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TITLE XII CLOSE CORPORATIONS - Coggle Diagram

- - - - Campos - Stockholder of corporation chooses to manage themselves, law treats them as directors and not shareholders.
        
        Sec. 99 - Stockholders personally liable for corporate torts.
        
        Distinguished from regular corpo, where only negligent liable.
        
        Due to tort liability - stockholders liable as well.
        
        If there is insurance - no right of action against stockholders/managers.
- - - - Section 98. Effects if Issuance or Transfer of Stock in Breach of Qualifying Conditions. -
        
        Section 99. Agreements by Stockholders. -
        
        Section 100. When a Board Meeting is Unnecessary or Improperly Held. -
        
        Section 101. Preemptive Right in Close Corporations. - The preemptive right of stockholders in close corporations shall extend to all stock to be issues, including reissuance of services, or in payment or corporate debts, unless the article s of incorporation provide otherwise.
        
        Section 102. Amendment of Articles of Incorporation - Any amendment to the articles of incorporation which seeks:
        
        to delete or remove any provision required by this Title or
        
        to reduce a quorum or voting requirement stated in said articles of incorporation
        
        shall require affirmative vote of at least two-thirds (2/3) of the outstanding capital, 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 this purpose.
        
        Section 103. Deadlocks - if the directors or stockholders are so divided on the management of the corporation's business and affairs that the votes required for a corporate action canot be obtained, with the consequence that the business and affairs that the votes required for that the business of the corporation can lo longer be conducted to the advantage of the stockholders generally
        
        2 more items...
        
        Permissible Agreements Between Stockholders -
        
        Pre-incorporation agreements
        
        Voting rights agreement
        
        Agreements with the effect of making the stockholders partners among themselves.
        
        Agreements which restrict or interfere with the discretion or powers of the Board.
        
        Form of Stockholder Agreement - Must be in writing to be enforceable between stockholders. At least, based off VIllanueva.
      - Distinction between First Refusal & Pre-Emptive Right -
        
        First Refusal - Option granted to the corporation and/or its stockholders to purchase the shares of a transferring stockholder upon reasonable terms and conditions.
        
        Not provided by law, must be in the AOI and Bylaws and Stock certificates.
        
        Pre-Emptive right - right to subscribe to any and all issuance and disposition of shares by the corporation.
        
        Available to all stockholders, unless specifically denied.
        
        Valid Restriction on Right to Transfer - must comply with (3) requisites:
        
        AOI - Must appear in the articles of incorporation, in the bylaws, as well as in the certificate of stock.
        
        OTHERWISE, this would not be binding on the third person.
        
        Limited Onerous - Restrictions shall not be more onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated.
        
        Restrictions shall not be more onerous than the right of first refusal.
        
        Limited Period - Upon the expiration of said period, the existing stockholders or the corporation fails to exercise the option to purchase, the transferring stockholder may sell their shares to any third person.
        
        Effect of Breach of Transfer Conditions -
        
        QUALIFICATIONS - If a stock of a close corporation is issued or transferred to any person who is not eligible to be a holder thereof under any provision of the articles of incorporation, 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 the ineligibility to be a stockholder.
        
        NUMBER - If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who are entitled to be stockholders of record, and if the certificate for such stock conspicuously states such number, and 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.
        
        RESTRICTION - If a stock certificate of a close corporation conspicuously shows a restriction on transfer of the corporation's stock and the transferee acquires the stock in violation of such restriction, the transferee is conclusively presumed to have notice of the fact that the stock was acquired in violation of the restriction.
        
        Right to Refuse Registration - Corporation may, at its option, refuse to register the transfer in the name of the transferee.
        
        restriction.
        Whenever a person to whom stock of a close corporation has been issued or transferred has or is conclusively presumed under this section to have notice of: (1) the person's ineligibility to be a stockholder of the corporation; or (2) that the transfer of stock would cause the stock of the corporation to be held by more than the number of persons permitted under its articles of incorporation; or (3) that the transfer violates a restriction on transfer of stock,
        
        Exception - Not applicable if transfer 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.
        
