Concession Theory - The Corporation Is A Creature Without Existence Until It Has Received Imprimatur of The State Acting According To Law. 2

1.
Concession Theory – the corporation is a creature without existence until it has

received imprimatur of the State acting according to law.
2. SEC. 31. Dealings of Directors, Trustees or Officers with the Corporation. – A contract of the
corporation with (1) one or more of its directors, trustees, officers or their spouses and relatives within the
fourth civil degree of consanguinity or affinity is voidable, at the option of such corporation, unless all the
following conditions are present:
(a) The presence of such director or trustee in the board meeting in which the contract was approved was
not necessary to constitute a quorum for such meeting;
(b) The vote of such director or trustee was not necessary for the approval of the contract;
(c) The contract is fair and reasonable under the circumstances;
(d) In case of corporations vested with public interest, material contracts are approved by at least two-thirds
(2/3) of the entire membership of the board, with at least a majority of the independent directors voting to
approve the material contract; and
(e) In case of an officer, the contract has been previously authorized by the board of directors.
Where any of the first three (3) conditions set forth in the preceding paragraph is absent, in the case of a
contract with a director or trustee, such contract may be ratified by the vote of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members in a
meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting and the contract is fair and reasonable under the circumstances.
3. PSE vs. CA (Business Judgment Rule)
Maximo Kalaw vs.
4. SEC. 23. Election of Directors or Trustees. – Except when the exclusive right is reserved for holders of
founders’ shares under Section 7 of this Code, each stockholder or member shall have the right to nominate
any director or trustee who possesses all of 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 to act by written proxy, the owners of majority of the outstanding capital stock, or if there be no
capital stock, a majority of the members entitled to vote. When so authorized in the bylaws or by a majority
of the board of directors, the stockholders or members may also vote through remote communication or in
absentia: Provided, That the right to vote through such modes may be exercised in corporations vested with
public interest, notwithstanding the absence of a provision in the bylaws of such corporations.
A stockholder or member who participates through remote communication or in absentia, shall be deemed
present for purposes of quorum.
The election must be by ballot if requested by any voting stockholder or member.
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 stock books of the corporation at the time fixed in the bylaws or where
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; (b) cumulate said shares and give one (1) candidate
as many votes as the number of directors to be elected multiplied by the number of the 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 stock shall be voted. Unless otherwise provided in the articles of incorporation or in the
bylaws, members of nonstock corporations may cast as many votes as there are trustees to be elected but
may not cast more than one (1) vote for one (1) candidate. Nominees for directors or trustees receiving the
highest number of votes shall be declared elected.
If no election is held, or 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 adjourned and the corporation shall proceed in accordance
with Section 25 of this Code.
The directors or trustees elected shall perform their duties as prescribed by law, rules of good corporate
governance, and bylaws of the corporation.
5. Vote of Stockholders holding 2/3 of subscribed capital stock
a. Extension or shortening of corporate term
b. Amendment of articles to increase or decrease capital stock
c. Incurring, creation or increase of bonded indebtedness
d. Approval of issue of shares in exchange for property needed for corporate

purposes or payment of prior debts
e. sale or disposition of all or substantially all of the corporate assets
f. investment of funds in another corporation
g. Investment of funds for purposes different from those stated in the AOI
h. Stock dividend declaration
i. Execution of management contract
j. other amendments to the AOI
K. ratification of certain corporate contracts with a director or officer

l. ratification of acquisition of business opportunity by a director or officer
m. Removal of directors
6. Payment of dividents vs. Payment of shares
7. Piercing the veil
grounds: Defeat Public convenience
Justify wrong
Protect fraud
Defend crime at marami pang iba
8. Private vs. Public Corpo
9. Preferred vs. Redeemable

