofarmaceutico vs Lim, July 2, 2018*
When not exercised directly
Classification of powers
Qualifications and disqualifications
Term of directors
Independent directors (corporations vested with public interest)
Election and voting
Case: Rev. Ao-As vs CA, June 20, 2006*
Are delinquent stocks entitled to vote
Quorum requirement
Other corporate officers
Compliance officer
Read: Cacho vs North Star, Feb. 7, 2018*
Malcaba vs Prohealth Pharma, GR 209085, June 6, 2018*
Rule 14, Sec. 12, Revised Rules of Civil Procedure
Service of summons in intra-corporate controversies
Validity and binding effects of actions of corporate officers
Doctrine of Apparent Authority
Case: Lapu Lapu Foundation vs CA, Jan. 29, 2004*
Advance Paper Corp vs Arma Traders, Dec. 11, 2013*
Terp Construction vs Banco Filipino, GR 221771, Sept. 18, 2019
Agro Food Processing vs Vitarich, GR 217454, Jan. 11, 2021 (en banc)
Jorgenetics Swine vs Thick & Thin, GR 201044, May 5, 2021*
Removal and filling up of vacancies
Case: Valle Verde Country Club vs Africa
 Compensation of directors/officers
Liability of Corporate Directors/Officers; when solidarily liable with corporation
Case: Espiritu vs Petron, Nov. 24, 2009* (criminal liability)
Stradcom vs Orpilla, July 2, 2018*
Polymer Rubber vs Ang, July 24, 2013* (requisites)
United Philippine Lines vs Alkuino, GR 245960, July 14, 2021*
Business Judgment Rule; exceptions (See Sec. 103, RCC)
Case: Saber vs CA, Aug. 31, 2004*
Three-fold duty of directors
Case: Strong vs Repide (special facts doctrine)
PCGG vs Gutierrez, July 9, 2018*
UCPB vs Secretary of Justice, Jan. 12, 2021*
Self-dealing directors
Interlocking directors
Doctrine of Corporate Opportunity
Case: Guth vs Loft, Inc. 5 A.2d 503 Ch. 255 (Del. 1939)*
TOPROS vs Chang, GR, 200070-71, Dec. 7, 2021 * (elements)
Derivative Suit
Case: Ago Realty vs Ago, GR 210906, Oct. 16, 2019*
Executive, management and other committees
Powers that cannot be delegated to executive committee

VII. CORPORATE POWERS AND AUTHORITY

Doctrine of Limited Capacity
Classification of Corporate Powers
Express General Powers:
Power to sue and be sued
Power to have perpetual existence unless AI provides otherwise
Power to adopt and use a common seal
Power to amend articles of incorporation
Power to adopt bylaws
Power to sell/issue stocks or admit members
Power to acquire/alienate property
Power to enter into partnerships, joint venture, merger
Power to make donations
Power to establish pension, retirement, and other plans
Implied Powers
Express Specific Powers:
Power to extend/shorten corporate term
Power to increase/decrease capital stock; incur, create bonded indebtedness
Case: Metroplex Berhad vs Sinophil, GR 208281, June 28, 2021*
Power to deny preemptive rights
Power to sell/dispose all or substantially all corporate assets
 Case: Edward Nell & Co vs Pacific Farms (Nell doctrine as held in Y1
Leisure vs CA)
See: SEC Memorandum Circular no. 12 (2020)
Power to acquire own shares
Purpose, Requirement, Exceptions (See Sec. 8, 103, 104, RCC)
Case: Salido vs Aramaywan Metals, GR 233857, March 18, 2021*
Power to invest funds
Power to declare dividends
With whom lodged
Requirements for declaration (can dividends be declared out of capital)
Unrestricted retained earnings
See: SEC Memorandum Circular no. 11, 2018
Type of dividends
When right to dividends is vested
Case: Neilson & Co vs Lepanto Consolidated
Limitation to surplus profits (See Sec. 42, RCC)
Can treasury shares be declared as dividends
Allocation of dividends
Power to enter into management contracts
Requirements and procedure
Ultra vires acts
Consequences
On the corporation itself
On the immediate parties
On the stockholders

VIII. BY-LAWS
Adoption and modes
Case: China Banking vs CA, 1997*
PMI Colleges vs NLRC, 1997*

IX. MEETINGS
Stockholders/members meeting
Read: SEC Memorandum Circular no. 6 (2020)
Requirements for valid meeting
Case: Villongco vs Yabut (quorum)
Mallare vs A&E, GR 233646, June 16, 2021*
Place of meetings
Matters to be presented to stockholders during regular meeting
Matters required to be taken up at stockholders’ meetings called for that purpose
Directors/trustees meeting
Kinds of meetings
Read: SEC Memorandum Circular no. 6 (2020)
Quorum requirement
 Venue of meetings
Stockholders right to vote and manner of voting
Proxy and other representative voting
Voting Trust

X. TRUST FUND DOCTRINE

Case: CIR vs CA, 1999*
Halley vs Printwell, May 30, 2011*
Ong Yong vs Tiu, April 8, 2003*
Enano Bote vs Alvarez, GR 223572, Nov. 10, 2020*

