CORPORATION

STOCKHOLDERS
AND MEMBERS
JASMIN PEJO - BSA 2A
 STOCKHOLDERS
An individual or entity that holds or owns shares in a stock
corporation. Stockholders have ownership interests
represented by their shares and possess rights such as
receiving dividends and voting in corporate matters.

A person may become a stockholder in a corporation by:

1.A contract of subscription with the corporation
2.Purchase of treasury shares from the corporation
3.Purchase or acquisition of shares from existing
stockholders (Ladia 2007, p. 338
citing Ballantine)
 MEMBERS
An individual or entity that is part of a non-stock
corporation. Members do not own shares but have
membership rights as outlined in the corporation's
articles of incorporation and bylaws. These rights may
include voting on corporate affairs and participating
in the governance of the corporation.
 FUNDAMENTAL RIGHTS OF A
STOCKHOLDER
1. Participation in the management of the corporate affairs by exercising their
right to vote and be voted upon either personally or by proxy
2. Right to enter into a voting trust agreement
3. Right to receive dividends and to compel their declaration if warranted
4. Right to transfer shares of stock subject only to reasonable restrictions such
as options and preferences as may be allowed by law inclusive of the right of
the transferee to compel the registration of the transfer in the books of the
corporation
5. Right to be issued a certificate of stock for fully paid-up shares
6. Pre-emptive rights
7. Appraisal right
8. Right to institute derivative suit
 FUNDAMENTAL RIGHTS OF A
STOCKHOLDER
9. Right to recover shares of stock unlawfully sold for delinquency as may be allowed
10. Right to inspect the books of the corporation, subject to limitations
11. Right to be furnished by the most recent financial statements
12. Right to be issued a new stock certificate in lieu of the lost or destroyed one
13. Right to have the corporation dissolved
14. Right to participate in the distribution of the assets of the corporation upon
dissolution
15. Right to petition the SEC to arbitrate in the event of a deadlock, in case of a close
corporation
16. Right to withdraw from a closed corporation for any reason, and compel the
corporation to purchase his shares
 PARTICIPATION IN
MANAGEMENT

PROXY

VOTING TRUST

CASES WHEN STOCKHOLDERS’ ACTION

IS REQUIRED

MANNER OF VOTING
PROXY
 PARTICIPATION IN MANAGEMENT
PROXY

Proxies shall be in writing, signed and filed, by the stockholder

or member, in any form authorized in the bylaws and received
by the corporate secretary within a reasonable time before the
scheduled meeting. Unless otherwise provided in the proxy
form, it shall be valid only for the meeting for which it is
intended. No proxy shall be valid and effective for a period
longer than five (5) years at any one time.
 PARTICIPATION IN MANAGEMENT
PROXY
Requirements for validity of a proxy

1. It shall be in writing in any form authorized in the bylaws;

2. It shall be signed by the stockholder or member;
3. It shall be filed before the scheduled meeting with the corporate secretary;
4. Unless otherwise provided in the proxy, it shall be valid only for the meeting which it
is intended; and
5. No proxy shall be valid and effective for a period longer than 5 years at any one time.

Note:
Directors or trustees cannot attend or vote by proxy at board meetings but there is no
prohibition for them to act as proxies in stockholders' meetings
 PARTICIPATION IN MANAGEMENT
PROXY

Purposes of proxies

1. For convenience.
2. It assures the presence of a quorum.
3. It enables those who do not wish to attend the meeting to protect their
interest.
4. It secures voting control.

Note:
In the above section, there is no limitation as to who may be a proxy.
 PARTICIPATION IN MANAGEMENT
PROXY

The right to vote by proxy may be exercised in any of the following instances:

1. Election of the Board of Directors or Board of Trustees;

2. Voting in case of joint ownership of stock;
3. Voting by trustee under voting trust agreement;
4. Voting by members in non-stock corporation;
5. In cases of pledge or mortgage of shares;
6. In all meetings of stockholders or members; and
7. In all other matters as may be provided in the by-laws.
 PARTICIPATION IN MANAGEMENT
PROXY
Revocation of Proxies

Revocation may be made through:

1. Formal notice;
2. Verbal communication; or
3. Conduct

For example, when the stockholder votes or attends the meeting personally
notwithstanding his appointment of a proxy. In such case, the proxy is deemed
revoked.

Note:
The last proxy given revokes all previous proxies.
VOTING TRUST
 PARTICIPATION IN MANAGEMENT
VOTING TRUST
A voting trust is defined in Ballentine's Law Dictionary as follows: trust
created by an agreement between a group of the stockholders of a
corporation and the trustee or by a group of identical agreements
between individual stockholders and a common trustee, whereby it is
provided that for a term of years, or for a period contingent upon a
certain event, or until the agreement is terminated, control over the
stock owned by such stockholders, either for certain purposes or for
all purposes, is to be lodged in the trustee, either with or without a
reservation to the owners, or persons designated by them, of the
power to direct how such control shall be used.
 PARTICIPATION IN MANAGEMENT
VOTING TRUST
Under section 59 of the Corporation Code (Now Section 58, Revised
Corporation Code), a voting trust agreement may confer upon a trustee not
only the stockholder's voting rights but also other rights pertaining to his
shares xxx. Thus, the traditional concept of a voting trust agreement primarily
intended to single out a stockholder's right to vote from his other rights as
such and made irrevocable for a limited duration may in practice become a
legal device whereby a transfer of the stockholder's shares is effected subject
to the specific provision of the voting trust agreement.

