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CORPO - Title IV - Title V Powers of Corporations Bylaws, 2/3 Powers…

- - - - Section 46. Contents of Bylaws
        
        Section 47. Amendment to Bylaws
        
        Requisites for Amendment -
        
        Majority of Board of Directors
        
        Majority of owners of all outstanding shares of stock
        
        FIling - Amended bylaws must be filed with the SEC + Resolution delegating such, if applicable.
        
        Delegation of Amendment - If shareholders delegate power to the board, it must be in a stockholder/member's resolution with 2/3 members.
        
        Revocation of Delegation - By majority vote, not 2/3.
        
        Nature of Delegation - Temporary, thus, may be revoked at anytime by a majority vote of the shareholders or members. Thus, it may not be in the byllaws.
        
        Non-Delegable Powers -
        
        The power to amend the articles of incorporation lies with the stockholders or members and cannot be delegated to the board of directors or trustees, (see OCC 16.)
        
        Neither can the power to adopt the original (not new) by-laws be delegated
        
        Contents - A private corporation may
        provide the following in its bylaws:
        
        (a) The time, place and manner of calling and conducting regular or special meetings of the directors or trustees;
        
        (b) The time and manner of calling and conducting regular or special meetings and mode of notifying the stockholders or
        members thereof;
        
        (c) The required quorum in meetings of stockholders or members
        and the manner of voting therein;
        
        (d) The modes by which a stockholder, member, director, or trustee may attend meetings and cast their votes;
        
        (e) The form for proxies of stockholders and members and the
        manner of voting them;
        
        (f) The directors' or trustees' qualifications, duties and responsibilities, the guidelines for setting the compensation of directors or trustees and officers, and the maximum number of other board representations that an independent director or trustee may have which shall, in no case, be more than the number prescribed by the Commission;
        
        g) The time for holding the annual election of directors or trustees and the mode or manner of giving notice thereof;
        
        (h) The manner of election or appointment and the term of office of
        all officers other than directors or trustees;
        
        (i) The penalties for violation of the bylaws;
        
        (j) In the case of stock corporations, the manner of issuing stock
        certificates; and
        
        (k) Such other matters as may be necessary for the proper or convenient transaction of its corporate affairs for the promotion of good governance and anti-graft and corruption measures.
        
        An arbitration agreement may be provided in the bylaws pursuant to Section 181 of this Code.
      - Definition of Bylaws (John Gokonwei, Jr. v. SEC) - A set of rules and regulations adopted by the corporation for its internal government and, to regulate the conduct and prescribe the rights and duties of its members towards itself and among themselves in reference to the management of its affairs.
      - How Adopted -
        
        Affirmative Vote - Of majority of the stockholders, representing majority of outstanding capital stock
        
        Signed - by stockholders voting for them
        
        Kept in the principal office - Subject to inspection during office hours
        
        SEC - Copy duly certified by a majority of directors/trustees and countersigned by corp. sec. filed with the SEC and attached to the original AOI
        
        Characteristics of Valid Bylaws -
        
        Not Contrary to RCC and Existing Laws (RCC 45, 35)
        
        If inconsistent with AOI, AOI prevails.
        
        Must not Impair Obligations of Contracts - Such as cannot primary right to security of tenure under Labor Code
        
        General and Uniform - in operation and not directed against particular individuals.
        
        Effect of Non-Submission of Bylaws - Not automatic dissolution. However, SEC may suspend, revoke after proper notice and hearing the corporaiton's franchise or certificate of registration subject to PD 902-A
        
        RCC - Removed 1 month period to submit bylaws, for Divina, this means that no longer grounds to suspend or revoke the certificate of resgiration.
        
        RP - Agrees with Campos that dissolution may result under Sec. 21 as failure to organize.
        
        Effect of Non-Adoption of Bylaws (Sappari v. CA) - Corporation may be considered a de facto corporation. But in practice, SEC documentary requirements for incorporation is submission of bylaws.
        
        Distinguished from AOI - Difference in scope:
        
        AOI: defines the contractual relationships between the State and the corporation, the stockholders and the State, and the corporation and the stockholders (broader)
        
        Bylaws: manages relationship between and among stockholders, BOD and corporation
        
        Effectivity of Bylaws - only upon the issuance by the SEC of a certification that the bylaws are in accordance with the RCC As such, pending such approval, the bylaws cannot bind stockholders or corporation (BOC reviewer)
        
        Binding effect of Bylaws -
        
        GR - Binding on corporation, its officers and other persons within the same.
        
