ATTY.’S NOTES [APRIL 29 MEETING]
Ordinary Private Stock Corporation —
Formed under the corp code, organized primarily for profit. Composed of stockholders with shares of stocks, which are units of ownership in the corporation.
Stockholders elect their governing body which is the BOD.
1 up to maximum of 15 BOD members.
BUSINESS DECISION IS DONE THRU BOD.
THERE IS A REQUIRED PROTOCOL in doing business transactions in an ordinary private stock corporation channeled thru the board and the board convince, discuss, election, votation, and every major business decision is carried out thru the vote of majority of BOD.
As a GR stockholders do not intervene, except in those circumstances required by the corp code Or maybe the AOI or bylaws requires the ⅔ concurrence of the outstanding capital stock, sometimes also only majority is required by way of concurrence.
1) Close Corporation —
is similar to a stock corp. it is a stock corporation actually. But has some unique features or characteristics. [95 to 104]
THESE ARE FAMILY-OWNED PRIVATE CORPORATIONS
BOARD MEETING IS NOT REALLY REQUIRED.
However, a closed corporation must BE INCORPORATED AS A CLOSE CORPORATION. BECAUSE NOT ALL FAMILY CORP ARE CLOSED CORPORATIONS. It MUST BE EXPRESSLY STATED IN THE AOI THAT IT IS A CLOSED CORPORATION. YOU CANNOT IGNORE THE STRICT PROTOCOL REQUIRED BY THE CORP CODE.
Requisites: [ACTUALLY CODAL] 👇
STOCKHOLDERS INVOLVED CANNOT EXCEED 20.
There is a RIGHT OF FIRST REFUSAL granted to every stockholder with respect to their ownership of shares. RESTRICTION comes in the right of first refusal. Meaning, before you can share your share to a third party, you must first offer it to the stockholder or to the corporation. That is found in the AOI [Bylaws or certificate of stocks]. PURPOSE IS TO KEEP THE OWNERSHIP OF SHARES IN THE CORPORATION TO KEEP IT WITHIN THE FAMILY. BAGO MO INBENTA SA BESTFRIEND MO, IBENTA MO MUNA SA KUYA MO.
RESTRICTION That the stocks cannot be listed in the stocks exchange or offer the shares to the general public.
SEC. 95. Definition and Applicability of Title. – A close corporation, within the meaning of this Code, is one whose articles of incorporation provides that:
all the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding twenty (20);
all the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and
the corporation shall not list in any stock exchange or make any public offering of its stocks of any class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the meaning of this Code
MAIN FEATURE:
Normally when a decision is to be made, a strict board meeting is no longer held. Madalas ang decision dito is thru phone call. They just ratify thru paper board resolution, paper stockholders resolution.
There are instances where board meeting is no longer necessary [Sec.100]. It can bind the corp without board meeting.
If summarized, even if there is no board meeting, as long as there is implied or express consent by all the majority of the board, the decision is valid, Even if there is no actual board meeting that had happened.
But in ordinary corp, hindi pwede yan. It will be ultra vires. But sa closed corp, pwd.
There are even features in closed corp that the stockholders can make decisions. But must be provided by AOI or Bylaws. But note that the stockholders in this case will be exposed to liabilities like that of the BOD.
SEC. 100. When a Board Meeting is Unnecessary or Improperly Held. – Unless the bylaws provide otherwise, any action taken by the directors of a close corporation without a meeting called properly and with due notice shall nevertheless be deemed valid if:
Before or after such action is taken, a written consent thereto is signed by all the directors; or
All the stockholders have actual or implied knowledge of the action and make no prompt objection in writing; or
The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or
All the directors have express or implied knowledge of the action in question and none of them makes a prompt objection in writing.
An action within the corporate powers taken at a meeting held without proper call or notice, is deemed ratified by a director who failed to attend, unless after having knowledge thereof, the director promptly files his written objection with the secretary of the corporation.
2) SPECIAL CORPORATION
EDUCATIONAL CORP — You can incorporate as a stock or non-stock educational corporation.
If you incorporate as a stock educational corporation, you will be governed by the ordinary rules of stock corporations. Thus, the profits that the school earned can be distributed to the stockholders.
BOD number shall be Minimum of 1, Maximum of 15.
If you incorporate as a non-stock educational corporation, the main objective is eleemosynary non-stock educational corporation. Whatever you earn, you cannot distribute it as a dividend. You have to channel it back to your operations.
Thise who have contributed their money or property are called MEMBERS; the governing body called BOARD OF TRUSTEES.
Trustees Cannot be less than five, cannot be more than fifteen.
Numbers of trustees should be in the multiples of 5 (5, 10, 15)
Every year, ⅕ shall be elected. [STAGGERED]
SEC. 106. Board of Trustees. –Trustees of educational institutions organized as nonstock corporations shall not be less than five (5) nor more than fifteen (15): Provided, That the number of trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of incorporation or bylaws, the board of trustees of incorporated schools, colleges, or other institutions of learning shall, as soon as organized, so classify themselves that the term of office of one-fifth (1/5) of their number shall expire every year. Trustees thereafter elected to fill vacancies, occurring before the expiration of a particular term, shall hold office only for the unexpired period. Trustees elected thereafter to fill vacancies caused by expiration of term shall hold office for five (5) years. A majority of the trustees shall constitute a quorum for the transaction of business. The powers and authority of trustees shall be defined in the bylaws. For institutions organized as stock corporations, the number and term of directors shall be governed by the provisions on stock corporations.
