BUSINESS LAW

Definition of a Close Corporation

A close corporation is a business organization which all shares are held by a few selected persons who
are either related by blood or marriage, or those who know each other well and are aware of each
other’s business skills.
Close Corporation Regular Corporation
There can be classification of There are no classifications of
directors into one or more classes board of directors
Articles of Incorporation may Only to board of directors exercise
provide that corporate powers corporate powers
may be exercised by stockholders
Stockholders are subject to Stockholder are not subject to
liabilities of directors liabilities
Articles of Incorporation may give Powers to appoint corporate
powers to stockholders to appoint officers are exercised by the Board
corporate officers of directors
Articles of Incorporation may Fixed by the corporation code
provide for greater voting quorum
Preemptive right extends to Pre-emptive rights does not
treasury shares extend to treasury shares
Stockholder may compel the Shareholders may not compel the
corporation to purchase his shares corporation except in right of
appraisal
Deadlocks in Management
Deadlock is a situation in which the directors or stockholders of a close corporation are so divided with
regard to the management of corporate affairs and the votes required for any corporate action cannot
be obtained with the consequence that the business affairs of the corporation can no longer be
conducted to the advantage of the stockholders.
Dissolution of a Close Corporation
Upon written petition to SEC, stockholder may compel the dissolution of the corporation whenever any
of the acts of the directors, officers or those in control of the corporation is illegal, or fraudulent, or
dishonest
Definition of a Foreign Corporation
A foreign corporation is a company formed, organized or existing under any law other than those of the
Philippines, and whose laws allow Filipino citizens and corporations to do business in its own country or
state
Under the Foreign Investment act of 1991, doing business covers
• Soliciting orders
• Service contracts
• Opening offices
• Appointing representatives
Suability of Foreign Corporations
1. Foreign corporations doing business in the Philippines;
• With license: may sue and be sued in the Philippines;
• Without license: cannot sue but may be sued in the Philippines. (Sec. 133)
2. Foreign corporation not doing business in the Philippines: on isolated transaction, it may sue and be
sued.
Documentary requirements:
1. Application, under oath, filed in SEC including Articles of Incorporation and by-laws;
2. Attach certificate that the laws of their incorporation allows Filipino citizens and corporation to
business in their country and that the corporation is in good standing;
3. Certification that the corporation is solvent and in sound financial condition; and
4. Other requirements as provided for by laws and authority from appropriate authority
Merger or Consolidation Involving a Foreign Corporation
One or more foreign corporations authorized to transact business in the Philippines may merge or
consolidate with any domestic corporation or corporations if such is permitted under Philippine laws
and by the law of its incorporation and the requirements on merger or consolidation as provided in
corporation code are followed.
Revocation of License
• Failure to file its annual report or pay any fees;
• Failure to appoint and maintain a resident agent in the Philippines;
• Failure to pay any and all taxes, imposts, assessments or penalties;
• Failure to submit to the SEC an authenticated copy of any amendment to its articles of
incorporation or by-laws or of any articles of merger or consolidation;
Withdrawal by a Foreign Corporation
If a foreign corporation duly licensed to do business desires to withdraw, it must file a petition for
withdrawal, and must meet the following requirements:
• All claims accrued in the Philippines must be settled;
• All taxes must be paid; and
• Petition must be published once a week for three (3) consecutive weeks (Sec. 136)
Educational Corporation
An educational corporation is a stock or non-stock corporation organized to provide facilities for
teaching or instruction. Such corporation normally maintains a regular faculty and curriculum and
normally has a regular organized body of pupils or students,
Religious Corporations
A religious has been defined as a corporation composed entirely or spiritual persons and which is
erected for the furtherance of a religion or for perpetuating the rights of the church or of the
administration of church or religious work or property.
A corporation sole its purpose is to administer and manage as trustee the property and affairs of such
religious sect, denomination or church, within the territorial jurisdiction of such office.
Definition of a Non-stock Corporation
A non-stock corporation is an organization that does not have a capital stock. Thus, no part of its
income is distributable as dividends to its members, trustees, or officers.
Comparison of non-stock and stock
Stock corporations are formed to generate profit for stockholders. Non-profit corporations are formed
for reasons other than profit.
Profits are declared and distributed to stockholders in stock corporations. Non-stock corporations, on
the other hand, do not distribute their profits and instead use them to further their own goals.
Non-stock corporations are made up of members rather than stockholders (also known as shareholders
or share owners). A stock corporation is governed by a board of directors (BOD), whereas a non-stock
corporation is governed by a board of trustees (BOT).
Purpose of a Non-stock Corporation
Non-stock corporations are business organizations which may be organized for charitable, religious,
educational, professional, cultural, fraternal, literary, scientific, social, civic service or similar purpose
like trade, industry, agriculture, and like chambers or any combination thereof
Conversion from Non-Stock to Stock Corporation
A non-stock corporation cannot be converted into a stock corporation by mere amendment of the
articles of incorporation. It can only be dissolved under Sec. 177 to 122 of the Corporation Code.On the
contrary, stock corporations can be converted to non-stock corporations by amending its Articles of
Incorporation.
Trustees and Officers
• A non-stock corporation may designate their governing board by any name other than board of
trustees. (Sec. 138);
• Numbers of trustees may be more than 15 as fixed by Articles of Incorporation (Sec. 92) but
their incorporating trustees may not be more than 15 (Sec. 15);
• The term of the first trustees is staggered, Sec. 24 and 29 should also be followed; and
• Term of officer is three years except the first directors (
Concept of Dissolution
Dissolution of corporation is the termination of its existence. It may be voluntary or involuntary
Voluntary Dissolution
a. Voluntary Dissolution where no creditors are affected (Sec. 118)
b. Voluntary Dissolution where creditors are affected (Sec. 119)
c. Amending the articles of incorporation to shorten corporate term (Sec. 120)
d. In case of a corporation sole, by submitting to the SEC a verified declaration of dissolution
Involuntary Dissolution
a. By the expiration of the term provided in the articles of incorporation (Sec. 11)
b. By its failure to formally organize and commence the transactions of its business or construction
of its works within two years from its incorporation (Sec. 22)
c. By order of the securities and exchange commission (Sec. 121)
d. By legislative dissolution (Sec. 145)
Corporate Liquidation
Liquidation is the winding up of the affairs of a corporation by converting assets and property to cash, A
liquidation proceeding is a proceeding in rem so that all other interested persons whether known to the
parties or not may be bound by such proceedings
The Concept of Merger and Consolidation
Two or more existing corporations may combine into a single corporation. There are situations where
one of the constituent corporations remain to exist and there situations where they form a new single
corporation which shall be the consolidated corporation