XI. STOCKS AND STOCKHOLDERS

Subscription contract
Pre-incorporation subscription
Doctrine of Indivisibility of Subscription
Stock certificates
Case: Lincoln Philippines vs CA, 1998*
Bitong vs CA, 1998*
Certificates of stock and their transfer
Case: Chemphil Export vs CA, Dec. 12, 1995* (mortgage of shares)
Guy vs Guy (street certificate)
Tee Ling Kiat vs Ayala Corp., March 7, 2018*
Valid restrictions on transfer
Forged and unauthorized transfers
Issuance of stock certificate
Watered stocks
Trust Fund Doctrine
Effects of issuance
Enforcement and payment of unpaid subscriptions
Effects of delinquency
Rights of unpaid shares
Lost or destroyed certificates
Rights and liabilities of stockholders
Suits by stockholders/members
Individual Suits
Class Suits
Derivative Suits
Requisites
Case: SMC vs Khan, 1989*
Cua vs Ocampo, Dec. 4, 2009*
Ago Realty vs Ago, GR 210906, Oct. 16, 2019*
Read: Sec. 1, Interim Rules of Procedure for Intra Corporate
Controversies
XII. CORPORATE BOOKS AND RECORDS
 Books and records to be kept
Right of inspection
Case: Francisco vs del Castillo, GR 236726, Sept. 14, 2021 (en banc)*

XIII. MERGER AND CONSOLIDATION

Requirements and procedure
Effects of merger/consolidation
Case: Sumifra vs Baya, April 7, 2017*

XIV. APPRAISAL RIGHT

Definition
When exercised
Requirements and procedure
Effects of exercise of right
When right to payment ceases
Cost of appraisal

XV. NON-STOCK CORPORATIONS

Definition
Purpose
Membership and voting rights
Trustees and Officers

XVI. CLOSE CORPORATION

Definition
Permissive provisions
Effects of breach of qualifying conditions
Read: Florete vs Florete, April 2, 2018*
Stockholders agreement
When board meeting not necessary
Preemptive right
Deadlocks
Withdrawal of stockholders/dissolution

XVII. SPECIAL CORPORATIONS

Educational corporations
Religious corporations
One person corporation
Who may form
Articles of incorporation
Directors and officers
Nominee and alternate nominee
Liability of single shareholder
XVIII. DISSOLUTION AND WINDING UP
Methods of dissolution
Expiration of corporate term
Voluntary dissolution where no creditors are affected
Voluntary dissolution where creditors are affected
Shortening of corporate term
Involuntary dissolution
Effects of dissolution
Liquidation
Modes of liquidation
Case: Reyes vs Bancom Devt Corp., Jan. 1, 2018*
Consuelo Metal vs Planters Devt Bank, June 26, 2008*

XIX. FOREIGN CORPORATIONS

Definition
Application for License
Modes of entry
Resident agent
Control test vs grandfather rule
Case: Narra Nickel Mining vs Redmont Mines (April 21, 2014)
MR Jan. 28, 2015 (majority decision only)
Doing business without license; effects
Case: CIR vs Interpublic Group, GR 207039, Aug. 14, 2019*
Capacity to sue
Case: Llorente vs Star City Pty Ltd., Jan. 15, 2020 (isolated transaction rule)*
Laws governing foreign corporations
Amendment of articles of incorporation
Merger/consolidation
Revocation of license
Withdrawal of license

XX. MISCELLANEOUS PROVISIONS

Arbitration for corporations (See also SEC MC 8, series of 2022)

XXI. POWERS, FUNCTIONS, JURISDICTION OF SEC

XXII. INVESTIGATIONS, OFFENSES, PENALTIES

XXIII. JURISDICTION OF SPECIAL COMMERCIAL COURTS

Read: AM 03-03-03-SC (as amended) June 21, 2016

PART II
 I. Intra-corporate controversies (Interim Rules of Procedure for Intra-Corporate
Controversies

Tests to determine
Cases: Tumagan vs Kairuz, Sept. 12, 2018*
Ku vs RCBC Securities, Oct. 17, 2018*
BPI vs Bacalla, GR 223404, July 15, 2020*
SEC vs Subic Bay, GR 179047, March 11, 2015*

Controversies in election, appointment, removal of directors/officers

Cases: Cacho vs Balagtas, Feb. 7, 2018*
Malcaba vs Prohealth Pharma, GR 209085, June 6, 2018*
Wesleyan University vs Maglaya, GR 212774, Jan. 23, 2017*
Eizmendi vs Fernandez, GR 215280, Nov. 27, 2019*

Appointment of management committee, board or body

Case: RJ Jacinto vs FWCC
Sy Chim vs Sy Suy Ho & Sons

I. SECURITIES REGULATION CODE (RA 8799)

Securities defined/enumerated
Investment Contracts
Read: SEC vs Howey; SEC vs Turner
SEC vs Prosperity.com, Jan. 25, 2012
Power Homes vs SEC, Feb. 26, 2008
Registration of securities
Regulation of brokers, dealers, and salesmen
Tender offer rule; when mandatory
Read: CEMCO Holdings vs. National Life Insurance, Aug. 7, 2007*
Independent director rule
Other forms of fraudulent transactions and market manipulations
Wash sale
Matched order
Painting the tape
Marking the close
Hype and dump
Making false and misleading statements
Short sale
Insider trading
Civil and administrative sanctions
Read: Pua vs Citibank, Sept. 16, 2013
Penal sanctions
Settlement offer
Limitation of actions
Amount of damages