Transcript for:
Lecture on Revised Corporation Law of 2019

we'd like to have a very exciting sharing with you on this particular segment of our youtube upload because what we will have here is a discussion of the new features of the revised corporation law of 2019 as we compare with the batas bambansa number 68 of 1980 where the corporation law was also issued we have decided to zero in on this particular session on those provisions of the revised corporation law that represent changes and we would handle the details of the corporation law in subsequent uploads where will we discuss the corporation law together with the revisions in 2019 on a on a complete flow basis but for this particular upload we shall only be zeroing in on those provisions that are new under the revised corporation law of 2019 allow me to dedicate this little sharing with the dr vergilio domingo de los santos the late chairman of the board and president of the university of manila because i spent a number of opportunities and occasions [Music] solving legal problems with him involving corporation and so i would like to dedicate this particular special version on the new provisions or the revised provisions of the corporation law as approved in 2019 without much ado let us start the ball rolling by allowing me to introduce myself i am dean josantos balagtas viscara i hold a bachelor of business administration degree major in accounting and a certified public accountant university of the east sumachum laude i have my master of business administration degree mba university of the philippines diliban where i graduated magna laude and valedictorian i finished my bachelor approach degree university of the east cumbraude and class valedictorian after i finished my bachelor of business administration degree and after i took up the cpa board exam i immediately joined the corporate world rising gradually from financial analysts with then esso which became patron to finally become executive vice president and chief finance officer of fuji xeros so in addition to fuji xerox i was also with motorola philippines i had a stint in the pharmaceutical industry glaxosmithkline i did mention my first career was in eso patron and uh just hold on for a minute let me just arrange this and i also had stints with glaxosmithkline i already mentioned that i had the stint with construction division echo asia that handle the electromechanical component of the bataan nuclear power plant i also work with delgado brothers incorporated with fmc's furoden an american company in the agricultural chemical field and i had my stint with the world bank doing two major projects with them in the fisheries sector and with local water utilities administration on the water system where i did the 10-year financial projections of lua after i finished my bar exams i immediately tried to appear in court even if i was full-time with the corporate world taking leaves and i was a practicing lawyer appearing in the regional and metropolitan trial courts in metro manila and the new right provinces that allowed me to be nominated twice associate justice supreme court of the philippines and also professorial lecturer in criminal law and mercantile philippine judicial academy i already mentioned that i am the dean of the college of law university of manila the vice president for legal affairs and a member of the board of trustees sometime in 2009-2011 i was also the dean colleges of law at of the university of perpetual health i have been an mba professor in financial management at the delisle university for 35 years 10 years at the university of the philippines in diliman and a few years at the university of the east i've been barry viewer and law professor at the university of the east university of santo tomas de la salle university university of the philippines san sebastian college and far eastern university to start the ball rolling on the corporation law updates zeroing in on the revised corporation law of 2019 allow us to start with comparing the substantive changes between the revised corporation law and the republic act 11 232 of 20 february 2019 versus the corporation code under bp 68 of may 1 1998 under the subject matter of incorporation and organization should be worthwhile for us to again remind ourselves on what a corporation means under section 2 of the revised corporation code it says a corporation is an artificial being created by operation of law having the right of succession and the powers attributes and properties expressly authorized by law or incidental to its existence in so far as the corporate term is concerned this is one of the significant new features of the revised corporation code in the revision it says a corporation shall have perpetual existence unless its articles of incorporation provides otherwise in the corporation code of 1980 corporations have 50 year life subject to a renewal for another 50 years in the 2019 revision the legislature has decided to extend perpetual existence to corporations in the philippines now existing corporations at the time they revised the corporation code was enacted with certificates issued before the revised corporation code of 2019 was issued shall have perpetual existence likewise unless the corporation upon a both of its stockholders representing a majority of its articles of incorporation retains its fixed term provided that any change in the corporate life shall consider the right of dissenting stockholders in accordance with the provisions of this code just looking forward we will recognize that when the life of the corporation is either extended just like in this case from a fixed term to a perpetual term or perpetual existence or when the corporation decides to amend these articles of incorporation to shorten the life of the corporation this is one occasion where dissenting shareholders can exercise the right to say goodbye by way of their appraisal right continuing with the subject matter of corporate term a corporate term for a specific period may be extended or shortened by amending the articles of incorporation which is what we were saying a while ago provided that no extension may be made earlier than three years prior to the original or subsequent expiry date or dates unless there are justifiable reasonable reasons for an earlier extension as may be determined by the commission sec provided further that such extension of the corporate term shall take effect only on the day following the original or subsequent expiry date a corporation whose term is expired may apply for revival of its corporate existence together with all the rights and privileges under its certificate of incorporation and subject to all all of its duties debts and liabilities existing prior to its revival upon approval by the commission the corporation shall be deemed revived and a corporate certificate of revival of corporate existence shall be issued giving it perpetual existence unless its application for revival provides otherwise no application for revival of certificate of incorporation of banks banking and qsi banking institutions pre-need insurance and trust companies non-stock savings and loan associations pawnshops corporations engage in money service business and other financial intermediaries shall be approved by the commission unless accompanied by a favorable recommendation of the appropriate government agencies we all know that banks banking increases banking institutions and non-stock savings and loan associations pawnshops fall or and also corporations engage in money service business and other financial in intermediaries have the banco central non-filipinas as the appropriate governing agency on the other hand pre-need