outline in corporation l

8/19/2019 Outline in Corporation L

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Outline in Corporation Law and Allied laws

A. FOREIGN INVESTMENT ACT – RA 7 !"#. $oli%& –

1. To attract, promote and welcome productive investments from foreign individuals, partnerships,

corporations, and governments, including their political subdivisions, in activities whichsignificantly contribute to national industrialization and socioeconomic development to theextent that foreign investment is allowed in such activity by the Constitution and relevant laws;

2. To encourage foreign investments in enterprises that significantly expand livelihood and employment opportunities for ilipinos; enhance economic value of farm products; promote thewelfare of ilipino consumers; expand the scope, !uality and volume of exports and their access to foreign mar"ets; and#or transfer relevant technologies in agriculture, industry and support services;and

$. To welcome oreign investments as a supplement to ilipino capital and technology in thoseenterprises serving mainly the domestic mar"et

%s a general rule, there are no restrictions on extent of foreign ownership of export enterprises.&n domestic mar"et enterprises, foreigners can invest as much as one hundred percent '1(()*e!uity except in areas included in the negative list. oreign owned firms catering mainly to thedomestic mar"et shall be encouraged to underta"e measures that will gradually increase ilipino

participation in their businesses by ta"ing in ilipino partners, electing ilipinos to the board of directors, implementing transfer of technology to ilipinos, generating more employment for theeconomy and enhancing s"ills of ilipino wor"ers. 'sec. 2, +% (-2*

2. $'ilippine national –

T'e (ollowin) are $'ilippine Nationals*

i. a citizen of the hilippines or a domestic partnership or association wholly owned by citizens of the hilippines; or

ii. a corporation organized under the laws of the hilippines of which at least sixty percent '/()* of the capital stoc" outstanding and entitled to vote is owned and held by citizensof the hilippines or a

iii. corporation organized abroad and registered as doing business in the hilippine under the Corporation Code of which one hundred percent '1(()* of the capital stoc"

outstanding and entitled to vote is wholly owned by ilipinos oriv. a trustee of funds for pension or other employee retirement or separation benefits,where the trustee is a hilippine national and at least sixty percent '/()* of the fund will accrue to the benefit of hilippine national.

rovided, That where a corporation and its non0 ilipino stoc"holders own stoc"s in aecurities and xchange Commission ' C* registered enterprise, at least sixty percent

'/()* of the capital stoc" outstanding and entitled to vote of each of both corporationsmust be owned and held by citizens of the hilippines and at least sixty percent '/()* of the members of the 3oard of 4irectors of each of both corporations must be citizens of the hilippines, in order that the corporation shall be considered a hilippine national;

'as amended by +.%. 51 6*.".# Ga+,oa -. Te-es GR #7/071 O%t 1 " #" 2and 3une "4 " ## de%ision5

%ny citizen or 7uridical entity desiring to operate a public utility must therefore meet the minimumnationality re!uirement prescribed in ection 11, %rticle 8&& of the Constitution.

ull beneficial ownership of /( percent of the outstanding capital stoc", coupled with /( percent of the voting rights, is re!uired. The legal and beneficial ownership of /( percent of the outstanding

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capital stoc" must rest in the hands of ilipino nationals in accordance with the constitutional mandate

The /(0-( ownership re!uirement in favor of ilipino citizens in ection 11, %rticle 8&& of theConstitution must apply not only to shares with voting rights but also to shares without voting rights.

referred shares when denied the right to vote in the election of directors, are anyway still entitled to vote on the eight specific corporate matters mentioned above. aid act are acts of ownership.

The evident purpose of the citizenship re!uirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest. This specific provision explicitly reserves to ilipino citizens control of public utilities, pursuant to an overriding economic goal of the165 Constitution9 to conserve and develop our patrimony and ensure a self0reliant and

independent national economy effectively controlled by ilipinos.

6. E port enterprise – s

hall mean an enterprise wherein a manufacturer, processor or service'including tourism* enterprise exports sixty percent '/()* or more of its output, or wherein a trader

purchases products domestically and exports sixty percent '/()* or more of such purchases

4. .8o+esti% +ar9et enterprise –

shall mean an enterprise which produces goods for sale, rendersservice, or ot'erwise en)a)es in an& ,usiness in t'e $'ilippines .

5. In-est+ent e!uity participation in any enterprise organized or existing under the laws of thehilippines. &t includes both original and additional investments, whether made directly as in stoc"

subscription, or indirectly through the transfer of e!uity from one investor to another as in stoc" purchase. :wnership of bonds 'including income bonds*, debentures, notes or other evidences of indebtedness does not !ualify as investment.

The purchase of stoc" options or stoc" warrants is not an investment until the holder thereof exercises his option and actually ac!uires stoc" from the corporation.

/. Forei)n in-est+ent –

e!uity investment made by a non0 hilippine national; provided, however, that for purposes of determining foreign ownership, peso investments made by non0 hilippine nationals shall beconsidered; Provided, further, that only foreign investments in the form of foreign exchange and#or other assets actually transferred to the hilippines and duly registered with the Central 3an" 'C3*and profits derived therefrom can be repatriated; and Provided, finally, That, for purposes of ection5 of the %ct, and +ule &&&, ection / of these +ules and +egulations, xisting oreign &nvestment shall mean an e!uity investment made by a non0 hilippine national duly registered with the C or the 3ureau of Trade +egulation and Consumer rotection '3T+C * in the form of foreign exchangeand#or other assets transferred to the hilippines.

7. :8oin) ,usiness; in t'e $'ilippines –

hall include soliciting orders, service contracts, opening offices, whether liaison offices or branches; appointing representatives or distributors, operating under full control of the foreigncorporation, domiciled in the hilippines or who in any calendar year stay in the country for a period or periods totaling one hundred eighty '15(* days or more; participating in the management,supervision or control of any domestic business, firm, entity or corporation in the hilippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or wor"s, or the exercise of some of thefunctions normally incident to and in progressive prosecution of commercial gain or of the purpose

and ob7ect of the business organization.

The following acts shall not be deemed “doing business” in the Philippines:

(1)


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( ) %ppointing a representative or distributor domiciled in the hilippines which transacts businessin the representative>s or distributor>s own name and account;

(4) The publication of a general advertisement through any print or broadcast media;

(5) s are estopped from raising the defensethat < utures may not sue as it has no license to do business because their transactions lasted

for a span of years which they themselves benefited from it.7.! =a'n - CA GR ##6 7! 3an "" #117

=ahn was appointed as exclusive distributor of 3


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own account. The Court held that these acts constituted doing business in the hilippines. Thearrangement showed that the foreign corporation@s purpose was to penetrate the hilippine mar"et and establish its presence in the hilippines.

7.0 Eri9s $te Ltd -s. CA GR ##44!6 Fe, / #117

The series of transactions in !uestion could not have been isolated or casual transactions. ?hat is determinative of doing business is not really the number or the !uantity of thetransactions, but more importantly, the intention of an entity to continue the body of its business inthe country. The number and !uantity are merely evidence of such intention. The phrase isolated transaction has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engagein a progressive pursuit of the purpose and ob7ect of the business organization. ?hether a foreign

corporation is doing business does not necessarily depend upon the fre!uency of its transactions,but more upon the nature and character of the transactions.

Aote that there were 1 orders and deliveries 'only sixteen per our count* over a four0month period. The appellee 'private respondent* made separate orders at various dates. The transactionsdid not consist of separate deliveries for one single order. &n the case at bar, the transactionsentered into by the appellant with the appellee are a series of commercial dealings which would

signify an intent on the part of the appellant 'petitioner* to do business in the hilippines and could not by any stretch of the imagination be considered an isolated one, thus would fall under thecategory of doing business.

7./ A)ilent Te%'nolo)ies -. Inte)rated Sili%on Te%'nolo)& GR #0!/#4 April #! " !

%gilent>s activities in the hilippines were confined to '1* maintaining a stoc" of goods in thehilippines solely for the purpose of having the same processed by &ntegrated ilicon; and '2*

consignment of e!uipment with &ntegrated ilicon to be used in the processing of products for export. %s such, %gilent cannot be deemed to be Fdoing businessG in the hilippines.

7.7 Car)ill In%. - Intra Strata Assuran%e Corp. G.R. No. #/4"// Mar%' #0 " #

etitioner and A


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. Dtilization of


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2.


