BUSINESS

ORGANIZATION
LAW ON CORPORATION

ALLPPT.com _ Free PowerPoint Templates, Diagrams and Charts

CORPORATION
MEETINGS

TYPES OF MEETINGS:

1. Stockholders’ meeting
2. Directors’ meeting
CORPORATION
Stockholders’ Meeting

1. Regular Meetings – which shall be held annually on a date fixed in the

by-laws or if not so fixed, on any date before April 15 of every year as deter
mined by the BOD or BOT

2. Special Meetings – are those held by the corporation at any time deemed
necessary or as provided for in the by-laws.
CORPORATION
Requirements to have a valid Stockholders’ Meeting

1. It must be held on the dated fixed in the by-laws or in accordance with

Law

2. Prior Notice must be given – For regular meeting, section 49 provides that
prior written notice shall be sent to all stockholders or members twenty-one (2
1) days prior to the meeting unless a different period is required in the by-law
s,
law, or regulation. On the other hand, Special meeting requires a prior written
notice of at least one (1) week unless a different period is provided in
the by-laws, law or regulation.

3. It must be held a Proper Place

CORPORATION
Requirements to have a valid Stockholders’ Meeting

4. It must be called by the Proper Party

CORPORATION
Notice Requirement

Failure to give notice in accordance with the RCC would render the resolution
thereunder voidable at the option of the stockholder or member who was
not notified.

Notice of any meeting may, however, be waived, either expressly or impliedly, by

any stockholder or member and the fact that that a stockholder attended the
meeting is deemed as an implied waiver of the notice requirement unless the
purpose of his attendance is to question the validity of the meeting.
CORPORATION
Place of meeting

According to the RCC, the meetings of the stockholders must be held at all time
s
in the principal office of the corporation if practicable. Otherwise, it shall be held
in the city or municipality where the principal office is located.

In addition, any city or municipality in Metro Manila, Metro Cebu, Metro Davao,
and other Metropolitan areas are considered as a city or municipality for
purposes of meeting.
CORPORATION
Who shall call the meeting

The person authorized under the by-laws of the corporation. Otherwise, the
authority rests with the BOD.

Under Section 53, of the RCC the Chairman, or in his absence, the president
shall preside at all meetings of the stockholders or members unless the by-laws
provides otherwise.
CORPORATION
SUBSCRIPTION CONTRACT

Subscription is the mutual agreement of the subscribers to take and pay for the
stocks of a corporation

Subscription Contract - Any contract for the acquisition of unissued stock in an

existing corporation or a corporation still to be formed

Subscription contract need not be in writing such that an oral contract of

subscription is binding and enforceable.
CORPORATION
Pre-incorporation Subscription

Subscription contract may either be those made or executed prior to

incorporation or after incorporation.

Pre-incorporation subscription make reference to subscription for shares of

stock of a corporation still to be formed while post-incorporation subscription are
those made or executed after the formation of the corporation.
CORPORATION
Irrevocability of Pre-Incorporation subscription

Section 60 of the RCC states that pre-incorporation subscription are considered

to be irrevocable for a specified period of time. Thus:

1. They shall be irrevocable for a period of 6 months from the date of

subscription unless (1) all the subscribers consent to the revocation; or (2) the
incorporation of said corporation fails to materialize within said period or longer
period as may be stipulated in the contract of subscription.

2. They are irrevocable after the submission of the AOI to the SEC
CORPORATION
Certificate of Stock and their transfer

A share of stock may rightfully be described as a profit sharing contract, a series

of units of interest and participation in a corporation in consideration of a
proportionate right to participate in dividend and other distribution.

A certificate of stock is the piece of paper or document which evidences the

ownership of shares and a convenient instrument for the transfer of title.

Shares of stocks are personal properties and the owners thereof have the right
to transfer the same to anyone they please only to reasonable charter provision.
CORPORATION
Requisites for issuance of certificate of stocks (Sec. 62 and
63)

1. It must be signed by the president or vice-president and countersigned by

the secretary or assistant secretary.
2. It must be sealed with the corporate seal; and the entire value thereof
(together with the interest or expense) should have been paid

Although it appears that a subscriber to shares of stock cannot be entitled to the

issuance of a certificate of stock until the full amount of his subscription is paid
such subscriber is nevertheless entitled to exercise all the rights of a stockholde
r
and the corresponding liability that attached thereunder even if his subscription i
s
fully paid or not. (see section 71)
CORPORATION
Transfer of shares of stock

Under section 62 of the RCC, shares of stock may be transferred by delivery of

the certificate, indorsed by the owner or his attorney-in-fact. And to be valid as
to the corporation and other third person, it must be recorded in the books
of the corporation.

Its non-registration will not, however, affect the validity of the transfer at least in
so far as the contracting parties are concerned.

