FAQ’s on Commercial & Corporate Law 2

More FAQ’s on Commercial & Corporate Law

What are treasury shares?

Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.

How long does a corporation exist and how can the term be extended?

A corporation shall exist for a period not exceeding fifty (50) years from the date of incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in the articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined by the Securities and Exchange Commission.

When does a corporation commence its existence?

A private corporation formed or organized under this Code commences to have corporate existence and juridical personality and is deemed incorporated from the date the Securities and Exchange Commission issues a certificate of incorporation under its official seal; and thereupon the incorporators, stockholders/members and their successors shall constitute a body politic and corporate under the name stated in the articles of incorporation for the period of time mentioned therein, unless said period is extended or the corporation is sooner dissolved in accordance with law.

What are the effects of the non-use of a corporate charter and continuous inoperation of a corporation?

If a corporation does not formally organize and commence the transaction of its business or the construction of its works within two (2) years from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. However, if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least five (5) years, the same shall be a ground for the suspension or revocation of its corporate franchise or certificate of incorporation.

Who exercises corporate powers, conducts all business and holds the property of a corporation?

Unless otherwise provided in the Corporation Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are elected and qualified.

What is the minimum requirement to become a director or trustee of a corporation?

Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Trustees of non-stock corporations must be members thereof. a majority of the directors or trustees of all corporations organized under this Code must be residents of the Philippines.

Who are the officers of a corporation and what are the residency requirements?

Immediately after their election, the directors of a corporation must formally organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and secretary or as president and treasurer at the same time.

Is it only the Central Bank that has jurisdiction over violations of PD 114?

Basic is the rule that it is the allegations in the complaint that vests jurisdiction.A case in point is Philippine Woman’s Christian Temperance Union, Inc. vs. Abiertas House of Friendship, Inc. wherein we held that when the thrust of a complaint is on the ultra vires act of a corporation, that is the complained act of a corporation is contrary to its declared corporate purposes, the SEC has jurisdiction to entertain the complaint before it.

Does the SEC have jurisdiction over violations by a corporation of its franchise?

Yes. By law, the SEC has absolute jurisdiction, supervision and control over all corporations that are enfranchised to act as corporate entities. Consequently, a violation by a corporation of its franchise is properly within the jurisdiction of the SEC.

What gives juridical personality to a corporation and places it within SEC jurisdiction?

Jurisprudence has laid down the principle that it is the certificate of incorporation that gives juridical personality to a corporation and places it within SEC jurisdiction. The case of Orosa, Jr. vs. Court of Appeals teaches that this jurisdiction of the SEC is not affected even if the authority to operate a certain specialized activity is withdrawn by the appropriate regulatory body other than the SEC.

Does a corporation have a personality separate and distinct from those of the persons composing it?

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related.  Mere ownership by a single stockholder or by another corporation of all or  nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.

When is a transaction a simple loan and not a trust receipt agreement?

If the debtor received the goods subject of the trust receipt before the trust receipt itself is entered into, the transaction in question is a simple loan and not a trust receipt agreement.  This is especially true if prior to  the date of execution of the trust receipt, ownership over the goods is already transferred to the debtor.  This obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted.

What is the nature of the Trust Receipts Law?

The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner.

Is the practice of banks in making borrowers sign trust receipts to facilitate collection of loans a valid act?

The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible.  Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved.  The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this case.

When is a corporation estopped from denying the authority of its agent?

It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent’s authority.