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CORPO Title VIII - title IX- Books/Merger - Coggle Diagram
CORPO Title VIII - title IX- Books/Merger
Section 73. Books to be Kept; Stock Transfer Agent
Section 74. Right to Financial Statements
Period for furnishing financial statements to stockholders/members -
Within 10 days from receipt of their written request → the Corporation shall furnish its most recent financial statement, in the form and substance of the financial reporting as required by the SEC
At the regular meeting of stockholders or members, the Board shall present to them a financial report of the operations of the corporation for the preceding year.
This includes corporation’s financial statements, duly signed and certified in accordance with the RCC, and the rules that may be prescribed by the SEC.
XCPN - if the total assets or total liabilities of the corporation are less than 600k, or such amount to be determined by the DOF, the financial statements may be certified under oath by the treasurer and the president
Q. Where to get audited financial statements?
- LGU, BIR, SEC, primary regulator in case of banks.
Best bet is SEC
Q. Approval for Financial Statements?
-
A: Only approval of the board, but required that they be presented to the shareholders in the annual meeting (regular meeting)
Required Records
- These must be kept and preserved in the principal office
AOI and Bylaws
Current Ownership Structure & Voting Rights of the Corporation - Includes list of stockholders/members, group structures, beneficial ownership, legal ownership, intra-group relations, ownership data
Names and addresses of all executive officers and board members
Record of all business transactions
Record of board resolutions
Copies of the latest reportorial requirements to the SEC
Minutes of all stockholder/board meetings
Stock and Transfer Book
Contents of the Minutes
- shall set forth in detail, among others:
the time and place of the meeting held,
how it was authorized,
the notice given,
the agenda therefor,
whether the meeting was regular or special,
its object if special,
those present and absent,
and every act done or ordered done at the meeting.
Stock and Transfer Book
- Contains a record of:
all stocks in the names of stockholders,
installments paid and unpaid on all stocks covered by a subscription contract, and the date of payment of any installment.
a statement of every sale, alienation or transfer of stock, its date, by and to whom made,
and such other entries that the BL may prescribe.
Purpose
- Best evidence to prove the status of a person as a stockholder of the corporation.
But not conclusive, as not public record. If lost or destroyed, General Information sheet or other similar documents may be used to substantiate the claim of a stockholder.
if in securities market, people buy and share sells --> lists do not match --> shares in market less than in the notional amounts held by the traders what is the effect?
A: - because everything is fungible, ending can't trace who actually owns the shares. Everyone will sell, but in the end someone will buy, but will not get share.
Stock Transfer Agent
- One engaged principally in the business of registering transfers of stock in behalf of a stock corporation
Must secure SEC license, which must be renewed annually.
If corporation opts to do this by itself, same requirements sans the license requirement.
Stock Transfer Agent Corporations
- SEC may require stock corporations which transfer/trade stocks in secondary markets to have an independent transfer agent.
Sir Comment
- Really just the
Charter documents (AOI Bylaws),
Stock and transfer book,
Minutes - containing resolutions
General Information Sheet - This already provides for ownership structure and voting rights, type of shares, list of stockholders, group structures, etc.,
Q. Can Gen Info Sheet stating owners differ from beneficial owners? -
Yes, that's why you apply grandfather rule.
Sir: Beneficial Ownership - Can be with regard to
(a) Corporation itself i.e., in the sense contemplated by GI sheet when asking for information in the beneficial ownership declaration form (This is where you grandfather)
(b) Ownership of specific shares - Here, beneficial ownership pertains to those shares only, even though when together will not give you beneficial ownership in the sense of control over corporation.
Ex. When legal ownership not transferred as BIR not issued certificate authorizing registration
For sir, renders nugatory if you consider it only from (a) thus, right to inspect extends to (b) as well.
Right to Inspect Records
- This is based on the right of the stockholder as an owner of the assets and properties of the corporation.
Denial of Right - May only be denied upon proof of the corporation that the purpose of inspection is improper or motivated by unlawful or ill-motivated design.
Unjustified Refusal of Right
- Office or agent OR directors/trustees voting for board resolution unjustly refusing is/are Liable for:
Damages
Fine under Sec. 161 (10k-200k, or 20k-400k if injurious/detrimental to the public)
Examples of Illegitimate Purpose
-
Business Secrets to help competitor
Secure business prospects/investments/advertising lists
Blackmail/Extortion
Q. Right to Deny must prove unlawful or ill-motivated design
- Cited case RP v. Sandiganbayan did not state example, but involved right to inspect of sequestered shares by the PCGG
Test for ill-motivated design, if not unlawful?
