PARTNERSHIPS

AND
CORPORATIONS
Atty. Amado R. Villegas, Jr.
FEU / Bats CPAR
 Partnerships and Corporations ARV

Common types of business organizations

(1) Sole Proprietorship
(2) Partnerships
(3) Corporations

Other kinds -
 Partnerships and Corporations ARV

Partnership - by the contract of partnership two or more

persons bind themselves to contribute money, property
or industry to a common fund with the intention of
dividing the profits among themselves (Art. 1767, NCC)
Corporation – is an artificial being created by operation of
law, having the right of succession and the powers,
attributes and properties expressly authorized by law or
incident to its existence (Sec. 2, BP 68)
 Partnerships and Corporations ARV

Distinctions
Partnerships v. Corporations
General v. Limited Partnerships
Universal P. v. Particular
UP of All present prop v. UP of profits
Stock corp. v. Non-Stock corp.
Open corp. v. Close corp
 Partnerships and Corporations ARV

Delectus personarum / Delectus personae –

- literally, choice of the person

- Nobody can become a member of the partnership

without the consent of all the partners.
 Partnerships and Corporations ARV

Characteristics of Partnership
(1) Consensual
(2) Nominate
(3) Bilateral or multilateral
(4) Onerous
(5) Commutative
(6) Principal
(7) Preparatory
 Partnerships and Corporations ARV

Essential features / Elements of Partnership

(1) There must be a valid contract
(2) Legal capacity to enter into a contract
(3) Mutual contribution of money, property or industry
to a common fund
(4) Lawful object
(5) Intention to divide profits and losses
 Partnerships and Corporations ARV

2 kinds of persons
(1) Natural person
(2) Juridical person

Concept of juridical personality

Doctrine of Corporation Fiction
 Partnerships and Corporations ARV

Who may become partners?

- natural person
- partnership may enter into another partnership

Can a corporation enter into a partnership?

Exception -
 Partnerships and Corporations ARV

Rules to determine the existence of partnership

 Persons not partners to each other
 No partnership in co-ownership or co-possession
 No partnership in sharing of gross returns
 Receipt of share in the profits (only prima facie evidence)
except
a. as debt by installment
b. as wages of an employee or rent to a landlord
c. as annuity to a widow
d. as interest on a loan
e. as the consideration for the sale of a goodwill of a business
 Partnerships and Corporations ARV

Partnership v. Conjugal partnership of

Gains
Partnership v. Co-ownership
Partnership v. Voluntary Associations
Partnerships v. Corporations
 Partnerships and Corporations ARV

Effects of Unlawful partnership (unlawful object or

purpose)
 It is void ab initio
 Profits shall be confiscated in favor of the
government
 Instruments or tools and proceeds of the crime
shall also be forfeited
 Contributions of the partners shall not be
confiscated unless…
 Partnerships and Corporations ARV

Form of partnership
G.R. – no form is required by law
Exceptions –
(1) more than one year
(2) limited partnership
(3) immovable property was contributed
form and effect of non-compliance
 Partnerships and Corporations ARV

Partnership with capital of P3,000 or more

Requirements
(1) public instrument
(2) registered with SEC

Effect of non-compliance -
 Partnerships and Corporations ARV

Acquisition or conveyance of partnership

property – only in the name of the
partnership

Secret partnerships without juridical personality

 Partnerships and Corporations ARV

Universal v. Particular
General v. Limited
Partnership at will v. Partnership with a fixed
term
De Jure v. De Facto
Ordinary/ Real v. Partnership by
Estoppel/Ostensible
Secret v. Open/Notorious
Partnerships and Corporations ARV

Capitalist v. Industrial
General v. Limited
Managing v. Liquidated
Continuing v. Surviving
Ostensible v. Secret
Silent v. Dormant
Original v. Incoming
Real v. Partner by estoppel
 Partnerships and Corporations ARV

Universal Partnership of All Present Property v.

Universal Partnership of Profits

What is contributed?
What is transferred to the partnership?
Things not allowed to be contributed
 Partnerships and Corporations ARV

In case of doubt –

General or Limited

UP of All Present Prop or UP of Profits

 Partnerships and Corporations ARV

Persons who are prohibited from forming a

universal partnership
- Art. 87 Family Code (1)
- Art. 739 NCC (3)

Effect - VOID
Can husband and wife create a partnership?
 Partnerships and Corporations ARV

Particular Partnership has for its object –

 determinate things
 their use or fruits
 specific undertaking
 exercise of a profession or vocation
 Partnerships and Corporations ARV

When does a partnership begin?