insurance companies and to a certain extent trust companies are under the responsibility of the insurance commission moving now to incorporators this is a new provision or a revised provision in the uh 19 in the 2019 corporation code and it reads incorporator would be any person partnership association or corporation singly or jointly with others but not more than 15 in number may organize a corporation for any lawful purpose or purposes in the 1980 corporation code it reads any number of natural persons take note in the 1980 corporation code version only natural persons can be incorporators in the 20 2019 revised corporation code juridical personalities are now in uh capable of becoming incorporators to include partnerships associations and equally corporations and the limit not less than five which existed in the 1980s corporation code has been obviously deleted in the 2019 revised corporation code but both the 1980 and 2019 corporation code versions kept the maximum of 15 incorporators as the ceiling likewise you will notice that it is very clear that in the 1980 corporation code the majority of the incorporator should be residents of the philippines and yet in the 2019 corporation code there is no requirement that any of the incorporators are residents of the philippines which means those who are abroad whether filipinos abroad or even foreigners can become incorporators as natural persons or perhaps even members of partnerships associations or corporations however there is an exception to the issue of partnerships or even persons involved in the professions natural person citrines who are licensed to practice a profession and partnerships or associations organized for the purpose of practicing a profession shall not be allowed to organize as a corporation unless otherwise provided under special laws you will understand this because in the practice of the profession it is the individual professional who becomes personally and professionally liable and so if you allow the creation of a corporation under the concept that the corporation is separate and distinct from its stockholders the professional therefore would have some difficulty being bound by any violation of his professional duties and so therefore here uh persons who are in the practice of the profession either as persons or in partnership will not be allowed to organize a corporation incorporators or natural persons must be of the girl age continuing with the discussion on corporations each incorporator of stock corporation must own or be a subscriber to at least one share of capital stock i think that is obvious a corporation with a single stockholder is considered a one-person corporation as described in title 13 chapter 3 of this code this particular youtube upload has purposely did not include the discussion or one one person corporation we will have a separate upload to discuss fully this new provision of the revised corporation code that provided a one-man corporation by way of some comments partnerships associations or corporations we already said this are artificial persons but can now be allowed to organize a corporation and incorporators can now be from one to two persons and even less than five but not more than 15. if you will remember under the 1980 corporation code they cannot be less than five under the 2019 revised corporation code it can be one person which is the one-month corporation being mentioned here or they can be two but less than five and that would still qualify as a legitimate corporation organized under sec and finally incorporators need not be residents of the philippines as obviously comp uh when we compare the 2019 uh definition of incorporators versus the one in uh 20 in 1980 corporation code and so there is no requirements so far under section 10 of title 2 of the revised corporation code of 2019. let us now move on to another major change in the revised corporation code of 2019 and on the minimum capital circuit breeds stock corporation shall not be required to have minimum capital stock except as otherwise specially provided by special law just for purposes of comparison this very famous 25-25 percent rule has been set aside in the revised corporation code of 2019 under the 1980 corporation code it reads and this is the one in yellow it says at least 25 of the authorized capital stock as stated the article of incorporation must be subscribed at the time of incorporation and at least 25 percent of the total subscription must be paid upon subscription the balance to be payable on the data dates fixed in the contract of subscription without need of call or in the absence of a fixed date or dates upon call for payment by the board of directors provided however that in no case shall the paid up capital be less than 5 000 pesos that particular requirement is the minimum capital stock that was mandated under the 1980 corporation code and we will notice under the [Music] 2019 revised corporation code such requirement does not exist the revised corporation code of 2019 no longer requires any minimum capital stock not the previous 25 percent 25 percent rule on subscriptions and full payments let's move on now to corporate name the 2019 revised corporation code provides that no corporate name shall be allowed by the commission if it is not distinguishable from that already reserved or registered for the use of another corporation or if such name is already protected by law rules and regulations so again in terms of the corporate name the corporate name should be distinguishable so it says the corporate name no corporate name shall be allowed if it is not distinguishable so in the reverse we're saying that sec will only approve a corporate name if it is distinguishable from another corporate name that is receivable registered in favor of another corporation or if such name is already protected by law rules and regulations continuing with the corporate name it is worthwhile to understand when is a name not distinguishable in effect it is the same as another corporate name even if it contains one or more of the following letter a if that name contains the word corporation company incorporated limited limited liability or an abbreviation one of such words then the addition of that word to a corporate name that already exists will not make the second corporate name distinguishable so for example if you are if you have a corporate name agua del mar then it is already a registered corporation and then another businessman proposing to organize his company added now the word agua del mar incorporated or agua del mar limited the fact that he is adding the word incorporated or limited to the name agua del mar that is already registered will not make his agua del mar incorporated a distinguishable brand the second one is if you added punctuations articles conjunctions contractions prepositions abbreviations different tenses spacing or number of the same word or phrase then adding that to an existing name will not likewise make the second imitation corporate name to be distinguishable for example in our example agua del mar and what was added were three dots agua del mar dot dot dot the originally registered corporate name did not have the dot dot dot that particular series of period punctuations will not make agua del mar the second one valid for registration purposes another similar strategy would be agua del mar is the registered corporate name and the second one proposing to register would put a uh an article l e-l so it will read now l agua del mar the l there is simply an article or a preposition added to already an existing name and so the agua del mar originally registered will continue to be protected by prior registration and