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i. cooperative '+% /6$5*;

ii. rural ban"s '+% $B$*;

iii. thrift ban"s and private development ban"s '+% 6(/*; and

iv. financing companies '+% B65(*.

These %ights6 howe e%6 shall not e tend to:

o %ctivities reserved by the Constitutiono xercise of profession in the hilippineso 4efense0related activities 'unless specificall authorized*o %ctivities covered by +etail Trade %ct, ecurity %gency %ct, mall cale


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for the protection of the overall economy from excessive speculation in securities, and thus,

mandatory. Their recognized secondary purpose is to protect small investors.

". Se%urities –

J ecuritiesJ are shares, participation or interests in a corporation or in a commercial enterprise or profit0ma"ing venture and evidenced by a certificate, contract, instruments, whether written orelectronic in character. &t includes9

'a* hares of stoc"s, bonds, debentures, notes evidences of indebtedness, asset0bac"edsecurities;

'b* &nvestment contracts, certificates of interest or participation in a profit sharing agreement,certifies of deposit for a future subscription;

'c* ractional undivided interests in oil, gas or other mineral rights;

'd* 4erivatives li"e option and warrants;

'e* Certificates of assignments, certificates of participation, trust certificates, voting trust certificatesor similar instruments

'f* roprietary or nonproprietary membership certificates in corporations; and

'g* :ther instruments as may in the future be determined by the Commission.

".# $ower =o+es nli+ited Corp. -. SEC GR #/!#4" Fe,. "/ " 4 %n investment contract is a transaction or scheme 'collectively contract* whereby a person

invests his money in a common enterprise and is led to expect profits p%ima%il$from the effortsof others

?e therefore rule that the business operation or the scheme of petitioner constitutes aninvestment contract that is a security under +.%. Ao. 5 66. Thus, it must be registered with public respondent C before its sale or offer for sale or distribution to the public. %s petitioner failed toregister the same, its offering to the public was rightfully en7oined by public respondent C. %s aninvestment contract that is security under +.%. Ao. 5 66, it must be registered with public respondent C, otherwise the C cannot protect the investing public from fraudulent

securities. The strict regulation of securities is founded on the premise that the capital mar"etsdepend on the investing public level of confidence in the system.

"." SEC -. $rosperit&.Co+ In%. GR #/!#17 3anuar& "0 " #"

or an investment contract to exist, the following elements, referred to as the =owey test must concur9 '1* a contract, transaction, or scheme; '2* an investment of money; '$* investment ismade in a common enterprise; '-* expectation of profits; and 'B* profits arising primarily from theefforts of others. Thus, to sustain the C position in this case, C&s scheme or contract with itsbuyers must have all these elements.

The buyers of the website do not invest money in C& that it could use for running somebusiness that would generate profits for the investors. The price of D H2$-.(( is what the buyer

pays for the use of the website, a tangible asset that C& creates, using its computer facilities and technical s"ills.

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2. SEC -. Santos GR #100!" Mar%' #1 " #!

a person must first and foremost be engaged in the business of buying and selling securities inthe hilippines before he can be considered as a bro"er, a dealer or salesman within the coverage ofthe ecurities +egulation Code.

. Issuer – is any entity authorized by the Commission to offer to sell, sell or promote the sale to the

public of its e!uity, bonds, instruments of indebtedness and other forms of securities.!. @ro9er – is a person engaged in the business of buying and selling securities for the account of others.

0. 8ealer – means many person who buys sells securities for his#her own account in the ordinary course of business./

!. Asso%iated person o( a ,ro9er or dealer –

is an employee therefor whom, directly exercisescontrol of supervisory authority, but does not include a salesman, or an agent or a person whosefunctions are solely clerical or ministerial.

7. Clearin) a)en%& –

is any person who acts as intermediary in ma"ing deliveries upon payment effect settlement in securities transactions.

#. E %'an)e –

is an organized mar"et place or facility that brings together buyers and sellers and executes trade of securities and#or commodities.

1. Insider – means 'a* the issuer; 'b* a director or officer 'or any person performing similar functions*of, or a person controlling the issuer; gives or gave him access to material information about theissuer or the security that is not generally available to the public; 'd* % government employee,director, or officer of an exchange, clearing agency and#or self0regulatory organization who hasaccess to material information about an issuer or a security that is not generally available to the

public; or 'e* a person who learns such information by a communication from any forgoing insiders.# . $re


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'd* +egulate, investigate or supervise the activities of persons to ensure compliance;

'e* upervise, monitor, suspend or ta"e over the activities of exchanges, clearing agencies and other +:s;

'f* &mpose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant thereto;

'g* repare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulation and orders;

'h* nlist the aid and support of and#or deputized any and all enforcement agencies of theIovernment, civil or military as well as any private institution, corporation, firm, association or

person in the implementation of its powers and function under its Code;

'i* &ssue cease and desist orders to prevent fraud or in7ury to the investing public;

'7* unish for the contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the +ules of Court;

'"* Compel the officers of any registered corporation or association to call meetings of stoc"holdersor members thereof under its supervision;

'l* &ssue subpoena duces tecum and summon witnesses to appear in any proceedings of theCommission and in appropriate cases, order the examination, search and seizure of all documents,

papers, files and records, tax returns and boo"s of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, sub7ect to the

provisions of existing laws;

'm* uspend, or revo"e, after proper notice and hearing the franchise or certificate of registration of corporations, partnership or associations, upon any of the grounds provided by law; and

'n* xercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted theCommission to achieve the ob7ectives and purposes of these laws.

The Commission>s 7urisdiction over all cases enumerated under section B of residential 4ecree Ao. 6(20% is hereby transferred to the Courts of general 7urisdiction or the appropriate+egional Trial Court9 rovided, That the upreme Court in the exercise of its authority may designate the +egional Trial Court branches that shall exercise 7urisdiction over the cases. TheCommission shall retain 7urisdiction over pending cases involving intra0corporate disputessubmitted for final resolution which should be resolved within one '1* year from the enactment of this Code. The Commission shall retain 7urisdiction over pending suspension of

payment#rehabilitation cases filed as of $( Kune 2((( until finally disposed.

#4. ReBuire+ent o( Re)istration o( Se%urities<

ecurities shall not be sold or offered for sale or distribution within the hilippines, without aregistration statement duly filed with and approved by the Commission. rior to such sale,information on the securities, in such form and with such substance as the Commission may

prescribe, shall be made available to each prospective purchaser.

The Commission may conditionally approve the registration statement under such terms as it may deem necessary.

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The Commission may specify the terms and conditions under which any written communication,including any summary prospectus, shall be deemed not to constitute an offer for sale under this

ection.

% record of the registration of securities shall be "ept in +egister ecurities in which shall berecorded orders entered by the Commission with respect such securities. uch register and all documents or information with the respect to the securities registered therein shall be open to public inspection at reasonable hours on business days.

The Commission may audit the financial statements, assets and other information of firmapplying for registration of its securities whenever it deems the same necessary to insure full disclosure or to protect the interest of the investors and the public in general. '+% 5 66 sec. 5*

10. E e+pt Se%urities – /. /n$ e idence of indebtedness issued b$ a financial institution that has been licensed

b$ the P to engage in ban7ing o% uasi-ban7ing shall be e empt f%om %egist%ationunde% ection #.1 ofthe 8ode.

. The %e ui%ement of %egist%ation of secu%ities shall not li7ewise as a gene%al %ule appl$ to an$ of the following classes of secu%ities:

'a* %ny security issued or guaranteed by the Iovernment of the hilippines, or by any political subdivision or agency thereof, or by any person controlled or supervised by, and acting as aninstrumentality of said Iovernment.

'b* %ny security issued or guaranteed by the government of any country with which the hilippinesmaintains diplomatic relations, or by any state, province or political subdivision thereof on the basisof reciprocity9 rovided, That the Commission may re!uire compliance with the form and content for disclosures the Commission may prescribe.

'c* Certificates issued by a receiver or by a trustee in ban"ruptcy duly approved by the proper ad7udicatory body.

'd* %ny security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the :ffice of the &nsurance Commission, =ousing and and Dse +ule +egulatory 3oard, or the 3ureau of &nternal +evenue.

'e* %ny security issued by a ban" except its own shares of stoc".