        Similarly, stockholders are charged with knowledge of the bylaws.
        
        XCPN - subordinate employees without actual knowledge of the bylaws are not bound
        
        Effect on Third Persons - Not considered bound. Unless, acquired knowledge of the pertinent bylaws at the time the transaction or agreement was entered into
        
        Effect of Foreign Bylaws - a foreign corporation’s bylaws, though originating from a foreign jurisdiction, are valid and effective in the Philippines.
        
        Rationale - Since the SEC will grant a license only when the foreign corporation has complied with all the requirements of law, it follows that when it decides to issue such license, it is satisfied that the applicant’s bylaws, among the other documents, meet the legal requirements
        
        Special Requirements - if Bylaws of any bank, banking institution, building and loan association, trust company, insurance company, public utility, educational institution, or other special corporations governed by special laws:
        
        Must be accompanied by a certificate of the appropriate government agency to the effect that such bylaws or amendments are in accordance with law
        
        When Filed - May be done before, or after incorporation.
        
        Prior to incorporation → in w/c case bylaws shall be approved and signed by all the incorporators and submitted to the SEC, together with the articles of incorporation
        After incorporation
        
        AFTER incorporation since the second paragraph says “bylaws may be adopted and filed prior to incorporation”.
  - - - Section 37. Power to increase or Decrease Capital Stock; Incur, Create or Increase Bonded Indebtedness
        
        Section 38. Power to Deny Preemptive Right. - Also 2/3
        
        Section 39. Sale or Other Disposition of Assets
        
        Section 40. Power to Acquire Own Shares.
        
        General Rule - A corporation may not acquire its own shares. This is illogical. Furthermore, the funds of the corporation should be devoted to attain the purposes of incorporation.
        
        Section 41. Power to Invest Corporate Funds in Another Corporation or Business or for Any Other Purpose
        
        Section 42. Power to Declare Dividends
        
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        Where Invested - Funds of the corporation may be invested in either:
        
        Primary Purpose
        
        Secondary Purpose
        
        Any other corporaiton or business other than the corporation's primary and secondary purposes.
        
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        Rationale -
        
        Diminishing of Assets - The acquisition of its own shares of stock may adversely affect the interests of existing creditors, as this will reduce its capital stock to the extent of the shares purchased without complying with the requisites under the law.
        
        Fraud on Corporate Creditors - the payment constitutes fraud on corporate creditors, as it amounts to repayment to the stockholder of his proportionate share front he corporate assets → An impairment of the capital available for the benefit and protection of creditors who are preferred over the stockholders in the distribution of the corporate assets.
        
        Exception - Concurrence of 4 requisites:
        
        Purpose - It is for a legitimate and proper corporate purpose.
        
        Unrestricted Retained Earnings - There shall be an unrestricted retained earnings to purchase the same and its capital is not thereby impaired.
        
        XCPN 2 XCPN - In (4) instances: (a) Redemption of redeemable shares; (b) Donation of shares to the corporaiton; (c) Levy/Garnishment; (d) Conveyance of hsares in payment of a debt.
        
        Good Faith; No Prejudice - The corporation acts in good faith, without prejudice to the rights of creditors and stockholders
        
        Corporate Affairs - The conditions of corporate affairs warrant it.
        
        Purpose - Examples are:
        
        To eliminate fractional shares arising out of stock dividends -
        
        To collect or compromise and indebtedness to the corporation arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during the sale
        
        To pay dissenting or withdrawing stockholders entitled to payment for their shares under Sec. 80 of the RCC
        
        To acquire redeemable shares
        
        To acquire treasury shares
        
        Unrestricted Retained Earnings - required as otherwise there would be an unauthorized increase of shares of stock, as well as a violation of the trust fund doctrine.
        
