Philippine Corporate Law Lecture Review

329 question–answer flashcards covering key concepts from the Philippine Corporate Law lecture, including corporate existence, powers, board governance, shareholder rights, specialized corporations, dissolution, and securities regulation.

What is a corporation according to Philippine law?

An artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incidental to its existence.

What doctrine treats a corporation as a legal person separate from its shareholders?

The Doctrine of Separate Personality, also called the Corporate Entity Theory.

When may the veil of corporate entity be pierced?

When the corporate form is used to defeat public convenience, justify wrong, protect fraud, or defend crime; courts may disregard separate personality for equity and justice.

What is the general rule regarding corporate separate personality?

A corporation has a personality separate and distinct from its stockholders and officers.

Give one example of a situation that can lead courts to disregard corporate personality.

Using the corporation as a mere dummy to escape personal liability, such as transferring assets to avoid paying creditors.

How is a corporation created in the Philippines?

Only by operation of law—through registration with the SEC or by a special law/charter.

When does a domestic corporation’s juridical existence generally begin?

Upon issuance of a Certificate of Incorporation by the SEC.

Name one exception to the rule that a corporation needs a SEC certificate to exist.

Corporations by estoppel, corporations sole, and corporations created by special law can acquire personality without an SEC certificate.

What is a corporation by estoppel?

A group that misrepresents itself as a corporation and is estopped from denying corporate liability toward those who relied on the representation.

Give an example of a corporation created by special law.

PAGCOR, SSS, or PCSO.

What is a corporation sole usually organized for?

For religious purposes, allowing one person holding a religious office to manage church properties.

What is meant by the right of succession in corporate law?

The corporation’s existence and rights continue regardless of changes in shareholder identity or death.

How does right of succession differ between corporations and partnerships?

A corporation survives changes in ownership, whereas a partnership may dissolve upon a partner’s death unless otherwise agreed.

What doctrine limits a corporation’s capacity to what is expressly, impliedly, or incidentally granted?

The Doctrine of Limited Capacity.

List the three classifications of corporate powers.

Express, implied, and incidental powers.

Give two express powers of a corporation found in the RCC.

To sue and be sued, to adopt a corporate seal, to amend articles, to issue shares, etc.

What is an ultra vires act?

An act performed by a corporation beyond its express, implied, or incidental powers.

Are all ultra vires acts automatically illegal?

No; they are merely unauthorized. Only acts that are also illegal in character are automatically void.

What distinguishes stock from non-stock corporations regarding profit distribution?

Stock corporations may distribute surplus profits to shareholders; non-stock corporations are not authorized to do so.

Under the incorporation test, how is a domestic corporation defined?

One created under Philippine laws, regardless of the nationality of its stockholders.

What is a foreign corporation under Philippine law?

A corporation formed, organized, or existing under laws other than those of the Philippines.

State one requirement of a close corporation regarding number of shareholders.

It must have no more than 20 shareholders of any class.

Name a restriction applicable to close corporation shares.

Transfer restrictions must be stated in the AOI, stock certificates, and by-laws.

What is an open corporation?

A corporation formed to admit the public as investors and whose shares may be listed on an exchange.

Differentiate public and private corporations by purpose.

Public corporations are organized for governmental purposes; private corporations are formed for private benefit or business.

What is an ecclesiastical corporation?

A corporation composed exclusively of ecclesiastics organized for spiritual purposes.

What is a corporation aggregate?

A corporation composed of more than one person.

What is a de jure corporation?

One that has fully complied with statutory requirements and enjoys unquestioned legal existence.

What are the three elements of a de facto corporation?

(1) A valid law under which it could incorporate; (2) a bona fide attempt to incorporate; (3) actual use of corporate powers.

What is a corporation by estoppel’s liability status for its members?

Its members are treated as general partners and are personally liable.

What is a direct attack on corporate personality?

A lawsuit in which the corporation’s legal existence is the principal issue, typically via quo warranto.

