Hello, hello, hello. So magandang hapon sa inyo. So ito, balik ulit tayo sa discussions natin after Christmas break. Kasi pinos ko ito during the Christmas break.
So for the one week, siyempre nag-rest ako. Siyempre kailangan natin magpahinga, diba? So ngayon, balik tayo ulit sa trabaho.
Kasi by Monday, sa January 4, pagbalik na ng klase, well, magkakaroon tayo ng long quiz. 50 items or maybe 30-40 items. The coverage is Title 1 to Title 5. So, that's general provisions to the bylaws.
We don't have a problem with that. But as I have said in our last discussion, we will pass now because we will only discuss the important parts of our corporation code. But don't worry so much about it especially when you come to the review because It's not that hard when it comes to corporation code. It's harder when it comes to special laws, additional laws that you will be taught.
Because you will be taught there if you don't learn from the seminars that you will be given. I've said this a few times, right? Like general banking laws, insurance laws, intellectual property laws. Those are important parts of our RFBT in the board exam. So anyways, with that in hand...
uh sempre let us now start with our discussion for the revised corporation code of the philippines republic act number 11232 title 4 which refers to the powers of the corporation so with that let's start with section 35 of title 4 so section 35 refers to the corporate powers and capacity. Every corporation that is incorporated under the corporation code has the power and capacity which is enumerated into sub-issued, perpetual existence, ad-hoc use, incorporate seal, amends its articulatory incorporation in accordance with the provisions of the code by laws as long as hindi contrary sa law moral or public policy to amend in case of stock corporation the right or the capacity to issue or sell stocks obviously because it's a stock corporation and to sell treasury stocks in accordance with the provisions of the code and to admit members to the corporation when it's non-stocked this is letter G, you can see it's like ownership because purchase, receive, take, grant, hold, convey, sell, lease, pledge, pledge, mortgage and otherwise deal with such real and personal property including securities and bonds of other corporations, asset transactions, etc., etc. There's more here.
To enter into partnership, joint venture merger, consolidation, and any other commercial agreements with natural and juridical persons. This one, make reasonable donations, establish pension, retirement, and other plans for the benefits of its director, trustees, officers, and employees. And lastly, to exercise such other powers as may be essential. or necessary to carry out its purpose or purposes as stated in its articles or in the articles of incorporation so then basa niya lang ulit yan si section 35 so ano ba tong si section 35 before that let's talk about the salient points and remarks basically ano yung mga naging changes under section 35 or under this section as comparatively or as compared to the old code the Batas pambansa bilang number 68. Anong nangyari ito kay 11232?
Now, itong new revised corporation code of the Philippines natin includes the power to have perpetual existence. Kasi diba, as we have said, sa old code, 50 years lang, renewable. Pero ngayon, unless otherwise stated, may perpetual existence na ang isang corporation.
So, ayan, dinagdag ng dito. Saan yung nilagay dito? Ito, perpetual existence. Another change is that the power to enter a partnership and a joint venture.
Kasi dati sa corporation code natin, yung old corporation code, si BP-68, bawal pumasok ng general to, general rule to. Bawal pumasok ang isang corporation sa isang partnership. Bakit?
Kasi basically, kapag pinasok mo ang corporation sa isang partnership, that corporation... comes under the control of the other partners. Hindi na ng stockholders lamang or ng board of directors.
It will be under the influence of... the other partners because they are partners in the partnership. That was the reasoning before. Why can't or generally can't a corporation enter a partnership?
The exception to that general rule was to enter in a joint venture. But now here in our revised corporation code, it's explicitly said, where is it? Oh, it's explicit. expressly ng pinayagan ng isang corporation na pumasok sa isang partnership and joint venture. Dati, bawal yan si partnership.
So, yan. So, ito, the new code also removed the prohibition of any domestic corporation to make donation to a political party. Dito, yan, no?
Make reasonable donations, etc., etc. See, o? Kasi, It was prohibited before because basically what you're doing is influencing. You're entering into politics. In America, it's called lobbying.
Lobbying is what it's called. But now, it's allowed. But for domestic corporations only.
Foreign corporations are prohibited. Domestic for political purpose, political party. Foreign corporations are still prohibited. So, these are the salient changes, the significant changes that happened under section 35. Before, it was section 36. Now, it's 35 because you can still remember in our previous discussion, there was a section removed.
I think it was section 13. It was removed. So, the numbering of sections moved up here in our revised corporation code. So, there. We're talking about the power of the corporation.
So, what is the meaning of the powers of a corporation? Because this is the topic of section 35. So, accordingly, the term powers of a corporation refers to the right or capacity of a corporation to perform all acts or things except only those forbidden by law and its articles of incorporation in furtherance of its purpose or purposes. So, that is the meaning of the powers of the corporation.
It gives the corporation the capacity. So that he can do something. What kind of things will he do? As long as there are limitations. As long as it is not forbidden by law.
And it is within its articles of incorporation. For the purpose of furtherance. In furtherance of its purpose or purposes.
So that's the powers, the capacity to act. The capacity to act, the powers of the corporation. Now, this is just to distinguish what is the power of a corporation to distinguish a franchise and to differentiate it from objects.
So, the powers of the corporation must be distinguished from its primary franchise. Isn't it a franchise to grant corporate existence to a corporation? which is its right to exist as an entity.
Pero kontra ako dito sa right eh. Bakit? Being a corporation is not a right. It is a privilege.
Oo, kasi ito pwede sa right. Then hindi mo na kailangan pang dumaan sa butas ng crayon para maka-create ng isang corporation. Kung right yan, eh kailangan mo dumaan sa butas ng crayon. So, privilege to exist yan. So, I contradict here with the right to exist.
It is a privilege to exist because franchising is a granting, not a right. Being a corporation is not a right but rather a privilege. So, the privilege to exist as an entity for the purpose of doing things embraced within its power and permits secondary franchise.
Yes, that's it. What is that, sir? What is that?
What is secondary franchise? Basically, this secondary franchise, the primary franchise, for example, the certificate of incorporation, that's basically your primary franchise. Then if you're going to do additional acts, for example, investing, you need a secondary franchise. franchise. Kasi if you can still remember, diba meron yung ano?
scam dati na coins.ph atayon or yung isa you invest in the coins and then here in this corporation and then your income will increase it got caught by SEC, why? yes, it has a primary franchise, it is registered by SEC it has a certificate of incorporation but it got caught it lost its secondary franchise where that secondary franchise will grant that corporation the right to perform such and the investment to legally perform that investment to act on that investment but he doesn't have a secondary franchise he was caught by SEC by the Securities and Exchange Commission so basically that's the nature of a secondary franchise but in this device corp code we're talking about the primary franchise Yes, because the secondary franchise has specific rules depending on the nature of the corporation. For example, the investment part. So anyways, within its powers and its secondary franchise, which is the right granted to an existing corporation, to use public property for public use but with private profit.
Another example, using public property for public use. What are the examples of this? This is what they call it. What do you call it?
Telecommunication companies, TV stations, airwaves because that is public property. So they need a franchise to use that public property for public use but they will earn private profit. Those airwaves are public property as I have said. Pangalawa, neither must its powers be confused with its objects or business. A corporation exercises its powers for the purpose of attaining those objects sa isa kanyang business.
So, relative powers of natural persons, partnerships, and corporation. So, ito kinocompare daw kung ano yung ano. yung pag differentiate between the powers ng isang natural persons or ng partnerships and from a corporation.
So any act not prohibited. So yung mga individual, they have absolute right to fully use, enjoy, and dispose of his properties to perform all acts and to make all contracts without any control except when they are forbidden by the law. Like for example, may kotse ka, gusto mong sunugin. Good!
You can burn it as long as you don't have a law that will ban it. You can burn your property. It's your property. You can destroy it.
You can destroy it. Why? It's your property.
As long as you don't have a law that will ban it, you're still goods. It's the right of the individual. And as we have discussed in the partnership, basically, the partnership has a big leeway. in any way young freedom as long as it's not against the law goods and following some specific requirements goods in partnership when it comes to corporation as we have discussed in our previous videos our law is a bit stringent because of how influential they are to the public they have a big influence so the government needs to have control over that in order to prevent any harmful effects coming from that influence on how much on that influence they have on the public.
