CHAPTER 8: BY-LAWS

1. When is the effectivity of a by-laws?

After the approval of the SEC

Prior to Incorporation - must be sign by all the incorporators without the need
of the affirmative vote of the majority of the outstanding capital stock or the
members provided it is submitted together with the AOI

After Incorporation - Must be submitted one month after the issuance of the
certificate of incorporation and must be approved by a majority of the
outstanding capital stock or members and sign by them also.

CHAPTER 9: MEETINGS

1. A stockholder whose shares are declared delinquent will have?

a. No voting and dividend rights
b. No voting rights at any meeting
c. Voting and dividend rights
d. Voting rights but no dividend rights

2. Which of the following meetings is not valid?

a. Members’ meeting held in Tagaytay City where the principal office is located
in Makati but the by-laws provide that meetings of the members may be held
anywhere in the Philippines
b. Stockholders’ meeting held in Tagaytay City where the principal office is
located in Makati but the by-laws provide that stockholders’ meetings may be
held anywhere in the Philippines
c. Trustees’ meeting held in Baguio City where the principal office is located in
Makati
d. Directors’ meeting held in Macau where the principal office is located in
Makati.

3. The by-laws of a stock corporation may provide that stockholders meeting may be
held anywhere in the Philippines?
False. Sec. 51 states that SH or members’ meetings, whether regular or special
shall be held in the city or municipality where the principal office of the
corporation is located.

Note: Stockholders meeting must at all times be held in the city or municipality where
the principal office is located, or if practicable at the principal office of the corporation.
Metro Manila is considered as one city or municipality.

4. Absent any by-law provision authorizing t holding of a meetings of members in a

non-stock corporation, members’ meetings may nonetheless be validly held
anywhere in the Philippines
False, in the absence of any by-law provision, members’ meeting of a non-stock
corporation should be held in the city or municipality where the principal office of
the corporation is located.

Note: Non-stock corporation may provide in its by-laws any place of members;
meeting provided there is proper notice.
5. Any meeting of a SH/members irregularly held or called is necessarily without
force and effect?
False. Sec. 51: the meetings shall be valid even of irregularly held or called
provided:
A. All proceedings had and any business transacted is within the powers
or authority of the corporation,
B. All SH/members of the corporation are present or duly represented at
the meeting
6. The general requirements for a valid Stockholders’ meeting.
Must be held on the date fixed in the by‐ laws or in accordance with law.
A. Prior notice must be given.
B. It must be held in the proper place.
C. It must be called by the proper party.
D. Voting and quorum requirements must be met.

STOCKHOLDER MEETING DIRECTORS MEETING

MUST AT ALL TIME BE HELD WITHIN MAY BE HELD ANYWHERE, WITHIN
THE BOUNDARIES OF THE OR OUTSIDE THE PHILIPINES,
CORPORATION’S PRINCIPAL EXCEPT WHEN THE BY-LAWS
OFFICE.EXCEPT, NON-STOCK PROVIDES OTHERWISE.
CORPORATION PROVIDED THAT IT IS
STIPULATED IN ITS BY-LAWS PROXY VOTING IS NOT ALLOWED.
PROXY VOTING IS ALLOWED.
XPN: NON STOCK CORPORATION NOTICE:
WITH THE BY-LAWS PROHIBITING GR: SPECIAL MEETING CONDUCTED
PROXIES. WITHOUT THE PRESENCE OF ALL OF
THE DIRECTORS OR WITHOUT
NOTICE IS ILLEGAL.

XPN: IF ALL OF THE DIRECTORS ARE

PRESENT

QUORUM: UNLESS THE AOI OR

BYLAWS PROVIDE FOR A GREATER
MAJORITY, A MAJORITY OF THE
MEMBERS OF THE BOD AS FIXED IN
THE AOI WILL CONSTITUTE A
QUORUM.

XPN: ELECTION OF CORPORATE

OFFICERS WHICH REQUIRED THE
VOTE OF A MAJORITY OF ALL THE
MEMBERS OF THE BOARD.

PROXY VOTING

REQUIREMENTS:
1. Must be in writing;
2. Signed by the SH or M or his duly authorized representative; and
3. Filed on or before the schedule meeting with the corporate secretary.

DURATION:
May be fixed by the proxy’s own term but it cannot exceed 5 years and for not more
than 5 years of each renewal. Otherwise, it expires after the meeting for which it was
given.

VOTING TRUST PROXY

BENEFECIAL OWNER OF THE LEGAL TITLE TO THE SHARES

SHARES CEASED TO BE REMAIN WITH THE OWNER
STOCKHOLDER OF RECORD SINCE
OWNER OF THE SHARES MAY BE
THE SHARES ARE TRANSFERRED TO
ELECTED SINCE THE LEGAL TITLE
THE TRUSTEE
REMAINS THEREOF
BENEFICIAL OWNER IS
PROXY HOLDER MUST VOTE IN
DISQUALIFIED TO BE A DIRECTOR
PERSON
TRUSTEE MAY VOTE IN PERSON OR
DURATION MUST NOT EXCEED 5
BY PROXY
YEARS
DURATION MAY EXCEED FIVE YEARS
UNLESS REQUIRED BY THE BY-
VTA TO BE VALID MUST BE LAWS, PROXIED NEED NOT BE
NOTARIZED AND FILED WITH THE NOTARIZED NOR IS IT REQUIRED TO
SEC BE FILED WITH THE SEC

CHAPTER 10: STOCKS AND STOCKHOLDERS

SUBSCRITION PURCHASE

THE SUBSCRIBER BECOMES THE BUYER BECOMES

STOCKHOLDER EVEN IF THERE IS STOCKHOLDER ONLY UPON FULL
ONLY PARTIAL PAYMENT PAYMENT OF THE PRICE.
UNISSUED SHARE IS THE SUBJECT UNISSUED SHARE CANNOT BE A
OF SUBSCRIPTION TO BECOME A SUBJECT TO A PURCHASE.
STOCKHOLDER

1. X Co., Inc., engaged in the manufacturing concern. It leased a parcel of land

where it erected its plant warehouse and offices. It has an authorized capital
stock of Php100M divided into 100M shares with a par value of Php1.00 per
share. Php50M has been subscribed. One of the stockholders thereof is “A” who
subscribed to Php5M and has paid Php2.5M out of his subscription.

a.) May “A” be issued a stock certificate covering 2.5M shares? Why or why not?
(3pts)

No section 64 of the corporation code provides that no certificate of stock

shall be issued to a subscriber until the full amount of his subscription
 together with interest and expenses ( in case of delinquent shares) if any has
been paid.

