Lineamientos de referencia y contrarreferencia:

the vote of the stockholders or members

The BOD, in its discretion, may abandon the plan for SLEMPAD even after such authorization or approval by the stockholders, subject to the rights of third parties under any contract relating thereto, without further action or approval by the stockholders or members (ibid).

Effect of sale of all or substantially all of assets of one corporation to another corporation

GR: The corporation who acquired all or substantially all of the assets of the selling corporation shall not be liable for the debts of the latter.

XPNs:

1. Express or implied assumption of liabilities; 2. Merger or consolidation;

3. If the purchase was in fraud of creditors;

4. If the purchaser becomes a continuation of the seller;

5. If there is violation of the Bulk Sales Law.

POWER TO ACQUIRE OWN SHARES

Instances when a corporation may acquire its own shares

1. To eliminate fractional shares out of stock dividends (Sec. 41,CC);

2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale and to purchase delinquent shares sold during said sale (ibid.);

3. To pay dissenting or withdrawing stockholders (in the exercise of the stockholder’s appraisal right)

(ibid.);

4. To acquire treasury shares (Sec. 9, CC);

5. Redeemable shares regardless of existence of retained earnings (Sec 8, CC);

6. To effect a decrease of capital stock(Sec. 38,CC); 7. In close corporations, when there is a deadlock in

the management of the business, the SEC may order the purchase at their fair value of the shares of any stockholder by a corporation

regardless of the availability of unrestricted

retained earnings (URE’s) in its books (par. 1 [4],

Sec. 104, CC).

NOTE: Where a corporation reacquires its own shares, it

does not thereby become a subscriber thereof.

Rule in order that a corporation may acquire its own shares

GR: The corporation may only acquire its own stocks in the presence of unrestricted retained earnings (URE)

XPNs: (RDC)

1. Redeemable shares may be acquired even without surplus profit for as long as it will not result to the insolvency of the Corporation 2. In cases that the corporation conveys its stocks in

payment of a Debt

3. In a Close corporation, a stockholder may demand the payment of the fair value of shares regardless of existence of retained earnings for as long as it will not result to the insolvency of the corporation.

Unrestricted retained earnings (URE)

It represents the surplus profits of the corporation. It is determined by subtracting the liabilities (L), the Capital Stock (CS) and the Restricted Retained Earnings (RRE) from the assets (A) of the corporation

(URE = A – (L + CS+ RRE)).

Unrestricted Retained Earnings shall include accumulated profits and gains realized out of the normal and continuous operations of the company after deducting therefrom distributions of stockholders and transfers to capital stock or other accounts. It does NOT include:

1. Funds appropriated by its BOD for corporate expansion projects or programs;

2. Funds covered by a restriction for dividend declaration under a loan agreement;

3. Funds required to be retained under special circumstances obtaining in the corporation such as when there is a need for a special reserve for probable circumstances.

Guidelines for the acquisition of its own shares 1. The capital of the corporation must not be

impaired. There shall be URE’s to purchase the shares;

2. Legitimate or proper corporate objective is advanced;

3. Condition of the corporate affairs warrants it; 4. Transaction is designed and carried out in good

faith;

5. Interest of creditors is not impaired, that is, the same is not violative of the trust fund doctrine

(Sec. 41, SEC Opinions, Oct. 12, 1992, Sept. 11, 1985, and April 11, 1994).

POWER TO INVEST CORPORATE FUNDS IN ANOTHER CORPORATION OR BUSINESS

The corporation is not allowed to engage in a business different from those enumerated in its AOI The corporation is not allowed to engage in a business different from those enumerated in its AOI unless the purpose will be amended to include the desired business activity among its secondary purpose.

NOTE: However, in the case of pawnshops organized as

corporations and partnerships, they may be allowed to engage in ancillary activity of directly purchasing or selling goods or articles. The Pawnshop Regulation Act contains no prohibition to engage in ancillary activities. Hence, by implication, their scope may be extended to other unrelated business unless clearly prohibited by the said Act. The only requirement is that the person or entity engaged at the same time in other business not directly related or not incidental to pawnshop business, shall keep such business distinct and separate from his pawnshop operations (De Leon, 2010 citing SEC Opinion, March 28,

1985).

Rule in case a corporation wants to invest in an undertaking

GR: Investment of a corporation in a business which is in line with its primary purpose requires only the approval of the board.

XPN: Where the corporation undertakes to invest in another corporation or business or for any purpose other than a primary purpose, it has to comply with the statutory requirements before it can do so (Sec. 42, CC).

Statutory requirements that the corporation needs to comply with to invest in another corporation or business or for any purpose other than a primary purpose

1. Approval by the majority vote of the BOD or BOT 2. Ratification by stockholders representing at least

2/3 of the outstanding capital stock or by at least 2/3 of the members in case of non-stock corporation

3. Ratification must be made at a meeting duly called for the purposes, and

4. Prior written notice of the proposed investment and the time and place of the meeting shall be made addressed to each stockholder or member by mail or by personal service.

NOTE: Investment of a corporation in a business which is in

line with its primary purpose requires only the approval of the board. Any dissenting stockholder shall have appraisal right.

POWER TO DECLARE DIVIDENDS Requirements for the declaration of dividends 1. Existence of URE’s;

2. Resolution of the board; and

3. Additional Requirements for stock dividends: a. A vote representing 2/3 of outstanding capital.

(Sec. 43, CC)

b. A corporation must have also a sufficient number of authorized unissued shares for distribution to stockholders.

Forms of dividends 1. Cash

NOTE: Cash dividends due on delinquent stock shall first be

applied to the unpaid balance on the subscription plus cost and expenses (Sec. 43, CC).

2. Stock

NOTE: Stock dividends are withheld from the delinquent

stockholder until his unpaid subscription is fully paid (ibid).

3. Property

NOTE: Stockholders are entitled to dividends PRO‐RATA

based on the total number of shares and not on the amount paid on shares.

Cash dividends v. Stock dividends

CASH DIVIDENDS STOCK DIVIDENDS Part of general fund Part of capital Results in cash outlay No cash outlay

Not subject to levy by corporate creditors

Once issued, can be levied by corporate creditors because they’re part of

corporate capital Declared only by the

board of directors at its discretion (majority of the quorum only, not majority of all the

board)

Declared by the board with the concurrence of the stockholders representing

at least 2/3 of the outstanding capital stock at

a regular/special meeting Does not increase the

corporate capital

Corporate capital is increased Its declaration creates

a debt from the

No debt is created by its declaration

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