Continuation of partnership beyond fixed term

- presumption
- rights and duties of partners in a partnership at will
 Partnerships and Corporations ARV

Obligations with respect to contribution of property

 contribute the money, property or industry
 answer for eviction
 answer for the fruits
 preserve the property with diligence of good
father of a family
 indemnify for any damage
 Partnerships and Corporations ARV

Effect of failure to contribute – automatically a

debtor of the partnership

Remedy of the partners – Action for Specific

Performance with damages
 Partnerships and Corporations ARV

Inventory v. Appraisal

What kind of property?

Effect of non-compliance?
Who will determine/comply?

In a corporation, is inventory required?

Who will determine the valuation of the property if it is
used for a consideration?
 Partnerships and Corporations ARV

Obligations with respect to contribution of money and

money converted for personal use
 contribute on the date due what he promised
 reimburse the money taken from partnership coffers
 pay the agreed or legal interest
 indemnify the partnership for damages
 Partnerships and Corporations ARV

Industrial Partner v. Capitalist Partner

Business
Same

Different ALLOWED

Exception – express permission - stipulation

Effect of Violation
- exclusion - bring to common fund
- availment of benefits - bear losses alone
with rt to damages
 Partnerships and Corporations ARV

GR – Partners contribute equally

Exception - stipulation

Obligations of the partner to contribute additional capital

GR – imminent loss to the business of the partnership
Exceptions –
(1) not applicable to IP
(2) stipulation of no additional contribution
(3) partner is insolvent
 Partnerships and Corporations ARV

Obligation of MP who collects debt

GR – IF RECEIPT in the name of –
MP - PROPORTIONATELY
partnership - fully applied to partnership credit
Exceptions –
(1) NOT the managing partner
(2) NOT yet due
(3) personal credit more onerous to him
 Partnerships and Corporations ARV

Obligation of Partner who receives share of the

partnership credit

If the debtor should later become insolvent,

BRING to the partnership capital what he
received even though he may have given
receipt for his share only
 Partnerships and Corporations ARV

Compensation of damages with profits earned

for partnership by guilty partner – NOT
allowed
Exception – if unusual profits have been realized, court
may equitably lessen
 Partnerships and Corporations ARV

Risk of loss of things contributed –

What is transferred to the partnership?
OWNERSHIP or USE
When was it lost?
BEFORE OR AFTER DELIVERY
What kind of thing was lost?
GENERIC or SPECIFIC
 Partnerships and Corporations ARV

Responsibility of partnership to the partners

 refund amounts disbursed by him in behalf of the
partnership
 answer for obligations contracted in good faith in the
interest of the partnership
 answer for risks in consequence of its management
 Partnerships and Corporations ARV

Distribution of Profits and Losses

Profits – stipulation, if none, capital contribution
Losses – stipulation, if none, profit sharing agreement,
if none, capital contribution

Share of the IP
Profits – stipulation, if none, what is just and
equitable
Losses – NOT liable
 Partnerships and Corporations ARV

Can a TP decide the profit and loss sharing of the partners?

GR – NO, parties should
Exception – agreement of the partners

If agreed upon, can the partners question the decision of the

TP?
GR – NO, decision is binding on them
Exception – 1. decision has been executed
2. three month period expired
 Partnerships and Corporations ARV

Can a stipulation exclude one of the partners from

profit or loss sharing?
When did they agree? BEFORE or AFTER the creation of the
partnership

Can one of the partners decide the profit and loss

sharing?
Can the IP be made liable for losses?
Is the IP liable for contractual liability?
 Partnerships and Corporations ARV

Can the MP be removed?

It depends when he was appointed.
If appointed in the Arts of Partnership –IRREVOCABLE,
except for a just and lawful cause and the vote of
the majority of the controlling interest.
If appointed after the creation of the partnership, it is
REVOCABLE.
 Partnerships and Corporations ARV

Powers of two or more MPs whose respective duties

are unspecified
GR – any MP can perform
Exception – in case of tie, majority of MP
Exception to the exception – in case of tie, vote of the
controlling interest
Where unanimity of action stipulated
GR – consent of ALL MP
Exception – imminent danger of grave or irreparable injury
to the partnership
 Partnerships and Corporations ARV

GR – Every partner is an agent of the

partnership (Acts of Administration)

Acts of Ownership / Acts of Strict Dominion /

Alteration – consent of ALL of the partners
 Partnerships and Corporations ARV

Sub-Partner v. Substituted Limited Partner

Rt. to Inspect v. Rt. To Demand Formal Accounting (4

exceptions)