The execution of a voting trust agreement, therefore, may create a dichotomy

between the equitable or beneficial ownership of the corporate shares of
stockholders, on the one hand, and the legal title thereto on the other hand.
 PARTICIPATION IN MANAGEMENT
VOTING TRUST
The law simply provides that a voting trust agreement is an agreement
in writing whereby one or more stockholders of a corporation consent
to transfer his or their shares to a trustee in order to vest in the latter
voting or other rights pertaining to said shares for a period not
exceeding 5 years upon the fulfillment of statutory conditions and
such other terms and conditions specified in the agreement. The 5
year-period may be extended in cases where the voting trust is
executed pursuant to a loan agreement whereby the period is made
contingent upon full payment of the loan.
 PARTICIPATION IN MANAGEMENT
VOTING TRUST
Three Tests of Voting Trust Agreement

However, in order to distinguish a voting trust agreement from proxies and

other voting pools and agreements, it must pass three criteria or tests, namely:

1. that the voting rights of the stock are separated from the other attributes of
ownership;
2. that the voting rights granted are intended to be irrevocable for a definite
period of time; and
3. that the principal purpose of the grant of voting rights is to acquire voting
control of the corporation.
 PARTICIPATION IN MANAGEMENT
VOTING TRUST
Requirements and limitations imposed on Voting Trust Agreement

1. The agreement must be in writing and notarized and specify the terms and conditions thereof;

2. A certified copy of such agreement shall be filed with the corporation and with the Securities and
Exchange Commission; otherwise, said agreement is ineffective and unenforceable;

3. The certificate or certificates of stock covered by the voting trust agreement shall be cancelled
and new ones shall be issued in the name of the trustee or trustees stating that they are issued
pursuant to said agreement;

4. The books of the corporation shall state that the transfer in the name of the trustee or trustees is
made pursuant to said voting trust agreement;
 PARTICIPATION IN MANAGEMENT
VOTING TRUST
5. The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which
shall be transferable in the same manner and with the same effect as certificates of stock;

6. A voting trust agreement shall be entered into for a period not exceeding 5 years at any time.
However, in the case of a voting trust specifically required as a condition in a loan agreement, said
voting trust may be for a period exceeding five (5) years but shall automatically expire upon full
payment of the loan; and

7. No voting trust agreement shall be entered into for purposes of circumventing the laws against
anti-competitive agreements, abuse of dominant position, anti-competitive mergers and
acquisitions, violation of nationality and capital requirements, or for the perpetuation of fraud.

Note:
The voting trustee or trustees may vote by proxy or in any manner authorized under the bylaws
unless the agreement provides otherwise.
 PARTICIPATION IN MANAGEMENT
VOTING TRUST
Powers or Rights of Voting Trustees

1.Shall posses the right to vote and other rights pertaining to the shares so transferred
and registered in his or their names subject to the terms and conditions of and for the
period specified in the agreement.

2.May vote in person or by proxy unless the agreement provides otherwise.

3.The trustee may exercise the rights of inspection of all corporate books and records.

4.The trustee is the legal title holder or owner of the shares so transferred under the
agreement. He is therefore qualified to be a director.
 CASES WHEN
STOCKHOLDERS' ACTION
IS REQUIRED
 PARTICIPATION IN MANAGEMENT
CASES WHEN STOCKHOLDERS’ ACTION
IS REQUIRED

Here are the cases when stockholders' actions are required, along with brief
explanations:

1. Election of Directors – Stockholders vote to elect or re-elect members of the board

who oversee corporate governance.

2. Removal of Directors – Stockholders may vote to remove directors before their term
ends, subject to legal and bylaw provisions.

3. Amendment of Articles of Incorporation – Any changes to the corporate charter

require stockholder approval as they impact fundamental corporate structure.

4. Amendment of Bylaws – Stockholders may approve or propose changes to corporate

bylaws if required by governance rules.
 PARTICIPATION IN MANAGEMENT
CASES WHEN STOCKHOLDERS’ ACTION
IS REQUIRED

5. Approval of Mergers and Acquisitions – Major business combinations, including mergers and
acquisitions, typically need stockholder approval.

6. Sale, Lease, or Disposal of Substantially All Assets – If a corporation plans to sell or transfer significant
assets, stockholders must consent.

7. Corporate Dissolution – The decision to dissolve a company and liquidate its assets requires
stockholder approval.

8. Issuance of Additional Shares – When new shares are issued, especially if they impact ownership
stakes, stockholders may need to approve.

9. Stock Buybacks – The repurchase of shares by the corporation may require stockholder consent,
depending on governance rules.

10. Declaration of Dividends – While often decided by the board, some dividend distributions require
stockholder approval.
 PARTICIPATION IN MANAGEMENT
CASES WHEN STOCKHOLDERS’ ACTION
IS REQUIRED

11. Approval of Executive Compensation Plans – In some cases, stockholders vote on executive salaries and
compensation structures.

