Understanding Shareholder Rights and Corporate Structures in Stock Corporations, Slides of Law

Download Understanding Shareholder Rights and Corporate Structures in Stock Corporations and more Slides Law in PDF only on Docsity! LAW ON BUSINESS ORGANIZATION PARTNERSHIP • Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. 5.Commutative – partnership has something in return. (almost same meaning with onerous) 6. Principal – it can stand alone. 7.Preparatory – when you have put up a partnership, it is being set up in preparation for future contracts. ESSENTIAL FEATURES/ATTRIBUTES OF PARTNERSHIP • 1. There must be a valid contract. • 2. Parties must have legal capacity to enter into the contract • 3. There must be mutual contribution of money, property, or industry to a common fund. • 4. The object must be lawful. • 5. The primary purpose must to obtain profits and to divide the same among the parties. PRINCIPLE OF DELECTUS PERSONAE (CHOICE OF PERSONS) •a person has the right to select persons with whom he wants to be associated with in partnership. Kinds of Persons 1. Natural Person – created by God. 2. Juridical Person – created by operation of law. *If you want to be an incorporator you must be a natural person, but juridical persons can be a stockholder. *partnership rule: dead partner = exclude in the partnership name. *Who can form a partnership? P= Partnership; C= Corporation; N= Natural Person (yes)P and P P and N P and C C and C C and N N and N (yes) (No) (No) (No) (Yes) Effect of failure to comply with statutory requirements Under Art 1772 Partnership still acquires personality despite failure to comply with the requirements of execution of public instrument and registration of name in SEC. Under Arts 1773 and 1775 Partnership with immovable property contributed, if without requisite inventory, signed and attached to public instrument, shall not acquire any juridical personality because the contract itself is void. This is also true for secret associations or societies. ART. 1769. IN DETERMINING WHETHER A PARTNERSHIP EXISTS, THESE RULES SHALL APPLY: •1. Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons. •2. Co-ownership or co-possession does not of itself establish a partnership, whether such co-ownership or co-possessors do or do not share any profits made by the use of the property. PENAL PROVISION •Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. Effects of an unlawful partnership 1. The contract is void and the partnership never existed in the eyes of the law; 2.The profits shall be confiscated in favor of the government; 3.The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government; 4.The contributions of the partners shall not be confiscated unless they fall under #3. CONTRIBUTION OF IMMOVABLE/REAL PROPERTY •Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary .Form of partnership contract. CONTRIBUTION OF IMMOVABLE/ REAL PROPERTY Art 1773. •Where immovable property contributed, failure to comply w/ the following requisites will render the partnership contract void: •1. The contract must be in a public instrument; •2. An inventory of the property contributed must be made, signed by the parties, and attached to the public instrument. •Partnership relation is created only by the voluntary agreement of the partners. It is essential that the partners are fully informed not only of the agreement but of all mattersaffecting the partnership. Secret partnerships are not by nature partnerships. Secret partnerships shall be governed by the provisions relating to co-ownership. ART. 1775 ASSOCIATIONS & SOCIETIES, WHOSE ARTICLES ARE KEPT SECRET AMONG THE MEMBERS IS NOT A PARTNERSHIP BUT A CO-OWNERSHIP. ART. 1776 CLASSIFICATIONS OF PARTNERSHIP • 1. As to the extent of its subject matter • A. Universal partnership. Art. 1777. A universal partnership may refer to all the present property or to all the profits. • a. Universal partnership of all present property. 1178 In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership becomes the common property of all the partners, as well as all the profits which they may acquire there with. • b. Universal partnership of profits. Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. 3. As to the legality of its existence a.De jure partnership: one w/c has complied w/ all the legal requirements for its establishment. b.De facto partnership: one w/c has failed to comply w/ all the legal requirements for its establishment. 