Now, when it comes to corporation, here in number 2, only powers that are granted. That's all they can exercise. On the other hand, the civil rights of a corporation are widely different under the doctrine of limited capacity adapted by a corporation law, section 2. A corporation has only such powers that are as are expressly granted and those that are necessary implied from the expressly granted or those which are incidental to its existence. Yan yung doctrine of limited capacity.
Now, without going to the next slide, dito pa lang, pagkabasa nyo dyan, makikita nyo na may tatlong classifications of powers meron ng isang corporation. Ano-ano yun? Ito, yung expressly granted, yung implied, necessary, implied.
and the incidental to ex-existence. These are the three classifications of the powers of a corporation. Those expressly granted or authorized by law, those conferred by the corporation code and its article of incorporation or the charter or statute that was created by the special corporation. This is the second one, those that are necessary to the exercise of its express or incidental powers. This is the implied powers.
And lastly, the incidental to its existence. So, we will discuss this in later slides, what they are and their examples. So, determining whether an act or contract within scope for corporate powers. So, how do you know that the corporation has the right to do those powers, to act on that power?
This is what you need to look at. First, where did those powers come from? What are the sources? In determining whether a corporation has power to do an act, it is necessary to first, tingnan mo muna yung special charter, kung special law yung nag-create sa kanya, or tingnan mo yung kanyang Article of Incorporation kapag it was incorporated under the general law, which is in our country, the Revised Corporation Code of the Philippines, tingnan mo dyan. Whether it is within the express, implied, or incidental powers, yung...
power in question. Then, after that, you need to examine the statutes relating to corporation to see if the act is prohibited. Like, for example, it is a bank, bank, ano, yung corporation is banko. So, tingnan mo yung mga statutes in relation to that banking corporations. Ano yun?
Yung general banking laws natin. Tingnan mo if those act in questions are prohibited. And lastly, in some cases, consult the general statutes, if it's illegal even in case of natural persons so there are three steps here first, check the special charter of the articles of incorporation because this is what created it second, check the statutes in relation to the corporation for example, if it's a banking corporation, check the general banking laws and lastly Let's first look at the General Statutes. Now, express or implied grants of powers unless the power to carry on a particular business are expressly or impliedly conferred thereby, it does not exist. Because, as we said here, a corporation can only act on those powers that are granted to that corporation.
Those powers, as we said, are expressly those implied and incidental to its existence. If wala dyan sa tatlo yung powers na yon, then the corporation cannot do that. O, diba?
Gaya na sabi natin, stringent, stricto ang batas natin pagdating sa mga corporations. So, ito, sa individuals and partnerships, basta hindi bawal sa batas with following sama, no? Specific requirements, goods ka.
Sa corporations, no. You can only exercise Express implied incidental powers. Eto, express powers explained.
So, ano ba itong express powers? So, express powers, these are the powers that are expressly, dyan, kitang kita, conferred upon the corporation by law. These powers can be ascertained from the special law creating the corporation. Kapag ano, special charter yan. Like, ito, na-explain natin, diba, kapag yung legislative.
body na mismo yung nag create ng special charter special law in order to create a corporation usually mga gocc yan yung gsis social security system yan mga special laws yung nag create yan which in turn those special laws are their special charter now kapag naman yung ito yung corporation is first formed under a general incorporation law in our country that's the revised corporation to the Philippines. Then, from such law, the general laws of the land applicable to the corporation and its articles of incorporation. So, yan yung mga express powers.
Now, sa Section 35 contains daw some enumerations of powers expressed and given to corporations created under the general incorporation law. The express powers may be exercised by the corporation whether or not any such powers are stated in the articles of incorporation. or bylaws or they are de-invested in a corporation organized under the code so this is the section 35, this is the express It's stated right away.
It's very clear. It's stated. This express power.
The right to sue and be sued. To have perpetual existence. To adopt corporate seal. There.
Express express. If you're a stock corporation, of course. There.
That's the express power. It's very clear. Expressly conferred.
Now, when it comes to implied, these are the... Powers which are reasonably necessary, kailangan, to execute the express powers and to accomplish or carry out the purpose for which the corporation was formed. So, ito, section 35 daw, letter K. So, ano itong si letter K? To exercise such power as may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation.
So, dyan o. But take note, powers merely convenient or useful are not implied if they are not essential or necessary. kasi yun yung requirement eh pagdating sa implied powers dapat reasonably necessary dapat essential ibig sabihin dapat kailangan pag hindi naman kailangan hindi mo pwedeng gawing excuse yan or justifiable reason para i-classify yan as implied powers kasi may requirement kailangan reasonably necessary on and or essential eto some examples ng ano implied powers so that you can have an idea because this is the hard part when it comes to the powers of the corporation how do you know that it's express how do you know how do you distinguish that because express is easy it's stated expressly conferred that's why it's express now it's hard when it comes to what are the implied powers what are the incidental this is goods because it already gave an example But when it comes to board action, the powers are not the question when it comes to corporations.
However, sometimes it is difficult to determine whether a certain activity is implied power or not. However, the following RAC classification embraces most of the implied power. It acts in the usual course of the business, like borrowing money, making ordinary contracts, etc. Acquiring lands or buildings. it is evident that all of such acts under circumstances are necessary in order to run a business.
Oh, kasi kung titignan nyo, ito yung ginagawa ng mga business eh. So, since in this case, pag-corporation ka, private corporation for profit, so you're running a business. So, these powers are necessary in order for you to run your business.
Ito, acts to protect debts owing to our corporation. So, basahin nyo lang ito. Mga...
For example, embarking in different business. Ito, embarking in different business. Hindi ka pwede kasi you, like for example, you're a corporation that was created for what? For construction. Hindi ka pwede magtayo ng business na kung saan?
Restaurant. Hindi pwede yun. Kasi you're created for construction purposes.
Tapos magtatayo ka ng business for restaurant. That's not allowed. That's prohibited. But you can invest in a restaurant corporation.
You can't build, run, but you can invest. That's why we call it conglomerates, big corporations, holdings. Because those corporations, there are a lot of problems. They have fast food here, they have construction here, but... What they are doing there is investing.
They are not running the business, but rather they are investing. That's why they are big. Because it's not allowed in the law. They said that you should run...
For example, your charter, your starting corporation, but you have to build a restaurant. That's not allowed. But you can invest.
That's why we have conglomerates, holdings. a particular kind acts in holy protect uh holy to protect or aid employees For the better views such as building homes, place of investment, hospital employees within the corporate power, of course, it's for the benefit of the corporation. Necessary. Because if your employees' welfare is good, they are productive.
If they are productive, that's a direct influence on the performance of the corporation. So, incidental. Incidental, it is implied because it is necessary or essential.
Because the net effect is goods outside the corporation. and lastly acts to increase business marketing express powers this thing is implied this is just read incidental or inherent powers so incidental or inherent powers are powers which the corporation can exercise by mere fact of it being a corporation so rights of existence or powers which are necessary to corporate existence and are therefore impliedly granted. So this is another thing that is confusing when it comes to the powers of the corporation, the distinguishment between implied and incidental.
Because they seem to be the same. Yes, they seem to be the same. So as powers inherent in the corporation as a legal entity, They exist independently of the express powers. These incidental powers are expressly recognized under Section 2, the Doctrine of Limited Capacity. Some of the powers enumerated in Section 35 are incidental which can be exercised by a corporation even in the absence of an express grant.
So kahit na hindi stated sa Articles of Incorporation, the mere fact, basically ganito si Incidental Corporation. Kahit na hindi stated sa Articles of Incorporation, the mere fact that the corporation has corporate existence, he can still or it can still exercise such power by reason of its having a corporate existence. existence. That's basically what incidental or inherent power points out. The mere fact, let me repeat, the mere fact that it has corporate existence, it can exercise incidental or inherent powers.
That's what differentiates it when it comes to an implied power. Why? Because this is implied power.
Necessary. Essential. To execute, execute the express powers necessary and or essential to execute express powers.