12.Approval of Stockholder Proposals – Stockholders can submit proposals for voting, such as governance
changes or social responsibility initiatives.

13. Voting on Significant Corporate Transactions – Major business deals, such as partnerships or joint
ventures, may require stockholder approval.

14. Ratification of Certain Corporate Actions – If the board takes actions that require stockholder
confirmation, such as adopting a poison pill strategy.

15. Filing for Bankruptcy or Restructuring – If a corporation undergoes bankruptcy or financial

restructuring, stockholder approval may be necessary.

16. Stockholder Derivative Actions – Stockholders can initiate legal action on behalf of the corporation
against directors or officers for misconduct.
MANNER OF VOTING
 SECTION 57. Manner of Voting;
Proxies
Stockholders and members may vote in person or proxy in all meetings of stockholders or members

When so authorized in the bylaws or by a majority of the board of directors, the stockholders or members
of corporations may also vote through remote communication or in absentia: Provided, That the votes are
received before the corporation finishes the tally of votes.

A stockholder or member who participates through remote communication or in absentia shall be deemed
present for purposes of quorum.

The corporation shall establish the appropriate requirements and procedures for voting through remote
communication and in absentia, taking into account the company's scale, number of shareholders or
members, structure and other factors consistent with the basic right of corporate suffrage.

Proxies shall be in writing, signed and filed, by the stockholder or member, in any form authorized in the
bylaws and received by the corporate secretary within a reasonable time before the scheduled meeting.
Unless otherwise provided in the proxy form, it shall be valid only for the meeting for which it is intended.
No proxy shall be valid and effective for a period longer than five (5) years at any one time.
 PARTICIPATION IN MANAGEMENT
MANNER OF VOTING

1. In Person: Attending the meeting physically and casting votes directly.

2. By Proxy: Appointing another individual to attend and vote on one's

behalf through a written authorization.

3. Through Remote Communication or In Absentia: Participating and voting

via electronic means, such as videoconferencing, or submitting votes
without physical attendance, when allowed by the corporation's bylaws or
authorized by the board of directors.
 PROPRIETARY
RIGHTS
APPRAISAL RIGHT

RIGHT TO INSPECT

PREEMPTIVE RIGHT

RIGHT TO VOTE

RIGHT TO DIVIDENDS
APPRAISAL RIGHT
 PROPIETARY RIGHTS
APPRAISAL RIGHT

Appraisal right is the right of a dissenting

stockholder to demand payment of the fair value of
their shares when they do not agree with certain
major corporate actions. This right ensures that
minority stockholders are not forced into corporate
decisions that may negatively affect them.
 PROPIETARY RIGHTS
APPRAISAL RIGHT
A stockholder can exercise their appraisal right if they dissent from the
following corporate actions:

1. Amendment of the Articles of Incorporation that alters or restricts their

rights as a stockholder.
2. Merger or consolidation with another corporation.
3. Sale or disposal of all or substantially all corporate assets.
4. Investment in another business or corporation that is not aligned with the
company’s primary purpose.
5. Any other corporate acts that may prejudice the rights of stockholders, as
provided in the company's bylaws or other laws.
 PROPIETARY RIGHTS
APPRAISAL RIGHT

Procedure for Exercising Appraisal Rights

1. Written Demand for Payment (Within 30 Days)

2. Recording of Shares in Corporate Books
3. Negotiation of Fair Market Value
4. Payment of the Fair Value of Shares
5. Stockholder Loses Rights Upon Payment
 PROPIETARY RIGHTS
RIGHT TO INSPECT

The Right to Inspect allows stockholders or

members of a corporation to access corporate
records to ensure transparency, accountability,
and proper governance.
 PROPIETARY RIGHTS
RIGHT TO INSPECT
Who Can Exercise This Right?
Any stockholder of record (meaning their ownership is officially recorded in the
corporate books).

Must own at least 5% of the outstanding capital stock to inspect corporate books
and records (Section 73).

Any stockholder, regardless of the percentage of shares owned, can inspect

financial statements (Section 74).

Any member in good standing (a member who has complied with membership
requirements, such as dues and attendance).
 PROPIETARY RIGHTS
RIGHT TO INSPECT
What records can be inspected?
Corporate books and Records (for those with at least 5% ownership)
Minutes of the meeting
Stock and Transfer Book
Corporate Ledger
Other books of accounts

Financial Statements and Reports (all stockholders)

Income Statement
Balance Sheet
Cash Flows and other reports
 PROPIETARY RIGHTS
RIGHT TO INSPECT
Example:
A stockholder who owns 2% of the company’s shares cannot inspect the
corporate books but can request financial statements. A stockholder with 6%
ownership can inspect both.

Note: Access to these records requires a written request and must be

exercised during business hours at the corporation’s principal office.

Note: Corporations must submit these reports to the SEC and make them
available to stockholders annually.
 PROPIETARY RIGHTS
RIGHT TO INSPECT
Procedure for Exercising the Right to Inspect
1.Submit a Written Request
The stockholder/member must submit a formal written request to the corporate
secretary. The request must specify which records they want to inspect.

