private corporations

7/24/2019 Private Corporations

1/90

PRIVATE CORPORATIONS


2/90


3/90

Claifcation o corporationAs to organizers

Public

Private

By State only

'y private peron

alone or with the

State


4/90

As to functions

Public

Private

Government o

a !ortion o t"eterritory#

(!ally or proft)

*a+ing


5/90

As to governing law

Public

Private

S!ecial $a%&

,aw on Private

Corporation


6/90

AS TO LEGAL STATUS

-E .(RE

Organi$ed in accordance with there/!ire*ent o law%


7/90

-E 0ACTO

Organi$ed with a colorable co*pliancewith the re/!ire*ent o a valid law% Ite#itence cannot be in/!ired collaterally%

S!ch in/!iry *ay be *ade by theSolicitor 1eneral in a /!o warrantoproceeding


8/90

'2 ESTOPPE,

1ro!p o peron that a!*e to acta a corporation +nowing it to bewitho!t a!thority to do o" and enter

into a tranaction with a third peronon the trength o !ch appearance% Itcannot be per*itted to deny it

e#itence in an action !nder aidtranaction% It i neither de 3!re nor deacto%


9/90

'2 PRESCRIPTION

One which ha e#ercied corporatepower or an indefnite period witho!tintererence on the part o the overeign

power%


10/90

As to existence of shares of stock:

Stoc'

Non(

&toc'

A cor!oration

)* %"o&e ca!ital &toc' i& +ivi+e+

into &"are& an+

* %"ic" i& aut"ori-e+ to +i&tribute

to &"are"ol+er& +ivi+en+& or

allotment& o t"e &ur!lu& !ro.t& on

t"e ba&i& o t"e &"are& "el+/

-oe not

i!e

toc+

nor

ditrib!te

dividend

to their

*e*ber

%


11/90

A to relationhip o *anage*ent andcontrol


12/90

4O,-IN1

One which control another a a!bidiary by the power to elect*anage*ent% It i one that hold

toc+ in other co*panie or p!rpoeo control rather than or *ereinvet*ent%


13/90

S('SI-IAR2

One which i o related to anothercorporation that the *a3ority o itdirector can be elected directly or

indirectly by !ch other corporation%


14/90

A00I,IATE

Co*pany which i !b3ect to co**oncontrol o a *other holding co*panyand operated a part o the yte*%


15/90

PARENT AN- S('SI-IAR2

Separate entitie with power tocontract with each other% The board odirector o the parent co*pany

deter*ine it repreentative toattend and vote in the toc+holder5*eeting o it !bidiary% The

toc+holder o the parent co*panyde*and repreentation in the board*eeting o it !bidiary%


16/90

AS TO P,ACE O0 INCORPORATION

Dome&tic

Forei0n

Forme+,

or0ani-e+, or

e1i&tin0 un+erP"ili!!ine

la%&/

0or*ed"

organi$ed" or

e#iting !nderany law other

than thoe o

the Philippine%


17/90

NATIONA,IT2 O0 CORPORATIONS

678 Control tet

-eter*ined by the nationality o thecontrolling toc+holder or *e*ber%

Thi tet i applied in ti*e o war%


18/90

698 1RAN-0AT4ER R(,E

Applied in deter*ining the nationalityo a corporation% It trace thenationality o the toc+holder or

invetor o corporation o a toacertain the nationality o thecorporation where the invet*ent i

*ade%


19/90

The application o the tet i li*ited

however to reolving i!e oninvet*ent% 'y the 0oreign Invet*entAct" the grandather r!le i *erely anancillary r!le to the *ain *ethod o

deter*ining nationality" whereincorporation that are :;< owned by0ilipino are a!to*atically conidered a7;;< 0ilipino)owned% Only when acorporation i le than

:;< owned hall the grandather r!le beapplied%


20/90

E#= >V Corporation and AC

Corporation have e/!alinteret in ?2@ Co*pany% >VCorporation i :;< owned by0ilipino" while AC Corporationi ;< owned by 0ilipino%


21/90

'y the grandather r!le" >V

Corporation wo!ld have a B;ay be i!ed only with a tated par val!e%

d% The board o director *ay f# the ter* and condition onlywhen o a!thori$ed by the article o incorporation and !ch ter*and condition hall be eHective !pon fling a certifcate thereowith the SEC%