4. As to representation to others a. Ordinary or real partnership: one w/c actually exists among the partners and also as to 3rd persons. b.Ostensible partnership or partnership or partnership by estoppel: one w/c in reality is not a partnership, but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence. 5. As to representation to others a.Ordinary or real partnership: one w/c actually exists among the partners and also as to 3rd persons. b.Ostensible partnership or partnership or partnership by estoppel: one w/c in reality is not a partnership, but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence 6. As to publicity a.Secret partnership: one wherein the existence of certain persons as partners is not avowed or made known to the public by any of the partners. b.Open or notorious partnership: one whose existence is avowed or made known to the public by the members of the firm. 7. As to purpose a.Commercial or trading partnership: one formed or the transaction of business. b.Professional or non-trading partnership: one formed for the exercise of a profession. 9. Continuing Partner -continues the business of the partnership after it has been dissolved. 10. Surviving Partner -remains after partnership has been dissolved by death of any partner. 11. Subpartner -not being a member of partnership, contracts w/ a partner w/ reference to latter’s share in the partnership. Other classifications 1. Ostensible partner: one who takes active part and known to the public as a partner. 2.Secret partner: one who takes active part in the business but is not known to be a partner by outside parties nor held out as a partner by the other partners. He is an actual partner. 3.Silent partner: one who does not take any active part in the business although he may be known to be a partner. 4.Dormant partner: one who does not take active part in the business and is not known or held out as a partner. He would be both a silent and a secret partner. 5. Original partner: one who is a member of the partnership from the time of its organization. 6. Incoming partner: a person lately, or about to be, taken into an existing partnership as a member. 7.Retiring partner:one withdrawn from the partnership; a withdrawing partner. Art. 1777. A universal partnership may refer to all the present property or to all the profits. UNIVERSAL PARTNERSHIP WITHOUT SPECIFICATION OF ITS NATURE •Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. •Reason for presumption: universal partnership of profits imposes less obligations on the partners, since they preserve the ownership of their separate property. PARTNERSHIP AT WILL •Art. 1785. When a contract for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remains the same as they were at such termination, so far as is consistent with a partnership at will. Partnership at will 3 instances: 1. Partnership was created without a fixed term. 2.Partnership was created with a fixed term, but after the expiration of such term, the partnership still continue transacting business. 3.Partnership was created for a particular purpose/ undertaking, after attaining such purpose, the partnership still continue transacting business. ART. 1786 EVERY PARTNER IS A DEBTOR OF THE PARTNERSHIP FOR WHATEVER HE MAY HAVE PROMISED TO CONTRIBUTE THERETO. •He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. Liability of partner for estafa Failure to return the money taken, there is the element of fraudulent appropriation of the money delivered to a partner with specific instructions for the use of the partnership, then estafa is committed under the Revised Penal Code. ART 1789. INDUSTRIAL PARTNER •Art. 1789. An industrial partner cannot engage in any business for himself, UNLESS the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. Capitalist Partner (Art.1808) -can engaged in other business, EXCEPT in a business with the same line of the partnership he is engaged with. *SANCTIONs if a capitalist partner engaged with a business with the same line of the partnership he is engaged with, without the consent of the partnership: Whatever profit he derives in such business, he has an obligation to give it in favour of the partnership . ART. 1792 OBLIGATION OF THE MANAGING PARTNER TO DIVIDE THE PAYMENT IN PROPORTION TO THE TWO (2) DEBTS •Art. 1792. If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person who owned the partnership another sum also demandable, • the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter. Question: A (debtor) owes managing partner B P 4,000 & CDE Partnerhip P20, 000 at the same time. He paid a total of P10, 000 to the managing partner. How should the payment of A be divided? Answer : The managing partner should divide it proportionately: For B: 2/10 X P10, 000=P2000 For CDE: 8/10 x P10, 000=P8000 NOTE: -There is NO need to divide the payment in proportion of the 2 debts if the debtor pays to the partnership. Same rule shall