RELIGIOUS CORPORATION —
Corporation sole
Religious society
If you want to form a religious corp, you can also form it as a non-stock religious corp with eleemosynary purpose of pursuing religious activities. [Sec. 86-87]
Or you can form it under a special corporation, religious corporations under Sec. 107.
So it's either a non-stock religious corp [Sec. 86-87] or form it as a special corp. [Sec. 107]
A corporation sole — a special corp formed by the head of the church. Can be formed alone by the Bishop or any head of the church.
Purpose: is not really to advocate the faith, is not to spread the gospel, is not to increase membership, not to propagate christianity, the purpose is to preserve and to manage the temporalities of the church for the benefit of the members of the church.
MERE FILING OF AOI IN THE SEC, CORPORATION SOLE KA NA. [edi wow!]
Religious society is no different but incorporated as an ordinary corporation. Incorporated by the members. With the concurrence of the members thru the head of the church. Hindi solo flight ang incorporation.
Purpose: (107-108;114) — they have a common purpose. That is to manage the material assets of the church. To preserve, manage the material assets or what our law calls the temporalities of the church. (Buildings, bank accounts, real estates, equipment, sasakyan, etc.)
DIFFERENCE BETWEEN NONSTOCK RELIGIOUS CORP AND SPECIAL RELIGIOUS CORP:
Hairline lang. According to some, its the purpose. For nonstock, to propagate the belief and manage the temporalities of the church. For special religious corporation, to manage the temporalities of the church.
ONE PERSON CORPORATION
THE NEW INNOVATION OF CORP CODE. DUMMIES ARE NOT NEEDED. You can choose to form a one person corporation and not a sole ownership. Entirely a new chapter. Sec. 115-132 All new provisions. No jurisprudence yet. Was not obliterated in the 2019 Revised Corporation Code
It is a corporation composed of a single stock
holder. May be a natural person, a trust, or maybe an estate (pagnamatay ka, all your property or estate will have a juridical personality, like trust)
If you are a natural person, you form a one person corporation for the purpose of practice of a profession, IT is NOT ALLOWED, Unless otherwise provided by law.
General professional partnership, hindi pwd ang corp.
A single stockholder, Ikaw ang director, and president of the corp.
“OPC,” will have to be displayed at the end of the corporate name
Advantage: simplicity of operations. No need of protocols. It's a one-man show. EASE of doing business.
Foreigner ka, no need to create Filipino dummies. Just comply with nationalized and partly nationalized activity requirements with the SEC.
Within 15 days from issuance of your certificate, you need to appoint CORSEC, treasurer, other officer as it may deem necessary [single stockholder cannot be appointed as a CORSEC] Treasurer pwd.
Has to designate nominee and alternate nominee. They will take over the function of the single stockholder when there is a temporary disability, permanent incapacity, or death of the single stockholder.
Sa ordinary corp, the Board can elect a new President. Kung walang quorum, the stockholder can elect.
Initially it will be the nominee that will take over.
Legal heirs will not automatically take over. Only after proper notification of the SEC.
Single stockholder — nominee — alternate-nominee.
No need board meeting [Paanu mag bo-board meeting eh wala ngang board. Ikaw lang mag-iss]
Instead of meeting, records has to be made in the minutes book of the OPC. MAKE SURE you have minutes signed by the director or president which is the single stockholder.
Liability: OPC is vested with separate juridical personality.
Is OPC also protected by separate liability rule?
In an ordinary private corporation, the doctrine of limited liability will not apply if:
there are grounds to pierce the veil;
there is an express assumption of liability;
Sec. 30 comes into play
Here, third party has the burden of proof. Third party need to establish by clear and convincing evidence.
But if you are suing the OPC together with the single stockholder for the liabilities incurred by the third party, the GR is that (Sec. 130), a single stockholder is personally liable unless he can prove the following 👇. The burden of proof is in the single stockholder.
Is Doctrine of limited liability also applicable to OPC
YES. THE OPC may claim limited liability.
NO. IN THE SENSE THAT HE NEEDS TO DISCHARGE THE BURDEN OF PROOF.
The burden of proof must discharge the following:
that the OPC WAS ADEQUATELY FINANCE.
2 M lang ang capital stock mo sa AOI, 30M ang franchise, saan ka kumukuha nang pera? Syempre Personal money. The first burden of proof is not discharged.
And if not discharged, doctrine of limited liability will not apply. The stockholder is solidarily liable.
that the properties of the OPC are independent of the single stockholder’s personal property. Meaning, the assets of your business are treated professionally. It is treated for business purposes only.
There must not be intermingling of assets of the OPC and personal assets.