Yan yung labot sa buhay ni implied powers. Pagdating kay incidental or inherent powers, the mere fact that the corporation has corporate existence, it can exercise incidental or inherent powers. some of the these examples to sue and be sued kahit na hindi na nakalagay sa articles of corporation etc etc the mere fact na may corporate existence sya the corporation can exercise that corporate name kasi may separate legal separate judicial identity sya so may karapatan sya magkaroon ng pangalan purchase all the property oh kasi may ganoon sabitin corporate seal to contract to make by loss incidental inherent the mere fact that it has corporate existence so that's what you remember when it comes to incidental and inherent then this some notes some notes on the powers of the corporation the power to be sued and sued power to adopt corporate seal uh acquire convey property just read this shares shares okay so now let's proceed to section 36 now section 36 provides for the power to extend or certain for a shortened corporate term now as you can see here this this is an express power expressly sinabi dito sa corporation code natin that the corporation has the power to extend or certain its corporate term well additional note lang so ano sabi dito so a private corporation may extend or shorten its term as stated in its articles of incorporation as long as it is approved. by the majority vote of the board of directors or trustees and then it is ratified or basically approved by the, at a meeting by the stockholders or members representing at least two-thirds of the outstanding capital stocks or members.
Written notice talks about the written notice, proposed action, etc. additional requirements for this so with that auto basically talks about the power to extend and shorten so at the salient points and remarks this revised corporation code provides that extension of corporate there may be sent electronically written notice postage share personally or when allowed in the bylaws or done with the concept of stockholders sent electronically in accordance with the rules and regulations because our old corporation code was enacted in 1980 so it was not yet used in electronic data messages to send notices now it is enacted in 2019 so you can now use electronic mediums to send notices so there So the power to extend or shorten corporate term. So unlike what is stated in section 15, which governs for the amendment in general of articles of incorporation, when it comes to the amendment under section 36, it must be taken at a meeting of the stockholders or members and upon a vote. Because section 36 has a big effect on the corporation.
Why? Basically, don't work. talking about the existence kung gaano tatagal yung isang corporation yung kanyang corporate existence so hindi sa general general amendment but rather special amendment kasi we're talking about the corporate existence itself gaano ba katagal yung buhay ng isang corporation so the effectivity of the amendment relates back relates back to the date of its filing with the commission in case the latter fails to act within six months from the such date for a cost not attributable to the corporation so uh itong six months na to basically kapag nag file ka na sa corporation tapo ah ng amendment mo tapos due to the inco due to the incompetency or some problems hindi na commission hindi nila na act yung pag file mo ng amendment then after six months kapag walang action galing sa commission then automatic approve yan Ganyin ka sinte.
because it's detrimental to the life of a corporation that they don't have any fault, they filed an amendment immediately, but the commission, the SEC, nothing was done. Their filing didn't act. So, the law said, after six months, no action from the commission, from the SEC, then that is approved automatic at FM. So, there.
Additional note only. A voluntary dissolution of a corporation. may be affected by amending the articles in corporation to shorten the corporate term like for example, here in our new corporation code, revised corporation code automatic, what is it called? what word is used here? perpetual existence, it's automatic that the corporation is a perpetual existence but The corporation still has a choice, even if it's an automatic perpetual existence, they will still choose to have a fixed corporate existence.
But they decided to end their relationship. So they can amend to shorten the corporate term to have a voluntary dissolution. At this date, okay.
at this later date sooner, we dissolve the corporation so they enact the corporate term there extension corporate or just stated etc etc now this appraise the right of dissenting stockholder as you can as you will read here in case of extension of corporate term it means they will extend the life of the corporation for example 25 years the corporate the fixed corporate term They decided to amend to perpetual existence. Then, in that case, that is an extension of the corporate term. So, in that case, a dissenting stockholder may exercise the right of appraisal under the conditions provided in this code. Later on, later sections, basically, pag-usapan yan si dissenting stockholder. Pero in the past videos natin, nabigay ko naman yung G's ng nature ng isang dissenting stockholder.
So, ito, addition. Tagdito. Ito, mention natin ulit. Section 36 grants for the appraisal right to a dissenting stockholder.
It is the right of a stockholder in the cases provided by law. to demand payment of deferred value of his shares in case of extension of corporate term because that's right should also be available to the sending stockholder if the corporate term is certain as it expressly recognized in this code. Why? Because these amendments that you extended or in this case you reduced that is that might cause a detrimental or negative effect to a stockholder Why did you lengthen the life of the corporation? Why did you shorten the life of our corporation?
I don't like that. He has the right to leave the corporation. He's called a dissenting stockholder.
He doesn't like the amendments or moves of the officers and directors of that corporation. So he has the right to return his investment and leave. In the amount of fair value, demand payment. Note that appraisal rights applies only to stockholders and stock corporations.
Obviously, because if it's a non-stock corporation, you don't have appraisal rights. There are no stocks there. This is section 37. Section 37 talks about the power to increase or decrease capital stock.
I'm getting dizzy. Decrease capital stock or incur, create or increase bond indebtedness. So, what you can see here, ditong pinag-usapan, increase or decrease in capital stock, it only applies to stock corporation. Pero itong incur, create or increase bonded indebtedness, it applies to both stock and non-stock corporation. Kasi, sa ang non-stock, you can issue bonds you can see remember bonds are debt in your financial accounting bond payable it's called corporate bonds because it's a corporation no corporation shall increase or decrease its capital stock or incur create or increase It's any bond indebtedness unless it has a requirement.
The corporation can only increase or decrease its capital stock. The corporation can only increase or decrease, I mean, increase or increase its bond indebtedness. Indebtedness, indebtedness, indebtedness. As long as it is approved, such move is approved by the majority of the board. And two-thirds.
at least two-thirds of the outstanding capital stock at the stockholders meeting duly called for that purpose. Here are the additional requirements, the written notice, etc. Just read it.
Here it is. A certificate must be signed by a majority of the directors of the corporation and countersigned by the chairperson and secretary of the stockholders meeting setting forth. ah wait before we talk about that as you can see here this is also power express power express power to uh express power to lend 10 or express power to increase or decrease corporate term talks about the increase decrease in capital stock and use a band indebtedness So this is the meeting, additional requirement of the certificate.
so any increase or decrease in the capital stock or the incurring creating or increasing of bad indebtedness this is an important requirement if you will increase or decrease your capital stock or in relation to the bad indebtedness you need a prior approval from the securities and exchange commission and where appropriate from the philippine competition commission sir what is the meaning of philippine competition commission basically It prevents the monopolistic situation in our economy, the monopolistic acts. That's why it's called the Philippine Competition Commission. To prevent monopolistic acts, so that the economic stability of our country will not be compromised.
So the application of the commission shall be made within six months from the date of approval of the board of directors, which period may be extended for justifiable reasons. So if the board of directors, the stockholders, are approved in a meeting in July, called Jude duly called for that purpose then within 6 months you need to file an application to the commission and when appropriate to the Philippine Competition Commission for them to approve that when it comes to non-stock corporations they may incur increase like I said earlier they can't increase or decrease the stocks but rather for them to They can incur or increase the indebtedness because they can borrow money and issue bonds. It should be approved by the majority of the Board of Trustees and at least two-thirds of the members.
In a meeting duly called for the purpose, bond issued by the corporation shall be registered with the commission, which shall have the authority to determine the sufficiency of the terms thereof. Now, if additional notes, when you discuss the special laws, whether it's a seminar or a review, you can see there the power of SEC yes, the power of the Securities and Exchange Commission and one of these is the bands, the securities, all of these are registered to SEC you can see here, these are the salient points, this is electronic means again electronically need not set for, just read it because usually, most of the requirements are the power to increase or decrease capital stock this is a fundamental change in a corporation why? because we are talking about authorized capital stock yes, authorized capital stock which should be distinguished from the capital because the capital, we are talking about that yung assets ng corporation, etc. Ito, we're talking about this tax, yung equity niya. The authority of the corporation to take such action is not to be implied, but exists only when expressly conferred.
This is an express power. Under Section 37, it prescribes for the procedure to be complied with. Ayun, ninalala ko.
Procedural requirements lang ito. Itong mga mahabang notes na ito. Mga procedural requirements lang yan.
provides for the procedural requirements to be complied with to affect a legal increase or decrease in capital stock. Remember, not capital because capital, we're talking about the assets. The capital stock, that's the equity, which is now subject to prior approval of SEC. Even holders of non-voting shares are entitled to vote on the matter.
