RFBT - LAW ON CORPORATIONS

RFBT - LAW ON CORPORATIONS

One. Definition and Basic Characteristics

Artificial Being and Separate Juridical Personality. General rule: juridical personality commences upon issuance of the Articles of Incorporation, as stated in the QuickNotes. Exceptions listed are corporations by estoppel, those created by special laws, and corporation sole.

Corporate Entity Theory. General rule: trustees, directors, and shareholders are not liable. Exception: Doctrine of Piercing the Corporate Veil.

Piercing the corporate veil applies to three areas. First, defeat of public convenience, where the corporation is used to evade obligations. Second, fraud cases, where the corporation is used to justify a wrong, protect fraud, or defend crime. Third, alter-ego cases, where the corporation is used as an alter ego of a person, agency, or another corporation.

Created by operation of law. Corporations may be created under the Revised Corporation Code or special laws. Private corporations are under the Revised Corporation Code. Local government units and government-owned or controlled corporations owe their existence to the State and law.

Right of Succession and Corporate Term. Corporations incorporated under the Revised Corporation Code are deemed perpetual. For corporations incorporated under the Old Corporation Code, the general rule is that the term is extended to perpetual. Exception: the majority of shareholders elect to retain the term.

Powers, Attributes, and Properties. These may be expressly authorized by law, implied by law, or incidental to existence. An act beyond the limit is considered ultra vires. If illegal, it is void. If legal, it is voidable and becomes binding and enforceable when ratified by shareholders.

Two. Specific Powers of the Corporation

Extend or Shorten Term. Requires a majority vote of the Board of Directors and two-thirds of the shareholders.

Increase or Decrease Capital Stock. Requires a majority vote of the Board of Directors and two-thirds of the shareholders. For an increase of capital, remember the twenty-five percent, twenty-five percent rule: at least twenty-five percent of the increase must be subscribed, and at least twenty-five percent of the subscribed amount must be paid in cash.

Incur Bond Debts. Requires a majority vote of the Board of Directors and two-thirds of the shareholders, voting and non-voting.

Deny Preemptive Right. The denial must be made in the Articles of Incorporation.

Sale or Disposition of All or Substantially All Assets. In the ordinary course, a majority of the Board is required. For a casual sale, a majority of the Board plus two-thirds of the shareholders is required.

Acquire Own Shares. Must be for a legitimate purpose and there must be sufficient unrestricted retained earnings, in relation to the Trust Fund Doctrine.

Invest Corporate Funds. If for the primary purpose, a majority of the Board is required. If for another purpose, a majority of the Board plus two-thirds of the shareholders is required.

Declare Dividends. For stock dividends: majority of the Board present plus two-thirds of the shareholders. For non-stock dividends: majority of the Board present.

Enter into Management Contract. The term must not exceed five years for one term. General rule: majority of the Board present plus majority of the shareholders. Exception: in case of interlocking shareholders or directors, two-thirds of the shareholders.