Law Summary
Classification and Rights of Shares
- Shares may be divided into classes with specified rights, voting powers, preferences, and restrictions as set in the articles of incorporation.
- Shares may have par value or be no-par value, except certain financial institutions which are prohibited from issuing no-par value shares.
- No-par value shares may be issued for consideration as prescribed or approved by a stockholders' meeting.
- Such shares are fully paid and non-assessable; holders are not liable to the corporation or creditors beyond their subscription.
- No-par value shares cannot be issued below a minimum value of five pesos per share.
- Preferred shares entitled to asset distribution preference must have a stated par value and specified preferential amount on certificates.
- The total consideration for no-par shares is treated as capital and cannot be distributed as dividends.
Incorporation Requirements
- A private corporation may be formed by 5-15 persons, majority residents of the Philippines.
- Articles of incorporation must state the corporation's purpose, capital stock amount, number of shares, subscription details, and information on no-par stocks if applicable.
- Certain business activities have restrictions to powers exercisable only within the business's purpose.
Articles of Incorporation Specifications
- Detailed forms for stating corporation purposes, capital stock (par and no-par shares), classes of shares, subscriptions, and treasurer's oath are prescribed.
- Treasurer must verify that at least 20% of authorized shares are subscribed, with 25% of subscription paid or property equivalent received.
Fees and Filing
- Filing fees for no-par shares presumed at one hundred pesos each for fee purposes.
- Non-stock corporations have a prescribed filing fee.
- Director of the Bureau of Commerce and Industry must not file articles without a sworn treasurer's statement confirming subscription and payment percentages.
- After filing, the corporation must publish its assets and liabilities locally or in Manila.
Powers and Restrictions on Property Ownership
- Corporations may deal in real and personal property for their lawful purposes.
- Restrictions on landholding: no buying/selling of public lands and limited ownership for agricultural corporations (up to 1,024 hectares).
- Restrictions also apply to ownership and stockholding among agricultural and mining corporations to prevent monopolies.
- Corporations may hold real estate for loan collections but must dispose of it within five years.
Authority to Hold and Deal in Shares and Securities
- Corporations may acquire, hold, mortgage, pledge, or dispose of shares and securities domestically or abroad to achieve their stated purposes.
Issuance of Stock and Bonds
- Corporations may only issue stock or bonds for cash, property at fair valuation, or earned but undistributed profits.
- Stock or bond dividends require approval by two-thirds of voting stockholders.
- Company officers approving overvalued property issuance are liable for the difference in value.
- Dividends may only be distributed from surplus profits and not from capital or property.
- Banking and financial institutions may issue negotiable instruments in their ordinary business.
Capital Stock Increase and Subscription
- Changes in capital stock or no-par stock subscriptions must be reported with subscriber details and payments.
Amendment of Articles of Incorporation
- Amendments require majority board approval and two-thirds vote from members or stockholders.
- Amendments affecting shareholder rights allow dissenting shareholders to object and redeem shares at appraised value.
- Stockholder redemption rights cease once payment demand is made until settled.
- Amendments must be filed with the Bureau of Commerce and Industry and appended to original articles.
- Amendments do not extend corporation life beyond original term.
Validity of Meetings and Transactions
- Corporate meetings and business are valid even if meeting was improperly called, provided all stockholders or members are present or represented.
- Such meetings may transact all regular business and fill vacancies.
Major Sale or Disposal of Corporate Assets
- Corporations may dispose of all or substantially all assets, including goodwill, with board and two-thirds shareholder approval.
- Dissenting shareholders can demand payment for their shares.
- Payment valuation disputes resolved by three appraisers; corporation liable to pay awarded amount.
- Until payment, objecting stockholders lose shareholder rights on such shares.
- Disposal without shareholder approval is allowed if business is not substantially limited and proceeds are used for remaining operations.
Election of Directors
- Elections require majority of subscribed voting capital stock present or represented.
- Voting is by ballots; cumulative voting permitted.
- Shares delinquent for unpaid subscriptions cannot be voted.
- For non-stock corporations, members may vote equal to number of directors to be elected with one vote per candidate.
- Directors with highest votes win.
- Meetings can adjourn if quorum not met.
Voting Trust Agreements
- Stockholders may transfer shares to trustees for voting or other rights for up to five years.
- Agreements must not create monopolies or circumvent laws on corporate purpose.
- Agreements must be filed and accessible for inspection.
- Transferred shares are issued new certificates to trustees.
- Trustees hold all rights on shares according to agreement.
Payment of Subscriptions and Interest
- Subscribers to shares pay interest quarterly on unpaid subscriptions at six percent per annum unless otherwise provided.
- Stock certificates issued only upon full payment of par or subscription.
- Partially paid subscribed shares may be voted if no delinquent payments exist.
Calls on Unpaid Subscriptions
- Board may declare unpaid subscriptions payable with interest.
- Notice of call must specify payment details and sale schedule for delinquent stock.
- Delinquent shares are sold at public auction if unpaid.
Dissolution of Corporation
- Corporations may be dissolved voluntarily by majority members or shareholders holding at least two-thirds of capital stock.
- For dissolutions not affecting creditor rights, a two-thirds vote at a notified meeting suffices.
- Resolution of dissolution must be filed and recorded by the Bureau of Commerce and Industry.
- Filing fee applies.
Capital Stock Payment and Limits
- Capital stock paid through regular dues as set by corporate bylaws.
- Dues continue until shares are withdrawn, canceled, forfeited, or reach matured value.
- Corporation may issue paid-up or investment stock paying fixed dividends without further profit participation.
- Capital stock includes paid-up, investment stock, dues, earnings, but shall not exceed twenty million pesos.
Anti-Monopoly Provisions on Stock Acquisitions in Commerce
- Corporations engaged in commerce prohibited from acquiring stock in another that would lessen competition or create a monopoly.
- Acquisitions of stocks of multiple competing corporations with similar anticompetitive effects are likewise prohibited.
Penalties for Violations
- Violations of the Act not otherwise penalized may result in fines up to five thousand pesos and imprisonment up to five years.
- Corporations committing violations may be dissolved via quo warranto proceedings.
- Remedies under this section are additional to existing legal remedies.
Non-Affectation of Certain Other Laws
- This Act does not modify or repeal laws prohibiting monopolies or relating to public lands.
Applicability and Effectivity
- Provisions not conflicting with existing U.S. Congressional Acts take effect upon Governor-General approval.
- Other provisions take effect upon U.S. Congress approval.
- The Act applies to all corporations organized under the Corporation Law and their franchises, rights, and privileges.
Overall
- The Act substantially amends the original Corporation Law by defining corporators, regulating shares and capital, prescribing detailed incorporation and procedural requirements, regulating corporate powers and property, providing mechanisms for amendment and dissolution, protecting shareholder rights, imposing penalties, and ensuring compliance with anti-monopoly and other relevant laws.