BUSINESS ORGANIZATION I COURSE OUTLINE INTRODUCTION General Kinds of Business Organization Sole Proprietorship Partnership Joint Venture Corporation Historical Background DEFINITION AND ATTRIBUTES Case: Filipinas Broadcasting vs. Ago Medical Center (GR No. 141954, Jan . 17, 2005) Advantages of the corporate form of business dvantages Distinctions between a corporation and partnership Government power in relation to corporations CLASSIFICATION OF CORPORATIONS Stock and non-stock Case: Collector vs. Club Filipino de Cebu (SSCRA312) Corporations Created by Special Law Case: PNOC-EDC vs. NLRC (201SCRA487) and Private Case: National Coal Corporation vs. C.L.R. (146Phil.583) Ecclesiastical and Lay One Person Corporation Close and Open Parent/holding, Subsidiaries and Affiliates Public and Private ‘Quasi-public De jure corporation De facto corporation Corporation by estoppel FORMATION AND ORGANIZATION Process of incorporation Contents of the Articles of incorporation Prefatory Paragraph Corporate Name Cases: Red Line Transport vs. Rural Transit (60Phil.549) Universal Mills vs. Universal Textile Mills (78SCRA62) Lyceum of the Philippines vs. C.A, (219SCRA610)Purpose Clause Principal Office Case: Clavecilla Radio Systems vs. Antillon (19SCRA379) Term of existence Incorporators Qualifications and disqualifications Directors and Trustees Qualifications and disqualifications Capitalization Shares of stock and classification Purpose of classification Common shares Preferred shares Par and no-par value shares Voting and non-voting shares Founders’ shares Redeemable shares Treasury shares Case: Commissioner vs. Manning (66SCRA14) Other Matters consistent with iaw Restrictions and Preferences Arbitration Agreement No-transfer Clause Treasurer elect Undertaking to Change Name Execution Clause ‘Acknowledgment Grounds for disapproval Commencement of Corporate Existence Case: Cagayan Fishing vs. Sandiko (65Phil.233) Defectively formed corporations De facto corporations Case: Municipality of Malabang vs. Benito (27SCRAS33) Hall vs. Piccio (86Phil.757) Lozano vs Delos Santos(24SCRA452) Albert vs University Publishing (13SCRA84) Chiang Kai Shiek vs. C.A. (172SCRA389) Asia Banking Corp. vs. Standard products (46Phil.144) Salvatierra vs. Garlitos (103Phil757) International Express Travel and Tours vs. C.A. (343SCRA674) Georg Grotjahn Vs. Isnani (235SCRA216 Organization and Commencement of Business Corporate Organization Commencement of Business TransactionCORPORATE CHARTER AND ITS AMENDMENTS The Corporate Charter ‘The Corporate Entity Theory Cases: Sulo ng Bayan vs. Araneta (72SCRA347) Caram vs. C.A. (151SCRA372) Rustan Pulp and Paper Mills vs. C.A. (214SCRA665) Cruz vs. Dalisay (152SCRA482) Palay inc. vs Clave (124SCR638) Soriano vs. C.A. (174SCRA195) Piercing the Veil of Corporate Fiction Cases: International Academy of Management and Economics (I/AME) vs. Litton and Co., Inc. (848SCRA437) *not in the book Palacio vs. Fely Transportation Co. SSCRA1011) Marvel Bldg. vs. David 94Phil376) Yutivo & Sons vs. C.T.A. (1SCRA160) Commissioner vs. Norton & Harrison (11SCRA7140 La Campana Coffee vs. Kaisahan ng mga Manggagawa (93Phil160) Emilio Cano vs. C.I.R. 13SCRA290) Telephone Engineering vs. WCC (104SCRA354) Claparols vs C.LR. (65SCRA613) NAFLU vs. Ople (143SCRA124) ‘AC Ransom vs. NLRC (1S0SCRA498) Concept Builders vs. N.LR.C. (257SCRA149) McConnel vs. C.A. (1SCRA722) Tan Boon Bee vs Jarencio (163SCRA205) Cease vs. C.A. 93SCRA483) When not Justified Cases: Remo