As regards the corporation, the transferee will not be recognized as such

stockholder and could not exercise his rights until the transfer has been duly
recorded in the stock and transfer book.
CORPORATION
Modes of transferring shares of stock

1. By endorsement of the stock certificate coupled with delivery thereof.

2. By a duly notarized deed.

Transfer by notarized deed is only available if no certificate of stock has been

issued.

When a corporation has already issued stock certificate, any transfer of the
shares can only be effectively made by endorsement and delivery of the stock
certificate.
CORPORATION
Right to transfer

As a general rule, the right to transfer may not be unreasonably restricted or

prohibited. However, the right to transfer may be “regulated” to give the
corporation protection against fraudulent transfer or enable it to know who its
stockholders are.
CORPORATION
Restrictions on the right to transfer shares:

1. It is not valid, except between parties, until recorded in the books of the
corporation.
2. Shares of stock against which the corporation holds any unpaid claim shall no
t
be transferrable in the books of the corporation, unpaid claims, refer to claims
arising from unpaid subscription.
3. Restriction required to be indicated in the AOI, by-laws and stock certificates
of a close corporation.
4. Restrictions imposed by special law.
5. Sale to aliens in violation of maximum ownership of shares under the
Nationalization laws
6. Those covered by reasonable agreement of the parties.
CORPORATION
Watered Stocks (fictitiously paid-up stocks)

Watered Stock may be defined as one which is issued by the corporation as

fully paid-up shares, when in fact the whole amount of the value thereof has
not been paid.
CORPORATION
Watered stocks may bee issued in either of the following
ways:

1. For a monetary consideration less than its par or issued value;

2. For a consideration in property, tangible or intangible, valued in excess of its
fair market value;
3. Gratuitously or under agreement that noting shall be paid at all; or
4. In the guise of stock dividends where there are no surplus profits of the
corporation
CORPORATION
Effects of issuance of watered stocks

1. As to the corporation – when a corporation is guilty of ultra-vires acts

which constitutes fraud upon the public, the certificate of registration or
license to do business of the corporation may be revoked.
2. As between the corporation and the subscriber – The subscription is
void. Such being the case, the subscriber is liable to pay the full par or
issued value thereof, to render it valid and effective.
3. As to consenting stockholders – They are estopped from raising any
objection
4. As to dissenting stockholders – they may compel the payment of the
water in the stock solidarily against the responsible and consenting director
s and officers inclusive of the holder of the watered stock
CORPORATION
Effects of issuance of watered stocks

5. As to creditors – They may enforce payment of the difference in the price,

or the water in the stock, solidarily against the responsible officers or directo
rs and the stockholders concerned.
CORPORATION
Enforcement of payment of Subscriptions

Unpaid subscription or any percentage thereof, together with interest if required

by the by-laws or the contract of subscription, shall be paid either (1) on the dat
e
or dates fixed in the contract of subscription; or (2) on the date or dates that ma
y
be specified by the BOD pursuant to a call declaring any or all unpaid portion
thereof to be so payable.
CORPORATION
Summary of Procedure in Section 66 and 67

1. The BOD, by a formal Resolution, declares the whole or any percentage of

unpaid subscriptions to be due and payable on a specified date. However, if the
contract of subscription provides the date or dates when payment is due
no call or declaration by the BOD is necessary.

2. The SH concerned are given notice of the BOD resolution by the corporation
either personally or via registered mail. Notice is likewise not necessary if the
contract of subscription provides a specific date when any unpaid portion is due
and payable.
3. Payment shall be made on the date specified in the call or on the date
specified in the contract of subscription
CORPORATION
Summary of Procedure in Section 66 and 67

4. Failure to pay on the date required in the call or as specified in the contract of

subscription will render the entire balance due and payable and making the
stockholder liable for interest.

5. If within 30 days from the date stated in the call or as may be provided in the
contract of subscription no payment is made, ALL the stock covered by the
subscription shall become delinquent and shall be subject to a delinquency sale;
6. The board by resolution, orders the sale of the delinquent stock stating the
amount due and the date, time and place of the sale;
7. The sale shall be made not less than 30 days nor more than 60 days from the
date the stocks became delinquent
CORPORATION
Summary of Procedure in Section 66 and 67

8. Notice of sale, with the copy of the board resolution should be sent to every
delinquent stockholder either personally or by registered mail.
9. Publication of Notice of Sale must be made once a week for 2 consecutive
weeks in the newspaper of general circulation in the province or city where the
principal office is located.
10. Sale at public auction, if no payment is made by the delinquent SH, in favor
of the bidder who offered to pay the full amount of the balance in the
subscription, inclusive of interest, cost of advertisement and expenses for the
smallest number of shares.
CORPORATION
Summary of Procedure in Section 66 and 67

