RFBT Corporation Notes (with highlights), Study notes of Corporate Law

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EXPRESS POWERS  Expressly provided, enumerated and granted by the Corporation Code or special law to a corporation a) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and deal with real and personal property, securities and bonds. b) For stock corporations, to issue and sell stocks to subscribers and treasury stock, for nonstock corporation, to admit members c) To enter into merger or consolidation d) To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees e) To sue and be sued f) To make reasonable donations for public welfare, hospital, charitable, cultural, scientific, civic or similar purposes g) Right of succession h) To adopt and use of corporate seal i) To amend its articles of incorporation j) To adopt its by-laws k) To enter into partnership, joint venture, merger, consolidation, or any other commercial agreement with natural and juridical persons l) In case of DC to give donations in aid of any political party or candidate or for purposes of partisan political activity. However, no FC shall give donations in aid of any political party or candidate or for purposes of partisan political activity. IMPLIED OR NECESSARY POWERS  Inferred from or reasonably necessary for exercise of provided powers of Corporation. They flow from nature of underlying business enterprise. a) To issue checks or promissory note or bill of exchange or exchange or mercantile documents b) To establish a local post office in case of mining company c) To operate power plant in case of cement factory company d) To sell, supply or manage advertising materials in case of an advertising company INCIDENTAL OR INHERENT POWERS  Attached at the moment of its creation without regard to its expressed powers or particular primary purpose and may be said to necessarily arise from its being a juridical person engaged in business. They flow from nature of corporation as a juridical person. a) Right of succession b) Right to have corporate name c) Right to make by-laws for its governance d) Right to sue and be sued e) Right to acquire and hold properties for the purposes authorized by the charter Compliance w/ requirements for valid incorporation Separate personality from stockholder Juridical personality subject to: Direct Attack Collateral Attack De Jure o Full compliance o Corporation both in fact & in law Yes^ No^ No De Facto o Colorable compliance o Corporation in fact but not in law Requisites for existence:

1. Exists a valid law under which it may be incorporated
2. Attempt in good faith to incorporate (colorable compliance)
3. Use of corporate powers Yes Yes, warranto^ via quo No Corporation by Estoppel or Ostensible o No compliance at all. o Not actually a corporation since it doesn’t have charter. Persons who compose it only set themselves out as a corporation. None, stockholders liable as general partners Yes Yes

AS TO

NATIONALITY

DOMESTIC ^ Organized under PH laws, either legislative act or under provisions of General Corporation Law.  Not required to obtain license from SEC to engage business in PH FOREIGN  Created by law of other countries.  Required to obtain license from SEC before it may engage in business in PH.  Must appoint resident agent in PH before it may be given license AS TO LEVEL OF RESTRICTIONS

CLOSE

 Shares of stock are held by persons not exceeding 20  Usually formed by closely related individuals such as a family.  Cannot list in stock exchange  Certain restrictions are placed in transfer of shares. OPEN  Can accept outsiders as stockholders  Authorized to list in stock exchange  No restrictions in transfer of shares  If listed in stock exchange Publicly Listed Corporations. AS TO FORMATION OR NATURE

PRIVATE

 Under provisions of general law (Corporation code)

1. Civil corporation - for profit or business.
2. Quasi-public corporation (public utility) - owned by private individuals but performing essential governmental function. PUBLIC  Created by special law for a public purpose, either:
3. Municipal corporation - Governance of a local territory.
4. GOCC - Performing proprietary or commercial functions. AS TO PURPOSE

LAY

 Organized for purposes other than religion.

1. Eleemosynary- for charitable purposes.
2. Civil- for the benefit of persons composing it ,for profit RELIGIOUS OR ECCLESIASTICAL  Formed for religious purposes.
3. Corporation Sole o One individual -chief archbishop, bishop, priest, minister, rabbi, or presiding elder
4. Corporation aggregate or Religious Societies o More than one individual (Governed by board of trustees) o Upon written consent/ vote at least 2/3 of its membership AS TO OF STOCKS & OF DIVIDENDS STOCK Have capital stock divided into shares and authorized to distribute dividends or allotments of surplus profits on basis of the shares held NON-STOCK No share of stocks and not authorized to distribute surplus profits. AS TO CONTROL or OWNERSHIP