Assume that the corporation has been incurring loses to the tune of php5M and to
raise much needed funds to pay its liabilities, the BOD decided to make a call for the
unpaid portion of the subscriptions of its stockholders including “A” who did not pay
the same on the date specified in the call. The Corporation this decided to sell his
shares at public auction but no bidders appeared.

a.) May the corporation bid? Why or why not? (3pts)

No. The corporation may bid subject to the provisions of the corporation code.
Section 41 provides that the corporation shall have the power to acquire its
own shares provided that it has unrestricted retained earnings. In this case,
the corporation has no unrestricted retained earnings because it is incurring
loses.

Assume that the corporation and “Y” entered into a contract of sale in January 2016
for the latter to acquire 10M of the remaining unissued stocks of the corporation with
a stipulation that “Y” shall pay a down payment of Php5M, the balance to be paid on
or before the end of June 2016, and that until and unless he shall have paid the
balance of his acquisition cost he shall have paid the balance of his acquisition cost
he shall not be considered as a stockholder. A meeting of the acquisition of the
stockholders is called to be held in June 7, 2016 to elect a new set of directors, at a
point in time when he has not yet paid his full acquisition cost.

b.) Is “Y” qualified to vote and be voted for as a director? Why or why not? (3pts)

Yes. The moment his subscription becomes effective, he becomes a

stockholder for all intents and purposes and the only requirement to be
qualified as a director is that he must have at least one share in his own
name.

c.) Assume that on June 10, 2016, the entire compound of the corporation was
ravaged by fire, turning everything into ashes. May “Y” be compelled to pay the
balance of his acquisition cost? Why or why not? (5pts)

Yes. The corporation code provides that any contract for the acquisition of
unissued stock in an existing corporation or a corporation still to be formed
shall be deemed a subscription, nowithstanding the fact that the parties refer
to is as a purchase or some other contract. Thus, a person whether deemed a
purchaser or subscriber of the unissued stocks of an existing corporation or a
corporation still to be formed becomes entitled to all the rights and of
stockholder and subjected to all liabilities that attach thereunder upon
execution and effectivity of the contract, and the corporation can compel the
payment of the balance of the unpaid portion of the subscription.

NOTE: So long as the shares to be acquired from the corporation are "unissued
stocks" of the latter, the contract will be deemed a subscription contract. Thus, Z
becomes entitled not only to the rights of a stockholder but also to all liabilities
attached thereunder.
 PRE INCORPORATION SUBSCRIPTION

What may be used as a consideration? (sec. 62)

a. Actual cash paid to the corporation
b. Property, tangible or intangible, actually received by the corporation and
necessary or convenient for its use and lawful purposes at a fair valuation
equal to the par or issued value of the stock issued
c. Labor performed for or services actually rendered to the corporation
d. Amounts transferred from unrestricted retained earnings to stated capital
e. Outstanding shares exchanged for stocks in the event of reclassification or
conversion

How much should be the consideration?

The consideration should not be less than the par or issued price of the stock (sec.
62)

What is the effect of issuance of shares of stocks without a consideration?

The shares will be considered as watered stocks (sec. 65) hence, subscribers may
be compelled to pay the full par or issued value thereof

CERTIFICATE OF STOCKS AND THEIR TRANSFER

1. X Co., Inc., engaged in the manufacturing concern. It leased a parcel of land

where it erected its plant warehouse and offices. It has an authorized capital stock of
Php100M divided into 100M shares with a par value of Php1.00 per share. Php50M
has been subscribed. One of the stockholders thereof is “A” who subscribed to
Php5M and has paid Php2.5M out of his subscription.

b.) May “A” be issued a stock certificate covering 2.5M shares? Why or why not?
(3pts)

No section 64 of the corporation code provides that no certificate of stock

shall be issued to a subscriber until the full amount of his subscription
together with interest and expenses ( in case of delinquent shares) if any has
been paid.

2. A transferee of a certificate of stock in a non-stock corporation, if they are

transferable by virtue of a by-law provision, has the same right, power and authority
to compel the corporation to register the said transfer in the corporate books in his
name, in order that he may be considered as a shareholder, in the same manner that
the transferee of a certificate of stock in a stock corporation may do so.
True (Sec. 87, last par.), the provision governing stock corporation, when
pertinent, shall be applicable to non-stock corporations, except as may be
covered by specific provisions of this Title.

3. Pending issuance of the replacement certificate, the owner of a lost certificate of

stock may validly transfer his shares by a mere notarized deed
False. Two modes of transferring shares of stock:
1. When the corporation has already issued stock certificates – transfer is done
only through endorsement and delivery of the certificate or certificates of stock
 indorsed by the owner or his attorney-in-fact or other person legally authorized to
make the transfer.
2. When the corporation has not yet issued certificates of stock – by a duly
notarized deed. If a certificate of stock has been issued a mere notarized deed
will not suffice. It must be coupled with endorsement and delivery of the stock
certificate.

4. “Subscription for shares of stock of a corporation is indivisible”.

Sec. 64. No certificate of stocks shall be issued to a subscriber until the full
amount of his subscription together with interest and expenses (in case of
delinquent shares), if any is due, has been paid.

5. “Certificate of stock is merely quasi‐ negotiable and is non‐ negotiable”.

While it may be transferred by endorsement coupled with delivery thereof, and
therefore merely quasi-negotiable, it is nonetheless non‐ negotiable in that the
transferee takes it w/o prejudice to all the rights and defenses w/c the true and
lawful owner may have except in so far as the principles governing estoppel may
apply. (Delos Santos vs. McGrath).