the adding of the l e l in front of it to read el agua del mar will not allow the sec to register the second name as a valid or distinguishable corporate name the sec it says here the commission upon determination that the corporate name is number one not distinguishable from a name already reserved or registered or for example number two already protected by law or number three contrary to law rules and regulations may summarily order the corporation to immediately cease and desist from using such name and require the corporation to register a new one the commission shall also cause the removal of all visible signages marks advertisements labels sprints and other effects bearing such corporate name upon the approval of the new corporate name the commission shall issue a certificate of incorporation under the amended name if you if you remember there was this particular restaurant that before the enactment of this 2019 revised corporation law and i don't even know probably even before the 1980 corporation law that particular restaurant somewhere in quezon city already registered its name and too bad the name that it is carrying happens to be the international name of a leading international hotel and considering the hotel is not only catering to occupants of the rooms but they have their own set of restaurants and that question city hotel is a restaurant carrying an identical name if i remember it must be shangrila then it became a very uh heated case before the supreme court under the present 2019 corporation code that can no longer happen because if the original uh shangri-la restaurant was ahead then it will be too unfortunate that shangri-la hotel may be maybe barred from using that international name shangri-la there is another additional portion there which says if the corporation fails to comply with the commission's order sorry [Music] i repeat if the corporation fails to comply with the commission's order meaning to desist from using the corporate name that is not distinguishable or distinguishable not distinguishable the commission may hold the corporation and its responsible directors or officers in contempt and or hold them administratively civilly and or criminally liable under this code another applicable loss and or revoke the registration of the corporation so continuing now let us move on to another topic where a particular group has already registered itself as a corporation and received the articles of incorporation its birth certificate as a juridical person unfortunately the organization despite the issuance of the charter in its favor happen not to operate so if a corporation does not formally organize and commence its business within five years from the data fixing corporation its certificate of incorporation is revoked at the end of the five-year period so take note it is five years now that is being used for non-use of the corporate charter and in operation however if a corporation has commenced its business so it registered for example in 2019 but subsequently becomes inaugurative so it stopped on 2020 because of the coveted pandemic so from 2020 it will now be in operative for a period of at least five years consecutive years so 20 20 20 21 22 23 24 would be five consecutive years then the sec may after due notice and hearing place the corporation under delinquent status take note it is not the the certificate of registration is not revoked when the corporation has already started its business but subsequently stops operations and did not operate for the next five years it will not be the certificate will not be revoked the corporation will just be listed as a delinquent corporation and a delinquent corporation shall have a period of two years so five plus two is seven years to resume operations and comply with all requirements that the commission shall prescribe upon the compliance by the corporation the commission shall issue an order lifting the delinquent status failure to comply with the requirements and resume operations within the period given by the sec shall cause the revocation of the corporation's certificate of incorporation so this is a very beautiful variation so if a corporation duly register itself and receives a certificate of incorporation so it's an existing valid artificial being before philippine law but it never started operation it is five years and on the fifth year the certificate is automatically revoked now the variation is if that particular corporation actually started operations and after starting operations and it doesn't indicate uh how long will the operation be but that kind of going concern activity suddenly stopped and then it did not resume for five years if it did not start that five-year period of inaction will lead to a revocation of the certificate but if they stay operated but stop for five years it does not automatically yield to revocation they will get a stop loss of what is called delinquent status and they will be given due process of law they will be advised that they are being considered delinquent because of their failure to resume operations and they will now be given a grace period of two years so that if they operate within the two-year period then they will be considered as already operational and the delinquent status will now be lifted their chest an order by the sec lifting the delinquent status however if after two more years which is five plus two is seven years still the organization did not resume operations then that will now be calling for revocation of its certificate of incorporation continuing with the non-use of corporate charter and continues in operation the sec shall give reasonable notice too and coordinate with the appropriate regulatory agency prior to the suspension or revocation of the certificate of incorporation of companies under the special regulatory jurisdiction here the very clear governing agencies here would be the bank of central pilipinas for banks quasi banks and other financial institutions and then the insurance commission in so far as insurance pre-need plans and similar operations are concerned moving now to another subject matter here we go to a corporation vested with public interest the board of these corporations tested with public interests shall have independent directors constituting at least 20 percent of such board and so if you for example have a corporation with vested interest and we will see what the speciality is all about and it has 10 members of the board then 20 of 10 members you know uh 10 of 10 is one so you double that that's 20 percent you have two so out of 10 corporate directors two are supposed to be independent directors for corporations with public interest now here is now a listing of the corporations with public interest the first one first grouping corporations covered by the securities regulation act this is section 17.2 republic 87.99 where whose securities are registered with the sec second corporations listed with an exchange the makati or the manila or the philippines staff exchange or third corporations with assets of at least 50 million pesos and having 200 or more holders of shares each holding at least 100 shares of a class of its equity shares so in the first grouping of corporations with public interest there are three number one those corporations securities are registered with the commission under the securities regulation act corporations that are listed in the stock exchange in corporations with assets of 50 million or end with 200 or more holders of years each shareholder holding at least 100 shares the second group of corporations with vested interests would be the banks and quasi banks nssls pawn shops corporations engaged in money service