Fiduciary relationship
 Partnerships and Corporations ARV

Property Rights of the partner –

- specific partnership property
- interest in partnership
- participate in the management

What is assignable?
What can be attached by the separate creditor?
 Partnerships and Corporations ARV

Effects of partner’s right in specific partnership

property

- NOT to be possessed, except

- NOT assignable, except
- NOT subject to attachment or execution, except
- NOT subject to legal support
 Partnerships and Corporations ARV

Partner’s interest – profits and surplus

Effect of assignment – NOT a partner

If interest is charged by a separate creditor, it can be
redeemed with:
(1) separate prop. of any one of the partners
(2) partnership prop. with consent of all the
partners
 Partnerships and Corporations ARV

Partnership name
 Effect of inclusion of the name of a TP
 Registration of the name

General Partnership
Limited Partnership
Corporation
 Partnerships and Corporations ARV

Liability for contractual obligations of the partnership

Pro rata and subsidiary

Pro rata – equally or jointly
Subsidiary – subsidiary or secondary
Distinction between liability and loss
Stipulation against liability
Among the partners v. TPs
 Partnerships and Corporations ARV

Conveyance of real property of partnership

Things to consider

- registered in the name of whom (5 instances)

- what is transferred ownership or equitable
interest
- can the partnership recover, GR (Exceptions)
 Partnerships and Corporations ARV

Effect of Admission by a partner (when was it

admitted?)

Notice or knowledge of any partner affecting

partnership affairs
 Partnerships and Corporations ARV

Instances of SOLIDARY liability of the partners

and the partnership to TPs
- quasi-delict or tort committed
- Misapplication of money or property of a
third person
Partnerships and Corporations ARV

Partnership by Estoppel
v.
Partners by Estoppel

When is there partnership liability?

 Partnerships and Corporations ARV

Liability of incoming partner for existing

obligations
- Existing creditors
- subsequent creditors

Preference of partnership creditors in

partnership property
 Partnerships and Corporations ARV

Dissolution, Winding up and Termination

(defined)

Dissolution – Extra-judicial (7) v. Judicial (6)

Loss of specific thing v. generic thing

 Partnerships and Corporations ARV

Effect of dissolution on authority of partner

GR – it terminates all authority of any partner to
act for the partnership
Exceptions –
(1) wind up partnership affairs
(2) complete transactions begun but not
then finished
Effect of A I D in transactions
 Partnerships and Corporations ARV

Partnership is NOT bound by any act of the partner

after dissolution

(1) Unlawful to carry the business

(2) partner becomes insolvent
(3) partner had no authority to wind up
partnership affairs, except – (2)
 Partnerships and Corporations ARV

Effect of Dissolution on partner’s existing liability – it

REMAINS, except

Manner of Winding up (2) v. 3-year Winding up of the

corporation

Persons authorized to wind up (3) v. Liquidation of the

Corporation (3)
 Partnerships and Corporations ARV

Rights of the Partner at the time of dissolution

Without violation v. with violation
Guilty partner v. Innocent partner
Rights of the injured partner where partnership
contract rescinded
1. Rt. of Lien / Retention
2. Rt. to Subrogation
3. Rt. of Indemnification
 Partnerships and Corporations ARV

Assets of the partnership (2)

Rules in settling accounts between partners after
dissolution
- creditors, partner-creditor, partner’s capital, partner’s
profits
In case the partner is insolvent (3)
compared to:
a. Limited Partnership (6)
b. Stock Corporation (3)
c. Non-stock Corporation (5)
 Partnerships and Corporations ARV

Dissolution of partnership by change in membership

Rights of creditors of dissolved partnership which is continued

Rights of retiring or legal representative of deceased partner

when business is continued (2)

Persons liable to render an account (3)

 Partnerships and Corporations ARV

LIMITED PARTNERSHIP (LP)

Characteristic of LP –
✓ compliance with statutory requirements
✓ GPs control the business, NOT LP
✓ no participation in management, except
✓ not personally liable
✓ may ask for the return of their capital
contributions under certain conditions
 Partnerships and Corporations ARV

LIMITED PARTNERSHIP (LP)

Characteristic of LP –
✓ LP not allowed to contribute services
✓ LP not party to proceedings, except
✓ Interest is freely assignable with the effect that all
the rights are acquired
✓ LP’s name not allowed in the firm name, except
✓ LP may engage in any business
✓ LP’S death, etc. does not dissolve
 Partnerships and Corporations ARV

