Zarah Lecture
Corporation Law and Securities Law
1. Separate Personality Rule/Principle/Corporate Entity Theory – Separate Entity, incur liabilities and
obligations other than those who compose it.
1.1 Corporation is Real Party in interest NOT the stockholders
1.1.1 Shareholder with 99% stockholdings have NO to right to pursue action involving
the corporation while disregarding the corporation
itself. Interest of Shareholder is merely Inchoate,
MERE EXPECTANCY. (Keyword Inchoate and expectancy)
2. Sole Proprietorship
2.1 Q. Does this have separate personality like a corporation? NO SEPARATE PERSONALITY from
the proprietor.
2.2 Separate Personality not a DEFENSE
3. Concession Theory
3.1 Concession Theory – A corporation will not acquire juridical existence without the state
giving its consent thereto, KEYWORK Imprimatur
3.2 Applies only when a corporation has been registered
4. Distinguish Stock Corporation from Non-Stock
4.1 Stock – Has Capital Stock and authorized distribution of dividends
4.2 Non-Stock – Above req. are not present
See Sec. 94 of the Code for the Dissolve Non-Stock Corporation
5. Concept of De-Facto Corporation and De-Jure
5.1. De Jure – Complied with req of the law;
5.1.1 Has Cert of registration
5.1.2 Can always successfully resist any challenge even by the state regarding legality of
existence
5.2. De Facto – Colorable compliance with the law for it to be organized; Has Cert of
Registration; MUST FILE ARTICLES WITH THE SEC AND ISSUED A CERTIFICATE OF
REGISTRATION to be a de facto.
5.2.1 TEST: Is there a defect in its incorporation despite the fact of issuance of a
Certificate of Registration?
5.2.2 Can RESIST challenge by the state regarding the legality of its existence
5.3 Corporation by Estoppel – ESTABLISHING A RULE ON LIABILITY. Existence NOT ISSUE
5.3.1 NO CORPORATION AT ALL
5.3.2 ISSUE ONLY AS REGARDS TO LIABILITY and NOT to the existence of a corporation
5.3.3 REMEDY: There is no corporation to demand from. Go directly to the party who
pretended that there is a corporation.
5.3.4 Persons liable: Those who pretended and those who benefited
6. PIERCING THE VEIL OF CORPORATE FICTION
6.1 See Facts. PAG WALANG KALOKOHAN (Fraud), cannot pierce
6.2 Effect: Separate entity will be disregarded
6.2.1 Directors, Officers, Parent corporation can be pursued directly
6.3 Possible bar question: (Timing of a new corporation after a dissolution of a previous
corporation)
6.4 Q. When a corporation is pierced, is it forever pierce? Does it go to its future dealing?
A. No. Piercing is only in case to case basis. It is only as good as that transaction pierced.
7. Intra-Corporate Controversy
7.1 Arises from intra-corporate relationships among stockholders, between officers and
company itself.
7.2 APPLY BOTH TEST!
7.2.1 Concerned Relationship Test – Corporation and Public; Corp and Stockholders,
members and officers; Corp and State in so far as its license in concered; Relationship
among Shareholders themselves.
7.2.2 Controversy Test – Does this Involved the enforcement of the parties rights and
obligations under the Corporation Code, the Corporations bylaws, and whatever
internal rules a corporation may have.
7.3 Association Dues in Homeownership Corporation IS INTERCOPORATE CONTROVERSY
7.3 Interim Rules
7.3.1 Imperitive that complainant alleged fraudulent acts against respondent. Failure to
allege is indicative of nuisance suit Hence, the court ON ITS OWN dismiss the case.
7.3.2 Definition of Fraud under Interim Rules
7.4 Regional Trial Court, acting as Commercial Court has JURISDICTION
7.5 As a Rule the SEC has the power to CALL meetings
7.5.1 RTC can call meeting in APPROPRIATE CASES
7.5.2 Example. Offshoot of a case where the nullification of all the election of
the directors is prayed for.
