in the articles of incorporation.
Note: When the by‐laws provide a right of first refusal, it is null and void. There is no authority to create property restrictions in by‐laws provisions. (Hodges v. Lezama, 62 O.G. 6823)
Q: May a provision in the articles of incorporation validly grant a right of first refusal in favor of other stockholders?
A: Yes, the SEC, as a matter of policy, allows
restrictions on transfer of shares in the articles of incorporation if the same is necessary and
convenient to the attainment of the objective for
which the company was incorporated, unless palpably unreasonable under the circumstances. (SEC Opinion, Feb. 20, 1995)
Q: What is the Right to Inspect?
A: It is the right of a stockholder to inspect the
books of the corporation provided the following requisites are present:
1. It must be exercised at reasonable hours on business days;
2. The stockholder has not improperly used any information he has secured through any previous examination and
3. Demand is made in good faith or for a legitimate purpose.
Q: What is Preemptive right?
A: It is the preferential right of shareholders to
subscribe to all issues or disposition of shares of any class in proportion to their present shareholdings. (Sec. 39)
Q: How can the stockholders exercise their right to vote?
A: The stockholders can exercise their right to
vote through the election, replacement and removal of Board of Directors or Trustees and on other corporate acts which require stockholders’ approval.
Q: What are the conditions for the issuance of non‐voting shares?
A: The issuance of non‐ voting shares is subject to the following conditions under Section 6 of the Corporation Code:
1. Only preferred or redeemable shares may be made non‐voting shares;
2. There must remain other shares with full voting rights
Q: When are non‐voting shares entitled to vote?
A: The non‐voting shares may still vote in the following matters:
1. Amendment of the articles of incorporation
2. Adoption and amendment of by‐laws 3. Sale, lease, exchange, mortgage, pledge
or other disposition of all or substantially all of the corporate property.
4. Incurring, creating or increasing bonded indebtedness
5. Increase or decrease of capital stock 6. Merger or consolidation of the
corporation with another corporation or other corporations
7. Investment of corporate funds in another corporation or business in accordance with the corporation code
8. Dissolution of the corporation
Q: What is the rule in case of pledged or mortgaged shares?
A: As a rule, In case of pledged or mortgaged
shares in stock corporations, the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders
XPN: The pledgee or mortgagee is expressly given
by the pledgor or mortgagor such right in writing which is recorded on the appropriate corporate books.
Q: What is the rule in case of joint ownership of stock?
A: Generally, in case of shares of stock owned
jointly by two or more persons, in order to vote the same, the consent of all the co‐owners shall be necessary.
XPN: If there is a written proxy, signed by all the
co‐owners, authorizing one or some of them or any other person to vote such share or shares. Provided, That when the shares are owned in an "and/or" capacity by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.
Note: treasury shares shall have no voting right as long as such shares remain in treasury.
(4) REMEDIAL RIGHTS
Q: What actions can the stockholders or members bring?
A:
1. Derivative suit – one brought by one or more stockholders or members in the name and on behalf of the corporation to redress wrongs committed against it or to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue or are the ones to be sued or hold control of the corporation. The requisites are as follows:
a. There should be an existing cause of action in favor of the corporation;
b. Refusal of the corporation to file an action despite demand from the stockholder.
c. The party filing the suit must be a stockholder at the time of the objectionable acts or transactions occurred unless such transactions are continuing in nature; and d. The action must be brought in the
name of the corporation which must be alleged
Note: The stockholder is only nominal party in a derivative suit. The real party in interest is the corporation.
2. Individual suit – and action brought by a stockholder against the corporation for direct violation of his contractual rights.
3. Representative suit – one brought by a person in his own behalf and on behalf of all similarly situated. Q: Which court has jurisdiction over a derivative suit?
A: A derivative suit is an intra‐corporate
controversy hence under the jurisdiction of the RTC acting special commercial court.
Q: AA, a minority stockholder, filed a suit against BB, CC, DD, and EE, the holders of majority shares of MOP Corporation, for alleged misappropriation of corporate funds. The complaint averred, inter alia, that MOP Corporation is the corporation in whose behalf and for whose benefit the derivative suit is brought. In their capacity as members of the
Board of Directors, the majority stockholders adopted a resolution authorizing MOP Corporation to withdraw the suit. Pursuant to said resolution, the corporate counsel filed a Motion to Dismiss in the name of the MOP Corporation. Should the motion be granted or denied? Reason briefly.
A: It should not be denied. The requisites for a
valid derivative suit exist in this case. First, AA was exempt from exhausting his remedies within the corporation and did not have a demand on the Board of Directors for the latter to sue. Here, such a demand would be futile, since the directors who comprise the majority (namely BB, CC, DD and EE are the ones guilty of the wrong complained of. Second, AA appears to be a stockholder at the time of the alleged misappropriation of corporate funds. Third, the suit is brought on behalf and for the benefit of MOP Corporation. In this connection, it was held in
Commart (Phils.) Inc. v. SEC, G.R. No. 85318, June 3, 1991, that to grant to the corporation
concerned the right of withdrawing or dismissing the suit, at the instance of the majority stockholders and directors who themselves are the persons alleged to have committed the breach of trust against the interests of the corporation would be to emasculate the right of the minority stockholders to seek redress for the corporation. Filing such action as a derivative suit even by a lone stockholder is one of the protections extended by law to minority stockholders against abuses of the majority. (5) OBLIGATIONS OF A STOCKHOLDER Q: What are the obligations of stockholders?
A: The stockholders have the following
obligations:
1. Obligation to pay the corporation for the unpaid subscription including interest therein;
2. Obligation to pay the creditors of the corporation to the extent of their subscription if the corporate assets are not sufficient.