Formal Requirements for LP

(1) Certificate must be signed and sworn to
(2) it must be recorded in SEC

If not complied – General partnership

Partnerships and Corporations ARV

CORPORATION CODE
OF THE PHILIPPINES

BP 68
May 1, 1980
(formerly, Act No. 1459, Corporation Law)
 Partnerships and Corporations ARV

Corporation (defined) – is an artificial being

created by operation of law, having the right
of succession and the powers, attributes
and properties expressly authorized by law
or incident to its existence (Sec. 2)
 Partnerships and Corporations ARV

Attributes of the Corporation

1. It is an artificial being (Juridical Person)

Doctrine of Corporate Fiction
2. It is created by operation of law
3. It has the right of succession;
4. It has only the powers, attributes, and properties expressly
authorized bby law or incident to its existence (Doctrine of
Limited Capacity, Sec. 36).
 Partnerships and Corporations ARV

Classes of corporation
(1) As to number of persons who compose them:
(a) Corporation aggregate – more than one corporator
(b) Corporation sole – one corporator only

(2) As to whether they are for religious purpose or not:

(a) Ecclesiastical corporation – for religious purpose
(b) Lay corporation – other than religion

(3) As to whether they are for charitable purpose or not:

(a) Eleemosynary corporation – for charitable purpose
(b) Civil Corporation – for business or profit
 Partnerships and Corporations ARV

Classes of corporation
(4) As to state or country where they have been created:
(a) Domestic corporation – created under BP 68
(b) Foreign corporation – other than the laws of the Philippines

(5) As to their legal right to corporate existence

(a) De jure – existing in fact and in law
(b) De facto – existing in fact but not in law

(6) As to whether they are open to the public or not

(a) Close corporation – limited to members of the family
(b) Open corporation – open to any person
 Partnerships and Corporations ARV

Classes of corporation
(7) As to their relation to another corporation
(a) Parent or Holding corporation –
(b) Subsidiary corporation –

(8) As to whether they are for public or not

(a) Public corporation – formed for the government of a portion of the State
(b) Private corporation – formed for some private purpose, benefit or end
 Partnerships and Corporations ARV

Corporations created by special laws or charters

(Sec. 4)

Governed primarily – by the special law creating

it
Suppletorily – provisions of Civil Code
 Partnerships and Corporations ARV

Components of a corporation
(1) Corporator
(2) Incorporators
(3) Stockholders
(4) Members
(5) Promoters
(6) Subscribers
(7) Underwriter
 Partnerships and Corporations ARV

Doctrine of Equality of Shares – shares

presumed to be equal in all respects

Trust Fund Doctrine – considers the subscribed capital as

a trust fund for the payment of the debts of the
corporation, to which the creditors can look for
satisfaction.
 Partnerships and Corporations ARV

Classes of shares
(1) Authorized Capital Stock
(2) Subscribed Capital Stock
(3) Outstanding Capital Stock
(4) Paid-up Capital Stock
(5) Unissued Capital Stock
(6) Legal Capital
 Partnerships and Corporations ARV

Capital v. Capital Stock

Capital Stock v. Legal Capital
Capital Stock v. Share of Stock
 Partnerships and Corporations ARV

Classes of shares in general

(1) Par value or No par value
(2) Voting or Non-Voting
(3) Common or Preferred
(4) Promotion share
(5) Share in Escrow
(6) Convertible Stock
(7) Founder’s share (Sec. 7)
(8) Redeemable share (Sec. 8)
(9) Treasury share (Sec. 9)
(10) Over-issued or Spurious Stock
(11) Watered stock (Sec. 65)
 Partnerships and Corporations ARV

Statutory restrictions regarding the issuance of

no par value shares
(1) Banks, trust companies, insurance companies, public utilities and building and
loan associations shall not be permitted to issue no par value shares of stock;
(2) Preferred shares of stock may be issued only with a stated par value;
(3) Shares issued without par value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the corporation or its
creditors in respect thereto;
(4) Shares without par value may not be issued for a consideration less than the value
of P5.00 per share; and
(5) The entire consideration received by the corporation for its no par value shares
shall be treated a capital and shall not be available for distribution as dividends
 Partnerships and Corporations ARV

Limitations regarding the issuance of preferred

shares
(1) Preferred shares can be deprived of voting rights in the
articles of incorporation (still entitled to vote under the
exceptions in Sec. 6);
(2) Preferred shares shall be entitled to preferences in the
distribution of dividends or assets;
(4) Preferred shares may be issued only with a stated par value;
and
(5) BOD may fix the terms and conditions of preferred shares of
stock
 Partnerships and Corporations ARV