Sample: nag Franchise ka sa Jollibee, ang building jan ka rin tumitira, ang sasakyan nang companya ginagamit mo rin panghatid sa mga anak mo, so walang independence ang property nang One Person Corporation. The burden of proof will not be discharged.
The consequence again is that, if you fail to discharge these two items [both of them must be proven], the consequence is that the single stockholder will be jointly and severally (solidarily) liable to the third person. You will not enjoy the limited liability rule.
3) FOREIGN CORPORATIONS
What is a foreign corp?
Foreign corporation is one formed, organized or existing under laws other than those of the Philippines’ and whose laws allow Filipino citizens and corporations to do business in its own country or State.
It shall have the right to transact business in the Philippines after obtaining a license for that purpose in accordance with this Code and a certificate of authority from the appropriate government agency.
We adhere to the Place of Incorporation Test. The Place where it is incorporated is the nationality of the corporation. If all Filipino stockholdere incorporated a corporation in Australia, that is a foreign corp, an Australian Corp.
All stockholders are Americans, but incorprated here in the Philippxines, we see that as a Filipino corporation. Why? place of incorporation test.
Magkakaroon lang nang complikasyon if the business activity of the corporation is nationalized or partly nationalized activity. We do not apply the place of incorporation test, what we apply is the control test. We look at the citizenship of the stockholders. Make sure that 60 percent are filipino citizens. If less than 60 percent, we consider it as a foreign corp.
If it is nationalized and partly nationalized activity, and if there is doubt on the sixty percent filipino equity, then the SEC will apply a stricter test which is the grand father rule.
Kung walang complikasyon, then apply Place of Incorporation Test. That is, if the corporation is not engaged in an activity which is nationalized or partly nationalized (telecom, electricity, etc]
If we have a foreign corp and they want to engage in business in the Philippines, how can they do that legally?
They have two choices.
ORGANIZED A SUBSIDIARY CORPORATION HERE IN THE PHILIPPINES — they can incorporate a subsidiary corporation in the Philippines. They can send somebody in the Philippines, they can organize an ordinary corporation here, provided that it is not nationalized. Pag wholesale, it is not nationalized. If that happens we have a filipino corp incorporated in the Philippines.
GET A LICENSE — They do not incorporate any separate entity, but instead they just get a license to do business here in the Philippines complying with the documentary requirements of the SEC. THE SEC WILL ISSUE TO YOU LICENSE TO DO BUSINESS HERE WITHOUT HAVING TO DO A SUBSIDIARY CORP HERE IN THE PHILIPPINES.
ADVANTAGE IN HAVING A LICENSE: YOU CAN ENGAGE IN LEGITIMATE BUSINESS HERE IN THE PHILIPPINES. HINDI KA COLORUM
YOU CAN SUE THEM HERE IN THE PHILIPPINES.
IF NO LICENSE —
THEY CAN SUE YOU (FOREIGN CORP) BUT YOU CANNOT SUE THEM (FILIPINO INDIVIDUAL OR ENTITY) [EH WALA KA LICENSE EH]
YOU [Foreign Corp] CANNOT ENFORCE YOUR RIGHT IN THE PHILIPPINE COURTS.
MATERIAL HERE IS TO DETERMINE WHETHER THE CORPORATION IS DOING BUSINESS OR NOT DOING BUSINESS.
DOING BUSINESS — two test to determine whether or not a corporation s doing business in the Philippines or not:
SUBSTANCE TEST
THE BODY OF THE BUSINESS of the foreign corp as indicated in the AOI, are being conducted here in the Philippines in continuing basis, that foreign corp is doing business.
CONTINUITY TEST
It simply shows a continuity of commercial dealing and arrangement in the Philippines. Meaning your business activity in the Philippines are a going concern, meaning, you have all the intention of remaining here in the Philippines. Sampung taon kana dito. Aba’y your doing business!
Court may choose either one, but most of the time, continuity test is used.
If you fall under that, make sure you have a license in doing business.
DOING BUSINESS
With license and doing business — may sue and may be sued
Without license and doing business — May not sue. Lack of legal standing
XPN: ESTOPPEL on the part of the filipino defendant.
KNOWLEDGE OF NO LICENSE — If the filipino defendant has knowledge that the foreign corporation has no license, But pursued it or
IF BENEFITS ARE RECEIVED — the filipino defendant received benefit from such a transaction. Otherwise, there is unjust enrichment.
INTELLECTUAL PROPERT RIGHTS — If foreign corp is instituting an intellectual property suit. Even if the foreign corp is doing a business without a license, the foreign corp will be allowed to institute an intellectual property suit. As long as it is an intellectual property suit. We are a signatory of international law on intellectual property
Without license, not doing business — you may sue
Foreign corp may be sued. Foreign corp may also sue.
As far as philippine court is concerned, ferrari may be sued. The problem is enforcement of the decision if you win. Paanu mo mahahabol yan eh foreign corp yan.
without license but doing business in an isolated transaction — may sue and may be sued.
x x x NOTHING FOLLOWS x x x