apply if the debtor pays only the CAPITALIST PARTNER. . ART. 1793 IF THE DEBTOR BECOMES INSOLVENT •Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. SHARE OF INDUSTRIAL PARTNER IN PROFITS AND LOSSES •Unless agreed upon, the industrial partner shall receive such share in the profits as may be just and equitable under the circumstances. As for the losses, the industrial partner is not liable. However, under Art. 1816, if the partnership has a contractual debt and it cannot pay, the industrial partner equally with the capitalist partners, can be compelled by the creditor to pay his pro rata share out of his own property or assets. ART. 1799. A STIPULATION WHICH EXCLUDES ONE OR MORE PARTNERS FROM ANY SHARE IN THE PROFITS OR LOSSES IS VOID. •EXCEPTION: INDUSTRIAL PARTNER •EXCEPTION TO THE EXCEPTION : Art. 1816 •REASON: An industrial partner is not liable for losses because if the partnership fails to realize any profits, the industrial partner would have contributed his labor in vain. ART. 1800 A PARTNER APPOINTED AS MANAGER MAY EXECUTE ALL ACTS OF ADMINISTRATION… •Unless he should act in bad faith. His power is revocable only upon just and lawful cause and upon the vote of the partners representing the controlling interest. •Appointment as manager after the constitution of the partnership. Appointment may be revoked at any time for any cause what so ever. ART. 1802 WHEN UNANIMITY OF ACTION STIPULATED CONCURRENCE NECESSARY FOR VALIDITY OF ACTS • As a rule the partners may stipulate that none of the managing partners shall act without the consent of the others. In such a case, the unanimous consent of all the managing partners shall be necessary for the validity of their acts. EXCEPTION: If one of the managing partner is absent, in case of irreparable injury, & not giving immediate decision may lead to damages, remaining partners may decide even w/o the presence of the said partner. NOTE: Consent of managing partners not necessary in routine transactions ART. 1803. WHEN THE MANNER OF MANAGEMENT HAS NOT AGREED UPON, THE FOLLOWING RULES SHALL OBSERVED: • 1. All partners are agents. All of them shall considered mgrs. and agents and whatever any one of them may do alone shall bind the partnership. If there is timely opposition same rule as Art. 1801. • 2. None of the partners, w/o consent of others, can make important alteration in the immovable property of the partnership, even if it may be useful to the partnership, but if there ids refusal of the consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s intervention may be sought. ART. 1804 A PARTNER HAS A RIGHT TO ASSIGN HIS INTEREST TO 3RD PERSONS, HOWEVER THE SAID ASSIGNEES CANNOT BE AUTOMATICALLY HELD AS A PARTNER W/O CONSENT OF ALL THE PARTNERS. • Person for a division of the profits coming to him from the partnership enterprise is termed subpartnership. • Subpartnership agreements do not affect the composition, existence, or operations of the firm. The subpartners are partners interest, • However, in the absence of the mutual assent of all the parties, a subpartner does not become a member of the partnership, even if the other partners know about the agreement. Not being a member of the partnership, he does not acquire the rights of a partner nor is he liable for its debts. ART. 1811 A PARTNER IS CO-OWNER W/ HIS PARTNERS OF SPECIFIC PARTNERSHIP PROPERTY. ART. 1812. A PARTNER’S INTEREST IN THE PARTNERSHIP IS HIS SHARE OF THE PROFITS AND SURPLUS. • Share of profits and surplus – The partner’s interest in the partnership consists of his share in the undistributed profits during the life of the partnership as a going concern and his share in the undistributed surplus after its dissolution. • Profits: the excess of returns over expenditure in a transaction or series of transactions; or the net income of the partnership for a given period. • Surplus: the assets of the partnership after partnership debts and liabilities are paid and settled and the rights of the partners among themselves are adjusted. It is the excess of assets over liabilities. If the liabilities are more than the assets, the difference represents the extent of the loss. ART. 1815. EVERY PARTNERSHIP SHALL OPERATE UNDER A FIRM NAME, WHICH MAY OR MAY NOT INCLUDE THE NAME OF ONE OR MORE OF THE PARTNERS, THOSE WHO, NOT BEING MEMBERS OF THE PARTNERSHIP, INCLUDE THEIR NAMES IN THE FIRM NAME, SHALL BE SUBJECT TO LIABILITY OF A PARTNER •Right of the partners to choose firm name •The partners enjoy the utmost freedom in the selection of the partnership name. •As a general rule, they may adopt any firm name desired. •Use of misleading name – The partners cannot use a name that is identical or deceptively