business pre-need trust and insurance companies and other financial intermediaries they are considered the second group of corporations with public interest the third one other corporations engage in businesses vested with public interest similar to the above as may be determined by the sec after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director such as the extent of minority ownership type of financial products or securities issued or offered to investors public interest involved in the nature of business operations and other analogous tours continuing with corporation vested with public interest an independent director is a person who apart from shareholdings and fees received from any business or other relationship which could or could reasonably be received to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director independent directors must be elected by the shareholders but the shareholders present are entitled to vote in absentia during the election of directors independent directors shall be subject to rules and regulations governing their qualifications disqualifications voting requirements duration of term and term limit maximum number of board membership and other requirements that the commission will prescribe to strengthen their independence and align with international best practices i would just like to call your attention to dimension here of voting in absentia and while uh we may not be fully emphasizing this in this presentation the voting in absentia or the voting via teleconferencing is one of the new features of the 2019 revised corporation so just take note of that particular feature moving further on the board of directors we now go to the election of directors a favorite among filipinos election so under sections 23 and seven it mentions here except when the exclusive right is reserved for holders of founders shares under section 7 each staff holder or member shall have the right to nominate any director or trustee who possesses all the qualifications and none of the disqualifications set forth in this code at all elections of directors or trustees there must be present either in person or through a representative authorized by written proxy the owners of majority of the outstanding capital staff or if there be no capital stock a majority of the members entitled to vote when so authorized in the by-laws or by majority of the board of directors the stockholders or members may also vote through remote communication this is what i was mentioning a while ago that you can undertake video conferencing and remote communication is one way to participate and cast your vote provided authorized by the bylaws or by the majority of the board of directors or they can also vote in absentia provided that the right to vote through such modes may be exercising corporations vested with public interest not withstanding the absence of a provision in the by-laws of such corporation so the right to do remote communication or in absentia attendance and participation and voting would have to be authorizing the bylaws or majority of the board of directors that's one rule however for corporations with a vested with public interest even if there is no probation on the bylaws then they will be allowed to participate through remote communication and in absentia that's why it's very important to take note of the three types of corporations vested with public interest remember that no the first grouping would be of course those registered under the securities regulation act right and the second one would be the banks and what they call this quasi banking financial intermediaries and the third one would be those that are exercising similar types of businesses a stockholder or member who participates through remote communication or in absentia shall be present for purposes of equal rule so when you raise the question of course those who are for example in sumit or in microsoft team or in google meet would be counted uh in so far as determining whether there is a courtroom or not next the election must be by ballot if requested by any voting stockholder or member you know this particular provision has been inserted there because of those who are familiar with parliamentary procedure the some some people think that the only way to vote is the racing of hands the so-called viva voce principle rather than of course casting your ballot or individual roll call vote no the easiest way for a presiding officer to accelerate the process is to pick up a proposal a resolution proposal solution and say as many uh without saying asmian is in favor the presiding officer will say that there is a resolution now here for discussion are there any objections and the moment the smart chairman says are there any objections and those who are opposed to it are not conscious about that kind of mode of vocation if the chairman does not hear any objection then the chairman banks his uh gable and says that particular resolution is unanimously approved and you know in in sharing corporation law with so many of my uh friends i always give them that particular thing which is not studied in law school except now that we are talking about it that's learned in parliamentary procedure so when you're representing officer and you want to accelerate and there's a proposal especially if you can anticipate there are some noisy guys there in the audience but they're not so familiar with parliamentary procedure you now present the uh you know ask the the movement of the presenter to present his resolution for his motion and that in order to accelerate you can now say there is a motion or there is a loose lotion on the table are there any objections that's your first option are there any objections you can't from one thousand one one thousand two one thousand three one thousand four one thousand five and then you bang the resolution or the motion is carried unanimously okay the second one which is uh a question again of uh parliamentary strategy in the floor is if there are a number of uh debates but you can sense that the majority on the floor are really being getting bored or getting irritated with the filibuster then you can now say uh the chair now puts this into a boat as many as are in favor of for example [Music] the motion or the resolution has proposed say hey hey you know of course if you have a bulk of uh people attending there who are not filibusters but they're getting irritated they will raise their voices say hey and if you say as many as are against say nay and you may have only one or two who are the oppositionists you'll say then you make a declaration that uh the a7 the resolution or the motion is approved okay that's the second parliamentary strategy now if you are in the audience and you are a minority but you can sense that people are being stifled then you now say mr president or mr presiding officer i moved for a division of the house and by the division of the house he is referring to the racing of hands and you know if the chairman is very smart he says uh the uh the motion is overruled because we have already voted the panic by way of the ac and of course the uh the one who's objecting would say i move for a reconsideration of the chairs ruling i would like to move for a raising of hand so that the exact votes will be counted because the the a7 the nation there is no uh counting of votes and so if you are the one uh raising an opposition you raise i move for a raising of funds so that the exact votes will be counted you know so you now go for a1 you go for a nominal vote which is exactly done when it's a crucial battle a parliamentary battle before either the senate or the house of representatives honestly these parliamentary