8. Sale of Substantially all or substantially all of its Assets
8.1 Allowed. See Req. in Sec 43
8.2 Q. Will the Buyer be answerable to the property of the Seller sold upon such sale?
A. Gen Rule WALA! – Reason: SEPARATE PERSONALITY
Exception: a) Stipulated; b) Merger on Consolidation, c) Seller merely a continuation of the
buyer (apply piercing); d) In fraud of creditors
9. Libel
9.1 Q. Can a corporation sue for libel and demand moral damages?
A. As a rule, NO MORAL DAMAGES, corporation has no feelings.
EXCEPTION: Besmirched Reputation in defamation cases.
10. Sec 6 of the Corporation Code (NON-VOTING SHARES CAN VOTE)
10.1 EXCLUSIVE LIST!
10.2 Removal and Voting of director, approval of management contract, Self-dealing contracts,
grant of compensation of directors, Approval of Stock Dividends NOT IN THE LIST!
11. Deprive of Voting Rights
11.1 Redeemable and Preferred can be deprived of voting rights
11.2 Common Shares : Gen Rule, Has voting rights
11.2.1 Except. (1)Stocks Delinquent and (2) Founder Shares with voting rights 5 years
11.3 Q. Pwede bang all shares non-voting? NO! Express provision by the code, dapat daw may
series of shares which have complete voting rights.
12. Trust Fund Doctrine
12.1 Q. Can a Contributed Property by a stockholder paid thru a subscription payment be taken
away at the whim of said stockholder?
A. No. Already property of the company under the Separate personality rule. Also, the Trust
Fund Doctine
12.2 All property are equity in trust in payment of corporate creditors who has priority over
corporation shareholders
12.3 Distribtution cannot be left to the whims of the corporation in protection of the creditors
13 Change of Name
13.1 Q. In change of name, is the consent of the creditors required?
A. Not required by law.
13.2 Remedy to Change, AMENDMENT OF THE ARTICLES. Approval of SEC Required
13.3 BANKS- NEED BSP Authorization
14. BUSINESS JUDGEMENT RULE
14.1 Gen Rule, Decisions of the Board of directors are presumed in Good Faith and cannot be
overturn by stockholders
Exception: Badfaith, fraud, etc.
15. Non-stock Corporation: Limitation in Bylaws as to VOTING
15.1 KEYWORD: VOTING - LIMITED, BROADENED AND DENIED, to the extent of the articles
and bylaws.
16. Extension of Life of Corporation
16.1 Relation Doctrine – Even if the extention request if filed after the expiration of the term, it
is still deemed made before the expiration of term, provided proper justification.
17. Instances when corporation can be personally held liable for corporate acts
17.1 WHO ARE THEY?
17.1.1 Personally assents to illegal AND corresponding punishment by law, acts
17.1.2 Mere assent not liable. Act must have corresponding punishment in
law, officer is liable
17.1,2 Bad faith and Negligence
17.1.3 Conflict of interest resulting in DAMAGES
17.1.4 Assent to watered Stocks,
17.1.4 Not report with his knowledge that watered stocks are issued still liable
17.1.5 Thru his acts, makes himself liable
17.6 Express provision of law
17.2 No need to pierce because the law itself makes them liable
18. OFFICERS OF A CORPORATION
18.1 Who are Officers
18.1 Statutory Officers, 1) Directors, Secretary and Tresures
18.2 Express provision of the BYLAWS
18.2. RECENT JURIS – NASA BYLAWS LANG ANG LIST OF OFFICERS, CANNOT BE
THRU A BOARD RESOLUTION
18.2.2 Applicable what jurisdiction, RTC, LABOR ARB, ETC.
18.2 Who appoints?
18.2 Gen Rule – BOARD itself
18.2.1 Board cannot delegate to the president
18.2 Exception: Close Corporation
19. Corporation bound by acts of the officers?
19.1 GEN RULE, To bind corporation, must have board resolution.
19.1.1 Office personally Bound
19.2 EXCEPTIONS:
19.2.1 Apparent Authority/Holding out theory/Ostencible Agency
19.2.2 ESTOPPEL. When the Corp knowingly permits one of its officers under
apparent authority, the corp holds himself to the public as such. Thus the
corporation will be estopped from denyng such officers agents authority against
those who transacted with it in good faith.
