Title Iv
Title Iv
Title Iv
Amendment of the Art of Inc -the preferential right of all stockh. Of a stock corp to
-to reduce the authorized capital stock subscribe to all issues or disposition of shares of any
Purchase of redeemable shares by the corp class, in proportion to their respective shareholdings
-regardless of the existence of unrestricted
15. What are the purposes of the pre-emptive
retained earnings
right of stockholders?
Dissolution and eventual liquidation of the
corp To enable the shareholders to retain his
9. VOTE NECESSARY TO INCREASE OR proportionate control in the corporation
DECREASE CAPITAL STOCK OR CREATE To subscribe to all issues or disposition of
BONDED INDEBTEDNESS shares of any class, in proportion to their
respective shareholdings
Majority vote of the BOD
2/3 of the outstanding capital stock at a
stockholders’ meeting duly called for the 16. To what case may a stockholder exercise his
purpose pre-emptive right?
10. REQUIREMENTS THAT MUST BE MET FOR All issues or disposition of shares of any
THE INCREASE OR DECREASE IN CAPITAL class
STOCK General rule: pre-emptive right is
recognized with respect to new issues of
Written notice of the proposed increase or shares (see p. 297)
diminution of the capital stock
*and time and place of the stockh. Meeting
-must be addressed to each stockh. 17. To what cases is the pre-emptive right not
No decrease of the capital stock shall be applicable?
approved if its effect shall prejudice the rights POWER TO DENY PRE-EMPTIVE RIGHT
of the corp. creditors (preemptive right is not applicable to):
Approval by a majority vote of the BOD o Shares issued in compliance with laws
Ratification by the stockh. Holding at least requiring stock offerings or minimum
2/3 of the outstanding capital stock stock ownership by the public
Certificate must be signed by a majority of o Shares issued in exchange for property
the D of the corp needed for corporate purposes or in
-and countersigned by the chairperson and payment of a previously contracted debt
sec of the stockh. Meeting o Shares issued in good faith with the
Approval by the SEC approval of the stockholders
-FS duly certified by an independent CPA as representing the 2/3 of OCS, in exchange
of the latest date possible
for property needed for corporate 23. In cases of disposition of corporate assets in
purposes or in payment of debt the course of business done by the BOD (or
General rule: pre-emptive right is not trustees), do they require the approval of the
recognized with respect to additional issues of stockholders or members?
originally authorized shares (see p. 297)
NO, approval is not needed
o The sale does not involve all or
18. What are the limitations on the power of the substantially all of the corporate
corporation to sell or dispose all or substantially assets
all its corporate assets including goodwill? o Also applies if the proceeds of the
sale or disposition shall be
Must be authorized by the vote of the SH appropriated for the conduct of its
representing at least 2/3 of the OCS (or at remaining business
least 2/3 of the members) o Ratification is not required
o In a SH or members’ meeting duly
called for the purpose
24. Suppose all or substantially all the corporate
property or assets shall be disposed of, is the
19. What is the test to apply in order to determine corporation dissolved?
whether the disposition is for all or substantially
all the assets of the corporation? Wala ko kabalo hilak nlng ta
22. May such disposition after having been 29. When may a corporation be allowed to
approved by the required vote of stockholders or acquire its own shares?
members be abandoned? a. To eliminate fractional shares arising out of
YES stock dividends
o BOD/T may, in its discretion, abandon b. To collect or compromise an
such sale or disposition, subject to the indebtedness to the corporation, arising
rights of third parties under any contract out of unpaid subscription, in a delinquency
relation thereto, without further action or sale, and to purchase delinquent shares sold
approval by the SH or members. during said sale
c. To pay dissenting or withdrawing SH
entitled to payment for their shares
d. To acquire treasury shares 33. May a corporation invest its corporate funds
e. Redeemable shares regardless of in another corporation or for a purpose other
existence of RE than its main purpose?
f. To effect a decrease of capital stock
g. (In close corporations) as ordered by the 🡺 Requisites:
SEC when there is a deadlock in the I. TO ACCOMPLISH ITS PRIMARY PURPOSE
management
o Purchase at FV of shares or of any 1) Approval of the majority of the BOD/BOT;
SH regardless of the availability of and
unrestricted RE 2) Approval of the stockholders/members shall
not be necessary
30. What basic conditions must be met before a II. TO ACCOMPLISH A PURPOSE OTHER THAM
corporation can acquire its own shares? THE PRIMARY PURPOSE
The corporation must have unrestricted 1) Approval of the majority of the BOD/BOT;
retained earnings in its books to cover the 2) Ratification by the stockholders
shares to be purchased or acquired representing at least 2/3 of the outstanding
capital stock, or by at least 2/3 of the
members in the case of non-stock
31. Basis of unrestricted retained earnings
corporation, at a stockholder’s/member’s
🡺 SEC has exclusive supervision, control and meeting dully called for the purpose
regulatory jurisdiction to investigate whether the 3) Written notice of the proposed investment
corporation has unrestricted RE to cover the and the time and place of the meeting shall
payment for the shares and whether the purchase be addressed to each stockholder/member
is for legitimate corporate purpose. by mail or served personally, or sent
🡺 Provisions of the CC should be deemed written electronically in accordance with the rules
into the agreement between the corporation and and regulations of the Commission on the
stockholder even if there is no express reference to use of electronic data message, when
them in the promissory note allowed by the bylaws or done with the
consent of the stockholders
🡺 Requirement: unrestricted RE to cover the 4) Any dissenting (publicly disagree)
shares is based on Trust Fund Doctrine – capital
stockholder shall have appraisal right; and
stock, property and other assets of a corporation
5) The ratification must be made at a
are regarded as equity in trust for the payment of
stockholder’s /member’s meeting dully
corporate creditors.
