corpo syllabus

7/31/2019 Corpo Syllabus

1/8

II. Other corporations

(1) Close corporations

Close corporation is a special kind of stock corporation in which the

stock is held in a few hands, or in few families and which stock is notall or only rarely dealt in buying and selling.

(a) Characteristics of a close corporation

i. Stockholders may act as directors without the need of

election and therefore are liable as directors;

ii. Stockholders who are involved in the management of thecorporation are liable in the same manner as directors are;

iii. Quorum may be greater than mere majority;

iv. Transfers of stocks to others, which would increase the

number of stockholders to more than the maximum are

invalid;

v. Corporate actuations may be binding even without a formal

board meeting, if the stockholder had knowledge or ratified

the informal action of the others;

vi. Pre-emptive right extends to all stock issues;

vii. Deadlocks in board are settled by the SEC, on the written

petition by any stockholder; and

viii. Stockholder may withdraw and avail of his right of appraisal.

(b) Validity of restrictions on transfer of shares

Section 98 imposes two conditions for the validity of restrictions

on the right to transfer shares, namely:

i. Such restrictions must appear in the articles of incorporation

and in the certificate of stock; otherwise, they shall not be

binding on any purchaser thereof in good faith; and


2/8

ii. They shall not be more onerous than granting the existing

stockholders or the corporation the option to purchase the

shares of the transferring stockholders with such reasonable

terms, conditions or period stated therein. Thus, a restriction

fixing the purchase price very much below the fair market

value of the shares may be invalid. Also invalid is a

prohibition against transfer of stock without the prior consent

of the board of directors or of the other stockholders.

(c) Issuance or transfer of stock in breach of qualifying conditions

Sec. 99. Issuance or transfer of stock of a close corporation in

breach of qualifying conditions.-

1. If stock of a close corporation is issued or transferred to any

person who is not entitled under any provision of the articles of

incorporation to be a holder of record of stock, and if the

certificate for such stock conspicuously shows the qualifications

of the persons entitled to be holders of record thereof, such

person is conclusively presumed to have notice of the fact of his

ineligibility to be a stockholder.

2. If the articles of incorporation of a close corporation states the

number of persons, not in excess of twenty (20), who are

entitled to be holders of record of its stock, and if the certificate

for such stock conspicuously states such number, and if the

issuance or transfer of stock to any person would cause the

stock to be held by more than such number of persons, the

person to whom such stock is issued or transferred is

conclusively presumed to have notice of this fact.

3. If a stock certificate of any close corporation conspicuously

shows a restriction on transfer of stock of the corporation, the

transferee of the stock is conclusively presumed to have notice

of the fact that he has acquired stock in violation of the

restriction, if such acquisition violates the restriction.

4. Whenever any person to whom stock of a close corporation has

been issued or transferred has, or is conclusively presumed

under this section to have, notice either (i) that he is a person

not eligible to be a holder of stock of the corporation, or (ii) that


3/8

transfer of stock to him would cause the stock of persons

permitted by its articles of incorporation to hold stock of the

corporation, or (iii) that she transfer of stock is in violation of a

restriction on transfer of stock, the corporation may, at its option,

refuse to register the transfer of the stock in the name of the

transferee.

5. The provisions of subsection (4) shall not be applicable if the

transfer of stock, even though otherwise contrary to subsections

(1), (2) or (3), has been consented to by all the stockholders of

the close corporation, or if the close corporation has amended

its articles of incorporation in accordance with this Title.

6. The term transfer, as used in this section, is not limited to a

transfer for value.

7. The provisions of this section do not in any way impair any right

of a transferee regarding any right to rescind the transaction or

to recover under any applicable warranty, express or implied.

(d) When board meeting is unnecessary or improperly held

Section 101 of the Corporation Code provides that an action

of the Board of Directors of a close corporation shall be valid

even if:

i. Before or after such action is taken, written consent

thereto is signed by all directors;

ii. All of the stockholders have actual or implied

knowledge of the action and make no prompt

objection thereto in writing;

iii. The directors are accustomed to take informal actionwith the express or implied acquiescence of all the

stockholders;

iv. All the directors have express or implied knowledge of

the action in question and none of them makes

prompt objection thereto in writing.


4/8

(e) Pre-emptive right

Section 102 of the Corporation Code provides that the pre-

emptive rights of stockholders in close corporations shall extendto all stock to be issued, including re-issuance of treasury

shares, unless the articles of incorporation provide otherwise.

