Regulatory Framework for Business Transactions: Corporation Code and Securities Rules
The corporation
Know the attributes of a corporation: separate juridical personality, limited liability, transferability of shares, and centralized management. Distinguish stock from nonstock corporations, and de jure from de facto corporations. Understand the incorporation process: promoters, subscription requirements, articles of incorporation, and the role of the Securities and Exchange Commission.
Governance and finance
Master the board of directors: number, term, election, removal, and the business judgment rule. Know the roles of officers and the rules on self-dealing and conflicts of interest. For capital, distinguish authorized, issued, and outstanding capital stock; par value versus no-par value; and the rules on dividends, treasury shares, and trust fund doctrine. Understand the rules for mergers and consolidations, including the required stockholder and SEC approvals.
Securities regulation
Know the disclosure obligations under the Securities Regulation Code, the registration of securities, and the prohibition on insider trading and manipulation. Understand the concept of a tender offer and the reporting requirements for beneficial owners.
Traps
- Confusing a de facto corporation with a corporation by estoppel.
- Treating treasury shares as outstanding for voting and dividend purposes.
- Forgetting the trust fund doctrine: capital cannot be returned to stockholders before creditors are satisfied.
- Mixing the vote required for a merger with the vote for ordinary board action.
Rule of thumb
A corporation may not distribute dividends out of capital; dividends come from unrestricted retained earnings, and treasury shares are not entitled to dividends or votes.