ATTY’S NOTES (by: A.J. Gomez)

 ATTY’S NOTES:

Certificate of Stock — best evidence of ownership of shares in the corp. similar to a TCT. It is a best proof that you are a stockholder

If you lose it. It doesn't mean that you cease to be a stockholder. THERE are other ways to prove it. Like:

1. General Information Sheet — make sure you are included here and how much share you hold. It is submitted eery year. So that even if you do not have a stock certificate

2. THRU AOI

3. Thru Stock and Transfer Book — records the name, number of shares, whether fully paid or not, 

What if a stockholder wants to transfer or sold it to you? 

Make sure three things must be observed:

1. Make sure that the stock certificates covering those shares is delivered or surrendered to you physically

2. Make sure it is properly indorsed.  Sa stock certifcate mayroong blank space for indorsement. Once signed, that is indorsed to you.  Kahit wala kang pangalan basta pinermahan niya yan, that is a valid indorsement.

3. Make sure it is duly recorded by the CORSEC in the stock and transfer book. If not transferred or recorded in the stock and transfer book, it is binding between the buyer and the seller but not to the corporation and third person.

Only CORSEC can make entries. Otherwise, it will be a void entry. 

If corsec refuses, you can compel him for mandamus if you have already complied with all the requirements for transfer. 

Or file with the SEC, ADMIN CASE. Failure of the corsec to fulfill his duty, or mandamus sa RTC. 

IT IS A MINISTERIAL [Meaning, not discretionary] DUTY ON THE PART OF THE CORSEC. SO YOU CAN COMPEL THE CORSEC BECAUSE IT DOESN'T NEED HIS/HER DISCRETION FOR APPROVAL. IT IS MINISTERIAL.

Make sure you have notify the corsec and make the corsec have an entry in the STB so that it will be binding to the Corp and third party. 

Delinquent shares — 

If only unpaid subscription, the stockholder still enjoy all the rights of a stockholder including the right to vote, as long as you are not declared a delinquent share. 

When do you pay your balance? 

1. If nakalagay sa certificate of stock ang date thats when you you pay;

2. BOD can make a call [Notice of Call] 

Otherwise, your shares may be declared delinquent. You lose certain rights as a stockholder. Right to vote, examinie books, pre-emptive rights temporarily until you settle your unpaid subscription. 

Note in codal how shares become delinquent. Baka tanungin sa Bar. 

The corp may auction that shares and third parties may acquire your shares. The corp may even buy it. They become treasury shares ofthe corp. 

3. Lose or destroyed Certificate of Stocks — just read. Similar to losing your driver’s license

HIERARCHY OF DOCUMENT:

• Which will prevail? Entry in the AOI because it is the charter the corp. it binds the corp, the public, the State. It is a contract between the state and the corp, the corp and the public, the public and the state.

• AOI, STOCK AND TRANSFER BOOK, GIS [within 30 days].

• STB v. GIS — STB prevails

5. MERGERS AND CONSOLIDATION — 

Acquisition — buy all the shares, hanapin mo lahat shareholders. madali lang. 

another way, buy all the asset of the corp or substantially all the asset. But it has legal effect to that. 

Whenever you buy shares of stock of the corp, shares of stock are personal property, like your car, computer, jewelry, watches, appliances. 

Can you share it? YES. ITS A PERSONAL PROPERTY.

DO YOU NEED THE CONSENT OF CORP? 

GN: not necessary.

XPN: unless the AOI or the By-laws requires consent

or maybe your certificate of stock, requires consent. 

Or if there is law. Ex. The corp is vested with public interest at nakalagay doon that the corp must give its consent. 

Another one, right of first refusal. But if none of the exceptions are present, then you can sell your shares anytime. 

Normally shareholder agreement lang yan. 

MERGER — 2 corp, decided to join forces, no different than marriage, they become one; one corp ceases to exist, and other corp survives the merger and becomes the surviving corporation. They may decide who will be the surviving, while the other ceased to exist. One is dissolved, the other survived.

CONSOLIDATION — A and B decides to join forces, two constituent corporations, once they join forces, the separate juridical personality of A and B will both cease to exist and an entirely new corporation will emerge, you may call it AB corp. Both are dissolved and a new corporation is created.

This is contain in their plan of merger submitted in the SEC. Must be approved by their respective board and stockholder (majority plus ⅔ of the OCS). 

Articles of Merger or Consolidation. 

Once approved, will be submitted to the SEC FOR examination, investigation and approval. It is the approval of the SEC which is the date of the effectivity of the merger or consolidation. Without it, it means nothing. That is not legally binding. The reckoning point of the coming into play of the legal consequence will begin from the SEC approval of the articles of merger or consolidation.

SEC’s concern right now, if it is entered into to defraud creditors. 

Another, whether or not the Philippine competition act has been violated. It might be done to dominate the market. It will kill healthy competition in the industry. The SEC will not approve it. Main function is to retain healthy competition in the country. 

If two banking corp? Supervised by the BSP. Before the approval of the SEC, BSP APPROVAL FIRST as the one which regulates the Banking Institutions. 

Take note of the codal having a merger.