(f) Amendment of articles of incorporation

Sec. 103. Amendment of articles of incorporation. Any

amendment to the articles of incorporation which seeks to

delete or remove any provision required by this Title to be

contained in the articles of incorporation or to reduce a quorumor voting requirement stated in said articles of incorporation

shall not be valid or effective unless approved by the affirmative

vote of at least two-thirds (2/3) of the outstanding capital stock,

whether with or without voting rights, or of such greater

proportion of shares as may be specifically provided in the

articles of incorporation for amending, deleting or removing any

of the aforesaid provisions, at a meeting duly called for the

purpose.

The effect of the amendment is to terminate the status of thecorporation as a close corporation.

(g) Deadlocks

A deadlock situation is defined in Section 104 of the

Corporation Code when the following circumstances are

present:

i. If the directors or stockholders are so dividedrespecting the management of the corporations

business and affairs that the votes required for any

corporate action cannot be obtained; and


5/8

ii. With the consequence that the business and affairs of

the corporation can no longer be conducted to the

advantage of the stockholders generally.

(2) Non-stock corporations

(a) Definition

Anon-stock corporation is where no part of its income is

distributable as dividends to its members, trustees, or officers.

Even if there is a statement of capital stock, for as long as there

is no distribution of retained earnings to its members, the

corporation is non-stock.

(b) Purposes

Sec 88. Purposes. - Non-Stock corporations may be formed or

organized for charitable, religious, educational, professional,

cultural, recreational, fraternal, literary, scientific, social, civic

service, or similar purposes, like trade, industry, agriculture and

like chambers, or any combination thereof, subject to the specialprovisions of this Title governing particular classes of non-stock

corporations.

(c) Treatment of profits

Any profit derived by it from any authorized activity cannot be

distributed as dividends to its members.

Any profit which it may obtain as an incident to its operationsshall, whenever necessary or proper, be used in furtherance of

the purpose or purposes for which it was organized.

(d) Distribution of assets upon dissolution


6/8

Under Section 94 of the Corporation Code, in case of

dissolution of a non-stock corporation, its assets shall be

applied and distributed as follows:

i. All liabilities and obligations of the corporation shall be

paid, satisfied and discharged, or adequate provisionsshall be made therefore;

ii. Assets held by the corporation upon a condition

requiring return, transfer, or conveyance, and which

condition occurs by reason of the dissolution, shall be

returned, transferred or conveyed in accordance with

such requirements;

iii. Assets received and held by the corporation subject

to limitations permitting their use only for charitable,religious, benevolent, education or similar purposes,

but not held upon A condition requiring return, transfer

or conveyance by reason of the dissolution, shall be

transferred or conveyed to one or more corporations,

societies or organization engaged in activities in the

Philippines substantially similar to those of the

dissolving corporation pursuant to an adopted plan of

distribution.

iv. Assets other than those mentioned in the precedingparagraphs, if any, shall be distributed in accordance

with the provisions of the articles of incorporation or

the by-laws, to the extent that the articles of

incorporation or the by-laws determine the distributive

rights of members, or any class of classes of

members, or provide for distribution; and

v. In any other case, assets may be distributed to such

persons, societies, organizations or corporations

whether or not organized for profit, as may bespecified in any adopted plan of distribution.

(3) Religious corporations


7/8

A religious corporation has been defined as a corporation

composed entirely of spiritual persons and which is organized

for the furtherance of a religion or for perpetuating the rights of

the church or for the administration of church or religious work

or property.

(a) Corporation sole

A special form of corporation usually associated with the clergy.

It consists of one person only, and his successors (who will

always be one at a time), in some particular station, who are

incorporated by law in order to give them some legal capacities

and advantages, particularly that of perpetuity, which in their

natural persons they could not have had. In this sense, the king

is a sole corporation; so is a bishop, or deans, distinct from their

several chapters. (Roman Catholic Apostolic Adm. of Davao,

Inc. v. LRC, 102 Phil 596)

i. Nationality

In Roman Catholic Apostolic Administration of Davao, the

Court ruled that for purpose of the nationalization laws ofthe Philippines, a corporation sole, at least that

constituted on behalf of the Roman Catholic Church, is

deemed to have no nationality.

The no nationality ruling on corporation sole has been

applied by the Court to similar juridical persons set-up for

other religious faith in Republic vs. Villanueva and

Republic vs. Iglesia Ni Cristo, the corporation sole

constituted on behalf of the INC were also deemed to

have no nationality.

Corporations sole cannot be considered as aliens

because they have no nationality at all.

ii. Religious societies


8/8

Incorporated by an aggregate of persons.

Under Section 116, any religious society or religious

order, or any diocese, synod, or district organization of

any religious denomination, sect, or church, unless

forbidden by the rules of the latter or by competentauthority may, upon consent and/ or by an affirmative

vote at a meeting called for the purpose, of 2/3 of its

membership, incorporate for the administration or

management of its temporalities, affairs and property.

corpo syllabus

Documents