8. The %egist%ation %e ui%ements shall not li7ewise appl$ to e idence of indebtedness6 e.g.6comme%cial pape%s6 that meet the following conditions:

1. &ssued to not more than nineteen '16* non0institutional lenders;

2. ayable to a specific person;

$. Aeither negotiable nor assignable and held on to maturity; and

-. &n an amount not exceeding :ne =undred ifty


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'g* The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion entitling the holder of the security surrendered in exchange to ma"esuch conversion9 rovided, That the security so surrendered has been registered under this Code or was, when sold, exempt from the provision of this Code, and that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall within the classof securities entitled to registration under this Code. Dpon such conversion the par value of thesecurity surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold.

'h* 3ro"er>s transaction, executed upon customer>s orders, on any registered xchange or other trading mar"et.

'i* ubscriptions for shares of the capitals stoc"s of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stoc"s under the Corporation Code, when noexpense is incurred, or no commission, compensation or remuneration is paid or given in connectionwith the sale or disposition of such securities, and only when the purpose for soliciting, giving or ta"ing of such subscription is to comply with the re!uirements of such law as to the percentage of

the capital stoc" of a corporation which should be subscribed before it can be registered and duly incorporated, or its authorized, capital increase.

'7* The exchange of securities by the issuer with the existing security holders exclusively, where nocommission or other remuneration is paid or given directly or indirectly for soliciting such exchange.

'"* The sale of securities by an issuer to fewer than twenty '2(* persons in the hilippines during any twelve0month period.

'l* The sale of securities to any number of the following !ualified buyers9

'i* 3an";

'ii* +egistered investment house;

'iii* &nsurance company;

'iv* ension fund or retirement plan maintained by the Iovernment of the hilippines or any political subdivision thereof or manage by a ban" or other persons authorized by the 3ang"o

entral to engage in trust functions;

'v* &nvestment company or;

'vi* uch other person as the Commission may rule by determine as !ualified buyers, on thebasis of such factors as financial sophistication, net worth, "nowledge, and experience infinancial and business matters, or amount of assets under management.

The Commission may exempt other transactions, if it finds that the re!uirements of registrationunder this Code is not necessary in the public interest or for the protection of the investors such asby the reason of the small amount involved or the limited character of the public offering.

%ny person applying for an exemption under this ection, shall file with the Commission a

notice identifying the exemption relied upon on such form and at such time as the Commission by the rule may prescribe and with such notice shall pay to the Commission fee e!uivalent to one0tenth'1#1(* of one percent '1)* of the maximum value aggregate price or issued value of the securities.'sec 1(, +% 5 66*

Nestle $'il -. CA GR 4/764 No- #6 #11#

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Dnder the ruling issued by the C, an issuance of previously authorized but still unissued capital stoc" may, in a particular instance, be held to be an exempt transaction by the C under

ection /'b* so long as the C finds that the re!uirements of registration under the +evised ecurities %ct are Jnot necessary in the public interest and for the protection of the investorsJ by

reason, inter alia, of the small amount of stoc" that is proposed to be issued or because the potential buyers are very limited in number and are in a position to protect themselves.

2+. Co++odit& Future Contra%ts –

Ao person shall offer, sell or enter into commodity futurescontracts except in accordance with the rules, regulations and orders the Commission may prescribein the public interest. The Commission shall promulgate rules and regulations involving commodity futures contracts to protect investors to ensure the development of a fair and transparent commodities mar"et 'sec 11, +% 5 66*

"#. Re)ulation o( $re


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Commission to download and upload the same information made available to thexchange;

c. &f the issuer is not listed on an xchange, to the Commission through C orm 1 0C within five 'B* calendar days after the occurrence of the event reported, unlesssubstantially similar information as that re!uired by orm 1 0C has been previously reported to the Commission by the &ssuer.

;;. %ny disclosure signed and filed with the Commission and the xchange where the securities

of the lssuer are listed, or released to the news media by any director, executive officer or a principal 'as defined under ection 2$ of the Code* of an &ssuer shall be considered as part of any report mentioned in +C +ule 1 .1.1.1.$'a* and deemed as an official filing of suchcompany if it does not deny the sub7ect information within two '2* days #Tom the filing or release of the disclosure. %ny misleading statement, misrepresentation or omission of amaterial fact therein shall be considered the 7oint responsibility of the &ssuer and the reporting director, officer or principal.

;;;. %n owner of more than five percent 'B)* of the voting rights of a public and reporting company that meets the re!uirements of ection 1 .2 of the Code who holds material information which may materially affect such company may be re!uired by the Commissionto disclose such information within the period prescribed under +C +ule 1 .1.1.1.$. ailureto provide the re!uired information shall sub7ect the said stoc"holder to the sanctionsapplicable to violations of this +ule. 1 .1.1.-. &ssuers of securities registered with theCommission shall file an annual report on C orm 1 0% for its predecessors that registered securities with the Commission during the last full fiscal year of the predecessor

prior to the &ssuer@s succession, unless such report has already been filed by the predecessor. The annual report shall contain the information re!uired if it were filed by the predecessor.

;andato%$ tende% offe%s :

1.* %ny person or group of persons acting in concert, who intends to ac!uire fifteen percent '1B )* of e!uity securities in a public compan

y which is listed on an exchange

, or acorporation with assets exceeding B(,(((,(((.(( and with 2(( or more stoc"holders, at

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involves the securing and submission of proxies in accordance with the rules. &t is a procedure that antecedes proxy validation.

GSIS -. CA GR #461 0 April #/ " 1Section /"'% of Presidential 0ecree No. #2- , !hich states

S C. /. +n order to effectively e)ercise such 5urisdiction, the Co issionshall possess the follo!in' po!ers

)))"'% 6o pass upon the validity of the issuance and use of pro)ies andvotin' trust a'ree ents for a(sent stoc&holders or e (ers

8o!ever, !hen pro)ies are solicited in relation to the election of corporate directors, the

resultin' controversy, even if it ostensi(ly raised the violation of the S C rules on pro)ysolicitation, should (e properly seen as an election controversy !ithin the ori'inal ande)clusive 5urisdiction of the trial courts (y virtue of Section 9.2 of the SRC in relation toSection 9"c% of Presidential 0ecree No. #2- .

"6.6Internal Re%ord eepin) and Controls – D

e%$ issue% which has a class of secu%ities that satisfies the %e ui%ements of ubsection1".2 shall:

4evice and maintain a system of internal accounting controls sufficient to provide reasonableassurance that9

'a* Transactions and access to assets are pursuant to management authorization;

'b* inancial statements are provided in conformity with generally accepted accounting principlescggttdvthat are adopted by the %ccounting standards council and the rules promulgated by theCommission with the regard to the preparation of the financial statements; and

'c* +ecorded assets are compared with existing assets at reasonable intervals and differences arereconciled.

"6.!Transa%tion o( 8ire%tors O((i%ers and $rin%ipal Sto%9'olders <"!. Insider tradin) –

The legal e%sion is when corporate insidersPofficers, directors, and employeesPbuy and sell stoc" in their own companies. ?hen corporate insiders trade in their own securities, they must report their trades to the C..

;llegal inside% t%ading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. &nsider trading violations may also include JtippingJ such information,securities trading by the person Jtipped,J and securities trading by those who misappropriate suchinformation.

P 9?; ;T;9& :

1.) &t shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the

public, unless9(a) The insider proves that the information was not gained from such relationship; or

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(b) &f the other party selling to or buying from the insider 'or his agent* is identified, the insider proves9

(i) that he disclosed the information to the other party, or (ii) that he had reason to believe that the other party otherwise is also in possession

ofthe information. % purchase or sale of a security of the issuer made by an insider or suchinsider@s spouse or relatives by affinity or consanguinity within the second degree, legitimate or common0law, shall be presumed to have been effected while in possession of material non

public information if transacted after such information came into existence but prior todissemination of such information to the public and the lapse of a reasonable time for mar"et toabsorb such information; rovided, however, That this presumption shall be rebutted upon ashowing by the purchaser or seller that he was aware of the material non public information at the time of the purchase or sale.2.) &nformation is Jmaterial nonpublicJ under this +ule if9 'a* &t has not been generally disclosed

to the public and would li"ely affect the mar"et price of the security after being disseminated to the public and the lapse of a reasonable time for the mar"et to absorb the information; or 'b* would beconsidered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security.