        Retained Earnings = Assets - Liabilities and subscriptions
        
        accumulated profits realized out of the normal and continuous operations of the business after deducting the following: Distributions to stockholders, and Transfers to capital stock or other accounts
        
        Unrestricted if there are no legal and contractual impediment for their distribution to the stockholders
        
        Rationale - The share repurchase is in effect, a distribution to the stockholders. If abused and without proper safeguards, will deplete and impair the assets of the corporation to the prejudice of credits and stockholders of the corporation. (SEC Opinion No. 33-14)
        
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        Kinds of Sale/Encumbrance/Disposition of Corporate Assets - Covers two kinds:
        
        Sale in the Ordinary Course of Business - This refers to sale, encumbrance or disposition of any of the property and assets of the corporation if such actions are necessary for the usual and regular course of business of the corporation or, if the proceeds of the disposition of the property and assets shall be appropriated for the* conduct of its remaining business.
        
        Substantial Sale - This refers to dispositions of all, or substantially all of the properties of the corporation.
        
        Abandonment of Disposition - After approval, the board of directors or trustees may, nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge, or other disposition of property and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members.
        
        Determination of Character of Sale - The test is the nature of the transaction and NOT the amount involved. Thus, even large transactions may be made in the ordinary course of business.
        
        The test is if the corporation would be rendered incapable of continuing the business or accomplishing the purpose of which it was incorporated.
        
        Publicly Listed Companies - The disposition of corporate property and assets amounting to at least 51% of the corporation’s total assets is considered a substantial sale in publicly-listed companies. This is computed based on the total assets of the corporation, as shown in either: (a) Audited financial statements; (b) Latest quarterly financial statements; (c) Special Purpose Financial Statements
        
        This applies regardless if the disposition accrued in a single transaction or, in several transactions taking place within 1 year from the date of the first transaction.
        
        Effect of Disposition of all the Assets - The sale of all assets and liabilities of a corporation does not result in the automatic dissolution and termination of the existence of the corporation.
        
        Sale is not a mode of dissolution under the corporation code.
        
        Similarly, having assets is not a condition for the continuation of a juridical existence.
        
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        Appraisal Right - the right of a dissenting stockholder to demand appraisal and payment of the fair value of his stocks from the corporate. It allows a stockholder who dissents and votes against a proposed corporate action to withdraw from the corporation by demanding payment of the fair value of his shares.
        
        Definition of Pre-Emptive Right - The right of stockholders to: (a) Subscribe to all issues or disposition of shares of any class by the corporation; (b) In proportion to their respective shareholdings.
        
        Practically, this means that the shares of stock of the corporation should be first offered proportionately to the stockholders before they can be issued or sold to non-stockholders.
        
        Rationale for Right - To maintain the proportionate voting strength and control of existing stockholders i.e., the existing ratio of their interest and voting power in the corporation. This prevents the dilution and impairment of their interests in the corporation.
        
        Example: 100 issued shares, with 50 fully subscribed. With the 50 fully subscribed shares owned by stockholders A, B, C, D, E in the amounts of 10 shares each. In this case, A-E receives 20% of the dividends that the corporation may declare. In case of dissolution, they receive 20% each of the residual assets. Thus, in new share issuances, they should be given first opportunity to subscribe in proportion to their 20% ownership.
        
        Scope of the Right
        
        General Rule - The right applies to any and all issuances of shares by the corporation, whether sourced from the unissued portion of the authorized capital stock or, in any case of an increase of capital stock.
        
        XCPN -
        
        AOI
        
        Minimum Stock Ownership
        
        Debt/Propert
        
        Waiver
        
        Articles of Incorporation - The right is denied in the articles of incorporation. Thus, the denial cannot be in a board resolution or amendment to the bylaws.
        
        Minimum Stock Ownership - Shares issued in compliance with laws requiring stock offerings or minimum stock ownership by the public; Thus, issuances under laws providing a maximum limit on stock ownership do not fall under this as those do not require the issuance of shares for compliance. (Sec. 33.2 of the Securities and Regulation Code is an example of this)
        
        Ex. Public companies are required to have a portion of their outstanding capital stock owned by the public (10%) issuances of these shares are not subject to the pre-emptive right
        
        Debt/Property - Shares issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the outstanding capital stock either:
        
        (a) in exchange for property needed for corporate purposes
        
        (b) or in payment of previously contracted debt.
        This requires SEC and Stockholders approval. SEC approval to ensure that real property is fairly valued and to prevent issuance of watered stocks.
        
        Waiver - Waiver of such right by the stockholder, whether express or implied
        
        Preemptive right is a personal right. Thus, waivers of it must be executed by the stockholder or on his behalf by an authorized agent. Thus,they cannot be forced to waive even if the majority of the stockholders opt to do so.
        