6. Z corp. was registered in 1978 or before the effectivity of the Corporation Code.
The by –laws of the corporation allow it to issue certificate of stock covering the
corresponding number of shares w/c the subscriber may have already paid.
A subscribed to 1M shares w/a PV of 1.00/share and have paid 500K on his
subscription. He now compels the Corporation to issue a stock certificate covering
500K shares.
A. The corporation seeks your advice as counsel. What advice will you give?
Explain.
Sec. 64. Issuance of stock certificates – No certificate of stock shall be issued to a
subscriber until the full amount of his subscription together with interest and
expenses (in case of delinquent shares), if any is due, has been paid. Thus, A should
comply with the Corporation Code.
A stockholder whose subscription is not fully paid may not be issued a stock
certificate for that portion already paid. (Fua Chan vs. Summers and China Banking
Corporation)
General Rule: Holders of subscribed shares not fully paid are entitled to all the rights
of a stockholder.
Exception: That the shares have been declared delinquent; or the stockholder
exercises his appraisal right.
B. Assume that A is now the owner of the stock certificate No. 008. B, his brother
stole the certificate, forged the signature of A and sold the same to C, who is a
purchaser in good faith and for value. Who has a better right over the shares
covered by stock certificate No. 008? A or B? Explain.
A still has a better right over the shares under the doctrine of non‐ negotiability of
certificate of stock.
General Rule: In forged or unauthorized transfer of stock the purchaser acquires no
title as against the lawful owner and will have no right or remedy against the
corporation (non‐ negotiability of stock certificates).
C. Assume that C transfers the said stock certificate to D. Who is also a bona fide
purchaser, will D acquire title? Explain.
No, same basis to the previous answer.
D. Assume that before C transferred the shares, he surrendered the said stock
certificate to the corporate secretary for the registration/cancellation and for
issuance of a new stock cert in his (C’s favor). The corporation cancelled the said
stock certificate and issued stock certificate No. 010 in the name of C, who
thereafter transferred the latter certificate by endorsing and delivering it to D. Will
D acquire title? Explain.
Yes, D will acquire title to the stock certificate No. 010 as this would be the exception
to the general rule.
Exception: The Corporation will be estopped to deny the validity thereof. The
subsequent purchaser in good faith took the shares by virtue of the genuineness of
the certificates issued by the corporation or of the representation made by the
corporation that the same is valid and subsisting and that the person named therein
is a stockholder of the corporation.
E. Will A be deprived of his title? Explain.
No, A cannot be deprived of his right by virtue of an unauthorized transfer. He can go
to the corporation and ask for the cancellation of the stock certificate due to fraud or
forgery. D may compel the corporation to recognize him as a stockholder or claim
reimbursement and damages against the latter.
F. Assume that the corporation has unissued and unsubscribed shares worth
20M and the corporation want to issue them at the PV of P1.00/share instead of
its FMV of P2.00/share. They seek your advice as counsel if they can do so
issued at P1.00. What advice will you give? Explain.
Yes, they can issue it at the PV of P1.00/share, because it is not below the par value.
There is no watered stock because the basis of watered stock is the par value and
not the fair market value.
Ways in which watered stock may be issued:
1. For monetary consideration less than its par or issued value;
2. For a consideration in property, tangible or intangible, valued in excess of its
fair market value;
3. Gratuitously or under agreement that nothing shall be paid at all; or
4. In the guise of stock dividends when there are no surplus profits of the
corporation.

G. Further, assume that the corporation enters into a contract of sale/purchase of

some of its remaining unsubscribed shares w/ X who pays a down payment of
50% w/ a condition that he (X) will not be considered as a stockholder until the
full payment of the acquisition cost and that then and only then shall be issued a
stock certificate. Pending payment of the balance, the properties, inventories and
 all assets of the corporation was razed in fire. The corporation now wants to
collect the unpaid portion of the acquisition cost of the shares.
X seeks exception in that the contract is one of sale, and the obligation of the
parties is reciprocal and dependent on one another. Rule and Explain.
YES, no matter how the party refer to it, it is considered subscription
Once you subscribe, you become a stockholder which is entitled to all the liabilities of
a stockholder. The acquiring stockholder is much bound to pay the debt owing to the
corporation. Unpaid subscriptions will be a debt owing to the corporation.

7. A subscribed 100,000 shares valued at 1M. He paid 500,000, so he has a balance

of 500,000. The Corporation is in dire need of money for the operation of its business
so the BOD decided to make a call for the unpaid portion of the subscription of A.
The Corporation has debts amounting to 10M, and in order to raise funds to pay the
indebtedness, they made a call for the unpaid portion of the subscription of SH
including A. It specified the date when it should be paid. A did not pay, A's 100,000
shares are now delinquent and the BOD can now sell these shares at a Public
Auction subject to publication. There is an additional cost of 5,000. So you now have
505,000. There are no bidders, no bidder appeared.
A. May the Corporation bid?
No, the corporation may bid subject to the provisions of this Code. This is acquisition
of its own shares and as a rule, a corporation cannot generally reacquire its own
shares if it has no Unrestricted Retained Earnings. The corporation cannot bid. It
must have unrestricted retained earnings as a General Rule.
B. IF THE CORPORATION CANNOT BID BECAUSE IT HAS NO UNRESTRICTED
RETAINED EARNINGS, IS THE CORPORATION NOW LEFT WITHOUT
RECOURSE TO ENFORCE PAYMENT OF THE UNPAID SUBSCRIPTION OF A?
No. It can go for a Direct Action in Court.
8. A's shares are delinquent, he is a director of the corporation. Pending the sale of
his shares, is he still qualified to be a director?
Ownership of shares of stocks standing in his name in the books of the corporation is
the qualification in order that one may be a director. Will he lose his right to be a
director?
No, until and unless all his shares are bid out and sold to the winning bidder, he
remains the owner of the shares of stock. It is still registered in his name in the
books of the corporation. Therefore, he remains as a stockholder, and even if it
may be sold at public auction, he can still continue acting as the director.
9. Pending the issuance of the replacement certificate, the owner of a lost certificate
of stock may validly transfer his shares by a mere notarized deed
False, if a certificate of stock has been issued a mere notarized deed will not suffice.
It must be coupled with endorsement and delivery of stock certificate.

10. A transferee of a certificate of stock in a non-stock corporation, if they are

transferable by virtue of a by-law provision, has the same right, power and authority
to compel the corporation to register the said transfer in the corporate books in his
name, in order that he may be considered as a shareholder, in the same manner that
the transferee of a certificate of stock in a stock corporation may do so.
TRUE

11. Certificate of stock are merely quasi-negotiable but non-negotiable (3pts)

Certificate of stock is quasi negotiable because it maybe transferred by endorsement
coupled with delivery thereof. It is nonetheless non-negotiable in the sense that the
transferee takes it without prejudice to all the rights and defenses which the
true and lawful owner may have except insofar as the principles governing
estoppel may apply.

12. Explain the following statements:

1. Subscriptions to shares of stock of a corporation are indivisible.
2. Certificates of stock are merely quasi-negotiable and are non-negotiable.

1. No certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest an expenses (in case of delinquent shares), if
any is due, has been paid. (sec. 64)

2. While it may be transferred by endorsement coupled with delivery, and

therefore merely quasi-negotiable, it is non-negotiable in the sense that the
transferee takes it without prejudice to all the rights and defenses which the true
and lawful owner may have except in so far as the principles governing estoppels
may apply. (Tan v. SEC)

13. Popeye subscribed to shares of stock and paid it. He did not however register it.
On February 14, 2000, he assigned said shares of stock to his girlfriend Olive
through a duly notarized deed. Olive asked the corporate secretary to register it but
she refused to do so. So olive filed mandamus. The corporate secretary filed a
motion to dismiss contending that there is no cause of action because there is no
proper party.
A. Decide the case.
B. What if it was transferred to Olive through a pledge where it was provided
that in case of failure to pay, Popeye was authorized to foreclose said
mortgage, will mandamus lie?