2. Inspection During Business Hours

The corporation must allow inspection at its principal office during regular business hours.

3. Right to Copy and Take Extracts

The requesting stockholder/member may take copies of the records.

4. Corporation's Obligation to Provide Access

The corporation must not unreasonably refuse the request.
 PROPIETARY RIGHTS
RIGHT TO INSPECT
Limitations and Restrictions
Improper Use is Prohibited
Inspection must be for a legitimate purpose (e.g., checking
mismanagement or financial issues).
Using the information for unfair competition or harassment is not
allowed.

SEC Can Order Inspection

If the corporation refuses to grant access, the Securities and Exchange
Commission (SEC) may step in and order the corporation to allow
inspection.
 PROPIETARY RIGHTS
RIGHT TO INSPECT
Confidential Information May Be Restricted
The corporation can deny access if the requested documents
contain trade secrets, confidential data, or sensitive business
information.

Penalties for Violating the right to inspect

Fines
Imprisonment (if fraud is involved)
Possible removal from office
PREEMPTIVE RIGHT
 PROPIETARY RIGHTS
PREEMTIVE RIGHT

Preemptive right is the right of existing stockholders

to purchase new shares issued by the corporation
before they are offered to the public or other
investors. This ensures that stockholders can
maintain their percentage of ownership and prevent
dilution of their shares.
 PROPIETARY RIGHTS
PREEMTIVE RIGHT

Under Section 38, stockholders automatically have preemptive

rights to all new shares issued by the corporation, unless:
1. The Articles of Incorporation state otherwise.
2. The stockholders waive their preemptive rights.
3. The shares issued are for employee stock options, payment of
corporate debts, or compliance with laws requiring minimum
public ownership.
 PROPIETARY RIGHTS
PREEMTIVE RIGHT

How Preemptive Rights Work

1. When New Shares Are Issued
If the corporation issues new shares, existing stockholders have the
first option to buy them in proportion to their current ownership.

Example:
A corporation issues 1,000 new shares. A stockholder who owns 10% of
the company is entitled to buy up to 100 shares (10% of the new
issuance).
 PROPIETARY RIGHTS
PREEMTIVE RIGHT

2. Stockholders' Options
Exercise the right – The stockholder purchases the new shares to
maintain their ownership percentage.
Waive the right – If they choose not to buy, the shares can be
offered to the public or other investors.
 PROPIETARY RIGHTS
PREEMTIVE RIGHT
3. Exemptions (When Preemptive Rights Do Not Apply)
Preemptive rights do not cover:
a.Treasury shares (previously issued shares that were repurchased by
the corporation).
b.Shares issued as compensation for corporate debts.
c.Employee stock options granted as incentives.
d.Shares required by law (e.g., public companies needing a certain
percentage of public ownership).
 PROPIETARY RIGHTS
PREEMTIVE RIGHT

Importance of Preemptive Rights

✔ Protects stockholders from ownership dilution – Ensures that a
stockholder’s percentage of ownership does not decrease when new
shares are issued.
✔ Gives stockholders control over corporate decisions – Prevents
outside investors from gaining excessive control.
✔ Allows stockholders to increase their investment – Gives them the
opportunity to buy more shares before outsiders.
RIGHT TO VOTE
 PROPIETARY RIGHTS
RIGHT TO VOTE
The right to vote is a fundamental right of stockholders and members
in a corporation, allowing them to participate in corporate decision-
making, particularly in electing directors, approving major corporate
actions, and amending corporate documents.

Under Sections 49-51, stockholders and members have voting rights

in corporate matters. However, the extent of voting power depends
on the type of shares or membership they hold.
 PROPIETARY RIGHTS
RIGHT TO VOTE
Who Has the Right to Vote?

1. Stockholders of Stock Corporations

Common stockholders generally have the right to vote on all matters.
Preferred stockholders may or may not have voting rights, depending on what is stated
in the Articles of Incorporation.
✔ Each share generally equals one vote, unless otherwise provided in the Articles of
Incorporation.

2. Members of Non-Stock Corporations

Voting rights are based on membership status rather than share ownership.
The Articles of Incorporation or bylaws determine whether each member has one vote or
multiple votes based on certain criteria (e.g., length of membership, contributions).
 PROPIETARY RIGHTS
RIGHT TO VOTE
What Can Stockholders or Members Vote On?

1. Election of Directors or Trustees (Section 23)

Stockholders elect the board of directors in stock corporations.
Members elect the board of trustees in non-stock corporations.

2. Amendments to the Articles of Incorporation and Bylaws (Sections 15 & 47)

Requires approval from at least 2/3 of outstanding capital stock or 2/3 of all
members.

3. Approval of Mergers, Consolidations, or Dissolution (Sections 76 & 80)

Major corporate changes require at least 2/3 vote from stockholders or members.
 PROPIETARY RIGHTS
RIGHT TO VOTE
4. Sale or Disposition of Corporate Assets (Section 39)
Stockholders vote when the corporation sells or disposes of all or substantially all
assets.

5. Declaration of Dividends (Section 42)

Stockholders vote on decisions affecting dividend distributions.