So, remember, because we listed... our discussion in general provision in title 1 section 6 paragraph 6 where there are only certain instances recap only, there are only certain instances where even non-voting stocks, non-voting shares like preference shares can be promoted. One of those cases is the increase or decrease of capital stock under section 6. Now there are limitations to this power to increase or decrease the capital stock. First, if you decrease the capital stock, you will reduce the capital stock. The effect of this is that the subscribers who have not yet fully paid for their subscription will also reduce the capital stock.
Or in some cases, they may eliminate the capital stock. So with that, it will compromise the security. ng isang creditor. Tandaan nyo yung trust fund doctrine natin.
So, ayan, such decrease, hindi pwede mangyari if it will prejudice the rights of the creditor. Kasi, anong basis nyan? Trust fund doctrine.
Yung pangalawa, a corporation cannot issue stock in excess of the amount limited by its articles of incorporation because that is an ultra-beerish act. Alam nyo naman yan eh, sa financial accounting nyo pala nyo, sa accounting for partnership incorporations, di ba? Bawal yung excess.
If the authorized capital stock is only 1 million, you can issue only 1 million. You can't exceed that. That's ultra-beerish.
A reduction or increase in a capital stock can only take place in a manner under conditions prescribed by law. Corporation contains no provision to increase capital stock which has not yet been fully subscribed. Okay, notes lang yan. Kahit na, well natitila ka pang ano, unissued authorized capital stock, diba? Kasi hindi mo pa na-issue yun.
Okay lang na mag-increase or decrease. Okay lang mag-increase. Kahit na.
hindi pa fully subscribed yan kahit namang may unissued ka pa. So with that, bakit kayo anong labot? Anong importansya ng pag-increase ng capital stock natin?
Dalawa tayo meron. Increase of corporate assets and issuance of stock dividends. So increase of corporate assets and increase of the amount of the capital stock may be the purpose of affecting an increase in the corporate assets by authorizing the creation of new shares to be offered and issue that fixed valuation and the increase of... for value shares authorized to be issued basically additional investment corporation is looking for additional investment because it has an expense that's why there are corporations that have IPO initial public offering that means they need additional funding additional investment so that is a that is a reason or one of the reasons the second reason is for the issuance of stock dividends This capital stock may also be increased without any corresponding increase in corporate assets by the issuance of stock dividends.
Like, for example, if the corporation is talking about the dividends that they issue, it's not property, it's not cash, but rather stock dividends. So, with that, they can increase their capital stock so that they can issue stock dividends. So, the law, increase of corporate assets basically for additional investment and issuance of stock.
dividends so what are the ways to increase or decrease the authorized capital stock may that long ways to you increase decrease the number of shares authorized to be issued without increasing or decreasing the far value thereof so example may welcome 1 million shares at five pesos at 100 par value that is a so pretty mongolian 1 million 500 shares pero maintaining the 100 par value The second way is to increase the par value without increasing the number of stocks. So, if you do 100, you do 500 or you do 200, you still maintain 1 million stocks. Another way is you can do both.
Both the number of shares and the par value, increase or decrease. For example, assume that the authorized capital stock of X corporation is fixed at 1 million pesos divided into 100,000 shares, where their par value is 10 pesos per share. Capital stock may be increased or decreased or as follows. The number of shares increase or decrease to 103,000.
uh 75 000 shares or decrease mo to 75 000 shares with the same power value 10 pesos each or the power value per share is increased or decreased to what 15 i know for five pesos etc etc so it's illustration so ato effect of reduction liability for unpaid subscription basa nyan lang i thought this one talks about you know the power to incur create or increase band indebtedness in Indeed. indebtedness silent silent b indebtedness the corporate bond is an obligation to pay a definite sum of money at a future time at a fixed rate of interest bond payable so stock and non-stock corporation business corporation in the absence of restriction may borrow money whenever the necessity of the business so requires an issue of security or customary evidence of debt snow on debtedness kasi may kailangan silang paggastusin e. So kailangan nilang umutang. Procedure formalities, toh Section 37 dapat, 2038, Shares members entitled to vote, even ito, gaya na sabi ting kanina, kahit yung mga non-voting shares or non-voting members pwede silang or may say sila pagdating sa power to incur, create, or increase bond indebtedness, prior approval rin sa SEC, ito basically yan yung si Section 37. The only thing that's wrong with Section 37 is the...
When it comes to such questions, those power powers, what are the requirements? Like for us, it's majority and two-thirds of the stockholders or members. It can be an electronic form, it's just like that.
What's the problem with that? So next, let's go to section 38, which talks about the power to deny preemptive rights. So this is another power of our corporation.
So all stockholders or stock corporations shall enjoy preemptive rights. to subscribe to all issues or disposition of shares of any class in proportion to their respective shareholdings unless such right is denied by the articles of incorporation provided now that such pre-emptive rights shall not extend to shares issued in compliance with laws requiring stock offerings or minimum stock ownership by the public or to shares issued in good faith with a pro-ballot of stockholders representing two-thirds of the outstanding capital stock and exchange of property needed for corporate purposes on in payments of previously contracted debt so yan section 38 talks about the power to deny preemptive right but first but first of all preemptive right now in relation to corporation code There are other applications to preemptive rights. In our property loss, in our co-ownership loss, in our property loss as well. But in this context, the meaning of preemptive rights when it comes to our corporation code is this one. Whenever the capital stock of our corporation is increased and new shares of stocks are issued, yung mga new issues must be offered first to the stockholders who are such at the time the increase was made in proportion to this to the existing shareholdings and on equal terms with other shareholders of the original stocks before subscriptions are received from the general public so meaning lang yan kapag mag-i-issue ka ng additional share ano tensari kapag mag-i-increase ka and mag-i-issue ka ng additional shares Yung preemptive right na yan, meaning lang yan, dapat i-offer mo muna sa mga existing stockholders mo, sa mga outstanding stockholders mo.
Sa kanila mo muna yan, una i-offer. Kapag tinanggap nila or tinanggihan nila, tsaka mo lang yan i-offer sa public, sa third person, sa other people. Yan si preemptive right. Uunahin mo muna i-offer yung new shares na yan sa mga outstanding stockholders mo at the time of the increase.
and then you will offer the outstanding shares to them first. If they don't accept it, then you will offer it to the public. That is preemptive right under the context of the corporation code.
For example, if a stockholder with preemptive right owns 20% of the outstanding shares, he may subscribe 20% of any shares of stock issued by the corporation. Meaning, for example, may 20% ka tapos mag-issue ng additional shares ng corporation of 100,000. Pre-emptive right, meron ka. So 20%, 20,000 of those additional shares, pwede mong punin.
That is your right eh. Pre-emptive right mo yan. Tsaka lang yan, pwede ma-offer sa public kapag tinanggihan mo yung right na yan.
Sabi mo, ah hindi, hindi ko bet, bumili muna. Yan. Now, what is the reason for granting such right without reading this? Basically, for the protection of the ownership interest.
For the protection of the interest of the stockholder. That's all. That's the reason why we have a preemptive right.
For the protection of the interest of the stockholder. So, you can read it. An alter of the proportion of interest, corporation, other words, etc. This, when?
It's not allowed. mag-issue or kailan hindi pwedeng ah tag dito hindi pwedeng bigyan ng preemptive right yung stockholders basahin nyo lang share issues to compliance ownership good faith approval basahin nyo lang so yan yan yan basically lang si preemptive right pag dating sa preemptive right ang itatanong lang yan is dalawa either lang yan sa dalawa ano yan si preemptive right and bakit yan ginagrant This is section 39 which talks about another power of the corporation which in this case refers to the power to sell or to sale or other disposition of assets. Now if you can still remember. In section 36, one of the lists there is about the sale and disposition of the assets of the corporation.
Go back to that. Here it is. So, it says here, Subject to the provisions of Republic Act No. 10667, otherwise known as the Philippine Competition Act, and other related laws, a corporation may, by a majority vote of its board of directors or trustees, sell lease, exchange, mortgage, pledge, or otherwise dispose of its property and assets upon such terms and conditions and for such consideration.
So, dapat may bayad daw. Which may be money, stock, bonds, or other instruments for the payment of money or other property or consideration as its boards of directors or trustees may deem expedient. So, yan.
Pwedeng gawin ng corporation ang mag-dispose ng kanyang assets. Kailangan lang. generally is majority votes ng board.