LEGAL CONSEQUENCE OF MERGER OR CONSOLIDATION:

1. Legal personality will cease to exist. [merger or consolidation respectively as the case may be]. Merger does not involve dissolution. It will be deemed dissolved. By operation of law. Without having to go thru the process of dissolution. 

2. Surviving or consolidated corp Will now get to enjoy all the rights of a separate juridical person under the corp code

3. The surviving corp will now own all the rights, privileges, interest, of each constituent corporation. Deposit in the banks, inventories for sale, all manufacturing equipment, all corp assets including good will, trademarks, receivables, money in the bank, lahats, all of them, will No longer be owned by the constituent corp, the moment SEC approved it, they will now be owned and enjoyed by the surviving or consolidated corp.

4. In reverse, all the liabilities, obligations and responsibilities of the constituent corporations will no longer be the liabilities of the constituent corp. they will now be transferred automatically, i.e., by operation of law, it will be absorbed by the new corp or surviving corp. XPN unless otherwise provided by the parties. 

5. All claims, actions, against the constituent corp will now be prosecuted against the surviving corp or new corporation. There will be substituion of the defendants or plaintiff. 

CODAL [PARA ACCURATE]

1.  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;  

2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporation;  

3. 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;  

4. 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  

5. 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.

Please take note of this Nell Doctrine — involves one corp buying specific asset of another corp. What is the subject matter of the sale are not sales of stocks. But no change in the entity. Ang nagbago only shareholders. It still has a separate juridical personality. Ang binili dito, specific asset not shares. Substantial asset dito to be exact. 

Sample 10 pieces of heavy equipment eh 11 lang, mejo substantial yan, what happens? Does the buying corp absorbed the debt of the selling corp? 

GR: NO. You are not buying the corp, your buying the asset, eh equipment lang binili ko hindi ang corp. so why I absorbed the debt of the Corp? GR no. 

XPN: 

1. unless otherwise agreed upon [purchase agreement]

2. If the sale Amounts to a merger or consolidation [ madali lang, dadaan yan sa SEC]

3. If the buying corp merely continuous the business of the selling corp. [Tinuloy lang. but how do we know? One way to find out is if the transfer of assets constitute a sale of all or substantially all assets. So you will absorbed the liability]

4. If the transaction is fraudulent. The intention really is to escape from the liabilities of the corp. This is hard to prove. You have to go to court. 

IMPORTANT CONSIDERATION:

LABOR CASE: 

Does this include liabilities responsibilities toward the workers, employees of the constituent corporation? May problema dito kunti. Originally the SC, of course, it should include. IT SHOULD BE absorbed by the surviving corp or new corp. and if not, they should be given their separation pay by the surviving corp or consolidated corp. BUT in 2010, the SC changed this. SC, when it comes to employees claims, these are contracts in personam [personal], not contracts in rem. Thus, they should not be inherited by the surviving or consolidated corp.  It is not duty-bound to absorb the employees of the surviving corp. Hiring is discretionary but not mandatory on the part of the surviving or consolidated corp. What happened, they are just given separation pay of their constituent or original corp dahil hindi sila na absorb. 

In 2017, the SC changed policy again,  Sumifro corp v. Baya 822 Scra, the SC flip-flap, the obligations to the employees of the constituent corp are among those absorbed by the surviving corp or the new corp. 

6. NONSTOCK CORP — 

Stock — to maximize and gain profits. Corporate Social Responsibility, extra lang yan. 

Nonstock — opposite of stock. Not for profit but to perform eleemosynary purposes. Charitable, social, religious, educational, etc.

Make sure that the AOI has to indicate that no part of its income is distributable as dividends to its members. In short, if you are dealing with a non-stock corp, it is not prohibited from earning profits [gifts, endowment, contributions].

They are not prohibited, they can do fundraising, they can engage in business, but said profits cannot be distributed among members as dividends. Baka makulong ka. They have to channel it back to operations. Put up more buildings, increase the salary of personnel, but not distribute the dividends or earnings to members. 

What if you want to convert non-stock to stock corp? Amend only the articles of incorporation of the nonstock corp? 

ANSWER IS NO. IT will violate the very essence of the nonstock corp. 

DISSOLVE the nonstock first and after dissolution, create a new stock corp. 

Stock — stockholders [depending of the number of shares] BOD

Nonstock — members [one member is entitled to one vote] 

BOARD OF TRUSTEE [more than 15 pwd] “May or May not be more than 15”) [Sec. 91, Corp Code]

Term of office ->1 not >3 years

Delinquent what is the remedy of the CORP — the corp may auction the share, or file a collection suit against you and give it to the highest bidder. Corp can purchase it and they become treasury shares. The Least number of shares

If there is an unpaid balance, you cannot compel the corp to issue to you the certificate of stocks. Mandamus will not lie.

May unpaid balance, you find a buyer, you cannot compel the corp again. If you are the buyer, first before you pay any amount, make sure there is no unpaid balance. Aks certification from the corsec if the share you are buying is fully paid. 

Run after the seller, file a collection suit against him. If he cannot be found or becomes insolvent, can you compel the corp even if there is still an unpaid balance? You cannot compel the corp. mandamus will not lie.