.) &t shall be unlawful for any insider to communicate material nonpublic information about theissuer or the security to any person who, by virtue of the communication, becomes an insider asdefined in ection $.5 of the Code, where the insider communicating the information "nows or hasreason to believe that such person will li"ely buy or sell a security of the issuer whole in possessionof such information.

4.) ?here a tender offer has commenced or is about to commence, it shall be unlawful for9a. %ny person 'other than the tender offeror* who is in possession of material nonpublic

information relating to such tender offer, to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person "nows or has reason to believe that the informationis nonpublic and has been ac!uired directly or indirectly from the tender offeror, those acting on itsbehalf, the issuer of the securities sought or to be sought by such tender offer, or any insider of suchissuer; and

b . %ny tender offeror, those acting on its behalf, the issuer of the securities sought or to besought by such tender offer, and any insider of such issuer to age 62 of 25( 2(#B +C #++ communicate material non public information relating to the tender offer to any other person wheresuch communication is li"ely to result in a violation of the preceding +C +ule.

The term Jsecurities of the issuer sought or to be sought by such tender offerJ shall include any securities convertible or exchangeable into such securities or any options or rights in any of theforegoing securities. '+ule 2 , +% 5 66 &++*

"!.#SEC -. Interport Resour%es Corp GR #604 4 O%to,er / " 4The +evised ecurities %ct does not re!uire the enactment of implementing rules to ma"e it binding and

effective. The provisions of the + % are sufficiently clear and complete by themselves. The re!uirements arespecifically set out and the acts which are en7oined are determinable. The insider@s misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the

protection of investors against fraud, committed when an insider, using secret information,ta"es advantage of an uninformed investor. &nsiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty todisclose or abstain is based on two factors9 first, the existence of a relationship giving access,directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and second, the inherent unfairness involved when a

party ta"es advantage of such information "nowing it is unavailable to those with whom he isdealing.

25. Mar)in Tradin) – % "ind of trading that allows a bro"er to advance for the customer#investor part of the purchase

price of a security and to "eep it as collateral for such advance.

The credit extended must be for an amount not greater than whichever is higher of9

a. /B) of current mar"et price of the security;or

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b. 1(() of the lowest mar"et price of security during the preceding $/ calendar months, but not greater than B) of the current mar"et price ' +C, ec. -5*

"0.#A,a%us Se%urities Corp. -. A+pil GR #/ #/ Fe,. "7 " /The law places the burden of compliance with margin re!uirements primarily upon the

bro"ers and dealers. The mandatory close0out rule, clearly vest upon petitioner the obligation,not 7ust the right, to cancel or otherwise li!uidate a customers order, if payment is not received within three days from the date of purchase. The word shall as opposed to the word may, isimperative and operates to impose a duty, which may be legally enforced. or transactions subse!uent to an unpaid order, the bro"er should re!uire its customer to deposit funds into the account sufficient to cover each purchase transaction prior to its execution. Theseduties are imposed upon the bro"er to ensure faithful compliance with the margin re!uirementsof the law, which forbids a bro"er from extending undue credit to a customer.

2". Ci-il Lia,ilit& –Citi,an9 -. Tan%o


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'-* =as the powers, attributes, and properties as expressly authorized by law or incident toits existence

• Re&es -. RTC o( Ma9ati GR #/07!! Au) ## " 4

The in7ury he see"s to remedy is one suffered by an heir 'for the impairment of his successional rights* and not by the corporation nor by +odrigo as a shareholder on record.

+odrigo is not a shareholder with respect to the shareholdings originally belonging to %nastacia;he only stands as a transferee0heir whose rights to the share are inchoate and unrecorded. %n heir does not automaticall becomes a stoc"older of the corporation.

+odrigo must, hurdle two obstacles before he can be considered a stoc"holder of Qenith with

respect to the shareholdings originally belonging to %nastacia. 'i%st6 he must prove that there are

shareholdings that will be left to him and his co0heirs, and this can be determined only in a settlement

of the decedent>s estate. econd6 he must register the transfer of the shares allotted to him to ma"e it binding against the corporation. =e cannot demand that this be done unless and until he has

established his specific allotment 'and prima facie ownership* of the shares. ?ithout the settlement of

%nastacia>s estate, there can be no definite partition and distribution of the estate to the heirs. ?ithout

the partition and distribution, there can be no registration of the transfer. %nd without the registration,

we cannot consider the transferee0heir a stoc"holder who may invo"e the existence of an intra0

corporate relationship as premise for an intra0corporate controversy within the 7urisdiction of a special

commercial court. The sub7ect shares of stoc" 'i.e., %nastacia>s shares* are concerned R +odrigocannot be considered a stoc"holder of Qenith.There is no in7ury, actual or threatened, alleged to have

been done to the corporation due to :scars acts. &f indeed he illegally and fraudulently transferred %nastacias shares in his own name, then the damage is not to the corporation but to his co0heirs; the

wrongful transfer did not affect the capital stoc" or the assets of Qenith. %s already mentioned, neither

has +odrigo alleged any particular cause or wrongdoing against the corporation that he can champion

in his capacity as a shareholder on record.

@. Classes o( Corporations –

- Corporations formed or organized may be stoc" or non0stoc" corporations. Corporations which

have capital stoc" divided into shares and are authorized to distribute to the holders of such

shares dividends or allotments of the surplus profits on the basis of the shares held are stoc"

corporations. %ll other corporations are non0stoc" corporations

CIR -. Clu, Filipino de Ce,u #1/"

or a stoc" corporation to exist, 2 re!uisites must be complied with9 '1* a capital stoc" divided into shares

'2* an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of shares held.

?hat is determinative of whether or not the Club is engaged in such business is itsob7ect or purpose, as stated in its articles and by0laws. ilipino Club is a non stoc" corporation.

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The Club was organized to develop and cultivate sports of all class and denominationfor the healthful recreation and entertainment of its stoc"holders and members. There was infact, no cash dividend distribution to its stoc"holders and whatever was derived on retail from itsbar and restaurants used were to defray its overhead expenses and to improve its golf course.&n the case at bar, nowhere in the %:& or by0laws of Club ilipino could be found an authority for the distribution of its dividends or surplus profits

@alu&ot -. =ol)an>a "

The hilippine Aational +ed Cross ' A+C* is a government owned and controlled corporation,

with an original charter under +epublic %ct Ao. 6B, as amended. The test to determine whether acorporation is government owned or controlled, or private in nature is simple. &s it created by its own

charter for the exercise of a public function, or by incorporation under the general corporation lawS

Those with special charters are government corporations sub7ect to its provisions, and its employees

are under the 7urisdiction of the Civil ervice Commission, and are compulsory members of the

Iovernment ervice &nsurance ystem. The A+C was not Jimpliedly converted to a private

corporationJ simply because its charter was amended to vest in it the authority to secure loans, be

exempted from payment of all duties, taxes, fees and other charges of all "inds on all importations

and purchases for its exclusive use, on donations for its disaster relief wor" and other services and inits benefits and fund raising drives, and be allotted one lottery draw a year by the hilippine Charity

weepsta"es :ffice for the support of its disaster relief operation in addition to its existing lottery

draws for blood program.

Ro+an Cat'oli% C'ur%' -. Re)ister o( 8eeds o( 8a-ao Cit& #107

+oman Catholic is a corporation sole . % corporation sole is a special form of corporation

usually associated with the clergy %ny corporation sole may purchase and hold real estate and

personal; property for its church, charitable, benevolent, or educational purposes, and may receive

be!uests or gifts of such purposes.

=see nationalit$ of a sole co%po%ation

=all -. $i%%io 4/ SCRA / 6 2#10 5

The Court held that there was no de facto> corporation on the ground that the corporationcannot claim to be in good faith> to be a corporation when it has not yet obtained its certificate of incorporation.

The court has 7urisdiction on the dissolution of de facto corporation. =owever, in thiscase, they were aware that they have not yet formed a corporation until the issuance of the

C registration.