However, if it is a sale of all or substantially all of the corporation's properties and assets including its goodwill then there must be authorized or it must be authorized by the vote ng stockholders representing at least two-thirds ng outstanding capital stock or kapag non-stock corporation yan at least two-thirds ng members. in a meeting or in a stockholders or members meeting duly called for that purpose so then simple sale simple disposition majority vote lang ng board kapag all or substantial or substantially all yung disposition then kailangan na ng approval galing sa stockholders or the members o in non-stock corporations where there are no members with voting rights the vote of at least the majority of the trustees in office will be sufficient for authorization of the corporation to enter in any transaction authorized by uh this section if there are no members with voting rights so that they're all or substantially all provided naman dito ni section 39 the determination of whether or not the sale involves all or substantially all of the corporation's properties and assets must be computed based on its net asset value as shown in the latest financial statements so ang sale or other disposition shall be deemed to cover substantially all ng corporate property kasi kapag all alam natin lahat yan paano pag substantially all Well, you will know substantially all of that if thereby the corporation would be rendered incapable or incapable of continuing the business or accomplishing the purpose for which it was incorporated. So, you will know basically if substantially all, it will render the corporation incapable of operating.
Yes, it's like a person. The purpose of a person in this case, in this context is to run. Kapag pinutulan mo yan ng kamay, makakatakbo pa rin yan.
So you can say that is not substantially all. Hindi mo pwedeng sabihin substantially all yan. Kasi ang purpose is tumakbo. Pero ang pinutol mo is yung kamay.
Makakatakbo pa rin. Pero kapag ang pinutol mo is yung knee pababa, then that is substantially all. Kasi it rendered that person incapable of doing its purpose to run.
So apply nyo yung concept na yun. Pagdating sa corporation, if such disposition of asset will render the corporation incapable of operating, then that is substantially all. A sale or disposition of substantially all the corporation's property.
Ito naman talks about the written notice and ito naman dito rin appear ulit si dissenting stockholder. yung kanyang appraisal right. Ito naman, pwede naman, na ano, kahit na may authorization na ng stockholders o members, The board, at its discretion, can abandon their planned sale or disposition of the asset, subject to the rights of third parties under any contract.
Nothing in this section is intended to restrict the power of any corporation without the authorization by the stockholders or members to sell, sell, lease, sell, lease, sell, etc., etc., business corporation, etc., etc. So, this is just a salient point. Philippine Competition Act entered here.
Republic Act 1067. Sir, kanina na-mention rin yun si Philippine Competition Act. Ano bang labot yan, sir? Diba, as we have mentioned kanina, it is to prevent monopolistic, basically, to prevent monopolistic situations sa ating economy. So, a good example of that is yung telco industry natin.
Diba, basically, yung telco industry natin is duopoly, dominated by Globe and PLDT, kasi si Smart under. Smart TNT is under the same category as PLDT and Sunly, not sure TM is under Globe Our converters, sky cables, their services, their operations is not enough to compete with Globe and PLDT So basically our telco industry is duopoly Duopoly So, kapag si Globe nag-decide na ibibenta yung kanyang properties substantially all or all kay PLDT o dyan dyan na papasok si Philippine Competition Act si Philippine Competition Commission kasi substantially ang nangyayari dyan is magkakaroon na ng monopolistic situation kasi mawawala na si globe kasi by selling or disposing all or substantially all of its asset magiging or matitira na lang na mag-ooperate is si PLDT magiging monopolistic na yung telco industry natin kasi yung other hindi na makakumpit against kay PLDT so yan in that situation if it will make PLDT monopolistic sya na lang yung matitira na dominant kasi si globe all or substantially all, the asset he disposed of, will be transferred to the Philippine Competition Commission, he will stop that. So, that's just an example of the importance of the Philippine Competition Act. Another example, merger and consolidation.
Like PLDT and Globe, in this case, they decided to combine, to merge or consolidate. Remember, when it comes to merger, A plus B is equal to A or B. The one who will eat the other is the merger.
Remember that. The difference is two. The consolidation, A plus B is equals to C. There is a new entity when it comes to consolidation.
So, that's just an additional note. Remember that. So, that's another importance of the Philippine Competition Act, the Philippine Competition Commission.
Like I said, PLDT, CGLOBE decided to merge or they decided to consolidate. the situation in the telco industry will be monopolistic. In that case, the Philippine Competition Commission under the Philippine Competition Act has the power to prevent that, to stop that merger consolidation because it will lead to a monopolistic situation. So, that's just an additional note to make you see or just to say the importance of our Philippine Competition Act.
So this is electronic notice etc etc So the power to sell, lease, etc or other forms of disposition of assets of all or substantially all corporate assets, we have requisites here First it must be approved by the board of directors majority or the trustees Now Since we're talking about all or substantially all, kasi diba kanina, kapag hindi all or substantially all yan, like simple sale lang, simple disposition, no need na ng approval ng stockholders or na members. Boards lang, okay na. Pero kapag all or substantially all yan, kailangan ng approval galing sa stockholders, galing sa members.
Two-thirds, two-thirds. Authorization must be done at a stockholder meeting, stockholders or members meeting, duly called. for that purpose after written notice pwede yun shall be subject to the provisions existing law illegal yung sa monopolies monopolies and illegal combinations Appraisal right, we discussed this. The power of the corporation to acquire its own share.
Without reading that, you know what I'm talking about here is the concept of treasury shares, right? So, just read this. Provided the corporation has unrestricted written earnings in its books to cover the shares to be purchased or acquired, a stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or purposes.
including the following cases this one is already possible for example eliminate fractional shares arising out of stock dividends now I know you have already experienced fractional shares when it comes to accounting for for partnership and corporations because this fractional shares basically share is a fraction because of some certain instances situations in its issuance to collect or compromise an indebtedness to the corporation arising out of unpaid subscription delinquency sale etc etc and to pay dissenting or withdrawing stockholders entitled to payment for the shares under the provisions of the code so what is important here is the fractional shares like for example you own 250 shares the stock dividend corporation of 25 percent so with that ang madagdagan sayo or ang magiging total shares mo magiging 312 and 1 half shares na so yung 1 half shares na yan pwede yung bawiin ng corporation i-acquire nya yan bakit? kasi wala namang labot si 1 half share dyan kasi wala yung voting right 1 half yan dapat 1 so since fractional yan pwede yung bawiin ni corporation so basahin nyo nito Satisfying Debitness payment of shares dissenting stockholders, other cases, section 9, treasury shares, previous redeemable preference share, the nature of that is liability. So, even if there are no unrestricted retained earnings, if it's redeemable, you need to pay. Accord to effecting case law, deadlock in a closed corporation, this is later on.
Conditions to exercise. So, just read this. Trust fund doctrine.
Did I mention this doctrine? Yes, I mentioned this trust fund doctrine last time. So, just read this. Section 41 talks about another power of our corporation.
It is the power to invest corporate funds in another corporation or business or for any other purposes. As we mentioned earlier. In section 36, the corporation has no right to run or open or start an operation of another form of business that is different from its purpose. But it has the right to invest in another form of business, investment. And this is a much more explicit explanation, section 41. Subject to the provisions of this code, the private corporation may invest its fund in another corporation, business, or for any other purpose other than the primary purpose for which it was organized.
Bawal siyang magpatakbo, bawal siyang mag-operate, pero pwede siyang mag-invest. When approved by a majority of the board of directors or trustees and ratified by the stockholders representing at least two-thirds of the outstanding capital stock or non-stock, to the members at a meeting duly called for the purpose. Notice, notice, notice. Same as before.
Then provided, if there is a descending stockholder, then we have an appraisal right. Another provided, that where the investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the Article 3 Corporation, then the approval of the stockholders or member shall not be necessary so what example is that sir example is the holding companies these holding companies basically invest investment about investments or let's say investment corporations in general like they are just there to invest invest here invest there that is their primary purpose so since their primary purpose is to invest invest invest then they don't need approval from stockholders or members because the corporation itself is doing its primary is acting on its primary purpose mga nga ilangan lang sila ng approval galing sa stockholders sa members Kapag yung investment in question is not in relation to its primary purpose. Yun. Dun lang kailangan ng approval galing sa members and stockholders or stockholders. So let's go to section 42. So sa section 42, mahaba to.
Bakit? Kasi it talks about dividends or specifically the power of the corporation to Declare dividends. Now take note since we're talking about dividends here this only applies to stock corporations. Since they don't have a stock, they don't have the power to declare any dividends. Let's read.