1. Duty of the secretary to record transfer is ministerial hence, mandamus will lie
if the secretary refuses to record the transfer (Rural Bank of Salinas v. CA). But
the secretary cannot be compelled when the transferee’s title to the said shares
has no prima facie validity or is uncertain. In order that a writ of mandamus may
issue, it is essential that the person petitioning for the same has a clear legal right
to the thing demanded. It neither confers powers nor imposes duties and is never
issued in doubtful cases. It is simply a command to exercise a power already
possessed and to perform a duty already imposed. (Tay v. CA)

The duly notarized deed must be endorsed and delivered by the owner thereof, their
attorney-in-fact or any other legally authorized person. In the absence of
endorsement and delivery, it is still valid between the parties but does not make the
transfer effective (Rural Bank of Lipa City, Inc. v. CA).
As it appears, there is nothing in the facts of the case which proves that there was
delivery or endorsement hence, the transfer is not binding upon the corporation.
Olive then has no clear right to the title of Popeye's shares of stock as far as the
corporation is concerned. In effect, the corporate secretary cannot be compelled to
register the transfer through mandamus.
 2. No, Olive did not acquire ownership of the shares by virtue of the contract of
pledge. There is no showing that petitioner made any attempt to foreclose or sell
the shares through public or private auction, as stipulated in the contracts of
pledge and as required by Article 2112 of the Civil Code. Therefore, ownership of
the shares could not have passed to her. The pledgor (Popeye) remains the
owner during the pendency of the pledge and prior to foreclosure and sale as
expressly stated in Art. 2103 of the same Code. (Tay v. CA)

ENFORCEMENT OF PAYMENT OF SUBSCRIPTION

1. The winning bidder in a delinquency sale is the highest bidder

False, the winning bidder is the lowest bidder from the wordings of statute. The
bidder who tenders to pay the full amount of delinquency plus cost and expenses for
the least number of shares.

2. If declared delinquent, what would be the effect as to the owner of said

shares?
The delinquent stock shall not be voted for or be entitled to vote or to representation.
The holder shall not be entitled to any rights of a stockholder except the right to
dividends (Sec. 71). However if the shares are not delinquent, subscribers to the
capital of a corporation, though not fully paid, are entitled to all the rights of a
stockholder (Sec. 72).

3. A corporation paid 50% of subscription and was later on declared delinquent

when he could not pay upon call; A is also a director of the corporation. Will A,
upon declaration of delinquency, still be able to exercise his right as a director?
Yes, he loses all his right as a stockholder except his right to receive dividends (Sec.
71). He remains to be a director, only qualification to be a director is he must own at
least 1 share and since it still stands in his name pending the sale, he remains to be
and act as a director. Even if there is sale, he may still be director because the
winning bidder may not bid or pay for all the shares for there might be remaining
shares which would be credited in favor of the delinquent stockholder (Sec. 43).

4. When will the replacement certificate be issued?

After the expiration of one (1) year from the date of the last publication (Sec. 73)
Could it be issued earlier than 1 year?
Yes it can be. When the registered owner files a bond or other security, a new
certificate may be issued even before the expiration of the 1 year period. (Sec. 73)
May corporate officers be held liable for the unauthorized issuance?
Yes, in case of fraud, bad faith, or negligence (Sec. 73, last par.)

5. Certificate of stock was lost, the owner transfers his shares by way of a notarized
deed. Will it be valid?
He cannot do so. If there is an issued certificate of stock by the corporation, a mere
notarized deed will not suffice. Deed of assignment was not sufficient since there was
no endorsement (Rural Bank of Lipa, Inc. v. CA).

6. A stockholder whose shares are delinquent will

a. Have no voting and dividend rights
b. Have no voting rights at any meeting
c. Have voting and dividend rights
d. Have voting rights but no dividend rights
7. The winning bidder in a delinquency sale is
 a. The bidder who bids for the highest price for the shares of the
delinquent stockholders
b. The bidder who pays or tenders to pay the amount of delinquency plus
cost, expenses and interest, if any, for the most number of shares
c. The bidder who pays or tenders to pay the amount of
delinquency plus cost, expenses and interest, if any, for the least
number of shares
d. The bidder who pays or tenders to pay the full value of shares amount
already paid for by the delinquent stockholder
8. A director whose shares are declared delinquent does not automatically cease to
be a director? True. To be a director, he must own at least 1 share that stand in
his name. Even after sale, he may still be credited to some of the shares and he
only needs 1 to qualify as a director.

9. Explain the effects of declaration of delinquency vis-à-vis the right of the

stockholder:
a. To vote and be voted upon.
The stockholder of delinquent stock shall not have the right to vote or be voted upon
(Sec. 71)
b. To receive cash and stock dividends.
The stockholder of delinquent stock shall have the right to receive cash dividends
which shall first be applied to the unpaid balance on his subscription plus cost and
expenses. With regard to stock dividends, this shall be withheld from the delinquent
stockholder until the unpaid subscription is fully paid (Sec. 43)

10. Subscriptions to shares of stock of a corporation are indivisible.

No certificate of stock shall be issued to a subscriber until the full amount of his
subscription together with interest an expenses (in case of delinquent shares), if
any is due, has been paid. (Sec. 64)

11. A director/stockholder whose shares are declared delinquent is not automatically

disqualified to be and act as director.
In order for one to be and act as a director, Section 23 of the Corporation Code
requires that the director must own at least one (1) share which shall stand in his
name in the books of the corporation. Delinquency does not deprive the director
of ownership of shares. The effects of delinquency are provided in Section 71 of
the Corporation Code.

CHAPTER 11: CORPORATE BOOKS AND RECORDS

1. Remedies of a stockholder who is denied inspection of corporate books:

A. Mandamus
B. Damages either against the corporate or the responsible officer, or
C. Criminal complaint based on Sec 144 of the Code.