Requisites for Applicability of Sec. 161 (Penal Provision) -
PRIOR DEMAND
- A director, trustee, stockholder or member has made a prior demand in writing for a copy of excerpts from the records or minutes
REFUSAL
- Any officer or agent of the corporation shall refuse to allow the requesting party to examine and copy the excerpts
LACK OF PROOF
- When the officer or agent sets up the defense that the requesting party has improperly used any information secured through any prior examination of records or of any corporation or was not acting, the contrary must be shown or proven.
This is in effect, a justifying circumstance
Remedies of Aggrieved Stockholder -
SEC REPORT
- a report on the denial or inaction to the SEC (must act wi/in 5 days from receipt)
CRIMINAL COMPLAINT
- for violation of his right of inspection
PETITION FOR INSPECTION
- a petition for inspection of corporate records under Rule 7 of the Rules of Procedure for Intra-Corporate Controversies.
Liabilities of Guilty Stockholder -
Sec. 158 - SEC may either:
Issue a fine
Permanent Cease and Desist Order
Suspension or revocation of the certificate of incorporation
Dissolution of the corporation and forfeiture of its assets pursuant to Title XIV of the RCC
Intellectual Property Code and the Data Privacy Act
How Exercised -
REASONABLE HOUR
This may be done at a reasonable hour on business days.
A demand in writing may be made by the stockholder, at their expense, for copies of the records or excerpts.
GERMANE
- It can only be exercised for a purpose germane to his interest as a stockholder
No requisite of possession of a stock certificate
Ex. Check financial condition, determine value of stock, determine mismanagement, mailing list, etc.,
GOOD FAITH/LEGITIMATE PURPOSE
- in making the demand to examine/reproduce
EXPENSES
- shouldered by the requesting person
Scope of the Right
- Extends to all corporate records, regardless of the form in which they are stored as well as the wholly-owned subsidiaries of the corporation.
Effect of Corporate Dissolution
- The right subsists during the period of liquidation, as the dissolution does not by iutself cause the extinction/diminuition of the rights and liabilities of the entity and its owners and creditors.
Responsibilities Upon Exercise of Right
- Subject to confidentiality laws such as IP Code, Data privacy Act, Securities and Regulations code, etc.,
By Whom Exercised -
ONLY by any director, trustee, stockholder or member of the corporation in person or by a representative.
TITLE IX MERGER AND CONSOLIDATION
Section 75. Plan of Merger or Consolidation
- (2) or more corporations may merge into a single corporation which shall be one of the constituents corporations or may consolidate into a new single corporation which shall be the consolidated corporation.
The board of directors or trustees of each corporation, party to the merger or consolidation, shall approved a plan of merger or consolidation, shall approve a plan of merger or consolidation setting forth the following:
Section 76. Stockholders' or Members' Approval
Section 77. Articles of Merger or Consolidation
Section 78. Effectivity of Merger or Consolidation
- upon issuance by SEC of certificate approving articles and plan of merger or consolidation The operative fact by which merger/consolidation shall be effective.
Section 79. Effects of Merger or Consolidation
Exchange of Shares
- In a merger, shares of the absorbed corporation are swapped for shares of stock of the surviving corporation according to a ratio in the plan of merger, taking into account the fair values of the asset and liabilities of the constituent corporation.
Rationale
- To allow concerned persons to determine if the exchange is fair and reasonable. The aggregate fair value of shares issued should approximate the adjusted net asset value of the constituent corporations.
Single Corporation
- The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation designated in the plan of consolidation;
Cessation of Personality
- The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;
Transfer of Rights, Etc., -
The surviving or the consolidated corporation shall possess all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities of a corporation organized under this Code;
Transfer of Properties
- The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and franchises of each constituent corporation; and all real or personal property, all receivables due on whatever account, including subscriptions to shares and other choses in action, and every other interest of, belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation without further act or deed; and
Transfer of Liabilities
- The surviving or consolidated corporation shall be responsible for all the liabilities and obligations of each constituent corporation as though such surviving or consolidated corporation had itself incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any constituent corporation may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the property of such constituent corporations shall not be impaired by the merger or consolidation.
Effect of Dissolution of Corporation -
- The absorbed corporation ceases to exist upon approval of the SEC of the merger.
However, no winding up of affairs or liquidation of assets,a s surviving corporation automatically acquires all the rights, privileges, powers and liabilities.
Specific Examples
-
Promissory Notes - Surviving corp can collect PN due to absobred corp.