procedures are not taken up officially in the college of law and as the dean i am planning to offer an elective and parliamentary procedure because if you do not know parliamentary rules you cannot be a chairman of the board or you cannot be a presiding officer and it is very embarrassing if you have that kind of function and you do not know what to do continuing with the election of directors in stock corporations stockholders entitled to vote shall have the right to vote the number of shares of stock standing in their own names in the stack books of the corporation at the time fixed in the bylaws over the bylaws are silent at the time of the election the said stockholder may a vote such number of shares for as many persons as there are directors to be elected or b cumulative accumulate said shares and give one candidate as many as many votes as the number of directors to be elected multiplied by the number of shares owned or c distribute them on the same principle among as many candidates as may be seen fit provided that the total number of votes cast shall not exceed the number of shares owned by the stockholders as shown in the books of the corporation multiplied by the whole number of directors to be elected provided however that no delinquent staff shall be voted unless otherwise provided in the articles of incorporation or in the by-laws members of non-stock corporations may cast as many votes as there are trustees to be elected by may not cast more than one vote for one candidate nominees for directors or trustees receiving the highest number of votes shall be declared elective in all candidates my dear friends allow me to ask your indulgence that in the second round of discussion of corporation law i will discuss this in detail i just want to set aside the detailed explanation of this manner of voting because we would like to give focus to the new provisions of the amended provisions of the 2019 revised corporation code so i will come back to that in subsequent presentations continuing now in the area of the board of directors still at the election of directors if no election is held and you know this can be done not to be able i if i may use the tagalog word luton macau you know they some some officers would like to hold on to power uh indefinitely so they will not hold an election and they will continue to carry on over officers so if no election is held for the owners of majority of the outstanding capital stock or majority of the members entitled to vote are not present in person by proxy or through remote communication or not voting in absentia at the meeting such meeting may be adjoined and the corporation shall proceed in accordance with section 25 of this court we will get into section 35 soon the directors or trustees elected shall perform the duties as prescribed by law rules of good corporate governance and by-laws of the corporation now another requirement on the election of the board of directors is the report to the sec of the election of the directors and here is now section 25 it says within 30 days after the election of the directors trustees and officers of the corporation the secretary or any other officer of the corporation shall submit to the sec the names nationalities shareholdings and residence addresses of the directors trustees and officers elected continuing the non-holding of elections and the reasons therefore shall be reported to the commission within 30 days from the date of the scheduled election the report shall specify a new date for the election which shall not be later than 60 days from the scheduled date this is the provision that is being referred to here if there was no election that was conducted the the non-holding of the election and the reasons will have to be reported to the sec within 30 days from the date of that scheduled election and the report should specify a new date so the date that was set up here uh uh was not followed because there was no election and so the report of the non-holding of the election will mandate the director's uh incumbent directors to report a new date for the election when there is a deadline it should be 60 days from the scheduled date 60 days from the time the meeting was convened and the election was not pushed through so you have what you have 30 days to report that the election was not uh was not conducted the reason for the non-conducting of the election and you have now the need to report uh when will be the new date which shall not be more than 60 days from the original scheduled date continuing with the report of election of directors it says if no new date has been designated or if the rescheduled election is likewise not held so the second election was also not held the sec may have an application of a stockholder member director of trustee and after verification of the unjustifiable non-holding of the election summarily order that an election be held the sec shall have the power to issue such orders as may be appropriate including either directing the issuance of a notice stating the time in place of the election designated presiding officer and the record date or dates for the determination of stockholders and members entitled to vote continuing now on the report of election of directors not withstanding any provision of the articles of incorporation or bylaws to the contrary the shares of stock or membership represented at such meeting and entitled to vote shall constitute a courage for purposes of conducting an election under this code meaning these are the elections being conducted after one or two postponements should a director trust your officer die resign or in any manner in any manner case to hold office no the secretary or the director or trustee or officer of the corporation shall within seven days from knowledge thereof reporting writing such fact to the commission let's now go to the corporate officers a new provision immediately after the election the directors of a corporation must formally organize and elect letter a a president who must be a director b a treasurer who must be a resident of the philippines not necessarily a director and letter d such other officers may be provided in the by-laws i notice here that what was escaped was the secretary who may or may not be a director if the corporation is vested with public interest the board shall also elect compliance officer the same person may hold two or more positions concurrently except that no one shall act as president and secretary but as president and treasurer at the same time unless otherwise allowed in this code under this slide what was miss was literacy which refers to the secretary of the board continuing with the corporate officers the officer shall manage the corporation and perform such duties as may be provided in the by-laws and or as a result by the board of directors moving now to the removal of a director any director or trustee of a corporation may be removed from office by the vote of stockholders holding or representing at least two-thirds of the outstanding capital stock or in an unstuck corporation by a vote of at least two-thirds of the members entitled to both provided that such removal shall take place either at the regular meeting of the corporation or at the special meeting called for the purpose and in either case after previous notice of stockholders and members of the corporation of the intention to propose such removal at the meeting that means the removal of director will be one of the items in the agenda whether it is a regular meeting or a special meeting called for the purpose a special meeting of the stockholders or members for the purpose of removing any director or trustee must be called by the