Full transcript
0:00good evening class our topic for tonight will be title 12 of the revised corporation code of the philippines we will be talking about closed corporations our source materials again are partnerships and private corporations by deleon and deleon jr and also the revised corporation code of the philippines a short introduction by aquino and aquino so let's begin with
0:20the definition of a closed corporation so a closed corporation is one wherein the stock is held in a few hands or in a few families and which stock is not at all or only rarely dealt in buying and selling meaning remember in a stock corporation there are only a few stockholders so the stock is um contained within a few families and
0:41remember young stock shares of stock in the closed corporation [Music] buying and selling so shares are stuck in a closed corporation and also shares some close corporation if ever now they will uh
1:01sell you uncanny long shares of stock so madalang and transactions involving ownership transfer of ownership of shares within a closed corporation so remember also the mandatory provisions in the articles of incorporation uh these are mandatory because in addition to all the items provided for in type uh section 13 of the revised uh corporation
1:22code either so remember in section 13 human items [Music] includes articles of incorporation in addition to all of that you have to include these three provisions so that your corporation can be considered a close corporation within the meaning of the law so what are the additional
1:44provisions number one uh all issued stock exclusive of treasury shares shall be held of record by not more than a specified number of persons not exceeding 20 so if the specified number of persons is 15 la geno as long as it does not exceed 20 so number of star holders 20 15 18 etc etc
2:07so uh there is a restriction of on the number of stock holders what else all is its issued stock shall be subject to one or more restrictions on transfer permitted by the code so remember young assurance of staksa is a closed corporation restrictions transfer hindi wedding
2:28event so remember we will discuss this more when we go to section 97. restrictions the transfer shares of stock articles of incorporation also include any of its stock shall not be listed in
2:49any exchange stock exchange or offered to the public so there must be a provision also in the articles the young shares of stock hindi is a stock market or offered to the public remember uh absent any of this provision all three features provided in this section must be present uh or else the
3:11corporation will not be classified as a close corporation within the meaning of the revised corporation code so non-compliance with the requirements shall not make the corporation a close corporation even if the stockholders do not exceed 20. it does not matter if you did not comply with the mandatory provisions in section 95 hindi parent considered a close
3:31corporation even if the stock is held in a few hands or in a few families but else in case one of the stockholders of a closed corporation is another corporation and this other corporation owns uh two thirds of the voting rights donsa supposedly closed corporation and
3:54the other corporation is does not fall uh within the definition of definition of a closed corporation meaning other corporation nato is actually an open corporation young close corporation musana hindi nasa closed corporation uh it is not no longer covered by this uh provision by the title on closed corporation so if
4:16the ownership in a closed corporation uh you own voter two-thirds of the voting rights is owned by an open corporation the closed corporation can no longer be considered as a close corporation within the definition of title 12 of the revised corporation code of the philippines what else corporations vested with public
4:37interests are not allowed to be incorporated as close corporations so this will include your mining oil companies exchanges bank insurance companies public utilities and educational institutions not allowed to incorporate as close corporations what else um also take note of the permissible provisions
4:58in the articles pointing the dug young canines section 95 they are mandatory provisions in 96 they are permissible provisions in the articles wedding so please take note of the permissible provisions classifications of shares or rights and the qualifications for owning
5:20or holding the same and restrictions on their transfer may be stated in the articles of incorporation so remember this is discussed more in section 97 number two classification of directors into two or more classes each of whom
5:41may be voted and elected solely by a particular class of staff so the example in your book uh the direct the directors are um um divided into two classes uh directors uh a will be
6:01um you one set is to be elected by holders of class a shares common class issues some settlement directors will be elected by common class b shares so by the on so you can classify young directors into two or more classes and yuma class a directors will be voted only by class a
6:21shares class b directors will be voted only by class b uh shares so remember you can classify directors and numero directors as classified may be voted or elected solely by your own particular class of stock but as also you can include in the articles of incorporation
6:42um greater courtroom or voting requirements in the meetings of stockholders or directors other than those which are provided in the revised corporation code so in the revised corporation code a meeting of directors majority closed corporation pueden e provide 80
7:0390 will be um kourou so anyway it depends on the corporation what else the articles may also provide that the business of the corporation shall be managed by the stockholders rather than by a board of directors so obviously managed corporation is on stockholders um
7:25you musta holders nato will be deemed to be directors with all the liabilities imposed by the revised corporation code upon director so obviously there will be no meeting anymore to elect directors of holders to serve as directors so what else um