43/90

RE-EE>A',E S4ARES

Per*it the i!ing corporation to redee*or p!rchae it own hare% ,i*itation=

a% Redee*able hare *ay be i!ed only when e#prely

provided or in the article o incorporationJ

b% The ter* and condition aHecting aid hare *!t be tatedboth in the article o incorporation and in the certifcate o toc+repreenting !ch hareJ

c% Redee*able hare *ay be deprived o voting right in thearticle o incorporation" !nle otherwie provided in the Code%

Redee*able hare *ay be redee*ed" regardle o thee#itence o !nretricted retained earning 6Sec% G8" provided that thecorporation ha" ater !ch rede*ption" !cient aet in it boo+to cover debt and liabilitie incl!ive o capital toc+%


44/90

TREAS(R2 S4ARES

Share that have been earlier i!ed a !lly paid and have thereaterbeen ac/!ired by the corporation by p!rchae" donation" and rede*ptionor thro!gh o*e law!l *ean% Sec% I p!rchaed ro* toc+holder= The tranaction in eHect i a ret!rn to the toc+holder othe val!e o their invet*ent in the co*pany and a reverion o the hare to the corporation%

The corporation *!t have !rpl! proft with which to b!y the hare o that the tranaction

will not ca!e an i*pair*ent o the capital% I ac/!ired by donation ro* the toc+holder= The act wo!ld a*o!nt to a !rrender otheir toc+ witho!t getting bac+ their invet*ent that are intead" vol!ntarily given to thecorporation%

Trea!ry hare need not be old at par or i!ed val!e b!t *ay be old at the bet priceobtainable" provided it i reaonable% hen trea!ry hare are old below it par or i!edval!e" there can be no watering o toc+ beca!e !ch watering conte*plate an originali!ance o hare%

Trea!ry hare have no voting right a long a they re*ain in trea!ry 6!ncalled and!b3ect to rei!e8% Reaon= A corporation cannot in any proper ene be a toc+holder in iteland e/!al ditrib!tion o voting right will be eHectively lot%

Neither are trea!ry hare entitled to dividend or aet beca!e dividend cannot bedeclared by a corporation to itel%


45/90

0O(N-ERS S4ARE

Share i!ed to organi$er and pro*otero a corporation in conideration o o*e!ppoed right or property%

Share claifed a !ch in the article o incorporationwhich *ay be given pecial preerence in voting rightand dividend pay*ent% '!t i an e#cl!ive right to vote

and be voted or a director i granted" thi privilege i!b3ect to approval by the SEC" and cannot e#ceed year ro* the date o approval%


46/90

VOTIN1 S4ARES

ith a right to vote%


47/90

NON)VOTIN1 S4ARES

itho!t right to vote%The law only a!thori$e the denial o

voting right in the cae o redee*ablehare and preerred hare" providedthat there hall alway be a cla orerie o hare which have co*pletevoting right%


48/90

Thee redee*able and preerred hare" when !chvoting right are denied" hall neverthele be

entitled to vote on the ollowing !nda*ental *atter=a% a*end*ent o Article o Incorporation

b% adoption and a*end*ent o by)lawJ

c% ale or dipoition o all or !btantially all o

corporate propertyJ d% inc!rring" creating or increaing bonded

indebtedneJ

e% increae or decreae o capital toc+

% *erger or conolidation o capital toc+ g% invet*ent o corporate !nd in anothercorporation or another b!ine p!rpoeJ and

h% corporate diol!tion


49/90

ESCRO STOC

-epoited with a third peron to bedelivered to a toc+holder or hi aignater co*plying with certain condition"

!!ally pay*ent o !ll !bcriptionprice%


50/90

OVER)ISS(E- STOC

Stoc+ i!ed in e#ce o the a!thori$edcapital toc+% It i alo +nown a spurioussto#k% It i!ance i conidered n!ll and

void%


51/90

ATERE- STOC

A toc+ i!ed not in e#change or ite/!ivalent either in cah" property" hare"toc+ dividend" or ervice%KaterL in

the toc+ repreent the diHerencebetween the air *ar+et val!e at the ti*eo the i!ance o the toc+ and the par or

i!ed val!e o aid toc+% 'oth par andno par toc+ can th! be watered toc+%


52/90

It incl!de toc+=

a% I!ed witho!t conideration% b% I!ed a !lly paid when thecorporation ha received a leer !*

o *oney than it par or i!ed val!e% c% I!ed or a conideration otherthan act!al cah" the air val!ation o

which i le than it par or i!edval!e%

d% I!ed a toc+ dividend when

there are no !cient retained


53/90

PAR VA,(E S4ARES

ith a val!e f#ed in the certifcate otoc+ and the article o incorporation%


54/90

NO PAR VA,(E S4ARES

4ave no par val!e b!t have i!ed val!e tated inthe certifcate or article o incorporation%