PARENT

(HOLDING) ^ Controls another corporation. SUBSIDIARY  Being controlled by another corporation. AFFILIATE  Member of a group of companies ASSOCIATE  Significantly influenced by an investor AS TO BEING SUBJECT TO DIRECT ATTACK BY THE STATE (AS TO VALIDITY OF FORMATION)

CORPORATE SECRETARY

1. Safekeeping and preservation of integrity of minutes of meetings of Board and its committees, as well as other official records
2. Be loyal to the mission, vision and objectives of the corporation
3. Work fairly and objectively with the Board, Management and stockholders
4. Have appropriate administrative and interpersonal skills
5. If he is not at the same time corporation's legal counsel, be aware of laws, rules and regulations necessary in performance of his duties & responsibilities
6. Have a working knowledge of the operations of the corporation
7. Inform the members of the Board of the agenda of their meetings and ensure that members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval
8. Attend all Board meetings, except when justifiable causes, such as, illness, death in immediate family and serious accidents, prevent him from doing so
9. Ensure board procedures, rules, and regulations are strict followed by members
10. If he is also the Compliance Officer, perform all the duties and responsibilities of the said officer as provided for in this Code. COMPLIANCE OFFICER
11. Monitor compliance by corporation with this Code and the rules & regulations of regulatory agencies and, if any violations are found, report matter to Board and recommend imposition of appropriate disciplinary action on responsible parties and adoption of measures to prevent a repetition of violation
12. Appear before commission when summoned in relation to compliance with Code
13. Issue a certification every January 30th of the year on the extent of the corporation's compliance with this Code for the completed year and, if there are any deviations, explain the reason for such deviation.

Whenever no person authorized, or person authorized unjustly refuses to call meeting SEC, upon petition of SH/M upon showing of good cause, may issue order directing petitioning SH/M to call meeting by giving proper notice and petitioning SH/M shall preside until majority of SH/M present have chosen among themselves

Rights of stockholder

a. Doctrine of equality of shares means that all shares have equal rights except as provided in the Articles of Incorporation. b. Participation in MANAGEMENT of corporate affairs (through VOTING) c. Meeting of Stockholders d. Propriety rights i. Right to dividends ii. Right to inspect corporate books iii. Preemptive right iv. Right of First Refusal v. Right of appraisal e. Remedial Right i. Individual Suit ii. Representative Suit iii. Derivative Suit f. To be furnished by most recent fs of corporation g. To transfer shares of stock h. To be issued a certificate of stock for fully paid-up shares i. To have the corporation dissolved within the grounds provided for by law j. To participate in distribution of assets of corporation upon dissolution

PLAN OF DISTRIBUTION

1. Board of trustees shall, by majority vote, adopt a resolution recommending a plan of distribution and directing the submission thereof to a vote at a regular or special meeting of members having voting rights
2. Each member entitled to vote shall be given a written notice setting forth the proposed plan of distribution or summary thereof and the date, time and place of such meeting within the time and in manner provided in this Code for the giving of notice of meetings
3. Such plan of distribution shall be adopted upon approval of at least 2/3 of the members having voting rights present or represented by proxy at such meeting.

One Person Corporation

CORPORATE SECRETARY: NOT ALLOWED a) Be responsible for maintaining the minutes book and/or record of the corporation. b) Notify the nominee or alternate nominee of the death or incapacity of the single stockholder, which notice shall be given no later than 5 days from such occurrence c) Notify SEC of the death of the single stockholder within 5 days from such occurrence and stating in such notice the names, residence addresses, and contact details of all known legal heirs; and d) Call the nominee or alternate nominee and the known legal heist to a meeting and advise the legal heirs with regard to, among others the election of a new director, amendment of AOI, and other ancillary and/or consequential matters. TREASURER: ALLOWED Allowed to be positioned by sole stockholder, provided he shall give:

1. Bond to SEC in a sum as may be required. (Renewed every 2 years or as often as may be required)
2. Written undertaking to faithfully administer the OPC's funds to be received as treasurer, and to disburse and invest the same according to the Articles as approved by the SEC.

APPRAISAL RIGHT May be exercised for any reason, as long as corporation has sufficient assets to cover its liabilities exclusive of capital stock May be exercised only on specific grounds.