7:45your own stockholders now will be deemed subjected to liabilities of directors because obviously they will become the directors of the corporation but else articles may likewise provide provided all officers or employees or that specified officers employees shall be elected by or appointed by the stockholders usually the officers are
8:06elected by the board of directors by majority vote of the entire membership of the board pero in a closed corporation they can provide that the stockholders will be uh that will directly elect humana officers or employees what else um restrictions on the
8:27transfer of shares under section 97 can you not have any discuss so anyway um remember he owns a closed corporation young ownership and management is usually vested in one in the same people stockholders usually uh
8:47close corporations so it means that most of the or or if not all of the stockholders will be tasked with the management of the corporation and usually um hidden formal about it remember also that corporation
9:08a close corporation is actually an incorporated partnership paralympian partnership but remember as to third persons uncanny long a liability they asked to third persons and us to the government as to the law the law will treat them as a corporation so as amongst themselves
9:28themselves they will treat one another as partners pero the law will treat them as a corporation is a close as we have already uh discussed in partnership so
9:48mutual [Music] not available
10:18take note of number one restrictions on the right to transfer shares must appear in the articles not only in the articles also in the bylaws and also in the certificate of stock if it does not appear uh on these three articles by the certificates of stock you own uh yuma restrictions and will not be
10:39binding on a purchaser in good faith so what else uh second condition that may be imposed on the transfer of shares uh your own restrictions will not be more on the rules than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholders within such
11:01reasonable terms conditions or period as stated they're in so epic sabine an uh unconditional impose is that the stockholder existing subholder or the corporation will have the option to purchase the shares of the transferring stockholder independent restriction and number two and number
11:23one the restrictions must also appear in the articles by laws and certificate of stock so in relation to number two please take note of um the right of our first refusal so so discuss more nothing so the need for stock transfer restrictions in close corporation will prevent young changes
11:45in the control of the corporation especially kumeron stranger na papaso dunsa corporation so also um [Music]
12:06even if there are already dead shareholders so what else um number two maintain the lectures personally of a partnership as i have already discussed a while ago so please take note eterna of the right of first refusal uh stockholder who wants to sell his
12:28share shares must first offer it either to the corporation or to other existing stockholder offers a corporation order existing stockholders a closed corporation and if your own corporation or the existing stockholder will fail to exercise the option within the period stated the transferring stockholder may
12:49sell his shares to any third person so that is the right granted to your um stockholder who wants to sell his shares in a closed corporation so remember class that the period of one month is deemed sufficient for the corporation or the stockholder to signify your young canada intention to buy the shares of
13:11stock being offered for sale by any stockholder so you know one month but as a qualifying conditions in um in the issuance of shares so your own certificate of stock must conspiracy conspicuously show also the qualifications of persons entitled to be
13:32holders of
14:01stock it must appear therein qualification is must be a graduate of ateneo etc um and not affiliated with obviously um qualification
14:21certificate of stock but else the articles of incorporation must also state the number of persons who are entitled to be stockholders and also the certificate of stock must uh conspicuously state such number articles 10 stockholders
14:43certificate of stock like 10 stockholders so uh what else number three stock certificates conspicuously shows a restriction on the transfer of the corporation stock so okay [Music]
15:07so these are qualifying conditions and now what if class there are uh breaches of qualifying conditions immisability violation so in the three cases i have just mentioned um the transferee is conclusively presumed to have notice of the restriction and he is not allowed to prove lack of
15:28notice even if it is uh even if such is the fact so obviously qualification
15:54[Music] alamo indica qualified kitan kitana based on the certificate of stock that you are not qualified so this is a breach of or a violation of
16:16the qualifying conditions now uh even if hindi mo alam let excuses but remember
16:38there is conclusive presumption a qualifying condition so same is true with paragraph b um
17:04[Music] remember class there is conclusive presumption that you are aware nabini bridge qualifying condition so you are not allowed to prove lack of notice even if it is the fact and also remember here that the corporation cannot be compelled
17:24to register although the transfer of stock in the name of the transferee because remember here the transfer of stock is in violation of the qualifying conditions which i have already discussed in a b and c a while ago what else number two
17:45transfer shall be binding upon the corporation even if uh there is this conclusive presumption which i have just discussed a while ago wherein there is consent by all the stockholders or if the closed corporation amended not available
18:14transfer will include the term uh the term transfer will include also a donation and uh remember number four the breach of any restriction in the issue once is without after or transfer of stock is without prejudice to the right of the transferee under existing law to rescind or cancel the transaction or recover under applicable warranty expressed or implied
18:37so obviously applicable warranty and also obviously you can cancel your own transaction with the stockholder slash server