Jr. vs. LA.C. (172SCRA405) Del Rosario vs. NLRC (187SCRA777) Indophil Textile Mills vs. Galica (205SCRA697) PNB vs. Ritratto Group (362SCRA216) Pacfic Rehaus Corp. vs C.A. (719SCRAG65) Yu vs NLRC (245SCRA134) Amendment of the Corporate Charter Special Amendments Provisions Subject to Amendments Change in Corporate Name Case: Philippine First Insurance vs. Hartigan (74SCRA252) Amendment of Corporate Term Case: Alhambra Cigar vs SEC (24SCRA134) Board of Directurs/TrusteesPowers of the Board Classification of Powers Cases: Ramirez vs. Orientalist (38Phil634) Barreto vs. La Previsora ((57Phil649) Qualifications and Disqualifications Cases: Lee vs C.A. ( 205SCRA572) Detective and Protective Bureau vs Cloribel (26SCRA2S6) Election and Voting Other Corporate Officers Validity and Binding Effects of Actions of Corporate Officers Cases: Yao Ka Sin Trading vs. C.A. (209SCRA763) Lopez Realty vs Fontecha (247SCRA763) Pua Casim vs. Neumark ((46Phil242) Yu Chuck vs. Kong Li Po (46Phil608) Francisco vs. GSIS (7SCRAS77) Board of Liquidators vs. Kalaw (20SCRAS87) Buenaseda vs. Bowen & Co. (110Phil464) Removal and Filling Up of Vacancies Case: Valle Verde Country Club vs. Africa (S88SCRAZ02) Compensation of Directors/Officers Cases: Central Cooperative Exchange vs. Tibe (33SCRASS3) Western Institute of Technology vs. Salas (278SCRA216) Gov't vs. El Hogar Filipino (SOPhiI399) Liability of Corporate Directors/Officers Cases: Zaragoza vs. Tan (847 SCRA437) *not in the book Tramat Mercantile vs C.A. (238SCRA214) Uamado vs C.A. (270SCRA423) Uichico vs NLRC (273SCRA35) Three-fold Duty of Directors Cases: Montelibano vs. Bacolod Murcia Strong vs. Repide (41PhiI95) Self-Dealing Directors Cases: Prime White Cement vs. LA.C. (220SCRA103) Mead vs. McCullough (21Phil95) Interlocking Directors Derivative Suit Cases: Pascual vs. Orozco (19Phil83) Everette vs. Asia Banking (49Phil512) Republic Bank vs. Cuaderno (19SCRA671) Western Institute of Tech vs, Salas (278SRA216) San Miguel Corp. vs. Khan (176SCRA365) Chase vs. Buencamino (136SCRA365) Reyes vs. Tan (3SCRA198) Gamboa vs. Victorino (90SCRA40) ing (SSCRA36)Evangelista vs. Santos (86PhiI387) Executive, Management and other Committees CORPORATE POWERS AND AUTHORITY Classification of Corporate Powers Power to sue or be sued Cases: Delta Motors vs. Mangosing(70SCRA77) E.B. Villarosa & Partners Co. vs. Benito (GR14926, Aug. 6, 1999) Power to have Perpetual Existence uniess tine Ai provides otherwise Power to Adopt and use a Common Seal Power to Amend the Articles of Incorporation Power to adopt By-laws Power to Sell/issue Stocks or Admit Members Power to Acquire/Allienate Property Cases: —_Luneta Motors vs. A.D. Santos Inc. (SSCRA809) Director of Lands vs. C.A. (158SCRAS68) Power to enter into partnership, joint venture, merger, consolidation or other Commercial agreement Power to make donations Power to establish Pension, Retirement and other Plans Case: Republiv vs. Acoje Mining Co, (7SCRA362) Implied Powers Classification Cases: Teresa Electric vs. PSC (21SCRA199) National Power Corp. vs. Vera (170SCRA721) Power to Extend/Shorten Corporate Term Power to Increase/Decrease Capital Stock; incur, Create Bonded Inbedtedness Cases: _Philtrust vs. Rivera (44Phil469) Madrigal & Co. vs. Zamora (151SCRA355) Power to Deny Pre-emptive Rights Case: Benito vs. SEC (123SCRA722) Power to Sell/Dispose of all or Substantially All of Corporate Assets/Properties Cases: _ Islamic Directorate of the Phil. vs. C.A. (272SCRA454) Edward Nell & Co. vs. Pacific