The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable either in cash, property, or in stock to all stockholders on the basis of their outstanding stock held by them so conning outstanding stock nila in your basis naka nilang share sa dividends provided that any cash dividends due on delinquent stock shall be applied to the also shall first be applied to the unpaid balance on the subscription plus cost and expenses while stock dividends shall be withheld from the delinquent stockholders until their unpaid subscription is fully paid so in that situation you can see two forms kapag cash dividend Kapag may delinquent stock dyan, ibig sabihin hindi pa nabayaran yung subscription na yun, then pwede nyong i-apply yung cash dividends na yun para pang cover dun sa delinquency. I know you can still remember that from your accounting for partnership and corporations. Kung anong ginagawa, may cash dividends katapos may delinquent stock.
Yung cash dividends na yun, or that delinquent stock, i-apply. apply mo as forma pambayad kasama na ang cost and expenses. Ngayon naman kapag stock dividend yan tapos in relation to a delinquent stock then iwi-withheld mo yan. Hindi mo muna yun ididistribute as long as hindi pa nababayaran yung unpaid subscription. Provided further that no stock dividend shall be issued without the approval of the stockholders representing at least two-thirds of the outstanding capital stock at a regular meeting or special meeting due recall for the purpose o kailan may approval kapag stock dividends.
Now, this one. Stock corporations are prohibited from retaining surplus profits in excess of its 100% of their paid-in capital stock. Sir, what is paid-in capital stock?
Basically, this is what stockholders paid to acquire the shares. This is paid-in capital stock. Stockholders paid for the stockholders to acquire shares.
That's why it's called paid-in. So, kapag daw Sabi dito ng batas eh. Kapag yung retaining surplus profits nila is more than 100% ng paid-in capital. Like for example, yung returning surplus profit is 1 million paibanded.
Yung paid-in capital stock is 1 million. Then the corporation is required to declare dividends. Kasi lumampas sila eh. Lumampas ng 100% ng paid-in capital stock.
However, the corporation... operation The corporation can not do that because we have exceptions here. Even if the stock is more than 100% of the paid in capital stock, their retaining surplus profits, they can not declare dividends to the stock corporation. Because we have exceptions here below. The first one is when justified by definite corporate expansion projects or programs approved by the board of directors ibig sabihin may ano may project yung corporation eh na may pagagastusan siya may plan siya dito may form may investment siya tas gagamitin nila yun eh okay that that is a proper excuse para hindi mag declare dividends another is prohibited under any loan agreement with financial institutions creditors whether local firm declaring dividends without their consent so dapat may consent before declaring dividends.
And such consent has not yet been secured. So, hindi pa pwede. And lastly, when it clearly shown that such detention is necessary under special circumstances obtaining in the corporations as when there is need for specially served for probable contingencies. Ang maganda example dyan is mga bangko. O, kailangan may portion yan sila dyan for probable contingencies.
So, what is the concept of dividends? I know, you're accounting students. You are already aware about the concept of dividends so a stock corporation exists to make profit Because the non-stock, no. The stock, yeah, profit. And with that, to distribute a portion of the profits to its stockholders, because the stockholders invest in it.
A dividend is that part or portion of the profits of the corporation set aside, declared, and ordered by the directors to be paid ratably, which means pro-rata based on their shares, to the stockholders on demand or at a fixed time. It is payment to the stockholders of a corporation as a return upon their investment. So yan, yan yung labot ni dividend.
Yan yung return on investment ni stockholders kasi nag-invest siya sa corporation. Yan yung kanyang kinita sa kanyang investment. Yan yung nature ni dividend.
Pero ayun, alam nyo na yan eh kasi accounting student kayo, ilang beses na yan na pagdaanan. It is a character... characteristics of a dividend that all stockholders of the same class share in proportion to the respective amount of stock which they hold. So, what is the distinguishment or what is the difference between a dividend from profits or earnings? Now, a dividend is supplied in corporate stocks that portion of the profit or net earnings which the corporation sets aside for a double distribution among the stockholders.
So, basically, dividends, that's where it comes from, profits. while the profits, that is the source of the dividends. Now, profits are not dividends until so declared or set aside by the corporation.
In the meantime, all profits are part of the assets of the corporation and do not belong to the stockholders individually because they are not yet declared, they are not yet considered as dividends. They may be in cash as well as in kind. Dividends received by the company, which is a stockholder in another corporation, are corporate earnings arising from corporate investment.
Now, in this case, this is the situation where As we said, the corporation can invest in other corporations. So, with that, the investment he is earning will be considered as dividends. Of course, if the investment is invested in a stock corporation.
Now, if that's the case, then the corporation are received by a company, which is a stockholder in another corporation or corporate earnings arising from corporate investment. Now, sir, this is... If you can still remember, this is the situation in accounting for corporations. Now, example, this is a corporation. My investment in another corporation.
So, another corporation declared dividends. Now, this corporation will say, Oh, the dividends I earned from that corporation, I will use that to declare as dividends. What is it called?
Property dividends. So, that's an additional note. Now, this is the power to declare dividends.
The power of directors of stock corporation or the board of directors of stock corporation, they have the power to declare dividends out of the, take note, limitations or restrictions, unrestricted retained earnings. They can only declare dividends if there are unrestricted retained earnings. Remember that, that's a board exam question. Which shall be payable in cash, in property or...
in stock. So, tatlong forms ng dividends tayo mayroon. Sabi ng section 42. Cash, property, or stock dividends. Ito all stockholders based on the outstanding shares held by them.
Ibig sabihin yung pro-rata shares nila. So, ito, stock dividends. In the case of stock dividends, gaya na sabi sa section 42, hindi siya pwedeng ma-issue without the approval ng stockholders representing two-thirds ng capital stock.
So, if it's cash or property, even if it's just boards of directors, it's already goods. But if it's stock dividends, it's not allowed. Only 2 thirds of the stockholders need approval.
Other dividends, like we said, if the majority of the board is a quorum, declare dividends, there's a declare other with approval, paid registered owners. Dividends payable under restricted retained earnings, like we said, it's not allowed to declare if there's no unrestricted retained earnings. Now under the law dividends from other than the liquidating dividends which is not a really dividend because it is declared as a preference share. It has preference right over liquidating dividends.
Dividends means when the corporation is dissolved and liquidated, it is a priority payment because it has rights to liquidating dividends. But necessarily, they are not considered to be dividends because their source is from the capital, not from the profits. Maybe declared and paid out of the unrestricted retained earnings to the corporation.
A corporation cannot make a valid contract payment dividend on the retained earnings, etc. etc. For purpose of general rule, the capital stock, over-migrant, impaired, depleted, etc. What is the reason for the rule?
Trust fund doctrine, security of creditors. The rationale is that the stockholder should only receive dividends from their investment and not from the investment itself. It's called right of return, not right on return. Right of return, not right on.
Right of return, not right to return. Because this right to return is the investment itself, the one you're getting. But this right of return is what you earned from the investment.
Rule as to no par value. So, if we know that in par value stocks, In no power value stocks, we don't have a premium share because whatever is paid is the share capital. We don't have a recognized share premium. The code makes it clear with respect to no power value shares. The entire consideration including paid-in surplus.
received from the same shall be treated as capital and shall not be available for distribution as dividends. The theory is that the stockholders intended that all such considerations shall constitute the basic business fund of the corporation to be permanently devoted in the prosecution of the corporate business. Right?
There is no share premium recorded when the issue is still valid. So, that's it. Additional notes. so unrestricted retained earnings explained the retained earnings of a corporation is the difference between the total present value of its asset after deducting losses and liabilities and amount of its outstanding capital so basically it looks like this retained earnings minus the assets liabilities is equals to market to me I know that but equals to is equal to retained earnings minus the asset is equals to the asset minus the liabilities minus the legal capital the legal capital is what we can move discussed in the previous video so that is our retained earnings then if you can still remember in your accounting the retained earnings is divided into two there is a portion that is unrestricted there is a portion that is restricted the restricted earnings depends on the situation context like For example, they said that they will get the payment for the debt from restricted-end earnings, etc. Then the unrestricted, since from the word itself it is unrestricted-end earnings, then they can do whatever they want to do there, such as the declaration of dividends.