6. Corporate Actions That Affect Stockholder Rights (Sections 80 & 81)

Example: Changes that limit voting rights or ownership percentages.
 PROPIETARY RIGHTS
RIGHT TO VOTE
Types of Voting Methods
1. Straight Voting
A stockholder can cast one vote per share for each director position.

Example: If a stockholder owns 100 shares and there are 5 director positions, they can vote up to 100
votes per position.

2. Cumulative Voting (For Electing Directors, Section 23)

Stockholders can distribute their total votes among multiple candidates or focus all votes on one.

Example: If a stockholder owns 100 shares and there are 5 director positions, they have 500 votes
total (100 x 5) and can:
-Give all 500 votes to one candidate, or
-Distribute votes among different candidates.
 PROPIETARY RIGHTS
RIGHT TO VOTE

3. Proxy Voting (Section 57)

Stockholders can authorize another person (proxy) to vote on their behalf.
This is common when stockholders cannot attend meetings.

4. Remote Voting (E-Voting) (Section 49)

The corporation may allow electronic voting, especially for virtual meetings.
 PROPIETARY RIGHTS
RIGHT TO VOTE
Limitations on the Right to Vote
Preferred Shares may have limited or no voting rights unless otherwise
stated in the Articles of Incorporation.
Shares Held in Treasury Cannot Vote
Treasury shares (shares repurchased by the company) have no voting
rights.
Voting Trusts May Concentrate Voting Power
A group of stockholders may assign their votes to a trustee, giving that
trustee control over certain corporate decisions.
RIGHT TO DIVIDENDS
 PROPIETARY RIGHTS
RIGHT TO DIVIDENDS
The right to dividends is the stockholder’s right to receive a portion of the
corporation’s profits, if and when the Board of Directors declares dividends.
This ensures that stockholders benefit financially from the company’s
earnings.

Under Section 42, corporations may declare dividends only from retained
earnings, and dividends must be approved by the Board of Directors.
However, stockholders have the right to receive dividends if declared, and
the distribution must follow the type of shares they hold.
 PROPIETARY RIGHTS
RIGHT TO DIVIDENDS
Who Has the Right to Receive Dividends?

1. Common Stockholders
✔ Entitled to dividends only after preferred stockholders have been paid.
✔ The amount received depends on the corporation’s profits and how much the
Board decides to distribute.
✔ Dividends may not be guaranteed every year.

2. Preferred Stockholders
✔ Usually have the right to receive dividends first, before common stockholders.
✔ May receive fixed dividends (if specified in the Articles of Incorporation).
✔ However, some preferred shares may be non-participating, meaning they receive
only the fixed amount and do not share in extra profits.
 PROPIETARY RIGHTS
RIGHT TO DIVIDENDS
Conditions for Dividend Declaration
Must be declared by the Board of Directors.
Can only come from unrestricted retained earnings.
Cannot be declared if it will make the company insolvent (unable to pay debts).

Rights of Stockholders Regarding Dividends

✔ Right to Receive Declared Dividends – If the Board declares dividends,
stockholders must be paid.
✔ Right to Equal Treatment – Stockholders of the same class must receive the same
dividend per share.
✔ Right to Sue if Dividends Are Unjustly Withheld – If dividends are declared but not
distributed, stockholders may take legal action.
 REMEDIAL
RIGHTS

INDIVIDUAL SUIT

REPRESENTATIVE SUIT

DERIVATIVE SUIT
INDIVIDUAL SUIT
 REMEDIAL RIGHTS
INDIVIDUAL SUIT

An individual suit (or individual action) is a legal action

filed by a stockholder or member in their personal
capacity against the corporation, its directors, or
officers for a violation of their personal rights as a
stockholder or member.
 REMEDIAL RIGHTS
INDIVIDUAL SUIT
When Can a Stockholder or Member File an Individual Suit?

A stockholder or member may file an individual suit when their personal rights under
the Revised Corporation Code or the corporation’s bylaws have been violated.
Examples include:

1. Violation of Stockholder or Membership Rights

Denial of the right to inspect corporate records (Section 73-74).
Failure to receive declared dividends (Section 42).
Illegal denial of the right to vote (Section 49).
✔ Example:
A stockholder is refused access to the financial statements, even after making a
formal request. They may file an individual suit against the corporation.
 REMEDIAL RIGHTS
INDIVIDUAL SUIT
2. Fraud or Misrepresentation
A director or officer makes false statements to stockholders, leading to financial losses.
A stockholder is misled into buying shares based on fraudulent claims.
✔ Example:
A stockholder invests in a corporation based on fake financial reports. They can sue the
responsible officers for damages.

3. Breach of Contract or Fiduciary Duty

The corporation fails to honor a contract with the stockholder.
A director abuses their position for personal gain, harming the stockholder.
✔ Example:
A company refuses to pay dividends declared by the board. A stockholder can sue for their
rightful share.
 REMEDIAL RIGHTS
INDIVIDUAL SUIT
Possible Remedies and Court Decisions

✔ Monetary damages – The court may order the corporation to pay the
stockholder for losses.
✔ Injunction – The court may order the corporation to stop illegal actions
(e.g., denying voting rights).
✔ Specific performance – The court may require the corporation to fulfill its
obligations (e.g., pay declared dividends).
REPRESENTATIVE
SUIT
 REMEDIAL RIGHTS
REPRESENTATIVE SUIT

A representative suit is a legal action filed by one or more

stockholders or members on behalf of a larger group who
have a common legal interest. It is used when multiple
stockholders or members suffer the same injury and an
individual suit would be impractical.
 REMEDIAL RIGHTS
REPRESENTATIVE SUIT
When Can a Representative Suit Be Filed?