11. Registration or transfer of the shares of stock in the name of the bidder and
corresponding issuance of the stock certificate covering the shares successfully
bidded;
12. If there be any remaining shares, the same shall be credited in favor of the
delinquent stockholder who shall be entitled to the issuance of a certificate of
stock covering such shares;
13. If there is no bidder at the public auction who offers to pay the total amount
due plus interest, cost and expenses, the corporation may, subject to the
provision of the RCC, bid for the same and the total amount due be credited or
paid in full in the corporate books; and.
14. The shares so purchased by the corporation shall be vested in the latter as
treasury shares
CORPORATION
Sample Problem

• On August 31, 2020 meeting of the BOD

• Resolution declaring 50% of the unpaid subscription as due and demandabl
e on September 15, 2020
• Pedro holds 10,000 shares @ P10 par value, (P50k of the subscription
contract of Pedro remains unpaid)
• Pedro was notified personally
• On September 15, 2020 failed to pay the required balance
• On October 15, 2020, Pedro failed to pay the whole balance of his unpaid
subscription
CORPORATION
Sample Problem

• On October 16, 2020, the BOD ordered the sale of the delinquent stocks
through publication on November 25, 2020.
• As of November 25, 2020, the amount of delinquent stocks of Pedro
including interest, cost and expense for advertisement amounted to
P125,000.00

On November 26, 2020, Juan offered to pay the balance for 9,000 shares of
stocks. While Magno offered to pay the balance for 8,000 shares of stocks

• Magno is the lowest bidder he shall be entitled to receive P8,000 shares of

stocks for P125,000.00
CORPORATION
Sample Problem

• Corporation will issue a certificate of stock to Magno for 8,000 shares

• Corporation will issue a certificate of stock to Perdro for 2,000 shares
CORPORATION
Non-Stock Corporation

Under Sec. 86 of the RCC, a corporation is “non-stock” if no part of its income is

distributable as dividends to its members, trustees or officers subject to the
provision of the code on dissolution.

In effect, even if it may have a capital stock divided into shares, a corporation is
considered as “non-stock” so long as it does not distribute dividends to its
members.

A non-stock corporation is generally not engaged in profit-making activities

nevertheless it may engage in certain money-making activities provided that any
profits derived therefrom shall be used for the furtherance of the purpose for
which the corporation was oraganized.
CORPORATION
Non-Stock Corporation

Under section 87, Non-stock corporations may be formed or organized for

charitable, religious, educational, professional, cultural, fraternal, literary,
scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers.

The enumeration above is not exclusive.

CORPORATION
Membership and Voting rights

Under Section 88 of the RCC, the rights of the members in non-stock corporatio
n
may be “limited, broadened, or denied” by specific provision in the AOI or
by-laws. Thus, they may provide for a classification of members with voting or
non-voting rights.

As a general rule, each member, regardless of any class shall be entitled to vote
.

Cumulative voting is not a matter of right in non-stock corporation since it is not

generally allowed.

Proxy voting is not a matter of right in a non-stock corporation thus, may be

denied. In the absence of a provision thereof however, every member is allowed
to vote by proxy.
CORPORATION
Membership and Voting rights

Same with a stock corporation, non-stock corporation allows voting in absentia

as long as it is provided in the AOI or by-laws of the corporation.

Membership in a non-stock corporation may be acquired by complying with the

provisions of its rules prescribed in the by-laws. In the absence of charter or
statutory restrictions, non-stock corporations may determine who shall be
admitted to membership and how they shall be admitted.

Membership may be terminated in the manner and for the causes provided in th
e
AOI or by-laws and when a member is so terminated it shall extinguish all his
rights in the corporation or in its property unless otherwise provided in the said A
OI or by-laws.
CORPORATION
Membership and Voting rights

Membership in a nonstock corporation and all rights arising therefrom are perso
nal and non-transferable, unless the articles of incorporation or the by-laws
otherwise provide.
CORPORATION
TRUSTEES AND OFFICERS

The RCC allows a non-stock corporation or any other special corporation to

designate their governing board by any other name other than as Board of
directors or trustees. (See section 174).

Qualification of trustees:

1. Must be a member of the corporation.

2. Other qualifications as may be provided for in the by-laws

Number of BOT shall not exceed 15; Shall hold office for not more than 3 years
unless their successors are elected and qualified.
CORPORATION
DISSOLUTION OF NON-STOCK CORPORATION

Assets held in trust by a non-stock corporation (section 93 b and c) shall be

distributed in accordance with Section 93. Other assets, may be distributed
in accordance with the provision of the AOI or by-laws of a non-stock corporatio
n

Assets which are not subject to the provision of b, c, and d of Section 93 may be

distributed in accordance with a plan of distribution thereof in accordance with

the rules established in Section 94.