;S 4 R *?R ?N @ A > 0 C R 0 S 0 * C6? C?RP?R 6+?N

8. & ationalit& o( Corporations <

#. $la%e o( In%orporation Test – Se% #"6

National o( t'e %ountr& under w'ose laws was in%orporated

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% foreign corporation is one formed, organized or existing under any laws other than those of

the hilippines and whose laws allow ilipino citizens and corporations to do business in its owncountry or state. &t shall have the right to transact business in the hilippines after it shall have obtained

a license to transact business in this country in accordance with this Code and a certificate of authorityfrom the appropriate government agency.

6. Control Test

Ga+,oa -. Te-es GR #7/071 O%t 1 " #" 2and 3une "4 " ## de%ision5

%ny citizen or 7uridical entity desiring to operate a public utility must therefore meet the minimumnationality re!uirement prescribed in ection 11, %rticle 8&& of the Constitution. =ence, for a corporation

to be granted authority to operate a public utility, at least /( percent of its capital must be owned by ilipino citizens. The term FcapitalG in ection 11, %rticle 8&& of the Constitution refers only to shares of

stoc" entitled to vote in the election of directors of a public utility, i.e., to the total common shares in4T.

The evident purpose of the citizenship re!uirement is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest. This specific provision explicitly reservesto ilipino citizens control of public utilities, pursuant to an overriding economic goal of the 165 Constitution9 to conserve and develop our patrimony and ensure a self0reliant and independent national economy effecti el$ cont%olled by ilipinos.

4. Grand(at'er Rule –

Dnder this rule, corporate stoc"holdings will be traced from the nationality of the stoc"holders of

investor corporations in determining in turn, the nationality of investee corporation. The rule should

apply only if there is a problem on the nationality of the investor0corporation itself. ' C now applies

control test*.

Red+ont Consolidated Mines Corp -. M% Art'ur Minin) In% " #

The avowed purpose of the Constitution is to place in the hands of Filipinos theexploitation of our natural resources. Necessarily, therefore, the Rule interpreting

the constitutional provision should not diminish that right through the legal ction of corporate ownership and control. ut the constitutional provision, as interpreted and

practiced via the !"#$ %&C Rules, has favored foreigners contrary to the command

of the Constitution. Hence, the Grandfather Rule must be applied to accurately

determine the actual participation, both direct and indirect, of foreigners in a

corporation engaged in a nationalized activity or business.

8. Corporate 3uridi%al $ersonalit& – Se%. #1

#. 8o%trine o( Separate 3uridi%al $ersonalit&<

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a . Lia,ilit& (or Torts and Cri+es

$N@ - CA #174

% corporation is civilly liable in the same manner as natural persons for torts, because

Jgenerally spea"ing, the rules governing the liability of a principal or master for a tort committed

by an agent or servant are the same whether the principal or master be a natural person or acorporation, and whether the servant or agent be a natural or artificial person. %ll of the

authorities agree that a principal or master is liable for every tort which he expressly directs or

authorizes, and this is 7ust as true of a corporation as of a natural person, % corporation is liable,therefore, whenever a tortious act is committed by an officer or agent under express direction or

authority from the stoc"holders or members acting as a body, or, generally, from the directors as

the governing body.J

(. Re%o-er& o( Moral 8a+a)es

• Sec 3/

NA$OCOR -. $'illip @rot'ers O%eani% " #

The award of moral damages is li"ewise improper. To reiterate, A% :C:+ did not act in bad faith. s statement in s claim for moral damages falls under item of %rticle 2216 of the

Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. %rticle 2216' * does not !ualify whether the plaintiff is a natural or

7uridical person. Therefore, a 7uridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.


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Aeither is the right against unreasonable searches and seizures applicable here. There were nosearches made and no seizure pursuant to any search was ever made. 3% C: was merely ordered to produce the corporate records.

". 8o%trine o( $ier%in) t'e Corporate Veil

&t is a theory introduced for the purpose of convenience and to serve the ends of 7ustice. 3ut

when the veil of corporate fiction is used as a shield to perpetuate fraud, to defeat public convinence,

7ustify wrong or defend crime, this fiction shall be disregarded and the individuals composing it will be

treated identically. This is a 7udicial function.

a. Brounds for pplication of 0octrine –

$N@ - Andrada Ele%tri% En)ineerin) Co " "

Piercing the veil of corporate fiction may be allowed only if the following elements concur:(1) control — not mere stock control, but complete domination — not only of finances, but of policy andbusiness practice in respect to the transaction attacked, must have been such that the corporate entity asto this transaction had at the time no separate mind, will or existence of its own(!) such control must have been used by the defendant to commit a fraud or a wrong to perpetuate theviolation of a statutory or other positive legal duty, or a dishonest and an un"ust act in contravention of

plaintiff#s legal right and

($) the said control and breach of duty must have proximately caused the in"ury or un"ust loss complainedof%

The absence of the foregoing elements in the present case precludes the piercing of the

corporate veil . irst, other than the fact that A3 and A% D4 C: ac!uired the assets of% D


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:f course, this Court has recognized instances when the corporations separate

personality may be disregarded. =owever, we have also held that the same may only be done

in cases where the corporate vehicle is being used to defeat public convenience, 7ustify wrong,

protect fraud, or defend crime.


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'd* The parent corporation subscribes to all the capital stoc" of the subsidiary or otherwisecauses its incorporation.'e* The subsidiary has grossly inade!uate capital.'f* The parent corporation pays the salaries and other expenses or losses of the subsidiary.'g* The subsidiary has substantially no business except with the parent corporation or no assetsexcept those conveyed to or by the parent corporation.'h* &n the papers of the parent corporation or in the statements of its officers, the subsidiary isdescribed as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation@s own.'i* The parent corporation uses the property of the subsidiary as its own.'7* The directors or executives of the subsidiary do not act independently in the interest of thesubsidiary but ta"e their orders from the parent corporation.'"* The formal legal re!uirements of the subsidiary are not observed.

8@$ - =RCC GR #/7/ 6 Mar%' #6 " #6

% corporation is an artificial entity created by operation of law. &t possesses the right of succession and such powers, attributes, and properties expressly authorized by law or incident to its

existence. &t has a personality separate and distinct from that of its stoc"holders and from that of other

corporations to which it may be connected. %s a conse!uence of its status as a distinct legal entity and

as a result of a conscious policy decision to promote capital formation, a corporation incurs its own

liabilities and is legally responsible for payment of its obligations. &n other words, by virtue of the

separate 7uridical personality of a corporation, the corporate debt or credit is not the debt or credit of thestoc"holder. This protection from liability for shareholders is the principle of limited liability.

The doctrine of piercing the corporate veil applies only in three '$* basic areas, namely9 1*defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an

existing obligation; 2* fraud cases or when the corporate entity is used to 7ustify a wrong, protect fraud,

or defend a crime; or $* alter ego cases, where a corporation is merely a farce since it is a mere alter

ego or business conduit of a person, or where the corporation is so organized and controlled and itsaffairs are so conducted as to ma"e it merely an instrumentality, agency, conduit or ad7unct of another

corporation.

&n this connection, case law lays down a three0pronged test to determine the application of thealter ego theory, which is also "nown as the instrumentality theory, namely9

'1* Control, not mere ma7ority or complete stoc" control, but complete domination, not only of financesbut of policy and business practice in respect to the transaction attac"ed so that the corporate entity asto this transaction had at the time no separate mind, will or existence of its own;

'2* uch control must have been used by the defendant to commit fraud or wrong, to perpetuate theviolation of a statutory or other positive legal duty, or dishonest and un7ust act in contravention of

plaintiff>s legal right; and

'$* The aforesaid control and breach of duty must have proximately caused the in7ury or un7ust losscomplained of.

The first prong is the JinstrumentalityJ or JcontrolJ test. This test re!uires that the subsidiary becompletely under the control and domination of the parent. &t examines the parent corporation>srelationship with the subsidiary. &t in!uires whether a subsidiary corporation is so organized andcontrolled and its affairs are so conducted as to ma"e it a mere instrumentality or agent of the parentcorporation such that its separate existence as a distinct corporate entity will be ignored. &t see"s to

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Ca)a&an Fis'in) 8e-t Co In% -. Sandi9o see )eneral %apa%it& to a%t

The contract here was entered into not between


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The corporation, upon such change in its name, is in no sense a new corporation, nor thesuccessor of the original corporation. &t is the same corporation with a different name, and its character is in no respect changed.