        Remedies available to Dissenting Stockholders - For stockholders not in favor of amendments to the articles of incorporation denying the pre-emptive right, said stockholder can exercise his appraisal right under Sec. 80 of the RCC. This is because denial of the preemptive right restricts the right of the stockholder to subscribe to the issuance of shares by the corporation.
        
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        Practical Reasons for Increase of Capital Stock -
        
        Funding - Because increase in capital stock means compliance with 25% subscription and 25% payment requirements, which is guaranteed fresh equity.
        
        Acquire Corporate Assets - Properties may be exchanged for shares, which in turn can become assets of the corporation. RCC 37 because additional paid in capital can be paid in cash or property.
        
        Support Dividend Declaration - this is because unsubscribed shares may be insufficient to accommodate the shares that the corporation may issue as a result of the stock dividends.
        
        Requirements for Stock/Incurring Debt -
        
        MAJORITY - Vote by the board
        
        RATIFICATION - by 2/3 members/stockholders
        
        WRITTEN NOTICE - of proposed action, and time and place of meeting. (Must also be served)
        
        CERTIFICATE - Signed by majority of directors, countersigned by chairman and secretary setting forth the ff:
        
        Compliance with requirements
        
        Amount of increase/decrease of the capital stock
        
        If Increase - amount of capital stock/# of shares of no-par stock actually subscribed + names, nationalities and addresses of the persons subscribing | amount subscribed by each, and amount paid by each/amount of capital stock/shares of no-par stock allotted to each stockholder if increase is for the purpose of making effective stock dividend authorized.
        
        Any bonded debt to be incurred,created or increased
        
        Amount - of stock represented at the meeting
        
        Vote - Authorizing the action.
        
        APPROVAL - by the SEC and, in some cases, the Philippine Competition Commission.
        
        Modes of Altering # Of Stock -
        
        Retain par Value
        
        Increase/Decease par value and Retain Number of Shares
        
        Alter Both par and number of shares
        
        Additional modes for Decreasing Number - Note here, such shares must be subeqeuntly cancelled or retired for there to be decrease.
        
        Redemption of Redeemable Shares
        
        Acquiring Corporation's own shares
        
        Cancelling, or retiring the shares.,
        
        Bonded Indebtedness - Borrowing by the corporation, long term in nature, involving large numbers of lenders.
        
        Secured by the encumbrance on corporate assets.
        
        Bonds are securities, therefore should be registered wiht the SEC.
        
        Disposition of Surplus after Reduction of Capital Stock - May be distributed to stockholders as return of capital, provided no prejudice to rights of creditors. Not mandatory.
        
        Effect of Impairment - If capital stock is impaired, and reduction is done to address such impairment, no distribution allowed.
        
        Requisites for Distribution - Considered as paid-in capital in excess of par value, thus may only be declared as stock dividends. Thus, approval by board and 2/3 stockholders.
        
        When Reduction not Allowed - If prejudice to creditors, such as if there is a condonation of unpaid capital stock
        Ex. - P60M Capital Stock - 60M Shares - 50M paid up - decrease of capital by 50M
        
        When Increase/Decrease Effective - Upon approval by the SEC and issuance of certificate of filing of increase/decrease
      - Requirements -
        
        MAJORITY - Vote by the board
        
        RATIFICATION - by 2/3 members/stockholders
        
        WRITTEN NOTICE - of proposed action, and time and place of meeting. (Must also be served)
        
        AMENDMENT REQS - Because involves amendment of the AOis, must comply with RCC 15. In case of special corporations, there must be favorable endorsement of the appropriate government agency.
        
        LIFETIME - Extension must be done during lifetime of corporation, but not earlier than 3 years prior to original or subsequent expiry date.
        
        XCPN - Justifiable reasons for earlier extension, as may be determined by SEC.
        
        Shortening of Term - no 3 year requirement.
        
        Effect of Failure to Extend Term - Corporation not dissolved, but may exercise power to revive prior to dissolution and liquidation of the corporation, within a reasonable period as may be determined by the SEC.
      - Exercise of Appraisal right in Corporate Term - For sir, only for extending. If shortening, dissolution first. Would be seen as a means of circumventing preference of credit.
    - - Inherent Powers - Those not expressly stated, but are deemed to be within the capacity of corporate entities. Includes those which a corporation can exercise by the mere fact of its corporate existence (right to adopt bylaws, succession, corporate name)
        
        Express Powers - Those which are expressly granted under the RCC or, embodied in the articles of incorporation.
        