Sec. 7 – Founder’s shares – right to be vote and be voted for

a period of 5 years subject to the approval of SEC

Sec. 8 – Redeemable Shares – can be redeemed by the

corporation regardless of the existence of unrestricted retained
earnings

Sec. 9 – Treasury Shares – shares which have been issued and

fully paid for and subsequently reacquired by the corporation
 Partnerships and Corporations ARV

Incorporation and Organization of Private

Corporation
Steps in the creation of a corporation
(1) Promotion
(2) Incorporation
(3) Formal organization and commencement of
business operations
(4) Payment of filing, publication and other fees
(5) Issuance by SEC of Certificate of Incorporation
 Partnerships and Corporations ARV

Qualifications of incorporators (Sec. 10)

1. Natural person
2. Capacity to contract
3. Residents of the Philippines
4. Citizens of the Philippines
5. Owners of or subscribers to at least one share
 Partnerships and Corporations ARV

Minimum capital stock required of stock

corporations (Sec. 12)

 No minimum capital stock requirement

 Equity Rule / Filipino ownership
requirement
 Partnerships and Corporations ARV

Amount of capital stock to be subscribed and

paid for purposes of incorporation (Sec. 13)
25% of the authorized capital stock shall be
subscribed
25% of the subscription must be fully paid
In no case shall the paid-up capital stock be less
than P5,000
 Partnerships and Corporations ARV

Sec. 14 – Contents of articles of Incorporation

Sec. 15 – Form of articles of incorporation

Treasurer’s Affidavit
 Partnerships and Corporations ARV

Name of the corporation

Primary purpose / Secondary Purposes
Place of the corporation
Term of the corporation
Names, nationalities and residences of the
incorporators
Incorporating Directors
 Partnerships and Corporations ARV

Sec. 16 – Amendment of the Articles on Incorporation

Vote required – majority of the BOD plus 2/3 of the vote of the
outstanding capital stock (OCS)

Necessity of the meeting (G.R.) Exception

Limitations on the powers of the corporation to amend
Effectivity of the amendment (G.R.) Exception
 Partnerships and Corporations ARV

Sec. 17 – Grounds when articles of incorporation or

amendment may be rejected or disapproved
1. Not in Form required
2. Illegal purpose
3. Treasurer’s Affidavit is false
4. Percentage requirement not complied
5. No favorable indorsement by the appropriate government
agency
 Partnerships and Corporations ARV

Suspension or revocation of the certificate of

registration of corporations (PD 902-A)
1. Fraud in procuring the certificate of incorporation
2. Serious misrepresentation as to what the corporation can do
3. Refusal to comply with the SEC order
4. Continuous inoperation for a period of at least 5 years
5. Failure to file by-laws within the period required
6. Failure to file the required reports
 Partnerships and Corporations ARV

Sec. 18 – Corporate name

Where do you register? SEC
Requirements –
Limitations upon the use of corporate name -
 Partnerships and Corporations ARV

Sec. 19 - Commencement of corporate

existence

- Issuance of the Certificate of Incorporation

 Partnerships and Corporations ARV

Sec. 20 – De facto corporations

Requisites of a de facto corporations
1. Valid law under which a corporation might be
incorporated
2. Bona fide attempt to organize a corporation
3. Actual user or exercise in good faith of corporate
powers
4. Issuance of Certificate of Incorporation despite non-
compliance with the legal requirements
 Partnerships and Corporations ARV

Direct Attack v. Collateral Attack

Quo Warranto Suit

 Partnerships and Corporations ARV

Sec. 21 – Corporation by Estoppel

- it is neither de jure nor de facto

Liability of persons acting in a corporation by estoppel –

- liable as General partners

 Partnerships and Corporations ARV

Sec. 22 –

Non-Use of Corporate charter – for a period of 2 years

(automatically dissolved)

Continuous Inoperation – for a period of 5 years (suit

must be filed to dissolve
 Partnerships and Corporations ARV

Sec. 23 – Board of Directors (BOD)

Gen. Rule - governing body of the corporation

Exceptions to this rule (5 instances)
– Authorized by the BOD
– Ratification by the BOD
– Executive Committee (Sec. 35)
– Management Contract (Sec. 44)
– Close corporation (Sec. 101)
 Partnerships and Corporations ARV

Qualifications of the BOD

1. Own at least one share
2. The share must be registered in his name
3. He must continuously own the said share
4. Majority of the directors must be residents of
the Philippines
 Partnerships and Corporations ARV

