TITLE XIICLOSE
CORPORATIONS
Sec. 96. Definition
and applicability of Title. - A close corporation,
within
the meaning of this Code, is one whose articles of incorporation
provide
that: (1) All the corporation's issued stock of all classes, exclusive
of treasury shares, shall be held of record by not more than a
specified
number of persons, not exceeding twenty (20); (2) all the issued stock
of all classes shall be subject to one or more specified restrictions
on
transfer permitted by this Title; and (3) The corporation shall not
list
in any stock exchange or make any public offering of any of its stock
of
any class. Notwithstanding the foregoing, a corporation shall not be
deemed
a close corporation when at least two-thirds (2/3) of its voting stock
or voting rights is owned or controlled by another corporation which is
not a close corporation within the meaning of this Code.
Any
corporation may be incorporated as a close
corporation, except mining or oil companies, stock exchanges, banks,
insurance
companies, public utilities, educational institutions and corporations
declared to be vested with public interest in accordance with the
provisions
of this Code.
The
provisions of this Title shall primarily
govern close corporations: Provided, That the provisions of other
Titles
of this Code shall apply suppletorily except insofar as this Title
otherwise
provides.
Sec. 97. Articles
of incorporation. - The articles of incorporation of a
close
corporation may provide:
1. For a classification of shares or
rights
and the qualifications for owning or holding the same and restrictions
on their transfers as may be stated therein, subject to the provisions
of the following section;
2. For a classification of directors
into
one or more classes, each of whom may be voted for and elected solely
by
a particular class of stock; and
3. For a greater quorum or voting
requirements
in meetings of stockholders or directors than those provided in this
Code.
The
articles of incorporation of a close corporation
may provide that the business of the corporation shall be managed by
the
stockholders of the corporation rather than by a board of directors. So
long as this provision continues in effect:
1. No meeting of stockholders need be
called
to elect directors;
2. Unless the context clearly requires
otherwise,
the stockholders of the corporation shall be deemed to be directors for
the purpose of applying the provisions of this Code; and
3. The stockholders of the corporation
shall
be subject to all liabilities of directors.
The
articles of incorporation may likewise provide
that all officers or employees or that specified officers or employees
shall be elected or appointed by the stockholders, instead of by the
board
of directors.
Sec. 98. Validity
of restrictions on transfer of shares. - Restrictions on
the right to transfer shares must appear in the articles of
incorporation
and in the by-laws as well as in the certificate of stock; otherwise,
the
same shall not be binding on any purchaser thereof in good faith. Said
restrictions shall not be more onerous than granting the existing
stockholders
or the corporation the option to purchase the shares of the
transferring
stockholder with such reasonable terms, conditions or period stated
therein.
If upon the expiration of said period, the existing stockholders or the
corporation fails to exercise the option to purchase, the transferring
stockholder may sell his shares to any third person.
Sec. 99. Effects
of issuance or transfer of stock in breach of qualifying conditions.-
1. If stock of a close corporation is
issued
or transferred to any person who is not entitled under any provision of
the articles of incorporation to be a holder of record of its stock,
and
if the certificate for such stock conspicuously shows the
qualifications
of the persons entitled to be holders of record thereof, such person is
conclusively presumed to have notice of the fact of his ineligibility
to
be a stockholder.
2. If the articles of incorporation of
a close
corporation states the number of persons, not exceeding twenty (20),
who
are entitled to be holders of record of its stock, and if the
certificate
for such stock conspicuously states such number, and if the issuance or
transfer of stock to any person would cause the stock to be held by
more
than such number of persons, the person to whom such stock is issued or
transferred is conclusively presumed to have notice of this fact.
3. If a stock certificate of any close
corporation
conspicuously shows a restriction on transfer of stock of the
corporation,
the transferee of the stock is conclusively presumed to have notice of
the fact that he has acquired stock in violation of the restriction, if
such acquisition violates the restriction.
4. Whenever any person to whom stock
of a
close corporation has been issued or transferred has, or is
conclusively
presumed under this section to have, notice either (a) that he is a
person
not eligible to be a holder of stock of the corporation, or (b) that
transfer
of stock to him would cause the stock of the corporation to be held by
more than the number of persons permitted by its articles of
incorporation
to hold stock of the corporation, or (c) that the transfer of stock is
in violation of a restriction on transfer of stock, the corporation
may,
at its option, refuse to register the transfer of stock in the name of
the transferee.
5. The provisions of subsection (4)
shall
not applicable if the transfer of stock, though contrary to subsections
(1), (2) of (3), has been consented to by all the stockholders of the
close
corporation, or if the close corporation has amended its articles of
incorporation
in accordance with this Title.
6. The term "transfer", as used in
this section,
is not limited to a transfer for value.
7. The provisions of this section
shall not
impair any right which the transferee may have to rescind the transfer
or to recover under any applicable warranty, express or implied.
Sec.
100. Agreements
by stockholders. -
1. Agreements by and among stockholders
executed
before the formation and organization of a close corporation, signed by
all stockholders, shall survive the incorporation of such corporation
and
shall continue to be valid and binding between and among such
stockholders,
if such be their intent, to the extent that such agreements are not
inconsistent
with the articles of incorporation, irrespective of where the
provisions
of such agreements are contained, except those required by this Title
to
be embodied in said articles of incorporation.