Farms ((15SCRA415) (now known as NELL Doctrine as held in Y2 Leisure vs. C.A.) Power to Acquire Own Shares Case: _ Steinberg vs. Velasco (S2Phi!953) Power to Invest Funds Requirements and Procedure Cases: De la Rama vs. Ma-ao Sugar Central (7SCRA247) John Gokongwei vs. SEC (89SCRA336) Power to Declare Dividends To whom lodgedType of dividends When right to dividends vest Case: _ Neilson & Co. vs. Lepanto Consolidated Mining (26SCRAS40) Power to Enter into Management Contract Requirements and Procedure Ultra-vires Acts Consequences On the corporation itself ‘On the immediate parties On the stockholders Cases: —_Privano vs, Dela Rama Steamship Co. (S6PhiI336) Carlos vs. Mindoro Sugar Co. (S7Phil343) Japanese Warnotes Claimants Assn. Vs. SEC (110Phil540) Crisologo-Jose vs. C.A. (117SCRA594) BY-LAWS. Adoption and modes Cases: _Fleisher vs. Botica Nolasco (47PhiIS83) Gov't vs. El Hogar Filipino (supra) Go Kongwei vs. SEC (89SCRA336) MEETINGS Stockholders’'/Members’ Meeting Requirements for Valid Meeting Cases: Board of Directors vs. Tan (105Phil426) Directors’ /Trustees’ Meeting Stockholders’ Right to Vote and Manner of Voting Proxy and other Representative Voting Case: NIDC vs. Aquino (160SCRA153) ‘STOCKS AND STOCKHOLDERS Subscription Contract Case: —_Trillana vs. Quezon College (93PhiI383) Pre-incorporation Subscription Case: _National Exchange vs. Dexter (51Phil601) Certificates of Stock And their Transfer Cases: Monserrat vs. Ceron (S8Phil469) Chua Guan vs. Samahang Magsasaka (62PhiI472) Uson vs. Diosomito (51PhiI535) Padgett vs. Babcock & Templeton (S9PhiI232) Lambert vs. Fox (26PhiI588) Embassy Farms vs. CA. (188SCRA492) Razon vs. |.A.C. (207SCRA234) Rural Bank of Salinas vs. CA, (240SCRA5i0)Tay vs. CA. (GR No. 126891, Aug. 5, 1998) Rural Bank of Lipa vs. C.A. (366SCRA188) Tan vs. SEC (206SCRA740) Won vs. Wack Wack Golf (104Phil466) De los Santos vs. McGrath (95PhiI577) Forged and unauthorized Transfers Issuance of Stock Certificate Watered Stocks Enforcement and Payment of Unpaid Subscriptions Case: Velasco vs. Poizat (37Phil802) De Silva vs. Aboitiz & Co. (44Phil755) Apocada vs. NLRC (175SCRA442} Lumanian vs Cura (S9Phil746) PNB vs. Bitulok Sawmill (33SCRA136) Edward Keller vs. COB Group (141SCRA85) Garcia vs. Suarez (67Phil441) Effects of Delinquency Rights of Unpaid Shares Lost or Destroyed Certificates Rights and Liabilities of Stockholders ‘CORPORATE BOOKS AND RECORDS Books and Records to be Kept Right of inspection Cases: W.G. Philpotts vs. Phil Mfg Corp. (49Phil471) Pardo vs, Hercules Lumber (47Phil964) Vegaruth vs. Isabela Sugar (57Phil266) Gokongwei vs. SEC (supre) Gonzales vs. PNB (122Phil4890 MERGER AND CONSOLIDATION Requirements and Procedure Effects of Merger/Consolidation Cases: Associated Bank vs. C.A. (GR 123793, June 29,1980) Ong vs BPI Family Savings Bank (852SCRA 614) *not in the book Bank of P.l. vs. BPI Employees Union (Oct. 11, 2011) (on the issue as to whether or not the employees of the dissolved/absorbed Corporation is automatically absorbed by the surviving corporation) APPRAISAL RIGHT Definition When Exercised Requirements and Procedure Effects of Exercise of RightWhen Right to Payment Ceases Cost of Appraisal NON-STOCK CORPORATIONS Definition Purpose Membership and Voting Rights Cases: Chinese YMCA vs. Ching (71SCRA463) Cebu Country Club vs. Elizagaque (S42SCRASS) Trustees and Officers CLOSE CORPORATION Definition Permissive Provisions Effects of Breach of Qualifying Conditions Stockholders’ Agreement