% change in the corporate name does not ma"e a new corporation, and whether affected by special act or under a general law, has no affect on the identity of the corporation, or on its property,rights, or

liabilities. The corporation continues, as before, responsible in its new name for all debts or other liabilities which it had previously contracted or incurred. %s a general rule, officers or directorsunder the old corporate name bear no personal liability for acts done or contracts entered into by officers of the corporation, if duly authorized. &nasmuch as such officers acted in their capacity as agent of the old corporation and the change of name meant only the continuation of the old 7uridical entity, thecorporation bearing the same name is still bound by the acts of its agents if authorized by the 3oard.

!. Corporate Ter+ – Sec 11

% corporation shall exist for a period not exceeding fifty 'B(* years from the date of

incorporation unless sooner dissolved or unless said period is extended. The corporate term as

originally stated in the articles of incorporation may be extended for periods not exceeding fifty 'B(*

years in any single instance by an amendment of the articles of incorporation, in accordance with this

Code; rovided, That no extension can be made earlier than five 'B* years prior to the original or

subse!uent expiry date's* unless there are 7ustifiable reasons for an earlier extension as may be

determined by the ecurities and xchange Commission.

0. Mini+u+ Capital Sto%9 and Su,s%ription ReBuire+ents – Sec 12

%t least twenty0five percent '2B)* of the authorized capital stoc" as stated in the articles of

incorporation must be subscribed at the time of incorporation, and at least twenty0five '2B)* per cent of

the total subscription must be paid upon subscription, the balance to be payable on a date or datesfixed in the contract of subscription without need of call, or in the absence of a fixed date or dates, upon

call for payment by the board of directors9 rovided, however, That in no case shall the paid0up capital

be less than five Thousand ' B,(((.((* pesos

.

/. Arti%les o( In%orporation <

a . Nature and Fun%tion o( Arti%les –

&t contains the purpose of which a corporation is organized. Contents of which are enumerated

below.

, . Contents–Se% #!

%ll corporations organized under this code shall file with the ecurities and xchangeCommission articles of incorporation in any of the official languages duly signed and ac"nowledged by all of the incorporators, containing substantially the following matters, except as otherwise prescribed by this Code or by special law9

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1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being incorporated. ?here acorporation has more than one stated purpose, the articles of incorporation shall state which is the

primary purpose and which is#are the secondary purpose or purposes9 rovided, That a non0stoc" corporation may not include a purpose which would change or contradict its nature as such;

$. The place where the principal office of the corporation is to be located, which must be withinthe hilippines;

-. The term for which the corporation is to exist;

B. The names, nationalities and residences of the incorporators;

/. The number of directors or trustees, which shall not be less than five 'B* nor more than fifteen'1B*;

. The names, nationalities and residences of persons who shall act as directors or trusteesuntil the first regular directors or trustees are duly elected and !ualified in accordance with this Code;

5. &f it be a stoc" corporation, the amount of its authorized capital stoc" in lawful money of thehilippines, the number of shares into which it is divided, and in case the share are par value shares,

the par value of each, the names, nationalities and residences of the original subscribers, and theamount subscribed and paid by each on his subscription, and if some or all of the shares are without

par value, such fact must be stated;

6. &f it be a non0stoc" corporation, the amount of its capital, the names, nationalities and residences of the contributors and the amount contributed by each; and

1(. uch other matters as are not inconsistent with law and which the incorporators may deemnecessary and convenient.

The ecurities and xchange Commission shall not accept the articles of incorporation of any stoc" corporation unless accompanied by a sworn statement of the Treasurer elected by thesubscribers showing that at least twenty0five '2B)* percent of the authorized capital stoc" of thecorporation has been subscribed, and at least twenty0five '2B)* of the total subscription has been fully

paid to him in actual cash and#or in property the fair valuation of which is e!ual to at least twenty0five'2B)* percent of the said subscription, such paid0up capital being not less than five thousand ' B,(((.((* pesos.

%. A+end+ent – Se% #/

xxx Dnless otherwise prescribed by this Code or by special law, and for legitimate purposes,any provision or matter stated in the articles of incorporation may be amended by a ma7ority vote of theboard of directors or trustees and the vote or written assent of the stoc"holders representing at least two0thirds '2#$* of the outstanding capital stoc", without pre7udice to the appraisal right of dissenting stoc"holders in accordance with the provisions of this Code, or the vote or written assent of at least

two0thirds '2#$* of the members if it be a non0stoc" corporation.

The original and amended articles together shall contain all provisions re!uired by law to be set out in the articles of incorporation. uch articles, as amended shall be indicated by underscoring thechange or changes made, and a copy thereof duly certified under oath by the corporate secretary and a ma7ority of the directors or trustees stating the fact that said amendment or amendments have beenduly approved by the re!uired vote of the stoc"holders or members, shall be submitted to the

ecurities and xchange Commission.Page 30 of 91


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effect that such by0laws # amendments are in accordance with law.

ban"s or ban"ing institutions building and loan associations trust companies insurance companies public utilities educational institutions other special corporations governed by special laws

a. Nature and Fun%tions o( @&


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&t is not binding unless there is actual "nowledge. Third persons are not even bound to

investigate the content because they are not bound to "now the 3y0laws which are merely provisions of the government of a corporation and notice to them will not be presumed.

d. A+end+ent or Re-ision – Se% !4

The board of directors or trustees, by a ma7ority vote thereof, and the owners of at least ama7ority of the outstanding capital stoc", or at least a ma7ority of the members of a non0stoc" corporation, at a regular or special meeting duly called for the purpose, may amend or repeal any by0laws or adopt new by0laws. The owners of two0thirds '2#$* of the outstanding capital stoc" or two0thirds'2#$* of the members in a non0stoc" corporation may delegate to the board of directors or trustees the

power to amend or repeal any by0laws or adopt new by0laws9 rovided, That any power delegated tothe board of directors or trustees to amend or repeal any by0laws or adopt new by0laws shall beconsidered as revo"ed whenever stoc"holders owning or representing a ma7ority of the outstanding capital stoc" or a ma7ority of the members in non0stoc" corporations, shall so vote at a regular or special meeting.

?henever any amendment or new by0laws are adopted, such amendment or new by0laws shall be attached to the original by0laws in the office of the corporation, and a copy thereof, duly certified under oath by the corporate secretary and a ma7ority of the directors or trustees, shall be filed with the

ecurities and xchange Commission the same to be attached to the original articles of incorporationand original by0laws.

The amended or new by0laws shall only be effective upon the issuance by the ecurities and xchange Commission of a certification that the same are not inconsistent with this Code.

F. Corporate $owers

#. General $owers T'eor& o( General Capa%it& – Se% 6/

e%$ co%po%ation inco%po%ated unde% this 8ode has the powe% and capacit$:

1. To sue and be sued in its corporate name;

2. :f succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation;

$. To adopt and use a corporate seal;

-. To amend its articles of incorporation in accordance with the provisions of this Code;

B. To adopt by0laws, not contrary to law, morals, or public policy, and to amend or repeal the same inaccordance with this Code;

/. &n case of stoc" corporations, to issue or sell stoc"s to subscribers and to sell stoc"s to subscribersand to sell treasury stoc"s in accordance with the provisions of this Code; and to admit members to thecorporation if it be a non0stoc" corporation;

. To purchase, receive, ta"e or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the

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subscribing, the amount of capital stoc" or number of no0par stoc" subscribed by each, and theamount paid by each on his subscription in cash or property, or the amount of capital stoc" or number of shares of no0par stoc" allotted to each stoc"0holder if such increase is for the

purpose of ma"ing effective stoc" dividend therefor authorized;

'-* %ny bonded indebtedness to be incurred, created or increased;

'B* The actual indebtedness of the corporation on the day of the meeting;

'/* The amount of stoc" represented at the meeting; and

' * The vote authorizing the increase or diminution of the capital stoc", or the incurring, creating or increasing of any bonded indebtedness.

%ny increase or decrease in the capital stoc" or the incurring, creating or increasing of any bonded indebtedness shall re!uire prior approval of the ecurities and xchange Commission.