        Transfer - The term "transfer," as used in this section, is not limited to a transfer for value.
        
        Right to Rescind - The provisions of this section shall not impair any right which the transferee may have to either rescind the transfer or recover the stock under any express or implied warranty.
        
        Conclusive Presumptions - In the cases contemplated in Nos. 1, 2, and 3 of this Section, the transferee is conclusively presumed to have notice of the restriction or condition and, therefore, he is not allowed to prove lack of notice even if such is the fact
        
        Effect of Presumptions - The corporation cannot be compelled to register, although it may, at its option, register the transfer of the stock in the name of the transferee
        
        XCPN - If not registered, then not considered as binding on the corporation.
        
        XCPN 2 XCPN - The transfer, however, shall be binding upon the corporation notwithstanding such conclusive presumption, where it has been consented to by all the stockholders of the close corporation or if the close corporation has amended its articles of incorporation as provided in Section 103.
        
        Persons Liable - Includes shareholders actively engaged in management. Thus, can include officers.
        
        If meeting held without proper call or notice, action taken is deemed ratified by director who failed to attend unless there is prompt objection.
        
        Must be in writing, filed with Corp. Sec.
        
        Rights of Transferees under Sec. 98 - The breach of any restriction in the issuance or transfer of stock is without prejudice to the right of the transferee under existing laws to rescind the transaction or recover under applicable warranty, express or implied.
        
        Limitation on Right to Transfer - Should not be more onerous than the right of first refusal.
        
        First Refusal in Relation to Creditors - The right of first refusal contemplates a voluntary transfer of shares.
        
        Judgment creditors and lien holders are involuntary creditors of the stockholders, thus they are not bound by the right of first refusal.
        
        They may garnish the shares in satisfaction without having to give existing stockholders the option to first purchase the shares covered by their lien or security interest.
        
        Sir: Reissuance of treasury shares and right of first refusal practically the same.
        
        To maintain same share balance.
  - - - Metric - Features of a close corporation must be embodied in the AOI in order to be considered a close corporation. Thus, mere ownership of 99% of shares insufficient. (San Juan Structural v. CA)
    - - 1. Stockholder Management - The business of a close corporation may be managed by the stockholders rather than by a board of directors.
        
        Stockholders who are actively involved in the management of the corporation are liable in the same way as directors are liable.
        
        Liability - Corporate Torts, such as Non-payment of separation benefits to employees who were terminated due to authorized cause
        
        GR - They are personally liable for corporate torts.
        
        XCPN - UNLESS, the corporation has obtained reasonably adequate liability insurance
      - Authorization for Corporate Property - If a corporation is classified as a close corporation, a Board resolution authorizing the sale or mortgage of the corporate property is not necessary to bind the corporation to the act outfits president [Dulay v. CA]
      - 3. Quorum Requirement - Quorum may be greater than mere majority
      - 4. Limit on Stockholder Number - Transfers to stocks to others which would increase the number of stockholders to more than the maximum provided in the AOI or the RCC are invalid.
      - 5. Board Meeting -
        
        GR - Corporate actions may be binding even without a formal board meeting, if the director had knowledge or ratified the informal action of the others.
        
        XCPN - UNLESS, after having knowledge thereof, the director promptly files his written objection thereto.
      - 6. Scope of Pre-Emptive Right -
        
        GR - Pre-emptive right extends to all stocks issued, including the re-issuance of treasury shares, whether for money or for property or personal services, or in payment of corporate debts.
        
        XCPN - AOI provides otherwise
      - 7. SEC Deadlock - Deadlocks in the Board may be settled by the SEC on written petition by any stockholder
      - 8. Appraisal Right - The stockholder may withdraw for any reason and avail himself of the right of appraisal when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock.
      - De Facto Close Corporations - For RP, provisions of this Chapter should apply to de facto close corporation