When Board Meeting Not Necessary Pre-emptive Right Deadlocks Withdrawal of Stockholders/Dissolution Cases: _Dullay Enterprises vs. C.A. (225SCRA678) ‘Nagulat Enterprises vs. NLRC (268SCRAS46) SPECIAL CORPORATIONS Educational Corporations Religious Corporations Corporation Sole Cases: Roman Catholic Apostolic Church vs. LRC (102Phil596) Director vs. C.A. (158SCRAS68) Republic vs. IAC (168SCRA16) Filling up of Vacancies Dissolution Religious Societies One Person Corporation DISSOLUTION AND WINDING UP Methods of Dissolution Expiration of Corporate Term Case: PNB vs. CF (209SCRA294) Voluntary Dissolution where no Creditors are Affected Voluntary Dissolution where Creditors are Affected Shortening of Corporate Term Involuntary DissolutionCases: Gov't. vs. Phil Sugar Estate (39PhiIS9) Gov't. vs. El Hogar Filipino (supra) Republic vs. Security Credit (19SCRAS9) Republic vs. Bisaya Land Transportation (81SCRA9) Financing Corporation vs. Teodoro (94Phil687) Effects of Dissolution Cases: Buenaflor vs. Camarines Sur industry (108Phi1427) Cebu Port Labor Union vs. State Marine (101PhII468) ‘Sumera vs. Valencia (67Phil721) National Abaca vs. Pore (25CRA989) Board of Liquidators vs. Kalaw (20SCRA987) Gelano vs. C.A. (1035CRA90) Chung Ka Bio vs. IAC (163SCRAS34) Clemente vs. CA. (242SCRA717) FOREIGN CORPORATIOS Definition Application for License Modes of Entry Resident Agent Control Test vis Grandfather Rule Case: Narra Nickel Mining vs. Redmont Mines (722SCRA, April 21, 2014 MR. Jan., 28, 2015 (majority decision only) * not in the book Doing Business Without a License and its Effects Cases: Capacity to Sue Cases: Mentholatum vs. Mangaliman (72Phil524) ‘Marshall-Wells vs. Elser (46PhiI70) Bulakhidas vs. Navarro (14SCRA1) Swedish East Asia vs. Manila Port Services (25SCRA632) Far East int'l. vs. Nankai Kogyo (6SCRA725) Facilities Management vs. Dela Osa (89SCRA131) Communication Materials and Design vs. C.A. (260SCRA673) Western Equipment vs. Reyes ((51Phil115) General Garments vs. Director (41SCRASO) Puma Sportshufabriken vs. |AC 158SCRA233) Le Chemise Lacoste vs. Fernandez (129SCRA377) Atlantic Mutual Insurance vs. Cebu Stevedoring (17SCRA1037) Olympia Business Machines vs. E. Razon (155SCRA208) Time vs. Reyes (39SCRA303) Laws Governing Foreign Corporations Case: M.E. Grey vs. Insular Lumber (67Phil139) Amendment of the Articles of Incorporation Merger/ConsolidationRevocation of License Withdrawal of License Investigations, Offenses and Penalties MISCELLANEOUS PROVISIONS Abitration for Corporation PARTI PRESIDENTIAL DECREE 902-A, as amended Devises or Schemes Amounting to Fraud Intra-corporate Controversies Controversies in the Election, Appointment or Removal of Directors/Officers Appointment of Management Committee, Board or Body Cases: RJ. Jacinto vs. FWCC (410SCRA140) ‘Sy Chim vs. Sy Suy Ho & Sons (480SCRA206) SECURITIES REGULATION CODE (RA8799) Securities Defined/Enumerated Registration of Securities Regulation of Brokers, Dealers and Salemen Cases: Justee Terms Enterprises vs. SEC (CA GR SP No. 48013, July 30, 1999) China Banking vs. CA (270SCRA503) SEC vs. Santos (719SCRAS14)*not in the book Tender Offer Rule The Independent Director Rule Other Forms of Fraudulent Transactions and Market Manipulations Wash Sale Matched Order Painting the Tape Marking the Close Hype and Dump ‘Making False or Misleading Statements Short Sale lnsider Trading Civil and Administrative Sanctions Penal Sanctions Settlement Offer Limitation of Actions Amount of Damages 10