18:57what else are valid agreements by stockholders under section 99. so in section 99 agreement signed and executed by an among all star holders before the incorporation will continue to be effective between the stockholders even after incorporation provided class
19:19that the agreements are consistent with the articles of incorporation so there are agreements before not incorporate tapas afterwards yuma stockholders nyan they are still bound by the same agreement provided that the original agreement before incorporation is not inconsistent with the articles of incorporation but else written agreement
19:43signed by two or more stockholders to exercise voting rights per agreement will be valid [Music] agreement so remember letter a will refer to any agreement by the stockholder in stockholders in general before incorporation
20:04number two is um letter b will refer to your voting or pulling agreements in particular so papanova time to vote agreement on voting so that agreement will be valid uh between the stockholders under section 99 but else in addition to that
20:26um any uh no provision in a written agreement signed by the stockholders relating to any phase of corporate affairs shall be invalidated on the ground that its effect is to make them partners among themselves so um provision or agreement in any uh
20:50any contract or there is a contract between any stockholder that has the effect of making them making them partners as to one another hindi ito may invalidate based solely on this ground because remember again a stock corporation closed corporation is an incorporated partnership so
21:12um they operate as a partnership as among themselves pero the law treats them as a corporation so um you know nothing in number three what else written agreement among some or all of shall not be invalidated on the ground that it relates to the conduct
21:34of the business and affairs to of the corporation as to restrict the powers of the board of directors so remember here in letter d if the agreement will restrict the power of the board of directors or interfere with the power of the board of directors hindi may invalidate agreement
21:54provided class such agreement shall impose on the stockholders stockholders who are parties there to liabilities for managerial acts so they will be liable uh for um the liabilities for managerial action it will be liable for managerial acts so
22:15remember young number four and number five uh stockholders who are actively engaged in the management of the business shall be held to federation duties and they will be liable for corporate thoughts or quesadillas unless there is liability insurance obtained by the corporation so
22:36uh agreement remember a b c d and e are valid agreements which may be entered into by the stockholders and what else um actions taken without proper meeting so meetings not properly called
22:57along proper notice probably hindisha proper place etc etc there is a defect in the meeting usually the rule is this meeting is uh the meeting improperly called pacamerontime corporate actions corporate actions are deemed void actions but here in section 100 um
23:19valid [Music] the exception is when otherwise provided by the bylaws so here in section 100 actions by the directors of a closed corporation without a properly called meeting is invalid in four instances yen number one before or after such action
23:41is taken written consent is signed by all directors so merely written consent before or after such action is taken obviously if it is site by all directors there is an implied ratification of the corporate action taken at impro at an improperly called or held meeting
24:02but as all the stockholders have alcohol or implied knowledge of the action and they make no uh objection to the same so alam nila na meron genu classing action but they did not object so there is again implied ratification of the corporate action at an improperly called meeting what else directors are
24:24accustomed to take informal action with express or implied a consent of all the stockholders senator barabara so senators have well on formality so here remember uh actions taken during an informal meeting are again valid corporate actions that is
24:47all the directors have expressed or implies implied knowledge of the action and none of them will make none of them makes a prompt objection there to in writing remember that the objection here is in writing alan nanila on action in an improperly called or held meeting they did not object promptly in writing
25:09remember these corporate actions are valid due to waiver on the part of the director who actually wants to express objection so obviously there can be no ratification if the meeting a young action taken is beyond
25:31the powers of the corporation or ultra virus but as preemptive right in close corporations section 101 in close corporations it extends to all stocks common or preferred voting or non-voting newly authorized shares pursuant to an
25:51increase in the capital stock or newly issued balance of originally authorized shares but they are original issues and will also include treasury shares so anyway we have already discussed uh preemptive right in title four so i remember
26:13open corporations meron pre-emptive right subclose corporations obviously merengue preemptive right so you own pre-emptive right is the right again to be first off third uh shares of stock before it is offered to the public so pre-emptive
26:36first said you write the first review set is transfer from a stockholder or incorporation operator corporation or existing staff holder before you offer to the public pre-emptive right is a transcript from corporation to the stockholder so
26:58whatever kind of share it is as long as the transfer is from corporation to the stockholder may preemptive right among stockholders close corporation so matter of absolute right uh the other exceptions as applicable
27:18as provided for in section 38 is not applicable in uh closed corporation so absolute right on the part of the stockholder except when there is a provision or exception in the articles of incorporation so applicable exceptions section 38 not applicable in case of close uh