        Enumeration -
        
        (a) SUE/D - sue and be sued in its corporate name;
        
        (b) PERPETUAL - To have perpetual existence unless the certificate of incorporation provides otherwise;
        
        SEAL - To adopt and use a corporate seal;
        
        AMEND AOI - To amend its articles of incorporation in accordance with the provisions of this Code;
        
        BYLAWS - To adopt bylaws, not contrary to law, morals or public policy, and to amend or repeal the same in accordance with this Code;
        
        MEMBERS/SUBSCRIBERS - In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a nonstock corporation;
        
        Sue and be Sued - Exercised by the board of directors or trustees or, any authorized representative.
        
        Capacity to be Sued - Commences upon issuance of the certificate of incorporation by the SEC.
        
        Certification/Verification against Forum Shopping (Cayagan Valley Drug v. CIR) - Note, exceptions were under old rules.
        
        GR - Must be via board resolution, either SPA or Sec. Certificate attached to the pleading. Otherwise, non-curable defect.
        
        XCPN - If signed by the following corporate officers, who are in position to verify the truthfulness and correctness of the allegations in the petition:
        
        Chairperson of the Board of Directors
        
        President
        
        General manager
        
        Personnel Officer
        
        Employment Specialist - In labor cases
        
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        Unregistered Corporations - No right to be sue, nor be sued. Similarly, no personality to intervene.
        
        (b) PERPETUAL EXISTENCE - Subject to condition that no other corporate term provided in the certificate of incorporation.
        
        Power to Issue/Sell Stocks - Includes the authority to set the terms and conditions of the issuance. These may include terms and dates of payment.
        
        25% payment requirement - Generally, only applies in case of an increase of capital stock.
        
        XCPN - Corporation, by stipulation may require that 25% subscription be paid upon issuance of the shares, and balance on a specified date.
        
        Stock Split/Reverse Stock Split -
        
        Stock Split - Corporation increases number of shares outstanding by issuing more shares to the current stockholders.
        
        (May be in a set ration i.e., 2:1 - additional share given for each share held by stockholder.
        
        Reverse Stock Split - Corporation decreases number of outstanding shares by cancelling the current shares and issuing fewer new shares based on a determined ratio
        
        Ex. 2:1, cancel two shares and replace with 1 share
        
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        PROPERTY - To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the constitution;
        
        PARTNERSHIP - To enter into a partnership, joint venture, merger, consolidation, or any other commercial agreement with natural and juridical persons;
        
        DONATIONS - To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no foreign corporation shall give donations in aid of any political party or candidate or for purpose s of partisan political activity;
        
        PENSIONS - To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers, and employees; and
        
        INCIDENTAL - To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.
        
        Power to Deal with Properties - - Subject to several conditions:
        
        Furtherance - of the purpose for which the corporation was organized
        
        Constitutional Limitations -
        
        Public Lands - Cannot acquire, only lease not exceeding 1k hectares, and max period of 50 years (25 initial, 25 renewable)
        
        Ownership - 60% ownership by Filipinos to acquire private lands.
        
        Power to Enter into Commercial Agreements - Covers, partnerships, joint ventures, mergers, consolidations, etc.,
        
        Power to make Donations - Under RCC, no more prohibition for domestic corporations to donate in favor of political parties/candidates.
        
        Requisites for Valid Donation (2RV) -
        
        Reasonable
        
        Valid Purpose - including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes
        
        Reasonable Relation - to the corporation's interest.
        
        Foreign Corporations - May not make donations in aid of any political party, candidate, or partisan political activity.
        
        Power to Provide Gratuity Pay - Does not require shareholder approval, nor does it amount to sale, disposition of the corporation's assets.
      - Voting Requirements - Insert photo of the table here (p. 258 Divina)
    - - Theory of General Capacity - Corporation holds such powers which are not prohibited nor withheld from it by general bylaws.
        
        Theory of Specific Capacity - Corporation cannot exercise powers except those expressly or impliedly given to it.
        
        Voting Requirements - These refer to majority of BOD only:
        
        Power to Acquire own Shares
        
        Power to Enter into management contract - Provided that no 1/3 ownership
        
        Declaration of Dividends - Board resolution only if cash and property
        
        If stock, then 2/3