:ne of the duplicate certificates shall be "ept on file in the office of the corporation and the other shall be filed with the ecurities and xchange Commission and attached to the original articles of incorporation. rom and after approval by the ecurities and xchange Commission and the issuanceby the Commission of its certificate of filing, the capital stoc" shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness authorized, as the certificate of filing may declare9 rovided, That the ecurities and xchange Commission shall not accept for filing any certificate of increase of capital stoc" unless accompanied by the sworn statement of the treasurer of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty0five '2B)* percent of such increased capital stoc" has been subscribed and that at least twenty0five '2B)* percent of the amount subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation property the valuation of which is e!ual to twenty0five

'2B)* percent of the subscription9 rovided, further, That no decrease of the capital stoc" shall beapproved by the Commission if its effect shall pre7udice the rights of corporate creditors.

Aon0stoc" corporations may incur or create bonded indebtedness, or increase the same, with theapproval by a ma7ority vote of the board of trustees and of at least two0thirds '2#$* of the members in ameeting duly called for the purpose.

3onds issued by a corporation shall be registered with the ecurities and xchange Commission,which shall have the authority to determine the sufficiency of the terms thereof.

%. $ower to 8en& $re


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ub7ect to the provisions of existing laws on illegal combinations and monopolies, a corporationmay, by a ma7ority vote of its board of directors or trustees, sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon suchterms and conditions and for such consideration, which may be money, stoc"s, bonds or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized by the vote of the stoc"holders representing at least two0thirds '2#$* of the outstanding capital stoc", or in case of non0stoc" corporation, by the vote of at least to two0thirds '2#$* of the members, in a stoc"holder>s or member>s meeting duly called for the

purpose. ?ritten notice of the proposed action and of the time and place of the meeting shall beaddressed to each stoc"holder or member at his place of residence as shown on the boo"s of thecorporation and deposited to the addressee in the post office with postage prepaid, or served

personally9 rovided, That any dissenting stoc"holder may exercise his appraisal right under theconditions provided in this Code.

% 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 for which it was incorporated.

%fter such authorization or approval by the stoc"holders or members, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property and assets, sub7ect to the rights of third parties under any contract relating thereto, without further action or approval by the stoc"holders or members.

Aothing in this section is intended to restrict the power of any corporation, without theauthorization by the stoc"holders or members, to sell, lease, exchange, mortgage, pledge or otherwisedispose of any of its property and assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business.

&n non0stoc" corporations where there are no members with voting rights, the vote of at least ama7ority of the trustees in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section.

e. $ower to A%Buire Own S'ares – Se% !#

% stoc" corporation shall have the power to purchase or ac!uire its own shares for a legitimate

corporate purpose or purposes, including but not limited to the following cases9 rovided, That thecorporation has unrestricted retained earnings in its boo"s to cover the shares to be purchased or ac!uired9

1. To eliminate fractional shares arising out of stoc" dividends;

2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delin!uency sale, and to purchase delin!uent shares sold during said sale;and

$. To pay dissenting or withdrawing stoc"holders entitled to payment for their shares under the provisions of this Code.

(. $ower to In-est Corporate Funds in Anot'er Corporation or @usiness< Se% !"

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ub7ect to the provisions of 3 /5, a private corporation may invest its funds in any other

corporation or business or for any purpose other than the primary purpose for which it was organized when approved by a ma7ority of the board of directors or trustees and ratified by the stoc"holders

representing at least two0thirds '2#$* of the outstanding capital stoc", or by at least two thirds '2#$* of the members in the case of non0stoc" corporations, at a stoc"holder>s or member>s meeting duly called

for the purpose. ?ritten notice of the proposed investment and the time and place of the meeting shall

be addressed to each stoc"holder or member at his place of residence as shown on the boo"s of the

corporation and deposited to the addressee in the post office with postage prepaid, or served

personally9 rovided, That any dissenting stoc"holder shall have appraisal right as provided in this

Code9 rovided, however, That where the investment by the corporation is reasonably necessary to

accomplish its primary purpose as stated in the articles of incorporation, the approval of the

stoc"holders or members shall not be necessary.

g. Pow er to 8e%lare 8i-idends – Se% !6

The board of directors of a stoc" corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stoc" to all stoc"holders on thebasis of outstanding stoc" held by them9 rovided, That any cash dividends due on delin!uent stoc" shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stoc" dividends shall be withheld from the delin!uent stoc"holder until his unpaid subscription is fully paid9

rovided, further, That no stoc" dividend shall be issued without the approval of stoc"holdersrepresenting not less than two0thirds '2#$* of the outstanding capital stoc" at a regular or special meeting duly called for the purpose. '1/a*

toc" corporations are prohibited from retaining surplus profits in excess of one hundred '1(()* percent of their paid0in capital stoc", except9 '1* when 7ustified by definite corporate expansion

pro7ects or programs approved by the board of directors; or '2* when the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, fromdeclaring dividends without its#his consent, and such consent has not yet been secured; or '$* when it can be clearly shown that such retention is necessary under special circumstances obtaining in thecorporation, such as when there is need for special reserve for probable contingencies.

'. $ower to Enter Into Mana)e+ent Contra%t< Se% !!

Ao corporation shall conclude a management contract with another corporation unless suchcontract shall have been approved by the board of directors and by stoc"holders owning at least thema7ority of the outstanding capital stoc", or by at least a ma7ority of the members in the case of a non0stoc" corporation, of both the managing and the managed corporation, at a meeting duly called for the

purpose9 rovided, That '1* where a stoc"holder or stoc"holders representing the same interest of boththe managing and the managed corporations own or control more than one0third '1#$* of the total outstanding capital stoc" entitled to vote of the managing corporation; or '2* where a ma7ority of themembers of the board of directors of the managing corporation also constitute a ma7ority of the

members of the board of directors of the managed corporation, then the management contract must beapproved by the stoc"holders of the managed corporation owning at least two0thirds '2#$* of the total outstanding capital stoc" entitled to vote, or by at least two0thirds '2#$* of the members in the case of anon0stoc" corporation. Ao management contract shall be entered into for a period longer than fiveyears for any one term.

The provisions of the next preceding paragraph shall apply to any contract whereby acorporation underta"es to manage or operate all or substantially all of the business of another

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corporation, whether such contracts are called service contracts, operating agreements or otherwise9rovided, however, That such service contracts or operating agreements which relate to the

exploration, development, exploitation or utilization of natural resources may be entered into for such periods as may be provided by the pertinent laws or regulations.

i. ltra Vires A%ts – Se% !0

Ao corporation under this Code shall possess or exercise any corporate powers except those

conferred by this Code or by its articles of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred.

i. Appli%a,ilit& o( ltra Vires 8o%trine –

Monteli,ano -. @a%olod Mur%ia Millin) Co. GR #0 1" Ma& #4 #1/"

3acolod0s performance.

%ny stoc"holder may bring an individual or derivative suit to en7oin a threatened ultra vires act or contract. &f the act or contract has already been performed, aderivative suit for damages against the directors maybe filed, but their liability will depend on whether they acted in good faith and with reasonable diligence inentering into the contracts. ?hen the suit against the in7ured party who had no"nowledge that the corporation was engaging in an act not included expressly or impliedly in its purposes clause.

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Dltra vires acts may become binding by the ratification of all the stoc"holders, unlessthird parties are pre7udiced thereby, or unless the acts are illegal.

6. =ow E er%ised

a. >y the Shareholders- Sec /

S'are'olders +a& e er%ise t'e (ollowin) ri)'ts as it is an a%ts o( owners'ip*

1.. end ent of the articles of incorporation

2. doption and a end ent of (y-la!s

3. Sale, lease, e)chan'e, ort'a'e, pled'e or other disposition of all or su(stantially all of the corporateproperty

4. +ncurrin', creatin' or increasin' (onded inde(tedness

9. +ncrease or decrease of capital stoc&

/. @er'er or consolidation of the corporation !ith another corporation or other corporations

7. +nvest ent of corporate funds in another corporation or (usiness in accordance !ith this Code and

. 0issolution of the corporation.

,. @& t'e @oard o( 8ire%tors – Se% "6 e %eptions Se% 60 and Se% !!

Se%tion "6. The board of directors or trustees. –6he corporate po!ers of all corporations for ed under

this Code shall (e e)ercised, all (usiness conducted and all property of such corporations controlled and

held (y the (oard of directors or trustees to (e elected fro a on' the holders of stoc&s, or !here there

is no stoc&, fro a on' the e (ers of the corporation, !ho shall hold office for one "1% year until their

successors are elected and :ualified.

E %ept $owers -ested under

?