secretary on order of the president or upon written demand of the stockholders representing or holding at least a majority of the outstanding capital staff for a majority of the members entitled to vote if there is no secretary or the secretary despite demand fails to refuse or refuses to call the special meeting or to give notice that all the stockholders or members of the corporation signing the demand may call the special meeting they themselves call the special meeting or give notice the wrong the stockholder or member of the corporation signing the demand may call for the meeting by directly addressing the stockholders or members so the secretary can be bypassed and any stockholder can proceed to act uh in order to call meeting for the ouster of a direct or removable director notice of the time and place of such meeting as well as the intention to propose such removal must be given by publication or by written notice prescribed with this code removal may be with or without cause so there is no illegal dismissal for a director you know a director this was already decided uh in the past by the supreme court so removal may be with or without cost provided that removal without cost may not be used to deprive minority shareholders or members of the right representation to which they may be entitled under section 23 of this code take note this is a very significant component that there should always be the minority shareholder represented in the board and so that therefore if the minority shareholder attending the board is the one being removed without cost then there can be a violation of the corporation code and this can be brought up before the securities and exchange commission but if the removal is with cause like for example conviction epic crime and similar things you know disloyalty and so on then the removal may be done but that particular position must be replaced by somebody who will continue to represent the minority shareholders in the board continuing with the removal of director it reads the commission shall moto propio for upon verified complaint and after due notice and hearing order the removal of a director or trustee elected despite the disqualification or whose disqualification arose as an order is discovered subsequent to an election the removal of a disqualified director shall be without prejudice to other sanctions that the commission may impose on the board of directors or trustees who without knowledge of the disqualification failed to remove such director or trustee now after we talk about removal let us talk about vacancies of director any vacancy occurring in the board of directors or trustees other than by removal or expiration of term may be filled by the vote of at least majority of the remaining directors of trustees if still constituting echo room otherwise such vacancies must be filled by the stockholders or members in a regular or special meeting called for the purpose so if there is a vacancy in the position of director not arising from removable or expiration of terms then the majority of the remaining directors if they still have a courtroom can can fill up the vacancy but if the remaining directors who cannot anymore form a corum then the vacancy will have to be referred to the stockholders who will vote in a regular meeting to fill up that particular vacancy when the vacancy is due to term expiration the election shall be held no later than the day of such expiration at the meeting called for that purpose when the vacancy arises a result of removal by the stockholders or members the election may be held on the same day of the meeting authorizing the removal and this fact must be so stated in the agenda and notice of said meeting in all other cases the election must be held no later than 45 days from the time the vacancy arose a director or trustee elected to fail vacancy shall be referred to as a replacement director i repeat replacement director or trustee elected to fill a vacancy shall be referred to replacement director trustee and shall serve only for the unexpired term of the predecessor in office continuing with vacancies of the director it says however when the vacancy prevents the remaining directors from constituting a courtroom an emergency action is required to prevent grave substantial and irreparable loss or damage to the corporation the vacancy may be temporarily filled from among the officers not necessarily director among the officers of the corporation by unanimous both of the remaining directors or trustees the action by the designated director of trustee shall be limited to the emergency action necessary and the term shall cease within the reasonable time from the termination of the emergency or upon election of the replacement director or trustee whichever comes earlier the corporation must notify the commission within three days from the creation of the emergency board stating that in the reason for its creation let's now move to the subject matter of meetings but before that we will finish the vacancies on director any directorship or trust ship to be filled by reason of an increase in the number of directors or trustees shall be filled only by an election at a regular or a special meeting of the staff holders or members duly called for the purpose and in the same meeting authorizing the increase of directors of trustees if so stated in the notice of the meeting so the procedure is there will be an announcement in the agenda that the number of directors are to be increased and in that same meeting the election of the inquiry of the additional directors can be undertaken provided there was a notice immediately prior to the meeting in all elections to fill vacancies under this section the procedure support in section 23 and 25 of this code shall apply now let us now move to stockholders meeting under section 50. stockholders or members meetings whether regular or special shall be held in the principal office of the corporation a set forth in the article of incorporation or if not practicable like for example if there is this copied pandemic in the city or municipality where the principal office is located provided that any city or municipality in metro manila metro cebu metro davao and other metropolitan areas shall purposes of this section be considered a city or municipality notice of meetings shall be sent to the means of communication provided in the bylaws which notice shall state the time place and purpose of the meetings continuing with the stakeholders meetings it says each notice of meeting shall further be accompanied by the following letter a the agenda of the meeting letter b the proxy which shall be submitted to the corporate secretary within a reasonable time prior to the meeting let us see when the attendance participation and voting are allowed by remote communication or in absentia the requirements and procedures to be followed when a stockholder or member elects either option and letter d when the meeting is for the election of directors or trustees the requirements and procedure for nomination and election continuing now syrian stockholders meetings all proceedings and or any business transacted at the meeting with the stockholders or members if within the power or authority of the corporation shall be valid even if the meeting is improperly held or called meaning the notice must have been sent late uh you know and all of this provided that all the stockholders are members of the corporation are present or duly represented at the meeting and that one of them expresses states at the beginning of the meeting that the purpose of their attendance is to object to the transaction of any business because the meeting is not lawfully called