A representative suit can be filed when:

1. Multiple stockholders or members are affected by the same
corporate action.
2. The affected parties cannot reasonably file individual cases.
3. The rights of stockholders or members are at risk of being
violated.
 REMEDIAL RIGHTS
REPRESENTATIVE SUIT
When Can a Representative Suit Be Filed?

A representative suit can be filed when:

1. Multiple stockholders or members are affected by the same
corporate action.
2. The affected parties cannot reasonably file individual cases.
3. The rights of stockholders or members are at risk of being
violated.
 REMEDIAL RIGHTS
REPRESENTATIVE SUIT
Examples of Representative Suits

1. Unfair Treatment of Minority Stockholders

If a corporation denies minority stockholders their voting rights,
they can file a representative suit together.
✔ Example:
A company amends its Articles of Incorporation to remove voting
rights of minority stockholders without their consent. A group of
minority stockholders may file a representative suit.
 REMEDIAL RIGHTS
REPRESENTATIVE SUIT
2. Illegal Corporate Actions Affecting Many Stockholders
If the Board of Directors acts beyond their authority and harms stockholders, affected
stockholders can sue together.
✔ Example:
A corporation issues new shares without offering them to existing stockholders (violating
preemptive rights). Stockholders may file a representative suit to block the sale.

3. Non-Stock Corporation Members Affected by Unlawful Acts

If a non-stock corporation’s leadership violates membership rights (e.g., unfair removal of
members), affected members can sue as a group.
✔ Example:
A religious organization unfairly expels members without due process. The expelled
members can file a representative suit to challenge their removal.
 REMEDIAL RIGHTS
REPRESENTATIVE SUIT

Possible Court Remedies in a Representative Suit

✔ Injunction – The court may stop the corporation from taking illegal action.
✔ Monetary damages – The court may order compensation for stockholders or
members.
✔ Cancellation of corporate actions – If an unfair decision was made, the court
may reverse it.
DERIVATIVE
SUIT
 REMEDIAL RIGHTS
DERIVATIVE SUIT

A derivative suit is a legal action filed by a stockholder on behalf

of the corporation to protect it from wrongdoing committed by
its directors, officers, or third parties. Since the corporation itself
is unable or unwilling to sue, a stockholder takes legal action for
the benefit of the corporation.
 REMEDIAL RIGHTS
DERIVATIVE SUIT
Section 181 states that a derivative suit is allowed when:
1. The corporation has a valid cause of action, but
2. The Board of Directors or officers refuse to take action against
the wrongdoing.

✔ The purpose of a derivative suit is to protect the corporation,

not the individual stockholder.
✔ Any damages awarded go to the corporation, not to the
stockholder who filed the case.
 REMEDIAL RIGHTS
DERIVATIVE SUIT
When Can a Stockholder File a Derivative Suit?

A stockholder may file a derivative suit when:

1. The Board of Directors or officers commit fraud, negligence, or abuse of power.
2. Corporate funds or assets are misused.
3. Directors engage in self-dealing or conflicts of interest.
4. There is corporate mismanagement that harms the company.
5. The corporation has a valid claim but refuses to sue.

✔ Example:
A company director uses corporate funds for personal expens
 REMEDIAL RIGHTS
DERIVATIVE SUIT
Requirements to File a Derivative Suit

To file a derivative suit, the stockholder must:

✔ Be a stockholder at the time of the wrongdoing.
✔ Exhaust all remedies (e.g., formally request the Board to take action).
✔ Prove that the corporation suffered harm due to the directors’
actions.
✔ Sue in good faith for the corporation’s benefit.
 REMEDIAL RIGHTS
DERIVATIVE SUIT
Possible Court Remedies in a Derivative Suit

✔ Return of corporate funds – The court may order directors to repay

misused money.
✔ Injunction – The court may stop directors from engaging in wrongful
acts.
✔ Removal of directors/officers – If proven guilty, they may be
removed from office.
✔ Damages awarded to the corporation – Any compensation is paid to
the corporation, not to the stockholder who filed the case.
OBLIGATIONS OF
A STOCKHOLDER
 OBLIGATIONS OF A STOCKHOLDER
Under the Revised Corporation Code of the Philippines (Republic Act No.
11232), stockholders have the following obligations:

1. Payment of Subscribed Shares – Stockholders must fully pay their

subscribed shares as agreed upon in the subscription contract.

2. Compliance with Corporate Bylaws – Stockholders must adhere to the

corporation’s bylaws, which govern internal operations and stockholder
rights.