2. Is there any defense available that could be raised? By the corporate officers to
justify the refusal?

Yes, if he proves that:

a. the person demanding has improperly used any information secured through
any prior examination of the records or minutes of such corporation or of any
other corporation;
b. He was not acting in good faith or for a legitimate purpose in making his
demand; or
 c. The right is limited or restricted by special law or the law of its creation

CHAPTER 12: MERGER AND CONSOLIDATION

1. The dissolved constituent corporation in a merger should necessarily liquidate its

corporate affairs?
False. Associated Bank v. CA, although there is a liquidation of the absorbed
corporations, there is no winding up of their affairs or liquidation of their assets
because the surviving corporation automatically acquires all their rights,
privileges and powers as well as liabilities.
2. In a case of merger, the employees of the absorbed corporation/dissolved
corporation are automatically absorbed by the absorbing/surviving corporation?
Employees of the absorbed or dissolved corporation are automatically absorbed
by the surviving corporation even in the absence of a resolution to that effect
because it is more in keeping with social justice and full protection to labor.
Nevertheless, the surviving corporation has the right to terminate the employment
of the absorbed employees for a lawful or authorized cause. In the same way, the
absorbed employees have the right to resign, retire or otherwise sever their
employment with the surviving corporation even before or after the merger or
consolidation, subject to existing contractual obligations. (BPI v. BPI Employees
Union)

3. Effects of merger and consolidation:

A. There will be a single corporation. In case of merger, the surviving corporation,
or in case of consolidation, the consolidated corporation.
B. Termination of the corporate existence of the constituent corporations, except
that of the surviving or consolidated corporation.
C. The surviving or the consolidated corporation will possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and
liabilities of a corporation organized under this Code.
D. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and franchise of the constituent corporation, and all
property and all receivables due on whatever account, including the interest of, or
belonging to, or due to its constituents corporation shall be deemed transferred to
and vested in such surviving or consolidated corporation without further act or
deed; and
E. The surviving or consolidated corporation shall be responsible and liable for all
the liabilities and obligations of each of the constituent corporations. The rights of
creditors or liens upon the property of any such constituent corporations shall not
be impaired by such merger or consolidation.

4. The three methods of liquidation and their effects on the 3-year period to liquidate
the corporate affairs:
A. By the Corporation itself through the BOD- the Board will only have 3 years to
finish its task of liquidation, claims for or against the corporation not filed within 3
year period will become unenforceable as there exist no corporate entity against
which they can be enforced.
 B. By Trustee appointed by the corporation- 3 year period will not apply provided
the designation of a trustee is made within the 3-year period.
C. By appointment of a receiver on petition or motu proprio upon the dissolution
of the corporation- the 3-year period will not apply because the dissolved
corporation is substituted by the receiver who may sue or be sued beyond the 3-
year period.
5. Give your comment of the decision of the High Court in Clemente v. CA regarding
a juridical entity, long dissolved (40 years) that did not undertake liquidation and
winding to the effect that:

“The termination of the life of a juridical entity does not by itself cause the extinction
or diminution of rights and liabilities of such entity (citing Gonzales v. Sugar
Regulatory Administration) nor those of its owners and directors. If the three year
period extended life has expired without a trustee or receiver having been expressly
designated by the corporation within that period. The BOD or trustee itself, following
the rationale of SC’s decision in Gelano v. CA may be permitted to so continue as
“trustee” by legal implication to complete the liquidation. Still in the absence of a BOD
or trustees, those having any pecuniary interest in the assets, including not only
the stockholders but likewise the creditors of the corporation, acting for and in
its behalf, might make proper representations with the (proper forum), which
has primary and sufficiently board jurisdiction in matters of this nature, for working
out a final settlement of the corporate concern.” (5pts)

6. The dissolved constituent corporation in a merger should necessarily liquidate its

corporate affairs.
False. Although there is a liquidation of the absorbed corporations, there is no
winding up of their affairs or liquidation of their assets because the surviving
corporation automatically acquires all their rights, privileges and powers as well
as liabilities (Associated Bank v. CA)

7. All corporations dissolved necessarily undertake liquidation and winding up of their

corporate affairs.
False. In mergers, although there is a liquidation of the absorbed corporations,
there is no winding up of their affairs or liquidation of their assets because the
surviving corporation automatically acquires all their rights, privileges and powers
as well as liabilities (Associated Bank v. CA)

8. When do merger and consolidation become effective? What if the SEC fails to act
on it without fault attributable to the corporation involved?
It will never become valid until and unless the SEC gives its stamp of approval. It
will be up to the constituent corporation to follow it up. It will never take effect
until the SEC gives its approval and issues the articles of merger

9. Three methods of liquidation and their effects on the 3 year period to liquidate the
corporate affairs.
A. By the corporation it through the Board of Directors or the governing boards.

Effects:
A. Claims for/against the corporation not filed within 3 yrs. will become
unenforceable.
B. Actions pending for or against the corporation when the 3 yr. period
expires are abated.
C. By a trustee or by an assignee appointed by the corporation
 Effects:
A. The 3 yr. period will not apply provided that the designation of the
trustee is made within that period.
B. A dissolved corporation is still liable for all its debts, liabilities in an
action filed against it, even if the case is filed beyond the 3 yr. period. (It
may be sued even beyond the 3 yr. period)
By appointment of a receiver.
Effects:
A. 3 yr. period will not apply because the dissolved corporation is
substituted by the receiver who may sue or be sued even after that
period.

CHAPTER 13: APPRAISAL RIGHT

1. What is appraisal right?

Right to withdraw from the corporation and demand payment of the fair value of
his shares after dissenting from certain corporate acts involving fundamental
changes in corporate structure (Sec. 81)

2. Enumerate three (3) specific instances when this right may be exercised?
A. In case any amendment to the articles of incorporation has the effect of
changing or restricting the rights of any stockholder or class of shares, or of
authorizing preferences in any respect superior to those of outstanding shares of
any class, or of extending or shortening the term of corporate existence;
B. In case of sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and assets as
provided in the Code; and
C. In case of merger or consolidation.