or convened now let us now go to directors meetings unless the articles of incorporation of the bylaws provides for a greater majority a majority of the directors or trustees as stated in the articles of incorporation shall constitute equal room to transact corporate business and every decision reached by artists a majority of the directors or trustees constituting a courtroom except for the election of officers which shall require the vote of a majority of all the members of the board shall be valid as a corporate act this particular provision becomes very complicated when you have corporations with mass membership even in cooperatives where each cooperative member is expected to attend it is very difficult to constitute a courtroom and i have handled some very tough uh situation here that i may not have the opportunity to discuss here one because of the time limitation the second one is i may not be at liberty because of client lawyer relationship to open up the subject matter regular meetings of the board of directors or trustees of every corporation shall be held monthly unless the bylaws provide otherwise and special meetings of the board of directors or trustees may be held at any time upon the call of the president or as provided in the by-laws continuing with the directors meeting meeting of directors or trustees of corporations may be held anywhere in or outside of the philippines take note can be held anywhere inside or outside of the philippines unless the bylaws provide otherwise notice of regular or special meetings stating the date time and place of the meeting must be sent to every director or trustee at least two days it used to be one day two days prior to the scheduled meeting unless a longer time is provided the bylaws a director or trustee may waive this requirement either expressly or impliedly moving now to another topic merger and consolidation and before we go into that let's finish some more notes on the director's meeting directors or trustees who cannot physically attend or vote at board meetings can participate in both through remote communication such as video conferencing teleconferencing or other alternative modes of communication that allow them reasonable opportunities to participate directors or trustees cannot attend or vote by proxy at board meetings take note there is no proxy voting or proxy attendance by directors in board meetings only the proxies are only allowed in stockholders meetings a director or trustee who has a potential interest in any related party transaction must request from voting on the approval of the related party transaction without prejudice to compliance with the requirements of section 31 of this code now let us now move to mergers and consolidations the more important new provision under the revised corporation code of 2019 is under section 77 which reads after the approval by the stockholders or members as required by the preceding section meaning articles section 76 articles of merger or articles of consideration shall be executed by each of the constituent corporations to be signed by the president or vice president and certified by the secretary or assistant secretary of each corporation setting forth the plan of the merger or consolidation these are the contents of the articles of merger as so stack operations the number of shares outstanding but in case of non-stock corporations the number of members third as to each corporation the number of shares are members voting for or against such plan respectively fifth decade amounts and fair values of the assets and liabilities of the respective companies as of the agreed cut cutoff let me just uh make this little picture a little less uh smaller than what it appears on the screen okay thank you thank you for your patience following the contents up of the uh articles of merger and consolidation it says here the method to be used in the merger or consolidation of accounts of the companies next the provisional or proform of values as merged or consolidated using the accounting method and such other information as may be prescribed by the commission we will now move to one of the more interesting topics which is appraisal right take note my dear friends that appraisal right is a very significant corporate right of a stockholder and this can even transcend the financial and what they call these administrative matters this year even touch on interpersonal relationship where a stockholder would like to leave the organization so what is appraisal right an appraisal right is a situation where any stock holder of a corporation shall have the right to dissent disagree and demand payment of the fair value of the shares in the following instances so here is a situation where a stockholder disagrees and simply wants to leave by asking for the payment of the fair value of his shares of stocks now what are the instances number one in case an amendment to the articles of incorporation changing or restricting the rights of any stockholder or class of shares or by authorizing preference as superior to outstanding shares of any class but of extending or shortening the term of corporate existence remember we touched about this earlier when we were talking about uh the term or life of the corporation second in case of sale lease exchange transfer mortgage pledge or other disposition of all or substantially all of the corporate property and assets as provided in this code third in case of merger and consolidation in other words what we have discussed a while ago when there is a proposal to merge or consolidate your corporation with another corporation that is an opportunity for you to say i do not want to continue anymore i disagree and so you pay me now so i can leave this corporation and the additional basis of appraisal in the revised corporation code of 2090s is in case of investment of corporate funds for any purpose other than the primary purpose of the corporation in other words if you invested in a corporation you gave in your capital contribution it was because of a purpose that was told to you and stated in the articles of incorporation however when the corporation now is starting to decide to move its corporate funds to investments other than the primary purpose then you may not want to risk your capital because such an investment may mean the bankruptcy of your corporation so rather than follow them you can now say i exercise my appraisal right because i do not agree on the investment of corporate funds for example in retailing medicine for coffee 19. you're entitled to that and you can exercise your appraisal right just be careful in the exercise of appraisal right which is the return of the investment of the shareholder the so-called trust fund dochrin will operate in that if there are any outstanding obligations more reason if there are there is no retained earnings then the appraisal right may not be exercised by reason of the trust transparent claim where the creditors are supposed to have reserve funds for them to be paid even before any shareholder can be paid now moving now to another subject matter and this is on the non-stock corporation and the trustee under section 91. the number of trustees shall be fixed in the articles of incorporation or by law which may or not may not be more than 15 so for non-stock corporation it can be more than 15 percent are 15 member direct trustees they shall hold office for not more than three years until their successors are elected and qualified trust is elected to full vacancies occurring before the expiration of a particular term shall hold office for the unexpired term continuing with non-stock corporation trustee except with respect to independent trustees of