3. Participation in Stockholder Meetings – While not mandatory,

stockholders are expected to participate in meetings to exercise their
voting rights and fulfill their role in corporate governance.
 OBLIGATIONS OF A STOCKHOLDER
4. Exercise of Voting Rights Responsibly – Stockholders should vote in
corporate decisions in good faith and in the best interest of the corporation.

5. Avoidance of Conflicts of Interest – Stockholders, particularly those with

influence, should avoid engaging in activities that conflict with the
corporation’s interests.

6. Liability for Unpaid Subscriptions – Stockholders remain liable for any

unpaid portion of their subscribed shares, even if transferred, unless legally
discharged.

7. Observance of Fiduciary Duties – Controlling stockholders must act in good

faith and fairness when making decisions that impact minority stockholders.
 OBLIGATIONS OF A STOCKHOLDER
8. Compliance with Disclosure Requirements – In cases where stockholders
hold significant ownership, they must disclose relevant information as required
by law.

9. Responsibility in Stockholder Derivative Suits – If filing a derivative suit on

behalf of the corporation, stockholders must do so in good faith and for valid
legal reasons.

10. Liability for Corporate Debts in Specific Cases – While stockholders

generally have limited liability, they may be personally liable for corporate
debts in cases of fraud, abuse of corporate personality, or when the
corporate veil is pierced.
 MEETINGS
REGULAR OR SPECIAL

NOTICE OF MEETINGS

PLACE AND TIME OF MEETINGS

QUORUM

MINUTES AND AGENDA

REMOTE COMMUNICATION
REGULAR
MEETINGS
 REGULAR MEETINGS

Section 49 states that regular meetings of stockholders or members

shall be held annually on a date fixed in the bylaws, or if not so fixed
in the bylaws, or if not so fixed, on any date After April 15 of every
year as determined by the board of directors or trustees: Provided,
further, That written notice of regular meetings may be sent to all
stockholders or members of record through electronic mail or such
other manner as the Commission shall allow under its guidelines.
 REGULAR MEETINGS
Purpose of the Meeting

Stockholders' regular meetings are usually conducted to:

1. Elect Directors – Stockholders vote to elect the Board of Directors, which
manages the corporation.

2.Review Financial Statements – The Board presents the corporation’s

financial condition.

3.Approve Corporate Actions – Includes amendments to bylaws, mergers,

major investments, or dissolution.

4. Declare Dividends – Stockholders may approve cash or stock dividends

distribution.
 REGULAR MEETINGS

Failure to hold required regular stockholders' or board meetings can lead

to:

1. SEC Penalties
Fines ranging from ₱10,000 to ₱100,000
Show-cause order requiring explanation
Suspension or revocation of corporate registration for repeated violations

2. Liability of Directors and Officers

Fines or disqualification from corporate positions
Personal liability for damages if stockholders suffer financial harm
 REGULAR MEETINGS

3. Stockholder Remedies
Petition the SEC or court to compel a meeting (if holding at least 10% of
shares)
File a derivative suit against negligent directors

4. Compliance Issues
Late filings with the SEC or BIR
Risk of losing investor confidence and business opportunities

Bottom line:
Regular meetings are mandatory, and failure to comply can result in fines,
legal action, and even corporate dissolution.
 SPECIAL
MEETINGS
 SPECIAL MEETINGS
Special meetings are different from regular meetings because they are
called for urgent or specific matters that cannot wait until the next
regular stockholders’ meeting. These are governed by Section 49 of the
Revised Corporation Code of the Philippines.

Stockholders' or members' meetings, whether regular or special, shall be

held in the city or municipality where the principal office of the
corporation is located, and if practicable in the principal office of the
corporation.

Metro Manila is considered a city or municipality.

A non-stock corporation may provide in its by-laws for any place within
the Philippines
 SPECIAL MEETINGS

Who Can Call a Special Meeting?

A special stockholders' meeting may be called by:

1. The Board of Directors (BOD) – The board can initiate a special meeting
when necessary.

2. Stockholders Holding at Least 20% of Outstanding Shares – If

stockholders owning at least 20% of the total voting shares request a
special meeting, the corporation is required to hold one.
 SPECIAL MEETINGS
Purpose of a Special Stockholders' Meeting

Special meetings focus on urgent corporate matters, such as:

1. Approval of Corporate Actions – Mergers, acquisitions, or major business
changes.

2. Amendments to the Articles of Incorporation or Bylaws – Stockholders

must vote on proposed changes.

3. Capital Restructuring – Changes in authorized capital stock or issuance

of new shares.
 SPECIAL MEETINGS

4. Corporate Dissolution – Decision to dissolve the company.

5. Removal of Directors or Officers – If justified under the law.

6. Other Matters Requiring Immediate Stockholder Approval – Any

issue that cannot wait until the next regular meeting.
 SPECIAL MEETINGS
Failure to hold a special stockholders’ meeting when required can
lead to:

1. SEC Penalties
Fines from ₱10,000 to ₱100,000 or more
Possible suspension or revocation of corporate registration for
repeated violations

2. Liability of Directors and Officers

Administrative sanctions or disqualification from corporate
positions
Personal liability if damages result from failure to hold the
meeting
 SPECIAL MEETINGS
3. Stockholder Remedies
Petition the SEC or court to compel a meeting (if stockholders own at
least 20% of shares)
File a derivative suit if directors refuse to act on urgent corporate
matters

4. Operational and Legal Risks

Delays in decision-making on mergers, amendments, or major
transactions
Potential legal disputes and loss of investor confidence

Bottom line: Special meetings are legally required when properly

requested, and failure to comply can result in SEC penalties, lawsuits, and
corporate sanctions.
NOTICE
 NOTICE

It generally refers to the formal communication or

notification given to stockholders, directors, or
other corporate stakeholders regarding meetings,
corporate actions, or other significant matters.
 NOTICE
Regular Notice Requirement:
Must be sent at least 21 days before the meeting.
Delivered personally, by mail, or electronically (if
consented).