What is a collateral attack on corporate personality?

Questioning corporate existence incidentally in another case where personality is not the main issue.

During the promotional stage, what is the liability of promoters on contracts they sign?

Promoters are personally liable unless the contract is novated in favor of the future corporation.

Name the document that must be drafted and filed to incorporate a company.

The Articles of Incorporation (AOI).

State two items that must appear in Articles of Incorporation.

Corporate name; primary and secondary purposes; principal office; term; incorporators’ names; capital structure, etc.

Why must primary and secondary purposes be specified in the AOI?

To delineate express powers and determine regulatory requirements.

For venue purposes, what address is considered the corporation’s residence?

Its principal office as stated in the AOI.

How long may a corporation now exist by default under the RCC?

It has perpetual existence unless a specific term is stated.

Within how many years before expiry may a corporation file for term extension?

Not earlier than three years before the original expiry date.

What is a certificate of revival?

An SEC document restoring corporate existence after expiration of its term without the need to reincorporate.

Who are incorporators?

Persons, partnerships, associations, or corporations named in the AOI who originally form the corporation.

What is the minimum number of incorporators allowed today?

Only one, in the case of a One Person Corporation; otherwise two or more.

What shareholding is required of each incorporator?

At least one subscribed share.

What is the maximum number of directors in a stock corporation?

Fifteen directors.

Who are independent directors?

Directors with no material relationship with the corporation aside from minimal share ownership, mandated in corporations vested with public interest.

When are independent directors mandatory?

When the corporation is covered by the Securities Regulation Code or is vested with public interest (e.g., publicly listed, banks, insurance companies).

Give one qualification to be a director under the RCC.

Must own at least one share of stock; must be of legal age.

Name one ground for disqualification of a director.

Final conviction of an offense punishable by imprisonment exceeding six years, or violation of the RCC or SRC.

What constitutes an offense involving moral turpitude for director disqualification?

Crimes contrary to justice, honesty, or good morals, such as fraud or estafa, determined by jurisprudence.

What constitutes quorum for an election of directors?

Presence of stockholders holding a majority of outstanding capital stock entitled to vote.

How may voting be conducted if demanded by a shareholder?

By secret ballot instead of viva-voce.

What is straight voting?

Casting one vote per share for each directorship to be filled.

What is cumulative voting?

Multiplying shares owned by the number of directors to elect and using the total votes to elect one or more candidates.

Is cumulative voting generally allowed in non-stock corporations?

No, unless authorized in the by-laws, because each member normally has only one vote.

What vote is needed to remove a director representing the majority?

Directors not representing minority interests may be removed even without cause by stockholders owning at least two-thirds of outstanding capital.

What vote is needed to remove a director with cause?

Two-thirds of the outstanding capital stock, provided proper notice states removal in the agenda.

Who fills a vacancy caused by a director’s death when the board still has quorum?

The remaining directors, by majority vote, fill the vacancy from among stockholders.

Within how many days must such vacancy be filled?

Within 45 days from the date the vacancy arose.

What is an emergency board?

Temporary directors elected by the remaining board members when vacancies leave no quorum and urgent action is needed to prevent substantial loss.

Give one requirement before an emergency board can act.

Unanimous vote of the remaining directors to elect the emergency directors.

Within how many days must creation of an emergency board be reported to the SEC?

Within three (3) days from creation.

What is the general rule on compensation of directors?

Directors are not entitled to compensation solely for acting as directors.

Name one exception allowing directors to receive compensation.

Reasonable per diem; compensation provided in by-laws; compensation approved by stockholders holding at least majority of outstanding stock; payment for other officer functions.

What is the statutory limit on total annual director compensation?

It may not exceed 10% of the corporation’s net income before tax for that year, exclusive of salaries for other officer functions.

Under the duty of loyalty, what is the corporate opportunity doctrine?

A director must not appropriate a business opportunity that rightfully belongs to the corporation.

How may a director avoid liability under the corporate opportunity doctrine?