Number of directors
General Rule – not less than 5, not more than 15
Exceptions
1. Non-stock corporations – may be even more than 15
2. Close corporations – managed by the stockholders
3. Trustees of non-stock educ’l corp – not less than 5, nor more than
15 (in multiples of 5)
4. Corporation sole – no BOD (only member)
5. BOT of religious societies – not less than 5, nor more than 15
 Partnerships and Corporations ARV

Term of office
General rule – one year only
Exceptions
1. Non-stock corp – 3 years, 1/3 expiration
2. Trustees of non-stock educ’l corp – 1/5 expiration
 Partnerships and Corporations ARV

Sec. 24 – Election of directors

Limitations
1. Presence of the majority of the OCS
2. By ballot, if requested
3. No delinquent stock shall be voted
4. Presence of the quorum
5. Notice must be given
 Partnerships and Corporations ARV

Methods of voting

1. Straight voting
2. Cumulative voting for one candidate
3. Cumulative voting by distribution
 Partnerships and Corporations ARV

Sec. 25 – Corporate officers and agents

Election – elected by the BOD
Term of office – may be fixed in the by-laws
Positions concurrently held by same person – applies to
President/secretary and president/treasurer
Qualifications
1. President – must be a director
2. Secretary – must be a resident and a citizen of the Phils
 Partnerships and Corporations ARV

Requisites for the board meeting

1. Meeting of the directors (actual)
2. Presence of a quorum
3. Decision of the majority of the quorum
4. Place, time, and manner in the by-laws
 Partnerships and Corporations ARV

Sec. 26 – Report of the election of directors,

trustees and officers
- Within 30 days after the election of the directors, trustees and
officers of the corporation – REPORT TO THE SEC

- Should any of them die, resign, or in any other manner cease

to hold office
 Partnerships and Corporations ARV

Sec. 27 – Disqualification of directors, trustees

or officers
1. If convicted by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years

2. If convicted for a violation of the Corporation Code

committed within 5 years prior to the date of his election
or appointment
 Partnerships and Corporations ARV

Sec. 28 – Removal of directors or trustees

Requisites for the removal of directors or trustees

1. Meeting called for the purpose
2. Previous notice to the stockholders
3. Vote of at least 2/3 of the OCS or 2/3 of the members
 Partnerships and Corporations ARV

Sec. 29 – Vacancies in the office of directors or

trustee
(1) By the stockholders or members
a. removal or expiration of the term
b. other than by removal or expiration, but no quorum
c. other than by removal or expiration, there is a quorum but delegated
d. increase in the number of the directors
(2) By the member of the BOD

- other than by removal or expiration, there is a quorum and they decided NOT
to delegate
 Partnerships and Corporations ARV

Sec. 30 – Compensation of directors

Gen. rule – BOD has no compensation
Exception – if granted by vote of the majority of
the OCS
Limitation – not to exceed 10% of the net income before
the income tax of the corporate during the preceding year

- Directors without authority to grant compensation to themselves

 Partnerships and Corporations ARV

Sec. 31 – Liability of directors, trustees or

officers
Duty of OLD
Gen. rule - NOT liable (Business Judgment Rule)
Exception – liable if:
1. Willfully and knowingly votes or assents to patently unlawful acts of the
corporation
2. Guilty of gross negligence or bad faith in directing the affairs of the
corporation; and
3. Acquires any personal or pecuniary interest in conflict with his duty
 Partnerships and Corporations ARV

Sec. 32 – Dealings of directors, trustees or

officers with the corporation

Concept of the Self-Dealing Directors

3 Requisites for the contract to be valid
3 Conditions to ratify
 Partnerships and Corporations ARV

Sec. 33 – Contracts between corporations with

interlocking directors
Gen. rule - Interlocking Doctrine is valid
Exception – if the requisites in Sec. 32 are violated/absent

Presumption – stockholdings exceeding 20% of the OCS shall be

considered substantial
 Partnerships and Corporations ARV

Sec. 34 – Disloyalty of a director

Corporate Opportunity Doctrine

Ratification – 2/3 of the OCS

 Partnerships and Corporations ARV

Sec. 35 – Executive Committee

Composition – not less than 3 members of the board to be

appointed by the board

Restrictions on the power – 5 instances

 Partnerships and Corporations ARV

Sec. 36 –
Theory of General Capacity
Theory of Special Capacity

Doctrine of Limited Capacity

Express v. Implied v. Incidental

 Partnerships and Corporations ARV

Express Power – are the powers expressly conferred upon the

corporation by law

Implied Power – are those powers which are reasonably

necessary to exercise the express powers and to
accomplish or carry out the purposes for which the
corporation was formed.