confusingly similar to that of any existing partnership or corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws, as to mislead the public by passing itself off as another partnership or corporation, or its goods or services as those of such other company. Pro rata liability – Literally, pro rata liability means proportionate distribution of liability. In the law of obligations, the concurrence of two or more debtors in one and the same obligation makes it prima facie a joint (pro rata) obligation, and the debts is presumed divided into as many equal shares as there are debtors and each one of them is bound to pay only his share. ADMISSION/REPRESENTATION AS EVIDENCE •Art.1820 • An admission/representation concerningpartnershipaffairs made w/in by any the scope partner of his authority in accordance w/ this Title is eviden e against the partnership. ART. 1821 NOTICE TO A PARTNER IS A NOTICE TO ALL THE PARTNERS. •Notice to partner is notice to partnership Clearly a third person desiring to give notice to a partnership of some matter pertaining to the partnership business need not communicate with all of the partners. If notice is delivered to a partner, that is an effective communication to the partnership. ART. 1824. ALL PARTNERS ARE LIABLE SOLIDARILY WITH THE PARTNERSHIP FOR EVERYTHING CHARGEABLE TO THE PARTNERSHIP UNDER ARTICLES 1822 AND 1823. •Law imposes solidary liability •The law imposes solidary liability upon the partners and the partnership in cases of torts and acts of conversion by a partner as provided in Art. 1824. It may be stated that the liability of a partner for a debt of the partnership depends upon whether the debts is contractual or it arises from tort or conversion. If it arises from contract, the liability is subsidiary and pro rata; if it arises from tort or conversion, the liability is solidary. ART. 1825 PARTNERSHIP BY ESTOPPEL •Estoppel – A preclusion, in law, which prevents a man from alleging or denying a fact, in consequence of his own previous act, allegation, or denial of a contrary tenor. •Person bound by his representation A person who hold himself out as a partner in a business, or consents to his being so held out, is liable on contracts made with third persons who deal with the persons carrying on the business on the faith of the representation. He is stopped to deny the apparent agency. ART. 1826 ADMISSION OF A NEW PARTNER INTO A PARTNERSHIP WITH AN EXISTING OBLIGATION… •Incoming partner liable for existing obligations A newly admitted partner is liable for obligations of the partnership at the time of his admission. The obligation of the incoming partner shall be satisfied only out of partnership property. This is not a harsh rule because the incoming partner “partakes of the benefit of the partnership property, and an established business. He has every means of obtaining full knowledge of protecting himself, because he may insist on the liquidation or settlement of existing partnership debts. On the other hand, the creditors have no means of protecting themselves. ART. 1830 (AUTOMATIC DISSOLUTION) (NO NEED TO FILE A PETITION SA REGIONAL TRIAL COURT FOR DISSOLUTION) • Dissolution is caused: • (1) Without violation of the agreement bet. the partners… • a. By termination of definite term/particular undertaking… • b. By express will of any partner… • c. By express will of all partners… • d. By expulsion of any partner from the business… (2) In contravention of the agreement bet. partners… (3)Any event w/c makes it unlawful for the business of the partnership to be carried on… (4)When a specific thing, w/c a partner promised to contribute to the partnership, perishes before the delivery… (5) By the death of any partner (6) By the insolvency of any partner/ of the partnership. (7) By civil interdiction of any partner. (8) By decree of court. ART. 1831 (JUDICIAL DISSOLUTION) (NEED TO FILE A PETITION SA REGIONAL TRIAL COURT FOR JUDICIAL DISSOLUTION) • On application by/ for a partner, the court shall decree a dissolution whenever: • (1) A partner has been declared insane in any judicial proceeding/ is to be shown to be of unsound mind. • (2) Incapacitated partner • (3) A partner has been guilty of such conduct… • (4) A partner wilfully/persistently commits a breach of partnership agreement… • (5) The business of the partnership can only be carried @ a loss. • (6) Other circumstances render a dissolution equitable. ART. 1839 IN SETTLING ACCOUNTS BET.THE PARTNERS AFTER DISSOLUTION, THE FF. RULES SHALL BE OBSERVED, SUBJ. TO AGREEMENT TO THE CONTRARY: • (1) The assets of the partnership are: • a. The partnership property • b. The contributions of the partners… • (2) The liabilities of the