,i*itation= a% No par val!e hare cannot have an i!edprice o le than P%;;J

b% The entire conideration or it i!ance

contit!te capital o that no part o it ho!ld beditrib!ted a dividendJ

c% They cannot be i!ed a preerred toc+J


55/90

d% They cannot be i!ed by ban+" tr!tco*panie" in!rance co*panie" p!blic!tilitie and b!ilding and loan

aociationJ e% The article o incorporation *!ttate the act that it i!ed no par val!e

hare a well a the n!*ber o aidhareJ

% Once i!ed" they are dee*ed !lly

paid and non)aeable% 6Sec% :8


56/90

STREET CERTI0ICATE

Atoc+ certifcate endored by theregitered holder in blan+ and tranereecan co**and it traner to hi na*e

ro* the i!ing corporation


57/90

CONVERTI',E S4ARE

Changeable by the toc+holder ro* onecla to another at a certain price andwithin a certain period%


58/90

0RACTIONA, S4ARE

ith a val!e o le than one 678 !llhare%


59/90

CORPORATE POERS

1eneral power" theory ogeneral capacity

a% To !e and be !ed in it corporate na*eJThi power 6Section B:6788 i an incident to corporate e#itence% 6-e,eon 9;;: at B78

A a r!le" !it are to be bro!ght by or againt the corporation in hiown na*e%

Corporation de acto *ay !e or be !ed b!t a corporation whichha been diolved ater the e#piration o B)year winding)!p periodceae to e#it de 3!re or de acto%


60/90

(nder Sec% B: o Corporation Code" in relation toSec% 9B" where a corporation i an in3!red party"it power to !e i lodged with it 'oard o-irector% A *inority toc+holder who i a*e*ber o the 'oard ha no !ch power ora!thority to !e on the corporation5 behal%6*am +ing *ak v. !akasiar"B; SCRA FM 69;;78JShipside (n#. v. Court o% Appeals" B9 SCRA BBF69;;78J SSS v. CA" BGF SCRA FG 69;;98J UnitedParagon !ining Corp v. CA" 9;;:8


61/90

here the corporation i real party)in)interet"neither ad*initrator or a pro3ect *anager co!ldign the certifcate againt or!*)hopping witho!tbeing d!ly a!thori$ed by reol!tion o the 'oard o

-irector 6)steban, -r. v. da. De norio" B:; SCRA9B; 9;;7Q8" nor the 1eneral >anager who ha noa!thority to intit!te a !it on behal o thecorporation even when the p!rpoe i to protect

corporate aet% 6Central Cooperative )/#hange(n#. v. )n#iso" 7:9 SCRA M;: 7GGQ8%


62/90

hen the power to !e i delegated by the by)lawto a partic!lar ocer" !ch ocer *ay appointco!nel to repreent the corporation in a pre)trialhearing witho!t need o a or*al board reol!tion%

Citiban+" N%A% v% Ch!a" 99; SCRA M 67B8 0or co!nel to ign the certifcation or thecorporation" he *!t pecifcally be a!thori$ed bythe 'oard o -irector% 6BP "easing Corp. v. CA" F7:

SCRA F 69;;B8J !ariveles Shipyard Corp. v. CA" F7SCRA MB 69;;B8" !etro Drug Distribution (n#. v.Nar#iso"69;;: 8


63/90

b/ O &ucce&&ion by it& cor!orate

name or t"e !erio+ o time &tate+in t"e article& o incor!oration an+t"e certi.cate o incor!oration#

c/ To a+o!t an+ u&e o cor!orate&eal#

+/ To amen+ it& Article& oIncor!oration#

e/ To a+o!t it& by(la%& not contraryto la%, moral&, or !ublic !olicy, an+to amen+ or re!eal t"e &ame#