Incidental or Inherent Power – are powers which a corporation

can exercise by the mere fact of it being a corporation
 Partnerships and Corporations ARV

Express Powers
1. Power to sue and be sued
2. Power to adopt and use a corporate seal
3. Power to acquire and convey property
4. Power to acquire shares or securities
5. Power to contribute to charity
6. Power to establish pension, retirement and other plans
 Partnerships and Corporations ARV

Sec. 37 – Power to extend or shorten corporate

term
Vote required – majority of the BOD and 2/3 vote of the OCS

Appraisal right of the dissenting stockholders

 Partnerships and Corporations ARV

Sec. 38 – Power to increase or decrease capital

stock

Vote required - majority of the BOD and 2/3 vote of

the OCS

Ways of increasing or decreasing the capital stock

 Partnerships and Corporations ARV

Sec. 39 – Power to deny pre-emptive right

Gen. rule – pre-emptive right is given
Exception – if denied in the Articles of Incorporation any
amendment thereto (vote required)

Shares to which the right is not available (3 exceptions)

 Partnerships and Corporations ARV

Sec. 40 – Sale of other disposition of assets

Vote required - majority of the BOD and 2/3 vote of the OCS

Exception – in case of abandonment (only the vote of the BOD)

Exception to the exception – if Implied power

 Partnerships and Corporations ARV

Sec. 41 – Power to acquire own shares

Instances
1. Eliminate fractional shares
2. Collect or compromise an indebtedness
3. Pay dissenting or withdrawing stockholders
 Partnerships and Corporations ARV

Sec. 42 - Power to invest corporate funds in

another corporation or business or for any
other purpose
Gen. rule – if primary purpose, vote is not required
Exception – if not, majority of the BOD and 2/3 vote of the OCS
Exception to the exception – if implied power
 Partnerships and Corporations ARV

Sec. 43 – Power to declare dividends

Gen. rule – declared by the BOD

Exception – in case of stock dividend, majority
of the BOD and 2/3 vote of the OCS
 Partnerships and Corporations ARV

Sec. 43 –

Gen. rule – It is the prerogative of the BOD to declare dividend

Exception – if in excess of 100% of their paid-in capital stock
Exception to exception – 3 instances wherein the exception does
not apply
 Partnerships and Corporations ARV

Sec. 44 – Power to enter into management

contract
Vote required - Vote of both the majority of the BOD and majority vote of the OCS of
the managing and managed corporations

Exception – if :
1. 1/3 of the OCS of the managing and the managed are the same
2. majority of the BOD of both are the same

Rule – 2/3 of the OCS of the managed corporation

5 year limitation
 Partnerships and Corporations ARV

Sec. 45 – Ultra Vires Act of the Corporation

Intra Vires v. Ultra Vires v. Illegal Act

Ratification if ultra vires – vote required

 Partnerships and Corporations ARV

Sec. 46 – Adoption of by-laws

By-laws – internal rules of the corporation

When do you file it (2 instances)

Who approves it?
When effective?
 Partnerships and Corporations ARV

Sec. 48 – Amendments to by-laws

Gen. rule – majority of the BOD and majority of the

OCS
Exception – if delegated by the stockholders, only 2/3
of the OCS
Exception to Exception – if revoked, vote required to
revoke is majority of the OCS
 Partnerships and Corporations ARV

Secs. 49 – 50
Requisites for a valid meeting
1. Proper place
2. Stated time and date
3. Called by the proper person
4. Previous notice
5. Quorum
 Partnerships and Corporations ARV

Sec. 51 – Place and time of Meetings

Place of meeting of stockholders – principal place of

business
Place of meeting of the BOD – anywhere even outside
the Philippines
N.B. – Metro Manila is considered a city or municipality
 Partnerships and Corporations ARV

Sec. 52 – Quorum in meetings

Stock corporations – majority of the OCS

Non-stock corporations – majority of the members
 Partnerships and Corporations ARV

Sec. 53 – Who presides in the meetings

1. President/Chairman/Vice-chairman
2. Stockholder or member in a temporary capacity
3. Stockholder or member chosen
 Partnerships and Corporations ARV

Sec. 55 – Manner of voting

(1) Directly
(2) Indirectly, through a representative
a. by means of proxy
b. By a trustee under a voting trust agreement
c. by executors, administrators or receivers
 Partnerships and Corporations ARV