20. Effect on Existence without bylaws being submitted
20.1 How?
20.1.1 Attached with articles
20.1.2 Submit within 1 month from notice of approval
20.2 Effect of failure to submit bylaws
20.2.1 NOT AUTOMATIC DISSOLUTION
20.2.2 De Facto. VOIDABLE
21 Sequestered Shares
21.1 Definition: Corp assets is preserved during litigation
21.2 Q. Corp X is a sequestered. Who has jurisdiction over the intra-corporate contoversyies
21.2.1 A. RTC
21.3 Sequestered Shares effect
21.3.1 No. Despite sequestered status, still outstanding and can vote
21.3.2 GENERAL RULE: Registered Owner has legal standing to use the share to vote.
PCGG is only an administrator of shares
EXCEPTION: PCGG CAN USE SHARES if establish that a) prima facie evidence that
shares are ill gotten, and belong to the state. B) imminent danger that shares is
dissipated and there is necessity for future sequestration.
22. Death of Stockholder
22.1. Stocks continue to be part of outstanding capital stock
22.2 Heirs as Co-owners
22.3 In Non-Stock Corporation – DISCONTINUED UPON DEATH – reason membership is personal
22.3.1 Exception: UNLESS BYLAWS or AOI allows
22.3.2. Members construed to be living (TAN VS. SYCIP) LIVING ANG BASIS THE
QUORUM (SEC. 91)
23. Termination of membership in Non-Stock
23.1 In Non-stock Corporations, A termination of a member may be made ONLY on the Bylaws
(Sec. 91 “Articles OR the bylaws)
24. Derivative Suit
24.1 Definition of Derivative Suit
24.2 As a Rule, The Board of Directors files a suit
24.1.1 EXCEPTION Derivative Suit
24.1.2 Board takes no action on the matter which causes the corporation to
suffer damages.
24.1.2 Being Nominal Parties, Court gives them the power to establish a suit.
24.1.3 MUST BE IN THE NAME OF THE CORPORATION
24.3 Requisites
24.3.1 Complainant must be a Stockholder REGARDLESS of the number of shares
24.3.2 Exhausted Intra-Corporate Remedies
24.3.3 Cause of Action devolves to the corporation
24.3.4 Appraisal Right is not available
24.3.5 Must not be a nuisance suit.
24.4 In Close corporation, STILL Exhaustion of Intra-corporation is required
24.5 Defendant In the Derivative Suit is the very person who has COMPLETE DOMINION IN THE
CORPORATION, is Exhaustion still need to be complied?