64/90

/ For &toc' cor!oration&6 i&&ue an+ &ell &toc'&

to &ub&criber& an+ trea&ury &toc' or non(&toc' cor!oration&6 a+mit member

0/ To !urc"a&e, receive, ta'e or 0rant, "ol+,convey, &ell, lea&e, !le+0e, mort0a0e an+ +eal%it" real an+ !er&onal !ro!erty, &ecuritie& an+

bon+&

"/ To enter into mer0er or con&oli+ation %it"ot"er cor!oration

i/ To ma'e rea&onable +onation& or !ublic

%elare, "o&!ital, c"aritable, cultural, &cienti.c,civic or &imilar !ur!o&e&, !rovi+e+ t"at no+onation i& 0iven to any 3i* !olitical !arty, 3ii*can+i+ate an+ 3iii* !arti&an !olitical activity/


65/90

7/ To e&tabli&" !en&ion, retirement, an+ ot"er !lan&or t"e bene.t o it& +irector&, tru&tee&, o2cer&

an+ em!loyee an+i/ To e1erci&e ot"er !o%er& e&&ential or nece&&aryto carry out it& !ur!o&e& a& &tate+ in t"e article& oincor!oration/

Sec% B: En!*erate o*e o the e#pre power ocorporation 6*any o which even i not e#prelyprovided or by law wo!ld contit!te i*plied power oevery entity% 6p% MF o C,V5 C,R" 9;;M8

En!*erate 7; power that a corporation en3oy inaddition to the pecial power that *ay be provided or inthe p!rpoe cla!e o the article o incorporation" whichwo!ld alo contit!te e#pre power% 6ibid%" p% M8


66/90

698 SPECI0IC POERS" T4EOR2 O0 SPECI0IC CAPACIT2

6a8 Power to e#tend or horten corporate ter*

Re/!iite=

a% Approved by a *a3ority vote o the board o director or

tr!teeb% Ratifed by at leat two)third 69B8 o the o!ttandingcapital toc+ or by at leat two)third 69B8 o the *e*ber%

c% ritten notice o the propoed action and o the ti*e andplace o the *eeting addreed to each toc+holder or*e*ber at hi place o reidence%

In cae o e#tenion o corporate ter*" any dientingtoc+holder *ay e#ercie hi appraial right% Sec% :M


67/90

6'8 POER TO INCREASE OR -ECREASE

CAPITA, STOC OR INC(R" CREATE"INCREASE 'ON-E- IN-E'TE-NESS

Re/!iite=

a% >a3ority vote o the *e*ber o the 'o-

b% Ratifcation by 9Bvote o the o!ttanding capitaltoc+" in a *eeting d!ly called or that p!rpoe withnotice previo!ly given

c% Certifcate o aid corporate act hall be igned by*a3ority o the *e*ber o the 'oard and theChair*an and Secretary o the toc+holder5 *eeting


68/90

d% Certifcate *!t be acco*panied by theTrea!rer5 Adavit certiying co*pliance

with the 9


69/90

SEC ha li*ited the ter* Kbonded indebtedneL tocover only indebtedne o the corporation whichare ec!red by *ortgage on real or peronalproperty% -ebent!re are i!ed on the bai o the

general credit o the corporation and are not ec!redby collateral" and thereore do not contit!tebonded indebtedne and will not re/!ire approvalo the toc+holder% 6Page 9FB o C,V5 Te#tboo+8

A corporate bond i an obligation to pay adefnite !* o *oney at a !t!re ti*e at a f#edrate o interet% 6Page BFM o -e ,eon" 9;;:8


70/90

6C8 POER TO -EN2 PRE)E>PTIVE RI14TS

All toc+holder o a toc+ corporation hall en3oy pre)e*ptive right to!bcribe to all i!e or dipoition o hare o any cla" in proportionto their repective hareholding" !nle !ch right i denied by thearticle o incorporation or an a*end*ent thereto%

S!ch pre)e*ptive right hall not e#tend to=

7% Share to be i!ed in co*pliance with law re/!iring toc+ oHeringor *ini*!* toc+ ownerhip by the p!blicJ or

9% Share to be i!ed in good aith with the approval o the toc+holderrepreenting two)third 69B8 o the o!ttanding capital toc+" ine#change or property needed or corporate p!rpoe or in pay*ent o aprevio!ly contracted debt% Sec% B