Sec. 56 – Voting in case of joint ownership

Gen rule - consent of all co-owners
Exception – one is allowed if:
1. Written proxy
2. Issued in an and/or capacity
 Partnerships and Corporations ARV

Sec. 57 – Voting for treasury shares

- no voting right as long as they remain in the

treasury
 Partnerships and Corporations ARV

Sec. 58 – Proxies
Limitations
1. It must in writing, signed and filed before the
scheduled meeting
2. It is valid only for the meeting intended
3. Continuing proxy will be valid only for a period of 5
years
 Partnerships and Corporations ARV

Sec. 59 – Voting Trust Agreement

Limitations
1. Valid only for a period of 5 years (exception)
2. It must be in writing and notarized
3. It must be filed in the SEC
 Partnerships and Corporations ARV

Sec. 60 – Subscription contract

A person may become a stockholder:
1. By a subscription contract
2. By purchase from treasury shares
3. By transfer from a previous stockholder
 Partnerships and Corporations ARV

Sec. 61 – Pre-incorporation Subscription

General rule – irrevocable for a period of 6 months
Exception –
1. All the subscribers consent to the revocation
2. Fails to materialize within the said period

Exception to the exception – After the articles of incorporation

have been submitted to SEC
 Partnerships and Corporations ARV

Sec. 62 – Consideration for stocks

1. Actual cash
2. Property, actually received and necessary or convenient
3. Labor actually rendered
4. Previously incurred indebtedness by the corporation
5. Amounts transferred from unrestricted retained earnings to
stated capital
6. Outstanding shares exchanged for stocks
 Partnerships and Corporations ARV

Sec. 63 – Certificate of stock and transfer of

share
- It must be signed by the president,
countersigned by the secretary and sealed
with the seal of the corporation
- How do you transfer – Indorsement plus
delivery
 Partnerships and Corporations ARV

Sec. 64 – Issuance of stock certificate

No certificate of stock shall be issued to a

subscriber until the full amount of his subscription
together with interest and expenses has been paid
 Partnerships and Corporations ARV

Rights of the stockholder

1. Management rights
2. Proprietary rights
3. Remedial rights
4. Appraisal rights
5. Inspection rights
 Partnerships and Corporations ARV

Sec. 65 – Liability for watered stock

Acts liable
1. Consenting to the issuance of watered stock
2. Less than the par value thereof
3. Consideration other than cash
4. Valued in excess of its fair value
5. Has knowledge does not forthwith express his objection in
writing
 Partnerships and Corporations ARV

Remedies to enforce payment of stock

subscription
1. Extra-judicial sale at public auction
2. Judicial action
3. Collection from cash dividends and withholding of stock
dividends
 Partnerships and Corporations ARV

Sec. 68 – Delinquency Sale

Sec 71 – Effect of Delinquency

Sec. 72 – Rights of unpaid shares

 Partnerships and Corporations ARV

Books of the corporation

1. Record of all business transactions

2. Minutes of all the meetings of the stockholders
3. Minutes of all the meetings of directors or trustees
4. Stock and transfer book
 Partnerships and Corporations ARV

Sec. 76 – Merger and Consolidation

Merger – A + B = A or B
Consolidation – A + B = C

Vote required – Majority of the BOD and 2/3 of the

OCS of both corporations
 Partnerships and Corporations ARV

Secs. 81 – 86 – Appraisal Right

Appraisal right – right to receive the fair value of his

shares
 Partnerships and Corporations ARV

Non-stock corporations
Characteristics
1. No part of its income is distributable as dividends
2. Each member is entitled only to one vote
3. Voting by mail is allowed
4. Number of trustees shall be not less than 5 but may even be
more than 15
5. Trustees are elected for a term of 3 years
6. Officers may be directly elected by the members
7. Membership shall be terminated in accordance with the by-
laws
 Partnerships and Corporations ARV

Close corporation
Characteristics

1. Stockholders do not exceed 20

2. There are restrictions on transfer of shares
3. Not listed in the stock exchange
 Partnerships and Corporations ARV

Special corporations

1. Educational corporations (stock or non-stock)

2. Religious corporations (corporation sole and
religious societies
 Partnerships and Corporations ARV

Dissolution

1. Voluntary (4 instances)

2. Involuntary (7 instances)
 Partnerships and Corporations ARV

Methods of corporate liquidation

1. Liquidation by the corporation itself

2. Liquidation by a duly appointed receiver
3. Liquidation by trustees
 Partnerships and Corporations ARV

Foreign Corporations

Requirements
1. license to transact business
2. certificate of authority from the appropriate
government agency