Foreign Corporation

TWO ACKNOWLEDGED TESTS IN DETERMINING THE NATIONALITY OF A CORPORATION:

CONTROL TEST OR LIBERAL RULE GRANDFATHER RULE/TEST

 Used for purposes of applying laws o Ex. Prohibition to acquire lands applicable to corporations more than 40% is owned by non- Filipinos.  Under this, no need to further trace the ownership of the 60% or more Filipino stockholdings of the investing corporation since a corporation which is at least 60% Filipino-owned is considered Filipino.  Method of determining the nationality of a corporation which in turn is owned by another corporation by breaking down the entity structure of the shareholders.  True Filipino ownership is traced all the way to the individual stockholders of the corporation (A) owning shares in another corporation (B), by multiplying the Filipino ownership of the first corporation (A) to the corresponding ownership of the other corporation (B).  Applies to nationalized activities or those which require whole or partial Filipino ownership. Paragraph 7 of DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which implemented the requirement of the Constitution and other laws pertaining the controlling interests in enterprises engaged in the exploitation of natural resources owned by Filipino citizens, provides:

 Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality. (Control Test)  But if % of Filipino ownership in the corporation or partnership is less than 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality. (Grandfather rule) GRANDFATHER RULE SHALL BE APPLIED WHEN: a. Corporation's Filipino equity falls below the threshold required b. There exists "doubt" as to the Filipino or Foreign equity  This would thus require the application first of the control test.  When after applying the Control Test, and it meets the required nationality requirements but there exists a "doubt" as to Filipino ownership, grandfather rule would be supplementally applied.

Merger & Consolidation

CORPORATE REORGANIZATION

 Change in company's structure for various reasons such as to:

 Expand operations  Increase profitability  Improve efficiency  Avoid liquidation or bankruptcy.

FORMS:

1. Asset sale

2. Stock sale

3. Merger/Consolidation

MERGER:

B+C=B

 Combination of two or more corporations whereby ore corporation (surviving corporation)

absorbs the other corporation(s) (absorbed corporation/s).

CONSOLIDATIO

N:

B+C=A

 Combination of two or more corporations (constituent corporations) and forming a new

corporation (consolidated corporation)

In a consolidation, constituent corporations are all dissolved

While in merger, absorbing or surviving corporation is not, only the absorbed.

Employees of absorbed

corporation in a merger

 Employment contracts are automatically assumed by surviving corporation in a

merger, even in absence of express stipulation in articles of merger or merger plan.

REQUIREMENTS AND PROCEDURE TO ACCOMPLISH MERGER OR CONSOLIDATION

1. BOD/T of each constituent corporations shall approve a plan of merger or consolidation

2. Approval of the plan by the stockholders representing 2/3 OCS or 2/3 of the member in non-stock corporations of

each of such corporations at separate corporate meetings called for the purpose

3. Prior notice of such meeting, with a copy or summary of the plan of merger or consolidation shall be given to all

stockholders or members in the same manner as in regular/special meetings of stockholders (from 2 weeks, either

personally or by registered mail stating the purpose thereof).

4. Execution of the articles of merger or consolidation by each constituent corporation

 To be signed by the president or vice-president and certified by the corporate secretary or assistant secretary

setting forth the matters required in Sec. 78

5. Submission of the articles of merger or consolidation in quadruplicate to the SEC.

 AMENDMENT: Requirement to submit in quadruplicate has been removed.

 If corporations is under direct supervision of any other government agency or governed special laws the

favorable recommendation of government agency shall first be secured

6. Issuance of certificate of merger or consolidation by SEC at which time M/C shall be effective.

 If plan is contrary to law, SEC shall set hearing to give corporations an opportunity to be heard upon notice.

EFFECTS OF MERGER OR CONSOLIDATION

1. There will only be a SINGLE corporation- the surviving corporation or the consolidated corporation.

2. Termination of corporate existence of constituent corporation and absorbed corporation.

3. Surviving or consolidated corporation shall possess all the rights, privileges, immunities and franchises of the

constituent corporations and all property and all receivables due, including subscriptions to shares and other

choses in action, and every other interest of, or belonging to or due to the constituent corporations shall be deemed

transferred to and vested in such surviving or consolidated corporation without further act or deed

4. Rights of creditors or any lien on property of constituent corporations shall not be impaired by the merger or

consolidation.

5. No need to liquidate or wind-up the affairs of the absorbed or constituent corporation because

(1) There are no assets to distribute

(2) No debts & liabilities to pay - since all these are transferred to surviving or consolidated corporation.