partnership shall rank in order of payment: • a. Those owing to creditors other than partners • b. Those owing to partners other than for capital & profits • c. Those owing to partners in respect of capital • d. Those owing to partners in respect of profits 3) Where a partner has become insolvent/ his estate is insolvent, the claims against his separate property shall rank in the ff. order: a. Those owing to separate creditors b. Those owing to partnership creditors c. Those owing to partners by way of contribution CHAPTER 4 LIMITED PARTNERSHIP • Art. 1843 • A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. • Art. 1845 • The contributions of a limited partner may be cash/ other property, but not services. ART. 1853 A PERSON MAY BE A GENERAL & A LIMITED PARTNER @ THE SAME TIME, THIS FACT MUST BE INDICATED IN THE CERTIFICATE. •A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all restrictions of a general partner; except that, in respect to his contribution, shall have the rights against the other members which he would have had if he were not also a general partner. REVISED CORPORATION CODE (2019) Republic Act No. 11232 TITLE I - GENERAL PROVISIONS DEFINITIONS AND CLASSIFICATIONS •SEC. 2. Corporation Defined. – A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence. Grounds for Application of Doctrine / Basic Areas where Piercing is Allowed 1. PUBLIC CONVENIENCE – “Equity Piercing” Where necessary to achieve equity or for the protection of the creditors Ex. Vehicle for the evasion of an existing legal obligation 1 In taxation to minimize payment of tax 1 In agrarian cases 1 To ward off a judgment credit, to avoid inclusion of corporate assets as part of the estate of the decedent, to escape liability arising from debt Requirement: The corporate fiction was the very tool used to evade obligation 2. FRAUD – “Fraud Piercing” Ex. Justify wrong, protect fraud, defend crime In FRAUD PIERCING: a. When it is proven that the corporate officer has used the corporate fiction to defraud a third party, or that he has acted negligently, maliciously or in bad faith, the corporate fiction may be pierced to make both the corp and the officer liable b. When corporate officers do fraudulent or illegal acts in the name of the corp, such as illegal dismissal or unfair labor practices, they become personally liable for the consequences of their fraudulent or illegal acts done in behalf of the corp c. When one tries to evade civil liability by incorporating the properties or the business to insulate them from judgment creditors and employing the doctrine of limited liability 3. ALTER EGO / INSTRUMENTALITY – “alter ego piercing” / “ instrumentality test” Ex. Corp is a farce, business conduit of a person, an adjunct, an alter ego of another corp or where the corp is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corp. (3) As to whether they are for charitable purposes or not: a. Eleemosynary corporation – established for charitable purposes. b. Civil corporation – established for business/profit. (4) As to state/country under/by whose laws they have been created: a. Domestic Corporation- If Formed, Organized & Existing in the PH b. Foreign Corporation (5) As to their legal right to corporate existence a.De jure corporation – existing in fact & in law. • Complied w. SEC requirements; SEC issues cert. of incorporation. b. De facto corporation – existing in fact but NOT in law. There is a defect in their incorporation. (6) As to whether they are open to the public or not: a. Close corporation – limited to selected persons/members of a family. * 20 maximum stockholders b.Open corporation – open to any person who may wish to become a stockholder or member thereto. • shares of stock traded in public. (7) As to their relation to another corporation: b.Parent/holding corporation – has the power either directly/indirectly to, elect the majority of the directors of such other corp. c.Subsidiary corporation – majority of its directors canbe elected either directly/indirectly, by such another corp. (8) As to whether they are corporations in a true sense/ only in a limited sense: a. True corporation – exists by statutory authority. b. Quasi-corporation – exists w/o formal legislative grant. • Exception to the general rule that a corporation can exist only by authority of law, & it may be: 1 Corporation by prescription – one w/c has exercised corporate powers for an indefinite period w/o interference on the part of the sovereign power… 1 Corporation by estoppel – in reality is not a corporation, either de jure/de facto, considered as corporation by reason of theiracts/admissions, are precluded from asserting that it is not a corporation.