27:38corporation so issue shares and close corporation you offer first to the existing stockholders before it is offered to others anyway class has those corporations indicating something offered alongside third persons especially if they are not qualified based on
28:00the qualifications set in the articles of incorporation so amendment in section 102 um the amendment here will seek to delete or remove any provision required by section 95
28:21mandatory provisions in section 95 or to reduce or voting requirements stated in the articles it will require at least two thirds ocs with or without voting rights or any greater proportion as is required in the articles of incorporation so remember
28:42here that there is there must be a meeting called for the purpose so mere written ascent is not sufficient although this is allowed under section 15 parasupposed corporation but the other provisions of section 15 will apply what else um also here this is our first part this
29:02apartment uh and six to delete or remove any provision required by section 95 uh the effect here is to terminate the status of the corporation as a close corporation because your closed corporation indeed closed it determinate mansion probably
29:24it will be open to the public in such a way uh intra corporate that blocks under section 103 um meaning directors or stockholders obviously at this point plus na
29:48so the applicable provisions are title 12 secretarily the provisions on stock corporations and i hope class you are updating
30:33stockholders are so divided respecting the management of the corporation that the votes required for any corporate action cannot be obtained lagging
31:05[Music] you cannot get the required vote to transa business so obviously the transactions of the corporate the business of the corporation cannot be conducted because of the deadlock so
31:29close corporation at all you can file a petition to the sec to arbitrate the dispute so my mama guitar so anyway as an uh as an arbiter uh to be an arbiter is a power uh granted to the sec so
31:50even if there is a provision in the articles or bylaws or agreement of a stockholder napping arbitration by the sec hindi because that is the power provided by law in this avoiding bhagavan by agreement by the articles or any provision in the by-laws so in the
32:11exercise of the powers of the sec buddhism order which it will appropriate under the circumstances and remember it may also include dissolving the closed corporation now um sec may order the dissolution but if the um business is successful foreign
32:33appointment is some provisional director as an additional member of the board so only additional member of the board obviously
32:56and also please take note of the matters within the competence of the sec as an arbitrator uh the sec can cancel or alter any provision in the articles or change any provision in the articles
33:18uh or any stakeholder stakeholders agreement number two they can also cancel out there or enjoying any resolution or act of the corporation uh it's board of directors stockholders or officer for wedding resolution
33:42they can also prohibit any act of the corporation or other direct or prohibit in paganito as long as it will serve to a break the tie or to resolve your own deadlock in a closed corporation uh also the
34:03sec can require your own purchase at fair value you own shares of any stockholder either by the corporation regardless of availability of unrestricted detained earnings in its books or by the stockholders
34:26so it can be bought by the corporation uh even if there are no unrestricted retained earnings during exceptions and also by the other stockholders billing your name etc etc just to resolve your own then what else uh like i said a while ago
34:46appoint a provisional director we will discuss more later on about provisional directors dissolve the corporation and very important such other relief as a circumstances may warrant so also a provisional director under 103 impartial person not a stockholder not a
35:06creditor of the corporation or of any subsidiary or affiliate and whose further qualifications may be determined by the sec so a provisional director will have all the rights and powers of a duly elected director director miroshan right to notice like to vote etc until such time he he is removed by
35:29the sec or by all of the stockholders so anyway determined by agreement between him and the corporation if the corporation and the provisional director cannot agree um sec may fix his compensation so anyway
35:52young agree between agreement between provisional director and corporation is also subject to approval by sec what else uh right to withdraw lastly of a stockholder so and the stockholder can withdraw from a closed corporation for any reason
36:12as in yeah so now if a stockholder will be dropped from the corporation he can compare the corporation to purchase his shares at their uh fair value which shall not be less than their part or issued value uh provided that the corporation has sufficient assets in its book to cover
36:33its debts and liabilities exclusive call of capital stock so the right to withdraw remember as i've said a while ago may be exercised for any reason provided that the corporation has sufficient assets to cover its death and liabilities but foreign anyway um also any stockholder may have the
36:55uh right to has the right to be not made it has the right any stockholder in a closed corporation has the right to petition the sec for the solution if there are illegal or fraudulent acts of the director's officers or any person in control of the corporation if there are dishonest acts
37:15oppressive acts and fairly prejudicial acts to any to the corporation to the close corporation or any stockholder or even if corporate assets are being misapplied or wasted so some stockholders mismanagement this stockholder can petition the sec iv
37:36dissolution of the closed corporation so obviously there must be a legal ground and notice and hearing yan so sec will order the dissolution of this closed corporation so anyway uh class that's it for title 12 close corporations uh please
37:57stand by again for title 13 that will be a very long discussion it is comprised of three chapters class so anyway good evening class and thank you