Importance of Date
- Effectivity date is crucial for determining when the merged or constituent corporations cease to exist and when their rights, privileges, properties and liabilities pass on to the surviving corporation
SEC-OGC Opinion No. 08-19 (March 13, 2019) - parties may stipulate on the effective date of merger Provided it would not adversely affect any 3rd party or cause decrease in tax dues of the corp involved
Should SEC approve the articles of merger, the certificate of merger would only be issued after the effective date of merger set by the parties
Procedure for Merger and Consolidation -
Plan of Merger and Consolidation
- Drawn by the board of each corporation.
Board Approval
- By majority vote of EACH of the board of directors/trustees of the constituent corporation.
Notice - of meeting for submission
Submission
- of the approved plan by the stockholders/members of each corporations at separate meetings duly called for that purpose.
Stockholder Approval
- 2/3 of stockholders/members necessary.
Articles of Merger/Consolidation
- Executed by each of the constituent corporations, to be signed by the President/VP and certified by respective secretaries.
SEC Approval
- Articles submitted to SEC. In case of special laws, favorable recommendation first by the appropriate government agency.
Hearing - If SEC believes that merger/consolidation inconsistent with existing laws,s hall set a hearing.
Issuance of Certificate
- Upon SEC approval, it shall issue a certificate of merger or consolidation, at which time it shall be effective.
Contents of Plan of Merger and Consolidation
The names of the corporations proposing to merge or consolidate, referred to as the constituent corporations;
The terms of the merger or consolidation and the mode of carrying the same into effect;
A statement of the changes, if any, in the articles of incorporation of the surviving corporation in case of merger; and, in case of consolidation, all the statements required to be set forth in the articles of incorporation for corporations organized under this Code; and
Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable
Contents of Articles of Merger/Consolidation
- Shall include the ff:
PLAN
- of the merger/plan of consolidation
NUMBER
- of shares if stock, of members if nonstock
VOTING
- Number of shares/members voting for or against the plan respectively
Forms of Corporate Combination and Acquisition
Asset Sale
Stock Sale
- Here, sale of controlling block of stock to new stockholders
Distinguished from asset sales as regards E-E relationship continuity.
Merger/Consolidation
- a reorganization of two or more corporations that result in their consolidating into a single corporation, which is one of the constituent corporations, one disappearing or dissolving and the other surviving.
Absorption of one or more corporations by another existing corporation which retains its identity and takes over the rights, privileges, franchises, properties, claims, liabilities and obligations of the absorbed corporation.
Absorbed corporation's personality terminates.
Consolidation -
Union of two or more existing corporations to form a new corporation called the consolidated corporation.
Combination by agreement between two corporations, by which their rights, properties, franchises are united and become those of a single new corporation.
Composed generally of the stockholders of the original corporation.
Cost Efficiency -
Asset Sale
- Conveyance of property is subject to capital gains, documentary stamp tax, registration fees.
Merger
- Transfer not subject to tax. But, liable to assume the liabilities of the seller.
Distinguished from Merger
- Consolidation is formation of new corporation. Merger, one absorbs, other survives.
De Facto Merger
- The acquiring corporation acquires assets and liabilities of another corporation in exchange for an equivalent value of shares of stock of the acquiring corporation, thereby making the other corporation a stockholder of the acquiring corporation.
Called de facto because go straight to result of merger. Primary difference no SEC approval required.
Requirement of Compliance
- All the requirements specified in the law must be complied with in order for the merger to take effect. (Bank of Commercee v. Radio PH network)
RCC Amendments -
Articles of merger must now include:
Carrying amounts and fair values of the assets and liabilities of the respective companies as of the agreed cut-off date;
The method to be used in the merger or consolidation of accounts of the companies;
The provisional or pro forma values, as merged or consolidated, using the accounting method; and
Such other information as may be prescribed by the Commission
HW FOR THURSDAY
- Think of scenarios regarding asset sale, stock sale and merger/consolidation
imagine each one happening and how each one is carried out.
Why you would want one over the other.
Will discuss each one for the first 10/15 mins
Stock Sale
- More capital.
Asset Sale
- Downsizing stuff?? idk
Merger/Consolidation
-
Merger
- If little liabilities of the acquired corporation. More control as opposed to stock sale.
Consolidation
- Bad rep/rebranding. Different assets to be used together?? Intellectual Property.
Q. Right of Proxy to Right to Inspect -
A: Yes, right available in person or by representative.
Sir: Normally, not entitled to unless other capacity by which the proxy represents the shareholder. Depends on delegation of authority.