(6) MEETINGS Q: When will stockholders/members meeting be held? A: DATE OF MEETING REQUIRED WRITTEN NOTICE Regular meeting 1. Annually on date fixed in the by‐ laws; or 2. If there is no date in the by‐laws – any date in April as determined by the board.
Venue: In the city or municipality where the principal office is located 1. Within the period provided in the by‐laws 2. In the absence of provision in the by‐laws – 2 weeks prior to the meeting. Special meeting 1. Any time deemed necessary; or 2. As provided in the by‐laws Venue: Principal office 1. Within the period provided in the by‐laws 2. If no provision in the by‐laws – 1 week prior to the meeting
Q: What is the required quorum in a stock corporation?
A:
GR: Shall consist of the stockholders representing
majority of the outstanding capital stock or a majority of the actual and living members with
voting rights, in the case of non‐stock corporation. (Tan v. Sycip, G.R. No. 153468, Aug.
17, 2006)
XPN:
1. A different quorum may be provided for in the by‐laws
2. The corporation code provides for certain resolutions that must be approved by at least 2/3 of the outstanding capital stock, in which case, majority of the outstanding capital stock is insufficient to constitute a quorum, presence of the stockholders representing 2/3 of the outstanding capital stock is necessary for such purpose.
Q: What are the requirements for a valid meeting whether stockholders/members or the board?
A:
1. It must be held in the proper place; 2. It must be held at the stated date and at
the appointed time or at a reasonable time thereafter;
3. It must be called by the proper person: a. The person or persons designated
in the by‐laws have authority to call stockholders’ or members’ meeting
b. In the absence of such provision in the by‐laws it may be called by a director or trustee or by an officer entrusted with the management of the corporation
c. A stockholder or member may make the call on order of the SEC whenever for any cause there is no person authorized to call a meeting d. The special meeting for the removal of directors or trustees may be called by the secretary or by stockholder or member. 4. There must be a previous notice 5. There must be a quorum
Q: What are the rules on meeting or voting which are applicable to certain kinds of shares?
A:
1. Delinquent shares shall not be entitled to vote
2. Treasury shares have no voting rights while they remain in the treasury (Sec.
57)
3. Fractional shares shall not be entitled to vote
4. Escrow shares shall not be entitled to vote before the fulfillment of the condition imposed thereon
5. Unpaid shares, if not delinquent, are entitled to all the rights of a stockholder including the right to vote
6. Sequestered shares
As a rule, the right to vote remains on the shareholder and the entity making the sequestration may not exercise the right to vote
XPN: The Two‐Tiered Test
a. Whether there is a prima facie evidence showing that the said shares are ill‐gotten and thus belong to the State
b. Whether there is an immediate danger of dissipation thus necessitating their continued
sequestration and voting by the PCGG while the main issue is pending with the Sandiganbayan.
(Republic vs. Sandiganbayan, G.R. No. 107789, Apr. 30, 2003)
XPN to the XPN: The two‐tiered test
does not apply in cases involving funds of public character (public character exception). In such cases, the government is granted the authority to vote said shares, namely:
a. Where the government shares are taken over by private persons or entities who or which registered them in their own names; and b. Where the capitalization of shares
that were acquired with public funds somehow landed in private hands (ibid).
7. Pledgor, mortgagor, or administrator
shares (Sec. 55); pledgor or mortagor
has the right to attend and vote at meetings unless pledge or morgagee is expressly given such right in writing, as recorded on the books.
Executor, administrators, receivers, and other legal representatives may attend and vote in behalf of the stockholder or members without need of any written proxy. In Gochan v. Young, G.R. No.
131889, Mar. 12, 2001, it was held that
heirs are not prohibited from representing the deceased with regard to shares of stock registered in the name of the latter, especially when no administrator has been appointed.
8. Shares jointly owned (Sec. 56) – consent of all the co‐owners is necessary, unless there is a written proxy signed by all the co‐owners. If shares are owned in an “and/or” capacity by the holders thereof, any one of the joint owners can vote or appoint a proxy thereof.
Q: Is teleconferencing or video‐conferencing valid?
A: Yes. (R.A. 8792, as implemented by SEC Memo.
Circular No. 15, Nov 30, 2001) provided:
1. Directors must express their intent on teleconferencing;
2. Proper identification of those attending; 3. The corporate secretary must safeguard the integrity of the meeting by
recording it. There is no violation of the Anti‐Wire Tapping Act (R.A. 4200) because all the parties to the board meeting are aware that all the communications are recorded. Note: The basic types of teleconferencing are: 1. Video conferencing; 2. Computer conferencing; 3. Audio conferencing. I. BOARD OF DIRECTOR AND TRUSTEES (1) REPOSITORY OF CORPORATE POWERS Q: Who shall exercise corporate powers? A:
GR: The Board of Directors or the Board of
Trustees (Sec. 23).
XPN:
1. In case of delegation to the Executive Committee duly authorized in the by‐ laws;
2. Authorization pursuant to a contracted manager which may be an individual, a partnership, or another corporation.
Note: In case the contracted manager is another corporation, the special rule in Sec. 44 applies.
3. In case of close corporations, the stockholders may manage the business of the corporation instead by a board of directors, if the articles of incorporation so provide. Q: Who is an independent director?
A: Shall mean a person other than an officer or
employee of the corporation, its parent or subsidiaries, or any other individual having a relationship with the corporation, which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director (Sec 38, SRC).
Q: How many independent directors are required for the corporations covered by the Revised Code of Corporate Governance (RCCG)?
A: At least 2 or such number of independent
directors that constitute 20% of the members of the board whichever is lesser, but in no case less than 2 (Art. 3 [A], RCCG).