Obtain ratification by stockholders owning at least two-thirds of outstanding capital stock.

What is a self-dealing director transaction?

A contract between the corporation and one or more of its directors or their relatives.

What makes a self-dealing transaction valid without ratification?

The director’s presence was not needed for quorum, his vote was not necessary for approval, and the contract is fair and reasonable.

What additional approval is required for self-dealing transactions in public interest corporations?

At least two-thirds of the entire board and a majority of the independent directors must approve.

What is an interlocking director?

A person who is a director in two or more corporations that transact with each other.

When can an interlocking director transaction be voidable?

When the director holds substantial interest (over 20%) in one corporation and only nominal in the other, or if fraud is present.

Who may file a derivative suit?

A shareholder on behalf of the corporation to redress wrongs against it.

What is the injured party in a derivative suit?

The corporation itself; the shareholder sues only in its stead.

What committee can act for the board between meetings?

The Executive Committee.

Name one power the executive committee cannot exercise.

Amending by-laws, declaring cash dividends, filling board vacancies, or acts requiring stockholder approval.

Give two mandatory corporate officers under the RCC.

President (also CEO) and Treasurer (CFO); Secretary is likewise mandatory.

Can one person be both president and secretary?

No, the same individual cannot hold both positions.

Under what condition may the president also be the treasurer in an OPC?

If he posts a bond and signs a written undertaking to faithfully administer corporate funds.

What is watering of stock?

Issuing shares for a consideration less than par or stated value, or for over-valued property or fictitious consideration.

Who are liable for issuing watered par value shares?

The consenting directors and the recipient shareholder are solidarily liable for the difference.

Are shareholders liable for watered no-par shares?

No; no-par shares are deemed fully paid and non-assessable, so only consenting directors are liable.

Define authorized capital stock.

The maximum amount of capital or number of shares a corporation is authorized to issue as stated in the AOI.

Define subscribed capital stock.

Portion of authorized capital that investors have agreed to buy under a subscription contract.

Define paid-up capital.

Amount of subscribed capital that has actually been paid to the corporation.

How is outstanding capital stock computed?

Issued and subscribed shares minus treasury shares; it is the basis for voting and dividends.

What are treasury shares?

Shares that have been issued and fully paid but later reacquired by the corporation.

What distinguishes preferred from common shares regarding dividends?

Preferred shares have priority in dividend distribution and/or liquidation proceeds over common shares.

Why must preferred share preferences appear in the AOI and certificates?

Because preferences are binding only if stated in both the AOI and the stock certificate.

What is a cumulative preferred share?

One entitled to unpaid dividends from prior years before common shareholders receive dividends.

Do preferred shares generally have voting rights?

No, unless such right is expressly granted or in specific situations provided by law.

Name one instance when preferred shareholders gain the right to vote.

On amendments to AOI or by-laws, mergers, disposal of substantially all assets, bonded indebtedness, increase/decrease of capital, or corporate dissolution.

What is a redeemable share?

A share that the corporation may repurchase at a fixed date or upon agreed terms, regardless of unrestricted retained earnings.

Are redeemable shares automatically voting?

No; unless the AOI grants voting rights they are non-voting.

What is a subscription contract?

A contract to purchase unissued shares of a corporation, whether prior to or after incorporation.

For pre-incorporation subscriptions, how long is revocation barred?

Six months from subscription date unless all other subscribers consent or incorporation fails.

What are delinquent shares?

Subscribed shares on which the subscriber failed to pay the amount due within 30 days after the due date or call.

What rights are suspended when shares become delinquent?

Voting, representation, and other stockholder rights except the right to receive dividends (applied to unpaid subscription).

How is the winning bidder determined in a delinquency sale?

The bidder willing to pay the full amount due for the least number of shares.

Who gets remaining shares after a delinquency sale above the bid quantity?

They are credited back to the delinquent stockholder.

What happens if no one bids at a delinquency sale?

All shares become treasury shares in the name of the corporation.