So, additional note, just a recap of your accounting. So, such that the earned earnings or portion thereof are said to be unrestricted and therefore free for dividend distribution to the stockholder, if they have not been reserved or set aside by the board, for some corporate purpose or some other purposes in accordance with major legal contractual requirements. As we said, the retained earnings is divided into unrestricted and restricted.
What we are talking about here below is the reserve, that is the restricted retained earnings, the unrestricted, that is where we will get our dividends. These are the items that affects the unrestricted retained earnings. So, that's it. That's the Treasury Shares, right? Reversible.
of provision etc etc now existence of actual profits or earnings now in order to justify the declaration of dividends there must be an actual bona fide surplus profits or earned surplus over and above all debts and liabilities of the corporation para ma justify kumita incorporation Of course, the stockholders should also have shares in it. The corporation earned it. So, it should...
There are shares in stockholders when the board declares. Now let's go to the declaration of dividends. What are the conditions before you can declare dividends? This is accounting, right? The declarations, recording date, then distribution.
A dividend declaration ordinarily requires the concurrence of two things. So we have two requirements, two conditions. The existence of unreserved secreted earnings.
kung saan manggagaling yung dividends to be declared and paid. And last and second, a corporate resolution coming from the board declaring the payment of a portion of all or all of such earning to the stockholders. So dalawa, dapat may unrestricted return earnings ka and dapat may resolution from the board ka declaring dividends.
Additional requirements when it comes to stock dividends, as we mentioned earlier, is that the board only approves cash dividends. Stock dividends, cash and property are only approved by the board. Stock dividends need approval from the stockholders. These are additional requirements, etc. This is the discretion of the board of directors to declare dividends.
Generally, it is dependent on the board of directors if they will declare dividends. But of course, sometimes they are compelled to declare dividends because there are instances where the board has discretion. So for this year, they did not declare dividends.
There are instances like that. Since this year they did not declare dividends, the stockholders were bad trip. So they pulled out their investments. Bad trip. They did not get dividends because the board did not declare.
So, there are times when the Board of Directors are compelled to declare dividends because there's the danger that the stockholders might pull out because they invested to earn and they didn't get dividends. Bad trip. So, the Board of Directors has the responsibility to declare dividends and determine the time as well the amount, even if there are profits earnings not required to declare.
Court cannot compel in the absence of bad faith. Bayad mo na utang or may pambayad ng utang bago declare dividends. Now, ito yung exceptions na sinasabi natin yung mention natin kanina, na-discuss natin, na yung mga stock corporations are prohibited from retaining surplus profits in excess of 100,000 of their paid-in capital stock. Gaya na sabi natin, kapag yung paid-in capital stock mo is 1 million, the retaining surplus profits of 1,500,000 so you have excess that's excess so since you have excess you are required by the law by section 42 to declare dividends now there are exceptions again when justified by any of the reasons mentioned right? the one you will use for future investments capital or capital investments or You will use it as a contract with your creditors that you cannot declare dividends without their consent.
And another is statutory requirements, etc. Those are the three reasons in section 42. Let's go back. We already talked about that. no have an evidence i don't know corporate expansion projects kapag walang consent ng creditors mo and kailangan ng retention because of some contingencies so that's it So, the discretion to declare dividends, let's repeat it, comes from the board of directors.
But because we said that sometimes it's a bad trip for the stockholders if they don't declare dividends. So, in danger, because of the existence of danger that they will pull out, sometimes the board of directors compel them to declare dividends. Then, if there's a situation where, it says here, that there's excess of...
more than 100% excess of 100% yung retaining surplus profits natin over sa paid in capital then section 42 compels the corporation to declare dividends however may exception dyan yung tatlong reasons ano ano yun for corporate expansions capital investment basically second is yung consent galing sa creditors due to a contractual agreement pangalawa reserve or retention for contingencies. Now, payment of subscription from dividends. We already talked about this. You are not obligated to give dividends. to the unsubscribed.
Now, when it comes to cash dividends, you can apply the cash dividends to cover the unpaid portion including the expenses. When it comes to stock dividends, you can't do that. Pay first before distributing.
Liability of stockholders and directors for illegally received dividends like for example, you declared but you don't have unrestricted retained earnings. So that is an illegal distribution of dividends. Now in case of dividends that are wrongfully or illegally declared and paid, there is an ample authority for the rule that the stockholders who receive them can be held liable to refund them to the corporation or its creditors.
It's immaterial to receive good faith because in the first place, you don't have the right to receive that. You don't have the right to receive that. Now, rights of the stockholders after the declaration.
of the dividend. So when it comes to cash dividends, as soon as the cash dividends are publicly declared, the stockholders have the right in relation to their pro rata shares. So there, let's read it.
In stock dividends, the rule does not apply because the declaration of such dividends may be rescinded at any time before the actual issuance of the stock. This is just an illustration. This is classes of dividends.
You are aware of this. Let's see. Cash dividends, payable in cash, in other words, self, property dividends, real or personal property, like for example, the corporation declared property dividends, the cars were given to the owners, that is their payment. Stock dividends, this is the dividend payable in unissued or increased or additional shares of the corporation. We mentioned earlier the power of the corporation to increase its capital stock.
So one of the reasons that they increase their capital stock is to use that as distribution of stock dividends. So here it is, increased or additional shares of the corporation instead of paying cash or property. A stock dividend may only be declared only to the extent of the maximum number of shares authorized in the articles of incorporation so indica pwedeng lumampas ng authorized capital stock mo kasi pag lumampas ka ultra vres na yon optional dividends composite preferred cumulative basa basa na lang script man effects of declaration cost dividends when a corporation issues cost dividends the assets of the corporation diminished by exactly the amount paid and correspondingly the property of the individual stockholder increase except so fxfx illustration expect uh so basa basa lang to difference nila so not much of a difference so let's go to section 43 now section 40t Fortity talks about another power of the corporation, this time the power to enter into management contract. So, ano itong management contract? Basically, itong management contract talks about one corporation being managed by another corporation.
Tawag sa corporation na nagmamanage, the managing corporation. Tawag sa corporation na minamanage, sa yung minanage is the managed, may D, managed corporation. So, yan yung management contract.
So, sabi dito, no corporation shall conclude a management contract with another corporation unless such contract is approved by the board of directors and by stockholders owning at least the majority of the outstanding capital stock or by at least majority ng members in the case of non-stock or both the managing and the managed corporation at a meeting duly called for the purpose. As you can see here, may difference di ba? May napansin kayong difference. Na ang kailangan lang daw is approval coming from the, na sa board of directors, alam natin parating majority dyan.
Majority ng quorum. Na dito, ang napansin yung difference di ba? Majority lang ng stockholders or na members ang kailangan. Of both, of both, both. of both the managing and the managed corporation.
Because usually, what we see is two-thirds. But this time, generally, what we need is majority-majority. Now, there's a problem.
They will be tutored in some situation provided here. The first situation provided that we're a stockholder or stockholders representing the same interest of both the managing and the managed corporation. It means that they have ownership in both corporations, both managing and managed.
It's called interlocking stockholder. The term is familiar, right? Interlocking. Because we already discussed that. In section 32 or section 33, the Interlocking Directors, the term is familiar.
It means, on both the managing and the managed corporation, it has ownership interest. Now, in that situation, owns or controls more than one-third of the total outstanding capital stock entitled to vote of the managing corporation. So, it means that these stockholders have ownership on both the managing and the manage. Now, their ownership on managing is more than one-third.
So, that's it. Then, another situation where the two-thirds-two-thirds rule will enter, when a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed corporation so the law and in Sabine and Peggy's a panama attend the toys interlocking directors yeah yeah interlock sauna interlocking ano stockholders need to interlocking directors now Capagano situation my interlocking stockholders style tapas young ownership some managing corporation is more than Then, we also have interlocking directors where they are majority-majority, both on the managing and the managed. Then, approval is required.
It must be approved by the stockholders of the managed corporation owning at least two-thirds of the total outstanding capital stock entitled to vote, or if it's non-stock, two-thirds of the members. Remember, it's the managed corporation. In a managed corporation, there needs to be a 2-thirds-2-thirds.
If the interlocking stockholders or interlocking directors are present. Now, this shall apply to any contract whereby a corporation undertakes to manage or operate all or substantially all of the business of another corporation. Whether that's contract, service contract, etc.