25.6 NO MORE. FUTILE
25. Appraisal Right
25.1 Right of stockholder to recall his investment to the corporation
25.1 Situations (SEE SEC 81)
26. DOING BUSINESS
26.1 Substance Test – Bring to Phil the body and substance of corporation to the Philippines
26.2 Continuity Test - Indication that activities is Continuing
26.2.1 Participation in Biddings indicate intention to engage in business
26.2.2 Regardless of Volume. Even if only one transaction, but indication to do business
is apparent, deemed doing business
26.2.3 Activity for PROFIT MAKING, deemed doing business.
26.2.4 Not for PROFIT, NOT DOING BUSINESS
26.2.5 Mere Consignment NOT for sale, not doing business
26.2.6 Engagement of National to Run its operations in the Philippines IS DOING
BUSINESS – Because these are acts of management, in active pursuit of business
27. DOING BUSINESS WITHOUT LICESNE
27.1 VALID TRANSACTIONS
27.2 HOWEVER, foreign corp cannot suit.
27.2.1 EXCEPTION – ESTOPPEL ON DEFENDANT
28. DOING BUSINESS WITH LICENSE
28.1 Can file Suit.
29. Rehabilitation
29.1 Req. to put to rehabilitation
29.1.1 Imminent Danger of the Corporation
29.1.2 Paralysis of the Corporation which is prejudicial to its stockholders
29.2 SERIOUS SITUATION TEST
29.2.1 Whether or not financial situation is serious and there is imment danger that it
will lose its assets without a receiver
29.2.2 Misconduct of Officer PER SE does not justify the appointment of a receiver.
29.3 Rehabilitation MUST BE THE LAST RESORT
29.4 Effects
29.4.1 Stay Order/Suspension Order – ALL CLAIMS whether for MONEY OR OTHERWISE
29.4.2 EVEN REINSTATEMENT ASPECT IS SUSPENDED
29.4.3 ABSOLUTE SUSPENSION.
29.4.4 ALL PHASES OF SUIT EVEN IF the claim is with the supreme court
29.5 Differentiate for Suspension of Payment under the FRIA
29.6 Not required to be on suspension of payment before Rehabilitation
30. SEC to issue Cease and Deceased Order
30.1 Req before the SEC to issue
30.1.1 Proper investigation or verification
30.1.1.1 TRIAL AND HEARING NOT REQUIRED as long as there is proper
investigation
30.1.2 Finding that the act complained of is fraud to investors or damage to investing
public
30.2 Cease and Deceased Order must be signed by the quorum. The issuance of a CDO with
only 1 signature of a chairman of the SEC is irregular.
31. SECURITIES REGULATIONS CODE PENAL PROVISIONS
31.1 Sales of Securities without registration
311.1 Registration REQUIRED. Reason-to protect investors
31.2. How should violation of SRC criminal in nature be pursued?
31.2.1 Referred to be filed first to SEC because this is a specialized dispute under the
doctrine of primary jurisdiction
31.2.2 The SEC will refer then to DOJ for proper execution
32. Registration of Security
GEN RULE: Registration Required
EXCEPTIONS
32.EXEMPT SECURITIES
32.1.1 See enumeration
32.1.2 Because the source unlikely to defraud the public
32.2 Exempted Securities
32.2.1 See Enumeration
32.2.2 Character
32.2.2.1 Limited Offering
33. Tender Offer
33.1 See Definition
33.2 Purpose – What is the evil sought to be prevented
33.3 Rules in Tender Offer
34. Validity of Proxy – Who has Jurisdiction?
DEPENDS.
a) If issue is election of directors and intra-corporate cases – RTC
b) If election is NOT IN ISSUE – SEC
35. Insider
35.1 See definition
35.2 Reason: Protect investors against fraud committed when an insider using secret
Information takes advantage of uninformed investors.
35.3 2 facts a) Inherent unfairness when a party takes advantage of such position and b)
Relationship of insider to the acquisition of such information
36. STOCK CERTIFICATE IS NOT A NEGOTIABLE INSTRUMENT
36.1 Not Committed to pay a sum certain in money
36.2 No such thing as DUE COURSE HOLDING
37. Merger
37.1 Employees Automatically assumed employment contract. SEC must Approved Merger by a
the absorbing company. However, absorbing company can terminate by reason of just and
authorized cause
37.2 Debts are acquired by the absorbing corporation AUTOMATICALLY even without a contract
37.3 Absorbed corporation automatically dissolved.
37.4 Absorbed corporation DOES NOT REQUIRED Winding up
38. Dividends
38.1 How released
38.1.2 Cash and Property – Board of Directors Required
38.1.2 Shares – 2/3 vote of stockholder required
38.2 Delinquent shares can acquire dividends
38.3 Stock holder ON RECORD acquires dividends
Remedy of Buyer whos name is not recorded – compel seller to acquire dividends
39. SEE NARAH NICKEL IN SARAH NOTES