2. An agreement between two or more
stockholders,
if in writing and signed by the parties thereto, may provide that in
exercising
any voting rights, the shares held by them shall be voted as therein
provided,
or as they may agree, or as determined in accordance with a procedure
agreed
upon by them.
3. No provision in any written
agreement signed
by the stockholders, relating to any phase of the corporate affairs,
shall
be invalidated as between the parties on the ground that its effect is
to make them partners among themselves.
4. A written agreement among some or
all of
the stockholders in a close corporation shall not be invalidated on the
ground that it so relates to the conduct of the business and affairs of
the corporation as to restrict or interfere with the discretion or
powers
of the board of directors: Provided, That such agreement shall impose
on
the stockholders who are parties thereto the liabilities for managerial
acts imposed by this Code on directors.
5. To the extent that the stockholders
are
actively engaged in the management or operation of the business and
affairs
of a close corporation, the stockholders shall be held to strict
fiduciary
duties to each other and among themselves. Said stockholders shall be
personally
liable for corporate torts unless the corporation has obtained
reasonably
adequate liability insurance.
Sec.
101. When board
meeting is unnecessary or improperly held. - Unless the
by-laws provide otherwise, any action by the directors of a close
corporation
without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken,
written consent thereto is signed by all the directors; or
2. All the stockholders have actual or
implied
knowledge of the action and make no prompt objection thereto in
writing;
or
3. The directors are accustomed to
take informal
action with the express or implied acquiescence of all the
stockholders;
or
4. All the directors have express or
implied
knowledge of the action in question and none of them makes prompt
objection
thereto in writing.
If a
director's meeting is held without proper
call or notice, an action taken therein within the corporate powers is
deemed ratified by a director who failed to attend, unless he promptly
files his written objection with the secretary of the corporation after
having knowledge thereof.
Sec. 102. Pre-emptive
right in close corporations. - The pre-emptive right of
stockholders in close corporations shall extend to all stock to be
issued,
including reissuance of treasury shares, whether for money, property or
personal services, or in payment of corporate debts, unless the
articles
of incorporation provide otherwise.
Sec. 103. Amendment
of articles of incorporation. - Any amendment to the
articles
of incorporation which seeks to delete or remove any provision required
by this Title to be contained in the articles of incorporation or to
reduce
a quorum or voting requirement stated in said articles of incorporation
shall not be valid or effective unless approved by the affirmative vote
of at least two-thirds (2/3) of the outstanding capital stock, whether
with or without voting rights, or of such greater proportion of shares
as may be specifically provided in the articles of incorporation for
amending,
deleting or removing any of the aforesaid provisions, at a meeting duly
called for the purpose.
Sec. 104. Deadlocks.
- Notwithstanding any contrary provision in the articles of
incorporation
or by-laws or agreement of stockholders of a close corporation, if the
directors or stockholders are so divided respecting the management of
the
corporation's business and affairs that the votes required for any
corporate
action cannot be obtained, with the consequence that the business and
affairs
of the corporation can no longer be conducted to the advantage of the
stockholders
generally, the Securities and Exchange Commission, upon written
petition
by any stockholder, shall have the power to arbitrate the dispute. In
the
exercise of such power, the Commission shall have authority to make
such
order as it deems appropriate, including an order: (1) canceling or
altering
any provision contained in the articles of incorporation, by-laws, or
any
stockholder's agreement; (2) canceling, altering or enjoining any
resolution
or act of the corporation or its board of directors, stockholders, or
officers;
(3) directing or prohibiting any act of the corporation or its board of
directors, stockholders, officers, or other persons party to the
action;
(4) requiring the purchase at their fair value of shares of any
stockholder,
either by the corporation regardless of the availability of
unrestricted
retained earnings in its books, or by the other stockholders; (5)
appointing
a provisional director; (6) dissolving the corporation; or (7) granting
such other relief as the circumstances may warrant.
A provisional
director shall be an impartial
person who is neither a stockholder nor a creditor of the corporation
or
of any subsidiary or affiliate of the corporation, and whose further
qualifications,
if any, may be determined by the Commission. A provisional director is
not a receiver of the corporation and does not have the title and
powers
of a custodian or receiver. A provisional director shall have all the
rights
and powers of a duly elected director of the corporation, including the
right to notice of and to vote at meetings of directors, until such
time
as he shall be removed by order of the Commission or by all the
stockholders.
His compensation shall be determined by agreement between him and the
corporation
subject to approval of the Commission, which may fix his compensation
in
the absence of agreement or in the event of disagreement between the
provisional
director and the corporation.
Sec.
105. Withdrawal
of stockholder or dissolution of corporation. - In
addition
and without prejudice to other rights and remedies available to a
stockholder
under this Title, any stockholder of a close corporation may, for any
reason,
compel the said corporation to purchase his shares at their fair value,
which shall not be less than their par or issued value, when the
corporation
has sufficient assets in its books to cover its debts and liabilities
exclusive
of capital stock: Provided, That any stockholder of a close corporation
may, by written petition to the Securities and Exchange Commission,
compel
the dissolution of such corporation whenever any of acts of the
directors,
officers or those in control of the corporation is illegal, or
fraudulent,
or dishonest, or oppressive or unfairly prejudicial to the corporation
or any stockholder, or whenever corporate assets are being misapplied
or
wasted. |