3. In the amendment in the by-laws, appraisal right is available

4. The fair market value of the shares of a stockholder exercising his appraisal right
should be determined on the date
a. Of the meeting where he interposed his objection
b. Of receipt of his written demand that he paid the value of his shares
c. Prior to the meeting where the matter was taken up
d. Of the payment of his shares
5. Amendment:
Principal office - from QC to Manila
Primary purpose - from general construction to realty
A objected but outvoted
Can he exercise his appraisal right?
For the principal office - No, it must be changing or restricting the rights of any
stockholders
For the primary purpose - Yes, as provided for in Sec. 42 [Subject to the provision of
this Code, a private corporation may invest its fund in any other corporation or
business or for any purpose other than the primary purpose for which it was
organized xxx Any dissenting stockholder shall have the option to exercise his
appraisal right]
If the legs of A were amputated, will the change of PO give him the right to an
appraisal right?
If the reason is that he cannot attend meeting, such reason cannot be used because
a meeting may be held anywhere in Metro Manila. However, if the proper forum
allows him, A may exercise such right. If the proper forum does not allow him, A may
not exercise it.
NOTE: In case of close corporation, A may exercise his appraisal right for any reason
and compel the purchase of his shares at fair value when there is sufficient assets
(Sec. 105)
6. When will the FMV of the objecting stockholder be determined? Will it be on the
date that he made the objection in the meeting? Will it be on the date when he made
a written demand that he be paid the fair value of his share? Or will it be on the date
when he is actually paid the fair value of his share?
The day prior to the date of the meeting where he interposed his objection (Sec. 82,
first par.)
If the FMV is P5M
When should the objecting stockholder be paid the fair value of his share or
the P5M?
Within 30 days
What would be the effect if the stockholder exercises his appraisal rights?
What happens to his voting and dividend rights if he exercises his appraisal
rights?
It will be suspended with a limitation of 30 days (Sec. 83)
What happens if he is not paid the FMV of his shares within the period
provided for in the law?
It will be restored (supra.)
May a stockholder who has not paid his subscription in full exercise his
appraisal right?
Yes, he can exercise his appraisal right, by reconciling the provisions of Sections. 72,
82 and 86. The corporation will however demand the surrender of the stock
certificate and if it is not submitted within 10 days from demand, he will cease to be
paid the value of his shares at the option of the corporation.
So why should the corporation then demand the surrender of the stock
certificate when no certificate has not yet been given?
It is only at the option of the corporation
7. The primary purpose of the corporation was changed from general construction to
realty. A objected but was outvoted. On the 30th day from the date of the meeting, he
made a written demand that he paid the fair value of his share. It was agreed that the
FMV of his share is P5M. But when he made the written demand, the corporation has
no more fund. A was not paid. His dividend and voting rights were restored. A year
and a half later, the corporation made 100M earnings.
May the corporation now pay A his 5M and later declare the entire 95M as cash
dividend to his exclusion?
Yes, as there was no consent of the corporation, the demand made is deemed
withdrawn (Sec. 84). Thus, all rights accruing to his shares, including voting and
dividend rights, are suspended except his right to receive payment of 5M (Sec. 83).
Once the right is exercised, it remains forever. When he withdraws his demand for
payment and the corporation consents thereto, the right of a dissenting stockholder
to be paid the fair value of his shares ceases. In this case, it was not mentioned that
he made a withdrawal and even if he may have withdrawn, the corporation must give
its consent.
8. What are the instances when the right of a dissenting stockholder to be paid the
fair value of his shares ceases?
a. When he withdraws his demand for payment and the corporation consents
thereto;
b. When the proposed action is abandoned or rescinded by the corporation;
c. When the proposed action is disapproved by the SEC where such approval is
necessary;
d. When the SEC determines that he is not entitled to exercise his appraisal
right;
e. When he fails to submit the stock certificate within ten (10) days from demand
to the corporation for notation that such shares are dissenting shares; and,
f. If the shares are transferred and the certificate subsequently canceled.

Who bears the cost?

It depends.
a. The corporation bears the cost if:
 a) The price offered by the corporation is lower than the fair value of
the shares of the dissenting stockholder as determined by the
appraisers; or
b) Where an action is filed by the dissenting stockholder to recover such
fair value and the refusal of the stockholder to receive payment is
found by the court to be justified.
b. Dissenting stockholder will be liable for the cost and expenses of appraisal
when:
a) When the price offered by the corporation is approximately the
same as the fair value ascertained by the appraisers; or
b) Where the action filed by the dissenting stockholder and his refusal to
accept payment is found by the court to be unjustified.
May the dissenting stockholder sell, transfer or assign his shares? Yes, as
provided for in Sec. 86

9. No stockholder may be able to compel the corporation to pay the value of his
shares if the corporation has no unrestricted retained earnings
False, a stockholder of a close corporation may for any reason, provided only
that the corporation has sufficient assets to cover its debts and liabilities

10. In amendment of the by-laws, appraisal right is available.

False, it is available only if the amendment has the effect of changing or
restricting the rights of any stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding shares of any class,
or of extending or shortening the term of corporate existence (Sec. 81[1])

CHAPTER 14: NON STOCK CORPORATION

1. Cumulative voting is generally not allowed in a Non-stock corporation?
True, members are only entitled to only one vote, unless allowed by the articles
of incorporation or by-laws (Sec. 89)

2. A transferee of a certificate of stock in a non-stock corporation, if they are

transferable by virtue of a by-law provision, has the same right, power and authority
to compel the corporation to register the said transfer in the corporate books in his
name, in order that he may be considered as a shareholder, in the same manner that
the transferee of a certificate of stock in a stock corporation may do so.
True (Sec. 87, last par.), the provision governing stock corporation, when
pertinent, shall be applicable to non-stock corporations, except as may be
covered by specific provisions of this Title.

3. Distinguish between voting rights of stockholders in a stock corporation and

members in a non-stock corporation.
Except as provided for in the Code, the voting right of stockholders is inherent
and they may vote the way they please. Thus, stockholders may vote personally,
or by representative or proxy or by voting trust agreement, executor,
administrator, receiver or other legal representative appointed by the court (Secs.
55, 58 and 59).
 On the other hand, in Non-stock Corporation, the voting rights of members may
be limited, broadened, or denied by the by-laws (Sec. 89, first par.)

4. Non-stock corporation with P4B funds. May it be distributed for and among its
members?
General rule: No, it can only be transferred or conveyed to one or more corporations,
societies or organizations engaged in activities in the Philippines substantially similar
to those of the dissolving corporation (Sec. 94[3])
Exception: If there is no distributive agreement, then the corporation may do so thru
a plan of distribution in accordance with the procedures laid down in Sec. 95

5. Place of meeting:
General rule: In the city or municipality where its PO is located (Sec. 93; Sec. 51)
Exception: The by-law may provide that meetings be held anywhere in the
Philippines, provided proper notice is sent to all members (Sec. 93)
6. All educational corporations must have a governing board of only either 5, 10 or 15
members.
False, only educational institutions organized as non-stock corporations must
have such number of governing board. Those organized as Stock Corporation
may be within 5 to 15.

CHAPTER 15: CLOSE CORPORATION

1. Explain “The right of a stockholder to compel the corporation to pay the value of
his shares is broader in a close corporation”.
A. Close Corporation – may withdraw and compel the corporation to purchase his
shares for any reason with the limitation that the corporation has sufficient assets
to cover its liabilities exclusive of capital stocks.
B. Ordinary Corporation – unless he sells his shares, a stockholder cannot get
back his investment nor compel the corporation to buy his shares except in the
exercise of his appraisal right.

2. Explain “in cases of deadlocks in a close corporation, the courts can interfere in
the management of the corporate affairs”.
The court has a wide discretion in the management of the corporation in cases of
deadlocks. The court can interfere because the directors/stockholders are so
divided respecting the management of the corporations business and
affairs. The votes required for any corporate action cannot be obtained. As
a consequence, the business and affairs of the corporation can no longer be
conducted to the advantage of the stockholders. The “business judgment rule”
cannot be applied here.