called for the purpose
🡺 Preferred corporate creditors then stockholders
***FUNDS – any corporate property to be used in
🡺 Any disposition of corporate funds to the furtherance of business***
prejudice of creditors is null and void
34. May such investment be made even without
32. Instances of distribution of corporate capital the approval of the stockholders/members?
🡺 3 INSTANCES OF DISTRIBUTION OF 🡺 No.
CORPORATE CAPITAL
35. Define dividend
⇨ The Trust Fund Doctrine provides that
subscriptions to the capital stock of a 🡺 Corporate profits set aside, declared, and
corporation constitute a fund to which the ordered to be paid by the directors for distribution
creditors have a right to look for the among stockholders at a fixed time
satisfaction of their claims. This doctrine is 36. Who has the power to declare dividends in a
the underlying principle in the procedure for corporation?
the distribution of capital assets, embodied
🡺 BOD of a stock corporation may declare
in the Corporation Code, which allows the
dividends
distribution of corporate capital only in 3
instances: 37. From what source shall dividends be
⇨ 1) Amendment of the AOI to reduce the declared?
authorized capital stock
🡺 Out of unrestricted RE / “Surplus profits arising
⇨ 2) Purchase redeemable shares by the from its business”
corporation, regardless of the existence of
unrestricted RE 38. In what forms shall dividends be declared?
⇨ 3) Dissolution and eventual liquidation of the 🡺 Cash dividends, Property dividends or Stock
corporation dividends
39. Which stockholders are entitled to 1) When justified by definite corporate
dividends? expansion projects or programs
approved by the BOD; or
🡺 To ALL stockholders on the basis of outstanding
stock held by them 2) When the corporation is prohibited under
any loan agreement with financial
40. May delinquent stocks earn dividends? institutions or creditors, whether local or
🡺 Yes, Provided, that any cash dividends due on foreign, from declaring dividends without
delinquent stock shall first be applied to the unpaid their consent, and such consent has not yet
balance on the subscription plus cost and been secured; or
expenses, while stock dividends shall be withheld 3) When it can be clearly shown that such
from the delinquent stockholders until their unpaid retention is necessary under special
subscription is fully paid circumstances obtaining in the corporation,
such as when there is need for special
41. Can the Board alone declare stock
reserve for probable contingencies
dividends?
🡺 No, Provided further, that no stock dividend shall 45. Is stock dividend taxable income to the
be issued without the approval of stockholders stockholder?
representing at least 2/3 of the outstanding 🡺 Forced to exchange the monetary value of their
capital stock at a regular/special meeting duly dividend for capital stock, and the monetary value
called for the purpose they forego is considered the actual payment for
🡺 Dividends to a stockholder is not a matter of right the original issuance of the stocks given as
but a matter of consensus dividends
42. May stock corporations retain surplus 46. Can stock dividends be issued to a person
profits without declaring them into dividends? who is not a stockholder in payment for services
rendered?
🡺 General Rule: Stock corporations are prohibited No. The right to dividend is based on duly
from retaining surplus profits in excess of 100% of recorded stockholdings.
their paid-in capital stock, except: 47. Can dividends be declared out of capital?
Yes
1) When justified by definite corporate Stock corporations may declare out of the
expansion projects or programs unrestricted retained earnings
approved by the BOD; or
2) When the corporation is prohibited under 48. What is a wasting assets corporation?
Wasting Assets Corporation is a corporation
any loan agreement with financial
engaged in mining or cutting timber or some
institutions or creditors, whether local or such business, so that dividends are in fact paid
foreign, from declaring dividends without out of capital, the assets being consumed in the
their consent, and such consent has not yet regular course of operations.
been secured; or Wasting assets doctrine
3) When it can be clearly shown that such Under this doctrine, a wasting asset
retention is necessary under special corporation or an entity engaged in the
extraction of a natural resource can legally
circumstances obtaining in the corporation,
return shareholders during the lifetime of the
such as when there is need for special corporation.
reserve for probable contingencies Accordingly, a wasting asset corporation can
pay dividend not only to the extent of the
retained earnings but also to the extent of the
43. When may SEC compel corporations to accumulated depletion. The amount paid in
declare dividends? excess of the retained earnings is accounted
for a liquidating dividend or return of capital.
🡺 Declaration of dividends is dependent upon the
The wasting asset doctrine is therefore an
availability of surplus profit or unrestricted RE
exception to the trust fund doctrine.
🡺 BOD has the discretion to determine whether or 49. Can dividends be declared out if re-appraisal
not dividends are to be declared surplus?
Dividends cannot be declared out of re-appraisal
44. What are the valid reasons acceptable to the (revaluation) surplus
SEC for retaining surplus profits in excess of
100% of paid-in without having to declare said 50. May cash dividends be declared out of paid-
excess into dividends? in or premium surplus?
Dividends cannot be declared out of paid-in or
🡺 Except: premium surplus
Moreover, spe