71/90

A pre)e*ptive right i the hareholder5 right to !bcribe to all i!eor dipoition o hare or any cla in proportion to hi preenttoc+holding" the p!rpoe being to enable the hareholder to retain hi

proportionate control in the corporation and to retain hi e/!ity in theretained earning and alo in the net aet in the event o diol!tion%6p% GB9 o C,V5 C,R" 9;;M8

henever a capital toc+ o a corporation i increaed and newhare o toc+ are i!ed" the new i!e *!t be oHered frt to thetoc+holder who are !ch at the ri*e the increae wa *ade in

proportion to their e#iting hareholding and on e/!al ter* with otherholder o the original toc+ beore !bcription are received ro* thegeneral p!blic% 0or e#a*ple" i a toc+holder with pre)e*ptive rightown 9;< o the o!ttanding hare o the corporation" he *ay!bcribe 9;< o any hare o toc+ i!ed by the corporation% Thiprinciple i +nown a the right o pre) e*ption or pre)e*ptive right o

toc+holder 6Page B o -e ,eon" 9;;:8 The r!le on pre)e*ptionQ ai* to aeg!ard the right o toc+holderto preerve !naltered and !ni*paired hi proportionate in!ence andinteret in the corporation and the relative val!e o hi holding% 6p% B:o -e ,eon" 9;;:8

6-8 POER TO SE,, OR -ISPOSE O0 CORPORATE


72/90

6-8 POER TO SE,, OR -ISPOSE O0 CORPORATEASSETS

Re/!iite=

a% The ale" etc% *!t be approved by the board o director

or tr!teeJ

b% The action o the board o director or tr!tee *!t bea!thori$ed by the vote o toc+holding repreenting 9B othe o!ttanding capital toc+ incl!ding holder o non)voting hare or 9B o the *e*ber a the cae *ay beJand


73/90

c% The a!thori$ation *!t be done at atoc+holder5 or *e*ber5 *eeting d!ly called orthat p!rpoe ater written notice% No ratifcatory

vote needed=

a% I it i neceary in the !!al and reg!larco!re o b!ine

b% i the proceed o the ale or other dipoitiono !ch property and aet be appropriated or thecond!ct o the re*aining b!ine


74/90

6E8 POER TO AC(IRE ON S4ARES

Intance=

a% To eli*inate ractional hare o!t o toc+ dividend

b% To collect or co*pro*ie an indebtedne to thecorporation" ariing o!t o !npaid !bcription" in adelin/!ency ale and to p!rchae delin/!ent hare oldd!ring aid ale

c% To pay dienting toc+holder


75/90

d% To ac/!ire trea!ry hare

e% Redee*able hare regardle o e#itence oretained earning

% To eHect a decreae o capital toc+

g% In cloe corporation" when there i a deadloc+in the *anage*ent o the b!ine In letter a)c"there *!t be !nretricted retained earning

608 POER TO INVEST CORPORATE 0(N-S IN


76/90

608 POER TO INVEST CORPORATE 0(N-S INANOT4ER CORPORATION OR '(SINESS

Re/!iite=

a% Approved by a *a3ority o the board o director or

tr!teeJ and

b% Ratifed by the toc+holder repreenting at leattwo)third 69B8 o the o!ttanding capital toc+" or by

at leat two third 69B8 o the *e*ber in the cae onon)toc+ corporationJ


77/90

c% ritten notice o the propoed invet*entand the ti*e and place o the *eeting hall beaddreed to each toc+holder or *e*ber%

Any dienting toc+holder hall have appraialright% The other p!rpoe or which the !nd*ay be inveted *!t be a*ong thoe

en!*erated a econdary p!rpoe and *!t!rther co*ply with the re/!ire*ent o SectionF9%


78/90

618 POER TO -EC,ARE -IVI-EN-S

1eneral r!le= -ividend can only bedeclared and paid o!t o act!al and bona

fde !nretricted retained earning%


79/90

Special r!le=

a% here a corporation old it real property" which i not

being !ed or b!ine" at a gain" the inco*e derivedtherero* *ay be availed o or dividend ditrib!tion%

b% Increae in the val!e o a f#ed aet a a re!lt o itreval!ation i not retained earning% 4owever" increae inthe val!e o f#ed aet a a re!lt o reval!ation *ay be

declared a cah or toc+ dividend provided that theco*pany=

7% 4a !cient inco*e ro* operation ro* which thedepreciation on the appraial increae wa charged