Se%tion 60. xecutive committee. – 6he (y-la!s of a corporation ay create an e)ecutive co ittee,

co posed of not less than three e (ers of the (oard, to (e appointed (y the (oard. Said co ittee

ay act, (y a5ority vote of all its e (ers, on such specific atters !ithin the co petence of the

(oard, as ay (e dele'ated to it in the (y-la!s or on a a5ority vote of the (oard, e)cept !ith respect to

"1% approval of any action for !hich shareholdersE approval is also re:uired

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"2% the filin' of vacancies in the (oard

"3% the a end ent or repeal of (y-la!s or the adoption of ne! (y-la!s

"4% the a end ent or repeal of any resolution of the (oard !hich (y its e)press ter s is not so

a enda(le or repeala(le and

"9% a distri(ution of cash dividends to the shareholders.

Se%tion !!. ower to enter into management contract. – No corporation shall conclude aana'e ent contract !ith another corporation unless such contract shall have (een approved (y the (oard

of directors and (y stoc&holders o!nin' at least the a5ority of the outstandin' capital stoc&, or (y at least aa5ority of the e (ers in the case of a non-stoc& corporation, of (oth the ana'in' and the ana'ed

corporation, at a eetin' duly called for the purpose Provided, 6hat "1% !here a stoc&holder or stoc&holdersrepresentin' the sa e interest of (oth the ana'in' and the ana'ed corporations o!n or control orethan one-third "1D3% of the total outstandin' capital stoc& entitled to vote of the ana'in' corporation or "2%!here a a5ority of the e (ers of the (oard of directors of the ana'in' corporation also constitute a

a5ority of the e (ers of the (oard of directors of the ana'ed corporation, then the ana'e entcontract ust (e approved (y the stoc&holders of the ana'ed corporation o!nin' at least t!o-thirds "2D3%of the total outstandin' capital stoc& entitled to vote, or (y at least t!o-thirds "2D3% of the e (ers in thecase of a non-stoc& corporation. No ana'e ent contract shall (e entered into for a period lon'er than fiveyears for any one ter .

6he provisions of the ne)t precedin' para'raph shall apply to any contract !here(y a corporationunderta&es to ana'e or operate all or su(stantially all of the (usiness of another corporation, !hether suchcontracts are called service contracts, operatin' a'ree ents or other!ise Provided, ho!ever, 6hat suchservice contracts or operatin' a'ree ents !hich relate to the e)ploration, develop ent, e)ploitation or utiliFation of natural resources ay (e entered into for such periods as ay (e provided (y the pertinentla!s or re'ulations. "n%

%. @& t'e O((i%ers< Se% "0 Se% "7Se%tion "0. Corporate officers, !uorum. –

?

6he directors or trustees and officers to (e elected shall perfor the duties en5oined on the (y la! and the (y-la!s of the corporation. =nless the articles of incorporation or the (y-la!s provide for a 'reater a5ority, a a5orityof the nu (er of directors or trustees as fi)ed in the articles of incorporation shall constitute a :uoru for thetransaction of corporate (usiness, and every decision of at least a a5ority of the directors or trustees present at a

eetin' at !hich there is a :uoru shall (e valid as a corporate act, e)cept for the election of officers !hich shallre:uire the vote of a a5ority of all the e (ers of the (oard.

0irectors or trustees cannot attend or vote (y pro)y at (oard eetin's. "33a%

Se%tion "7. 4is!ualification of directors, trustees or officers. – No person convicted (y final 5ud' ent of an offensepunisha(le (y i prison ent for a period e)ceedin' si) "/% years, or a violation of this Code co itted !ithin five

"9% years prior to the date of his election or appoint ent, shall :ualify as a director, trustee or officer of anycorporation.

0octrine of apparent authority – Asso%iated @an9 -. $ronstroller " 4

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%pparent authority is derived not merely from practice. &ts existence may be ascertained through 1* the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clotheshim; or 2* the ac!uiescence in his acts of a particular nature, with actual or constructive"nowledge thereof, within or beyond the scope of his ordinary powers.

!. Trust Fund 8o%trine

$'il. Trust Co -. Ri-era !! $'il. !/1 #1"6

The capital stoc", property and other assets of the corporation are regarded as e!uity in trust for the payment of the corporate creditors. The subscribed capital stoc" of the corporation is a

trust fund for the payment of debts of the corporation which creditors have the right to loo" up to

satisfy their credits. Corporation may not dissipitate this and the creditors may sue stoc"holders

directly for the unpaid subscription.

This doctrine is the underlying principle in the procedure for the distribution of capital assets,

embodied in the Corporation Code, which allows the distribution of corporate capital only inthree instances9

'1* amendment of the %rticles of &ncorporation to reduce the authorized capital

stoc", M

'2* '2* purchase of redeemable shares by the corporation, regardless of theexistence of unrestricted retained earnings; M and

'$* '$* dissolution and eventual li!uidation of the corporation.

urthermore, the doctrine is articulated in ection -1 on the power of a

corporation to ac!uire its own shares and in ection 122 on the prohibition

against the distribution of corporate assets and property unless the stringent

re!uirements therefor are complied with.

Jon) - Tiu GR #!!!7/ 4 April " 6

+escission of the re0 ubscription %greement will effectively result in the unauthorized distribution of the capital assets and property of the corporation, thereby violating the Trust

und 4octrine and the Corporation Code, since rescission of a subscription agreement is not one of the instances when distribution of capital assets and property of the corporation isallowed.

Ja+a+oto -. Nis'ino Industries GR #0 "46 April #/ " 4

&t is settled that the property of a corporation is not the property of its stoc"holders or members. Dnder the trust fund doctrine, the capital stoc", property, and other assets of acorporation are regarded as e!uity in trust for the payment of corporate creditors which are

preferred over the stoc"holders in the distribution of corporate assets. The distribution of corporate assets and property cannot be made to depend on the whims and caprices of thestoc"holders, officers, or directors of the corporation unless the indispensable conditions and

procedures for the protection of corporate creditors are followed.

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G. @oard o( 8ire%tors and Trustees

#. 8o%trine o( Centrali>ed Mana)e+ent – Sec 23

The corporate powers of all corporations formed under this Code shall be exercised, all business

conducted and all property of such corporations controlled and held by the board of directors or

trustees to be elected from among the holders of stoc"s, or where there is no stoc", from among the

members of the corporation, who shall hold office for one '1* year until their successors are elected and

!ualified.

% corporation can only act through its directors and officers. %cts of management pertain to the

board and those of ownership to the stoc"holders or members 'Tan v ycip, I+ Ao. 1B$-/5, %ug 1 ,2((/*.

Matlin) Industrial -. COROS GR #074 " O%t #6 " #

% position must be expressly mentioned in the 3y0 aws in order to be considered as acorporate office. Thus, the creation of an office pursuant to or under a 3y0 aw enabling provision is not enough to ma"e a position a corporate office.

• )ceptions Sec 39, Sec 44, Sec 7

a. &n case of 8 C:< duly authorized by the by0laws;

b. &n case of a contracted manager which may be an individual, a partnership or another

corporation;

c. &n case the contracted manager is another corporation, the special rule in ec. -- applies

which reads9

BBBBBBBBBBBBB BBBBBBBBBBBB

Section 44. Power to enter into management contract. – No corporation shall conclude amanagement contract with another corporation unless such contract shall have beenapproved by the board of directors and by stockholders owning at least the majority of theoutstanding capital stock, or by at least a majority of the members in the case of a non-stock corporation, of both the managing and the managed corporation, at a meeting dulycalled for the purpose: Provided, That !" where a stockholder or stockholders representingthe same interest of both the managing and the managed corporations own or control more than one-third !#$" of the total outstanding capital stock entitled to vote of themanaging corporation% or &" where a majority of the members of the board of directors of

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Section 39 of the Corporation Code provides, as a rule, that the creation of an e)ecutiveco ittee "as po!erful as the >?0% ust (e provided for in the (yla!s of the corporation.Should this (e violated, it is re:uired that (ad faith ust (e proved..

*urther, the deter ination of the necessity for additional offices andDor positions in acorporation is a ana'e ent prero'ative !hich courts are not !ont to revie! in the a(sence of any proof that such prero'ative !as e)ercised in (ad faith or !ith alice.

+ndeed, it !ould

outline in corporation l

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