Special Notice Requirement:

Must be sent at least 1 week (7 days) before the
meeting.
Delivered personally, by mail, or electronically (if
consented).
Must state the purpose of the meeting.
 NOTICE
Each notice of meeting shall further be accompanied by the following (Sec.
50)

(a) The agenda for the meeting;

(b) A proxy which shall be submitted to the corporate secretary within a

reasonable time prior to the meeting;

(c) When attendance, participation, and voting are allowed by remote

communication or in absentia, the requirements and procedures to be
followed when a stockholder or member elects either option; and

(d) When the meeting is for the election of directors or trustees, the
requirements and procedure for nomination and election.
PLACE AND TIME
OF MEETINGS
 PLACE AND TIME OF MEETINGS
Stock Corporations Regular and Special Meetings (Section 49)

Place:
Must be held in the principal office of the corporation as stated in the
bylaws.
Can be held elsewhere if allowed in the bylaws or approved by
stockholders.

Time:
Regular meetings: Date and time set in the bylaws.
Special meetings: Set by the board of directors or those authorized to
call the meeting.
 PLACE AND TIME OF MEETINGS
Place and Time of Members’ Meetings (Non-Stock Corporations)

Regular and Special Meetings (Section 50)

Place:
Must be held in the principal office or another location within the
Philippines as provided in the bylaws.
Cannot be held outside the country.

Time:
Regular meetings: Date and time set in the bylaws.
Special meetings: Set by the board of trustees or those authorized to
call the meeting.
QUOROM
 QUORUM

The quorum is the minimum number of stockholders

(stock corporations) or members (non-stock
corporations) required to hold a valid meeting and
make decisions.
 QUORUM

Quorum for Stockholders’ Meeting

Definition:
A quorum is majority of the outstanding capital stock, unless the
bylaws require a higher percentage. Shares must be entitled to vote
to be counted.

Special Cases:
For decisions requiring higher approval (e.g., amending bylaws,
dissolution, merger), the law or bylaws may require a higher quorum.
 QUORUM
Quorum for Members’ Meetings
Definition:
A quorum is majority of the members entitled to vote, unless the
bylaws state a different requirement.

Special Cases:
If voting is based on membership, quorum is majority of members
present.
If voting is based on capital contributions, quorum follows the same
rules as stock corporations.
MINUTES AND
AGENDA
 MINUTES AND AGENDA

Minutes of the meeting

Meetings of stockholders (stock corporations) and

members (non-stock corporations) must follow an
agenda and have properly recorded minutes as required
by law.
 MINUTES AND AGENDA
The minutes of all meetings must set forth in detail the
following:
1. time and place of holding the meeting
2. how authorized
3. the notice given
4. whether the meeting was regular or special; if special,
its object
5. those present and absent
6. every act done or ordered done at the meeting
 MINUTES AND AGENDA
Upon demand of any director, trustee, stockholder or
member, the following must be noted in the minutes:
7. time when any director, trustee, stockholder or member
entered or left the meeting
8. yeas and nays
9. protest on any action or proposed action
Minutes of meetings are subject to inspection by any
director, trustee, stockholder or member of the
corporation at reasonable hours on business days and a
copy of excerpts of said records may be demanded.
 REMOTE
COMMUNICATION
 REMOTE COMMUNICATION

The Revised Corporation Code (R.A. 11232)

allows the use of remote communication and
absentee voting in meetings of stockholders
(stock corporations) and members (non-
stock corporations).
 REMOTE COMMUNICATION
Remote Communication in Meetings

Stockholders and members may participate in meetings

through remote communication such as video
conferencing, teleconferencing, or other electronic
means.
Proxy voting is also allowed via remote or electronic
means.
The method must be secure, reliable, and verifiable to
ensure identity and integrity.
 REMOTE COMMUNICATION
Voting via Remote Communication Stockholders (Stock
Corporations) – Section 49

Can vote in person, by proxy, or through remote communication.

If voting remotely, the system must allow secure authentication of
the stockholder's identity.

Members (Non-Stock Corporations) – Section 50

Members can participate and vote remotely if allowed by the

bylaws.
The voting system must ensure accuracy, security, and
confidentiality.
 REMOTE COMMUNICATION
Requirements for Remote Meetings

The corporation’s bylaws must authorize remote

participation.
The company must have a secure and verifiable
electronic system for attendance and voting.
Stockholders/members must be notified in
advance of the meeting and how to participate
remotely.
THANK
YOU FOR
LISTENING