Operating related to development. entered into, may pertain to regulation no management contracts shall be entered into for a period longer than 5 years for any one term so ito, limitations to the power parang na, this is na natin tay so the contract, or the ratification of the contract, the contract must be approved by the majority of the quorum of the board of directors to test this and ratified by the prescribed vote of the outstanding capital stock entitled to vote, in this case two thirds, in this case majority-majority lang but it will require 2 thirds of the time when the instances are present the interlocking stockholders and the interlocking directors in other 2 cases mentioned, we said that it will require 2 thirds of the time of the managed corporation where the contract is between 2 corporations, the interlocking directors the contract must be completed according to section 32 period of the contract must not be longer than five years for any one term except those contracts which relates to the exploration development exploitation or utilization of natural resources which may be entered into such fields may be provided by pertinent laws or regulations. This is the material power under the contract.
This is the illustration. Let's go to the last section, Ultra-V Resac. Now, this ultra-virus that we mentioned in our previous discussion, basically, the meaning of ultra-virus, acts that the corporation has no right or has no capacities to perform. That's all ultra-virus.
In our own words, that's all ultra-virus. Acts for which the corporation has no capacity, has no right to perform. So, it says in section 44, ultra-virus acts the corporation.
No corporations shall possess or exercise corporate powers. other than those conferred by this code or by its articles of incorporation and except as necessary or incidental to the exercise of the powers conferred. So, Ultra-Vires and Intra-Vires Act. So, this Ultra-Vires Act, it is a well-settled rule that a corporation is not restricted to the exercise of powers expressly conferred upon it, but has the implied or incidental powers to do what is reasonably necessary to carry out its express powers and to accomplish the purpose for which it was formed i mentioned it earlier section uh section 35 uh this is the tag h i j k it should be there it should not be 11 because 11 is in the old code but in our new code what we used is lettering and 44 gives express recognition to these implied and incidental powers.
We discussed this earlier. Now, according to the strict construction of the term, an ultra-virus act is one not within the express implied and incidental powers of the corporation conferred by the code or the Article Swing Corporation. Like we said, this is an act where there is no capacity, no right for the corporation to perform.
That's all an ultra-virus is. It is an act which is not positively forbidden. but impliedly forbidden because not expressly impliedly authorized or necessary or incidental sa exercise ng kanyang powers conferred. Acts or transactions within the legitimate powers of the corporation or are related to its purpose are said to be intra-virus acts. So meaning lang yan, ang ultra-virus acts, invalid acts.
Ang intra-virus, these are the valid acts. So ultra-virus, invalid acts. Intra-virus, valid acts. A corporation was organized for the purpose of engaging in the buy and sell of home appliances. However, to this corporation, they bought and sold motor vehicles.
Now, this can be considered as an ultra-virus act because although it is lawful to buy and sell motor vehicles, but this object is outside the object for which the corporation is created and therefore beyond its powers. So there, Ultra-Virus Act. What did I say earlier?
Ultra-Virus Act, these are acts for which the corporation has no capacity, has no right to perform. He only has the right to buy and sell home appliances. Wala siyang karapatan mag-buy and sell ng motor vehicles. Now, ito, take note, ha.
Although it is lawful, tandaan nyo, ang ultra-viresak, it does not necessarily mean that it is illegal. Oo. Ultra-viresak, it does not necessarily mean na it is illegal. Oo, kasi mayroon. Gayaan dito, illegal ba ang pagbebenta ng motor vehicles?
Buy and sell? But the corporation has no right to perform that because it is not the powers that it is given to it. Remember, the ultra-virus act does not necessarily mean that it is illegal. This is the buy and sell of the repudiators since the prior incents are intra-virus.
The corporation was organized to engage in the business of manufacturing a particular product. marketing and selling the product may be logical necessarily logically necessary to the business of the manufacturing considering that there must be an end user for the goods to be manufactured seller trader dealer or important because it's necessarily or indispensably the manufacturer of the goods therefore manufacturing cannot be treated as reasonably necessary to the business of selling this is just reading this is board directors Like what we said, Ultra-Virus acts does not necessarily mean that they are illegal. When properly used, an Ultra-Virus act means simply an act which is beyond the conferred powers of the corporation or the purposes or objects for which it is created as defined by the laws of its organization. So by itself, an Ultra-Virus act does not necessarily mean that it is illegal. On the contrary, it may be lawful, moral, and even praiseworthy.
Kaso lang, it is beyond the power of the corporation. Wala siyang karapatan to perform that. An illegal corporate act, on the other hand, is an act which is contrary to law, morals, good customs, public order, public policy, lamok paps.
The buy and sell of contraband goods would not only be illegal but also ultra-vires. because it's a contraband Contrabando So the term ultra-virus is distinguished by an illegal act for the form where it is merely voidable which may be enforced by performance, certification, or estoppel while the latter is void and cannot be validated because it is illegal Now, there are instances where you can ratify ultra-virus acts However, there are instances that you cannot also Where the contract or act is illegal per se Meaning, it's illegal by law it is void or in existence at the first place it cannot be ratified or validated because it is void in existence contracts define and cannot also be ratified the document of estoppel cannot operate to give an opinion is null and void now there is a sense where a contract if the contract or act is not illegal per se but merely beyond the power of the corporation then the same is merely voidable and may be enforced by performance identification or stoppage on equitable grounds. This is important. The following rules are recognized.
There are instances. An ultra-virous acts while executorial on both sides cannot be enforced by either party thereto. Because they don't have the right to perform that because it is ultra-virous, beyond their powers.
It is in the public interest that the corporation do not transcend the powers granted to them by law and their assets be not subjected to risk created by forbidden acts. Now, these instances are just executories. It means they're not executed yet.
You know the difference between an executory and an executed. An executory, nothing has been done yet. Executed, something has been done. Although, even if it's partially, or whatever, as long as something has been done, this is an executory. So, since it's just an executory, nothing has been done substantially, then you cannot force them.
Now, in the second rule, It is already executed. So, when the contract or the ultra-various contract has been fully performed on both sides, then what happens? Neither party can maintain an action to set aside a transaction or to recover what has been parted with.
So, they can't reverse that. They can't cancel that because they already performed. They can't do anything.
They already accepted what happened. The well-settled doctrine is that the defense of ultra-virus cannot be set up for availed of incomplete or consummated transactions. Because you know, you already did it. The mere fact that you already did it.
That's the ultra-virus act. It stops you. It prevents you from canceling that.
Because it's over. It is what it is. No public interest involved.
Only the state may challenge the contract. on ultra-virus grounds. As you can see here, merong exception. The party, the parties, cannot question an ultra-virus act that has already been performed. However, the state can challenge that on ultra-virus ground.
Kita nyo. Dito, the parties, when the ultra-virus act has been already executed, has been already performed. the parties to that ultra-virus contract cannot question it then they can fight it in court however the state can challenge that can challenge that ultra-virus contact on the grounds of ultra-virus why because it's a public interest no public interest involved here since both parties have already received the advantage to benefit i have no public interest no public interest Even without public interest, it's possible.
But only the state can question that. Now, this situation. One side, it was performed. The other, it wasn't. One side, it was done.
The other, it wasn't. So, what will happen? When an ultra-virus hack has been performed on one side, and the other has received benefits by reason of such performance, recovery is permitted in most courts on behalf of the former. on the ground that it would be unjust to sanction retention of benefits coupled with refusal to perform because in this case oh yes Sabina Natin na perform na ng isa yung isa hindi pa nag perform but since this is an ultra vires act you cannot compel the other side to perform but because that is an ultra vires so in this case ang remedy na lang is recovery of what has been given okay kasi diba ultra vires so the other side the other party na hindi pa nagperform, you cannot compel them. for specific performance considering that what is being done here is ultra-virus.
So since it is ultra-virus, you cannot file an action for specific performance. So the only remedy you have is to file a petition for recovery. Just remove what you gave because it is ultra-virus. Other costs of the contract are enforceable but compel the parties to receive the benefits of performance.
what has received failing to do so to pay the sensible value the doctrine of ultra billers cannot be invoked when it will defeat the ends of justice or work or legal wrong etc etc i cannot be allowed to prevail interpose against corporations prejudiced to party who acted in good faith so basically and discussion at in for title four now uh revised corporation code and next video would bd Title 5, it talks about the violence of the corporation. So with that, bye-bye. Love you.