3. If not denied by a provision in AOI, the pre-emptive right of a corporation is

absolute.
 The statement is correct, why? Because under Sec. 102, the pre-emptive right of
a close corporation shall extend to all stock to be issued, including reissuance of
treasury shares, whether for money, property, or personal services, or in payment
of corporate debts, unless AOI provide otherwise.

4. A close corporation may validly provide in its AOI or by-laws that

a. Cumulative voting shall be denied to the stockholders
b. Proxy voting shall be denied to the stockholders
c. Quorum and voting requirements in stockholders’ meeting imposed by the
code shall be more than that required by law
d. Meetings of stockholders may be held anywhere in the Philippines

5. Assume that 3 of the 5-man member board reconstituted the AOI falsely adding
new purposes not originally included thereat such as lumber concession, cattle
ranch, mining and agriculture, thereby misapplying and misusing corporate funds and
assets. May a stockholder file a dissolution proceedings against the corporation?
Why or why not? (3pts)

No. Dissolution of the corporation is warranted only when the acts of the
directors constitute or threaten a substantial injury to the public or such as to
amount to a violation of the fundamental conditions of its charter, or its
conduct is characterized by obduracy or pertinacity in contempt of law.

c.) If a case is instituted and you were the Judge, will you grant the prayer for
dissolution? Why or why not? (3pts)
No.

d.) Will your answer be the same if the corporation is a close one? Why or why not?
(3pts)

No my answer will not be the same if the corporation is a close one. Even
mere dishonesty, any act that maybe detrimental to any of the stockholder or
corporation itself is a ground for dissolution in a close corporation.

6. What are the requisites of a close corporation?

A. All the corporation's issued stock of all classes, exclusive of treasury shares,
shall be held of record by not more than a specified number of persons, not
exceeding twenty (20);
B. All the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and
C. The corporation shall not list in any stock exchange or make any public
offering of any of its stock of any class.
7. What if 2/3 of the outstanding capital stock is owned by another corporation which
is also a close corporation, will it be a close corporation?
No, it will only be a close corporation if 2/3 of the voting stocks of a close corporation
is also owned by a close corporation. Stated otherwise, even if another corporation
owns or controls 2/3 of the voting stocks of a close corporation, the latter may still be
considered as such close corporation if the corporation owning or controlling the
shares is also a close corporation. (Sec. 96, first par.)
8. Grounds for involuntary dissolution provided for in the Code.
 A. Violation of any provision of the Code (Sec. 144);
B. In case of deadlock in a close corporation (Sec. 105);
C. In a close corporation, any acts of directors, officers or those in control of
the corporation which is illegal or fraudulent or dishonest or oppressive or
unfairly prejudicial to the corporation or any stockholder or whenever
corporate assets are being misapplied or wasted (supra.)

CHAPTER 16: SPECIAL CORPORATION

1. All educational corporations must have a governing board of only either 5, 10 or 15

members.
False, only educational institutions organized as non-stock corporations must
have such number of governing board. Those organized as Stock Corporation
may be within 5 to 15.
2. Who manages educational corporations?
General rule: its Board of Directors which must consist of Filipino citizens (Art. XIV,
Sec. 4[4], 1987 Constitution)
Exception: (a) religious order; (b) mission boards; and (c) charitable organizations

3. Is a corporation sole required to file the articles of incorporation in the SEC?

Yes (Sec. 112, second par.)
Is it required to indicate its terms of execution?
No, because a corporation sole is supposed to exist in perpetuity. However, it does
not mean that it shall continue to exist forever, it merely means that it has the
capacity of continuous existence during a particular period until dissolved in
accordance with law.
When will a corporation sole acquire juridical personality?
From and after filing with the SEC of its articles of incorporation along with other
documents required by Sec. 112. Hence, approval of SEC is not required.
Does a corporation sole have the same power, rights and privileges to acquire and
alienate properties just like any other corporations?
Yes, except the power to sell or mortgage real property which must first secured with
a court order to that effect in the absence of manner or method of holding or
alienating properties as provided for in the rules and regulations of the religious
corporation concerned (Sec. 113)
Since a corporation sole is consist of only one person, will the registration of the
property in the name of the corporation sole vest unto the head thereof the ownership
of the property?
No, it will not vest unto the head, the head is acting merely as a guardian. Ownership
devolves upon the congregation or religious denomination (Roman Catholic Apostolic
Adm. of Davao, Inc. v. Land Registration Comm., et. al.)
A corporation sole may validly sell/transfer its old van for purposes of acquiring a new
one without court intervention
TRUE, In case of personal property, intervention of courts shall not be necessary.

4. All religious corporations commence to exist and are vested with juridical
personality upon filing of the Articles of Incorporation with SEC.
False. Corporation Sole commences to exist and are vested with juridical
personality upon filing of the AOI with the SEC. Religious societies however
acquire juridical personality upon issuance of the Certificate of Registration with
the SEC.

CHAPTER 17: DISSOLUTION

1. What is dissolution?
It is the extinguishment of the corporate franchise and the termination of
corporate existence.
General Rule: When a corporation is dissolved, it ceases to be a juridical entity
and can no longer pursue the business for which it is incorporated.
Exception: The Corporation will continue as a body corporate for another period
of 3 years from the time it is dissolved for the purpose of winding up its affairs
and the liquidation of its assets.

2. Three modes of dissolution:

A. By the expiration of the corporate term;
B. By voluntary surrender of its primary franchise (voluntary dissolution); or
C. By the revocation of its corporate franchise (involuntary dissolution).

3. Assume that 3 of the 5-man member board reconstituted the AOI falsely adding
new purposes not originally included thereat such as lumber concession, cattle
ranch, mining and agriculture, thereby misapplying and misusing corporate funds and
assets. May a stockholder file a dissolution proceedings against the corporation?
Why or why not? (3pts)

No. Dissolution of the corporation is warranted only when the acts of the
directors constitute or threaten a substantial injury to the public or such as to
amount to a violation of the fundamental conditions of its charter, or its
conduct is characterized by obduracy or pertinacity in contempt of law.

4. Involuntary dissolution
NOTE:Since dissolution is tantamount to imposition of death penalty, relief of
dissolution will only be awarded if there is no other remedy available and it will not be
allowed where the rights of the stockholders can be, or are, protected in some other
way (Republic v. Bisaya Land Trans. Co. Inc.)
5. May a court initiate dissolution of a corporation on its own?
Yes, involuntary dissolution is commenced through (a) verified complaint or (b) motu
proprio
6. What are the grounds for involuntary dissolution?
a. Those provided for in Sec. 6, PD 902-A
b. Those provided for in other special laws
c. Corporation Code:
a) Violation of any provision (Sec. 144)
b) In case of deadlock in a close corporation (Sec. 105)
c) In a close corporation, any acts of directors, officers or those in control
of the corporation which is illegal or fraudulent or dishonest or
oppressive or unfairly prejudicial to the corporation or any stockholder
or whenever corporate assets are being misapplied or wasted (supra.)