non-stock corporation shall be elected as trustee unless others provided the articles of incorporation or the bylaws the members may directly elect officers of a non-stop corporation and so ladies and gentlemen i'd like to thank you very much for the coverage of the new provisions of the revised corporation code approved in 2019 that is not yet the entire corporation code there will be a series of youtube uploads that will discuss the individual subject matters uh that will allow everybody to understand the details of the corporation code the previous slide simply zeroed in on the changes that were initiated with the enactment of the revised corporation code uh of 2019 and so i would like to uh leave the subject matter and be remind be be sentimentally uh reminded of our dear dr vergilio di de los santos for whom this fund memories are dedicated particularly this discussion on the revised corporation code dr vergili de los santos for those of you who may not have known him has a doctor of laws on horiz causa from the university of pangasinan he hold the master of laws degree in international law at harvard university usa in 1955 where former senator juan ponce enrique was his classmate at harvard law school before his master of laws degree he finished his bachelor floss magna laude from the university of manila in 1953 and esprit law is his bachelor of arts cumbraude from the university of manila in 1948 dr vergilio de los santos is a very unique filipino he was a japan special scholar at the kokusai gakuyukai in tokyo and fukuoka kotogako in japan in 1943 to 1945. so when japan was at the height of the second world war dr vergilia de los santos was a student in japan and he almost got caught by the dropping of the atomic bomb at nagasaki where he was also a student at the university of manila dr delos santos started his career as the dean of the college of law from 1962 to 1968. and he moved up to become executive vice president in 1959 became the president of the university of manila and chairman of the board of trustees and the controlling stockholder from 1981 to 2006 and he stepped down as president but kept his chairman of the board of trustees from 1981 up to his sad death in 2009 dr vergilio de los santos reminds me of some of my fondest moments at the university of manila my family is very close to the diversity of manila the father of my mother my maternal grandfather sabina hernandez balagtas is a 1950 graduate of the college of law of the university of manila my own father captain santos vargas biscara is a graduate of the university of manila's bachelor of business administration major in management and he managed to reach second-year law in the same college that i where i am now the dean and i happen to have cross-enrolled and i have one subject from university of manila roman law under then attorney michael moralde who became the dean ahead of me when i passed the bar examination i have not personally met dr vergilio de los santos but i had to struggle to be appointed as part of the um college of law in 1994 president de los santos did not welcome me to be a um bar reviewer fresh from passing the bar because he did not believe a new lawyer can become a good law professor more so a bad reviewer and so he asked the commitment of the dean the tenderest resignation if there is any student or any reviewee who will complain about my performance as a law professor and a bad reviewer at the university of manila it was a very tough screening that i had to go through even before i could personally meet dr vergilio de los santos to the president and chairman of the board however having stayed with um from 1908 1994 to 2004 in those 10 years i had the lack of meeting personally dr vergilio de los santos at the time that he had some legal statics with his favorite alumni association phil peja the philippine federation of japanese scholars and i started working with him and it was at that point that dr vegeta de los santos realized i was probably worth more than what he thought in 1994 and so with frequent interaction with him both on a professional and personal basis in 2004 dr vergilio de los santos with the recommendation also of now president emily dodson de leon insisted that i assume the deanship of the um college of law and at the same time secretly help him prepare his holographic will dr vergilio and i had fun doing our legal battle together in corporation law concerning his his alumni association phil peja but worse facing some uh adventures uh some statics in a couple of um stockholders meeting where a member of his family would play some adventurous games on him it is during those times that dr vergilio de los santos found in me not only a reliable professional but a younger lawyer and probably a son he never had about 11 years ago i was told by my cardiologist in makati medical that i needed five heart bypass operation and had to go to it in 2009 and while i was in the hospital i understand dr vergilio de los santos following up on my own medical status and whether i was doing all right until he finally hurt and managed to go home and is recuperating in bed too bad my beloved dr vergilio was the one who picked up a very treacherous pneumonia and did not anymore leave asian hospital alive and so in the last night of his wake at the university of manila i had to pick myself out of my bed to give my final respect to a gentleman an intelligent person the one who organized and continued to hold um intact up to this point sir i miss you a lot and i wish you were still around to see that i'm back again i should dean of the college of law struggling after two years that um law did not allow any one of its first takers to pass the buyer by la again just like in 2006 where we had 75 percent of our candidates passing almost 100 percent i am again tasked to bring back um law your baby your favorite to where it belongs to me i almost gave you 100 passing mark for first acres in the bar in 2006 i have not given you a barcode notcher today i struggle because of this copied 19 pandemic our enrollment is way down and yet we have to innovate in order to have your um law survive this online sessions we are adopting this uh youtube uploads as our lectures to our um bar candidates and also our law students aware that law students of other schools may in fact be also benefiting from these lectures and we do not mind because then they will see what um law is all about on saturdays i meet online through zoom meet all our law students scheduled from 12 to 2 for the uh for the second year from two o'clock to four o'clock for the fourth year and the bar reviews and four o'clock to six o'clock the third year for students this kind of uh on corporation law is one of the components of mercantilo that we are uploading so that it allows our students to study on their own this particular lectures sir we miss you a lot we know that you are always around your remains are in the chapel and you will continue to be with us as we commit to you the university of manila will survive as an educational institution to continue to give glory to your ideals and to your dream of a school that will survive so long for now and i am so happy to have this opportunity to dedicate this uh corporation uh code lecture in your honor mahalo ladies and gentlemen i'd like to thank you very much for this rare opportunity you have given me to lecture on the revised corporation law of 2019 and likewise dedicated to the fond memories of dr vergilio d de los santos of the university of manila i hope you enjoy watching this particular lecture as i am so proud and i enjoy bringing it to you a few hours before my birthday thank you very much i'll see you soon