9% 4a no defcit at the ti*e the depreciation on theappraial increae wa charged to operationJ and

B% S!ch depreciation on appraial increae previo!lycharged to operation ha not been i*paired by loe%


80/90

c% -ividend can be declared o!t o the a*o!nt received ine#ce o the par val!e o hare when=

7% -eclared only a toc+ dividend and not cahJ

9% No creditor are pre3!dicedJ and

B% There i no i*pair*ent o capital%

d% Red!ction !rpl! can be a o!rce o dividend% R!le onpaid)in !rpl! i applicable%


81/90

e% No dividend can be declared o!t o capital e#cept only in twointance=

7% li/!idating dividendJ and

9% dividend ro* invet*ent in wating aetcorporation%

% Proft reali$ed ro* ale o trea!ry hare are part o capital andcannot be declared a cah or toc+ dividend a p!rchae and aleo !ch hare are regarded a contraction and e#panion o paid)in capital%

g% >oney cannot be borrowed or the pay*ent o dividend beca!eindebtedne i not a retained earning o the corporation%


82/90

h% Corporate earning which have not

yet been received even tho!gh theyconit in *oney which i d!e" cannotbe incl!ded in the proft o!t o whichdividend *ay be paid% -ividend )corporate proft et aide" declared"

and ordered to be paid by the directoror ditrib!tion a*ong hareholder at

a f#ed ti*e%


83/90

0or*=

a% Cah

b% Property

c% Stoc+

hile cah dividend d!e ondelin/!ent hare can be applied tothe pay*ent o the !npaid balance"

toc+ dividend cannot be applied apay*ent or !npaid !bcription%


84/90

1eneral R!le= Stoc+ corporation are prohibitedro* retaining !rpl! proft in e#ce o 7;;ANA1E>ENT CONTRACT

Re/!iite=a% Approved by *a3ority o the 'oard" by *a3orityo the toc+holder" o both the *anaged and*anaging corporation%

b% I a toc+holder o the *anaged corporationown *ore than 7B o the *anaging corporation"the *anage*ent contract *!t be approved by

at leat 9B o the toc+holder o the *anagedcorporation% 7% E#pre power o a corporation


87/90

9% >anage*ent co*pany *!t alway be !b3ectto the !perior power o the board to give pecifc

direction ro* ti*e to ti*e or to recall thedelegation o *anagerial power% 6The CorporationCode o the Philippine Annotated" 4ector de ,eon"9;;9 ed%8

>anage*ent contract ) any contract wherebya corporation !nderta+e to *anage or operate allor !btantially all o the b!ine o anothercorporation%

A *anage*ent contract ho!ld not be valid or*ore than year or any one ter*% 2o! can 3!t+eep renewing it provided" that it i not or *orethan year at any one ti*e

6I8 U"*1A (1)S ACTS


88/90

6I8 U"*1A (1)S ACTS

An act which i beyond the conerred power o acorporation or the p!rpoe or ob3ect or which iti created a defned by the law o it organi$ation%

An act done by a corporation o!tide o the e#preand i*plied power veted in it by it charter andby the law% 1epubli# vs. A#o2e !ining Co., (n#% MSCRA B:7

'ar Review >aterial in Co**ercial ,aw" .orge>iravite" 9;;9 ed%


89/90

7% Applicability o ultra vires doctrine

The !ltra vire doctrine typically applie

to a corporate body o that any act doneby the body which i beyond it capacityto act will be conidered invalid%

9 CONSE(ENCES O0 U"*1A (1)S ACTS


90/90

9% CONSE(ENCES O0 U"*1A (1)S ACTS

a% E#ec!ted contract D co!rt will not et aide orinterere with !ch contractJ

b% E#ec!tory contract D no enorce*ent even at the

!it o either partyc% Part e#ec!ted and part e#ec!tory D principle o Kno!n3!t enrich*ent at e#pene o anotherL hallapplyJ and

d% E#ec!tory contract apparently a!thori$ed b!tultra viresD the principle o etoppel hall apply% voidand !nenorceable

private corporations

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