7. Who has jurisdiction to hear dissolution cases?

The courts and SEC have concurrent jurisdiction through the Special Commercial
Courts (Sec. 5[m], RA 8799)

8. May a corporation ask for dissolution of the corporation when there is no prejudice
to the general public?
Yes, in a close corporation, a petition for the dissolution of the corporation may be
instituted by any one individual shareholder on the ground even by mere dishonesty
NOTE: With the inclusion of the word "dishonest" in Sec. 105, it follows that mere
dishonesty is a ground in a close corporation.

9. Can minority stockholders dissolve a corporation?

General rule: No, they cannot use and demand its dissolution
Exception: Yes, if they were unable to obtain redress and protection of their rights
within the corporation (Financing Corp. of the Philippines v. Teodoro)

10. Methods of liquidation:

a. By the corporation itself through the Board of Directors
b. By a trustee appointed by the corporation
c. By appointment of a receiver

By the corporation itself through the Board of Directors

If this method is resorted to, the board will only have a period of 3 years to finish its
task of liquidation. Claims for or against the corporate entity not filed within the period
will become unenforceable as there exist no corporate entity against which they can
be enforced. Actions pending for or against the corporation when the 3 year period
expires, are abated since after the period, the corporation ceases for all intents and
purposes and is no longer capable of suing or being sued.
 By a trustee appointed by the corporation
If this method is used, the three year period limitation imposed by section 122 will not
apply provided the designation of the trustee is made within that period.
Should the corporation, therefore, finds it difficult to finish its liquidation, it may, at any
time during the three year period, convey all its assets and receivables to a trustee to
prosecute and defend suits by or against the corporation begun before the expiration
of said period (National Abaca other Fibers Co. v. Pore)
The counsel who prosecuted and defended the interest of the corporation may be
considered as a “trustee” at least with respect to the matter in litigation only (Gelano
v. CA)
By appointment of a receiver
A receiver may be appointed by the proper forum on petition or motu proprio upon
the dissolution of the corporation. If a receiver is appointed, the 3-year period fixed by
law within which to complete the task of liquidation will not likewise apply because
the dissolved corporation is substituted by the receiver who may sue or be sued even
after that period.
When a corporation is dissolved and the liquidation of the assets is placed in the
hands of receiver or assignee, the period of 3 years prescribed by law is not
applicable and the assignee may institute all actions leading to the liquidation of the
corporation even after the expiration of 3 years (Sumera v. Valencia)
If there is a trustee, assignee or liquidator, it can continue prosecuting suit even
beyond the 3 year period fixed by law because he becomes the legal owner of the
rights, assets and properties conveyed to him (Board of Liquidators v. Kalaw)

11. May a corporation that is already dissolved, transfer and assign its assets and
properties to a new corporation which will continue the business of the dissolved
one?
Yes, provided all the stockholders gave their consent (Chung Ka Bio v. IAC)

During the three year period granted to a corporation to liquidate or wind up its
affairs, the BOD is not normally permitted to undertake any activity outside the usual
liquidation of the corporation. There is, however, nothing to prevent the stockholders
from conveying their respective shareholdings toward the creation of a new
corporation to continue the business of the old. This is because winding up is the
sole activity of the dissolved corporation that does not intend to incorporate a new. If
it does, however, it is not unlawful for the old board of directors to negotiate and
transfer the assets of the dissolved corporation to the new corporation intended to be
created as long as the stockholders have given their consent (Republic v. Marsman
Development Company). Winding up is the sole activity of a dissolved corporation
that does not intend to incorporate anew. If it does, however, it is not unlawful for the
old board of directors to negotiate and transfer the assets of the dissolved
corporation to the new corporation intended to be created as long as the
stockholders have given their consent (Chung Ka Bio v. IAC)
 CHAPTER 18: FOREIGN CORPORATION
1. Grounds for revocation of license (Foreign Corporation)
A. Failure to file its annual report or pay any fees as required by the Code;
B. Failure to appoint and maintain a resident agent in the Phils;
C. Failure, after change its resident agent or if his address, to submit to the SEC
a statement of such change;
D. Failure to submit to the SEC an authenticated copy of any amendment to its
articles of incorporation or by‐ laws or if any articles of merger or consolidation
within the time prescribe by the code.
E. Misrepresentation of any material matter in any application, report, affidavit or
other document submitted;
F. Failure to pay any and all taxes, impost, assessment or penalties, if any, lawful
due to the Phil Government or any of its agencies or political subdivisions;
G. Transacting business in the Phils. outside of the purpose for which such
corporation is authorized under its license;
H. Transacting business in the Phils. as agent of or acting for and in behalf of any
foreign corporation or entity not duly licensed to do business in the Phils;
I. Any other grounds as would render it unfit to transact business in the Phils.

2. Requirements and procedure for the withdrawal of Foreign Corporations:

A. Filing of a petition for withdrawal of license;
B. All claims which accrued in the Phils. have been paid, compromise or settled;
C. All taxes, imposts, assessment and penalties, if any, lawfully due to the
Philippine Government or any of its agencies or political subdivisions have been
paid;
D. Publication of the petition for withdrawal once a week for 3 consecutive weeks
in a newspaper of general circulation in the Philippines; and
E. Issuance of certificate of withdrawal by the SEC.

3. Instances when a Foreign Corporation w/ no license to do business in the

Philippines can sue:
A. The act or transaction involved is an “isolated transaction;” (Bulakhidas vs.
Navarro);
B. The foreign corporation is not seeking to enforce any legal or contractual rights
arising from, or growing out of any business which it has transacted in the
Philippines;
C. The purpose of the suit is to protect its trademark, trade name, reputation or
goodwill. (Western Equipment and Supply Co. vs. Reyes);
D. The suit is based on violation of the RPC; (Lechemise Lacoste vs. Fernandez);
E. The foreign corporation is merely defending a suit filed against it. (Time, Inc.
vs. Reyes);
F. The party is estopped to challenge the personality of the corporation by
entering into a contract with it. (Communication Materials and Design, Inc vs.CA)

4. The appointment of a distributor/representative in the Philippines made by a

foreign corporation necessarily results to doing/transacting business in the country
 False, the foreign corporation is not doing business in the Philippines if the
representative is an independent entity acting in his own name for in its account
not for account of foreign corporation.