SEC. 7. Founders’ Shares. – Founders’ shares may be given certain rights and privileges not enjoyed by the
owners of other stocks. Where the exclusive right to vote and be voted for in the election of directors is
granted, it must be for a limited period not to exceed five (5) years from the date of incorporation:
Provided, That such exclusive right shall not be allowed if its exercise will violate Commonwealth Act No.
108, otherwise known as the “Anti-Dummy Law”; Republic Act No. 7042, otherwise known as the
“Foreign Investments Act of 1991”; and other pertinent laws.
SEC. 8. Redeemable Shares. – Redeemable shares may be issued by the corporation when expressly
provided in the articles of incorporation. They are shares which may be purchased by the corporation from
the holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted
retained earnings in the books of the corporation, and upon such other terms and conditions stated in the
articles of incorporation and the certificate of stock representing the shares, subject to rules and regulations
issued by the Commission.
10. Utilization of water Filipino vs. Foreign
no foreign stockholder is allowed:
Mass media, except recording
Retail trade enterprises with paid up capital less than US$2.5 Million
Private Securities
Small scale mining
Utilization of natural resources
Cockpits
Manufacture of firecrackers/nuclear weapons
Up to 20% foreign equity: PRIVATE RADION COMMUNICATIONS NETWORK
Up to 25% foreign equity
Private recruitment, whether local or overseas employment
Construction and repair of locally funded works
Construction of defense-related structures
Up to 40% foreign equity
Exploration, development and utilization of natural resources
Realty companies and other corporations that own private lands

Operation and management of public utilities
Culture, production, milling, processing, trading except retail of rice and corn and
by-products
Adjustment companies
Sauna and steam bath houses, massage clinics
Up to 60% Foreign Equity
Financing companies
Investment houses
11. Qualification of Director vs. Officer alien
Must own atleast one (1) share of the capital stock of the corporation in his
own name
Or a member (if non-stock)
Legal age
Possess all qualification no disqualification
In case of alien (they can be a stockholder/director) except nationalized corporation

refer to no. 10.
 can a Spanish be a president? Director? Secretary? Managing Director? What

if American citizen.
1. yes, Spanish citizen can be a president provided that he is a director. (except
in the 100% nationalized corporation . Director, yes, provided he possess all
qualifications and none of the disqualification (except in the 100%
nationalized corporation Secretary, no, must be citizen and a resident of the
Philippines. Managing director, yes, (except in the 100% nationalized
corporation)
Same lang kahit American citizen
12. Derivative suit/individual suit/
13. Hold-over vacancy can BOD fill? NO. Expired na ang term. Stockholder/member
mag fill
14. 9 Board 2 dead 1 abroad
15. Unrestricted retained earnings
16. De facto vs. estoppel
17. Corporate Opportunity/disloyalty of director

18. management contract
19. Instances when acts are not voidable which can be ratified
20. grandfather rule vs. control test
21. Corporate officer liablility.

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1.

Concession Theory – the corporation is a creature without existence until it has

(c) The contract is fair and reasonable under the circumstances;

3. PSE vs. CA (Business Judgment Rule)

Maximo Kalaw vs.

The election must be by ballot if requested by any voting stockholder or member.

5. Vote of Stockholders holding 2/3 of subscribed capital stock

a. Extension or shortening of corporate term

b. Amendment of articles to increase or decrease capital stock

c. Incurring, creation or increase of bonded indebtedness

d. Approval of issue of shares in exchange for property needed for corporate

e. sale or disposition of all or substantially all of the corporate assets

f. investment of funds in another corporation

h. Stock dividend declaration

i. Execution of management contract

j. other amendments to the AOI

K. ratification of certain corporate contracts with a director or officer

6. Payment of dividents vs. Payment of shares

7. Piercing the veil

grounds: Defeat Public convenience

9. Preferred vs. Redeemable

10. Utilization of water Filipino vs. Foreign

no foreign stockholder is allowed:

Mass media, except recording

Small scale mining

Utilization of natural resources

Manufacture of firecrackers/nuclear weapons

Up to 20% foreign equity: PRIVATE RADION COMMUNICATIONS NETWORK

Up to 25% foreign equity

Private recruitment, whether local or overseas employment

Construction and repair of locally funded works

Construction of defense-related structures

Up to 40% foreign equity

Exploration, development and utilization of natural resources

Realty companies and other corporations that own private lands

Sauna and steam bath houses, massage clinics

Up to 60% Foreign Equity

11. Qualification of Director vs. Officer alien

Or a member (if non-stock)

Possess all qualification no disqualification

In case of alien (they can be a stockholder/director) except nationalized corporation

 can a Spanish be a president? Director? Secretary? Managing Director? What

12. Derivative suit/individual suit/

14. 9 Board 2 dead 1 abroad

15. Unrestricted retained earnings

16. De facto vs. estoppel

17. Corporate Opportunity/disloyalty of director

20. grandfather rule vs. control test

21. Corporate officer liablility.

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