Corporation Law: The Revised Corporation Code of the Philippines - Sec 73

THE REVISED CORPORATION CODE  OF THE PHILIPPINES 

Republic Act No. 11232 

TITLE VIII - CORPORATE BOOKS AND RECORDS

Section 73. Books to be Kept; Stock Transfer Agent. 

Every corporation shall keep and carefully preserve at its principal office all information relating to the corporation including, but not limited to:

(a) The articles of incorporation and bylaws of the corporation and all their amendments;

(b) The current ownership structure and voting rights of the corporation, including lists of stockholders or members group structures, intra-group relations, ownership data, and beneficial ownership.

(c) The names and addresses of all the members of the board of directors or trustees and the executive officers;

(d) A record of all business transactions;

(e) A record of the resolutions of the board of directors or trustees and of the stockholders or members;

(f) Copies of the latest reportorial requirements submitted to the Commission; and

(g) The minutes of all meetings of stockholders or members, or of the board of directors or trsutees. Such minutes shall set forth in detail among others; the time and the place of the meeting held, how it was authorized, the notice given, the agenda therefor, whether the meeting was regular or special, its object if special, those present and absent, and every act done or ordered done at the meeting. Upon the demand of a director trustee, stockholder or member, the time when any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The protest of a director, trustee, stock holder or member on any action or proposed action must be recorded in full upon their demand.

Corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee, stockholder or member of the corporation in person or by a representative at reasonable hours on business days, and a demand in writing may be made by such director, trustee or stockholder at their expense, for copies of such records or excerpts from said records. The inspecting or reproducing party shall remain bound by confidentiality rules under prevailing laws, such as the rules on trade secrets or processes under Republic Act No. 8293, otherwise known as the "Intellectual Property Code of the Philippines", as amended, Republic Act No. 10173, otherwise known as the "Data Privacy Act of 2012" Republic Act No. 8799, otherwise known as "The Securities Regulation Code", and the Rules of Court.

A requesting party who is not a stockholder or member of record, or is a competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor shall have no right to inspect or demand reproduction of corporate records.

Any stockholder who shall abuse the rights granted under this section shall be penalized under Section 158 of this Code, without prejudice to the provisions of Republic Act No. 8293, otherwise known as the "Intellectual Property Code of the Philippines", as amended, and Republic Act No. 10173, otherwise known as the "Data Privacy Act of 2012".

Any officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in accordance with the provisions of this Code shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 161 of this Code: Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: Provided, further,That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's record or minutes of such corporation or of any other corporation, or was not acting in good faith or of any other corporation or was not acting in good faith or for a legitimate purpose in making the demand to examine or reproduce corporate records or is a competitor, director, officer, controlling stockholder or otherwise represents the interest of a competitor.

If the corporation denies or does not act on a demand for inspection and/or reproduction, the aggrieved party may report such denial or inaction to the Commission Within five (5) days from receipt of such report, the Commission shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records.

Stock corporations must also keep a stock and transfer book, which shall contain a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stocks for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, by and to whom made; and such other entries as the bylaws may prescribed, The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open or inspection by any director or stockholder of the corporation at reasonable hours on business days.

A stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines upon securing a license from the Commission and the payment of a fee to be fixed by the Commission, which shall be renewable annually: Provided, That a stock corporation is not precluded from performing or making transfer of its own stocks, in which case all the rules and regulations imposed on stock transfer agents, except the payment of a license fee herein provided, shall be applicable: Provided, further, That the Commission may require stock corporations which transfer and/or trade stocks in secondary markets to have an independent transfer agent.

1. Mandatory. 

• All the rights provided under Sections 73 and 74 are mandatory because those rights "are just the same underpinned by the same policy consideration of keeping public confidence in the corporate vehicle through an assurance of transparency in the corporation's operations."

2. Corporate Books. 

• Section 73 of the RCCP provides that every corporation is required to keep and preserve at its principal office information/documents/books/records such as, but not limited to, the following: 

1. The Articles of Incorporation and By-Laws of the corporation and all their amendments; 
2. The current ownership structure and voting rights of the corporation, including lists of stockholders or members, group structures, intra-group relations, ownership data, and beneficial ownership; 
3. The names and addresses of all the members of the Board of Directors or Trustees and the executive officers;
4. A record of all business transactions;
5. A record of the resolutions of the Board of Directors or Trustees and of the stockholders or members; 
6. Copies of the latest reportorial requirements submitted to the SEC; and 
7. The minutes of all meetings of stockholders or members, and of the Board of Directors or Trustees.

• Hence, the books and/or files that should be maintained are:

1. Book of minutes of stockholders'/members' meetings;
2. Book of minutes of Board meetings;
3. Record or Book of all business transactions;
4. Stock and Transfer Book;
5. Record of Resolutions; and 
6. Record of SEC-filed reports.

3. Book of Minutes.

• Minutes of meetings of the stockholders/ members and directors/trustees must set forth the following: 

1. The date and time of meeting;
2. The place of holding the meeting; 
3. How the meeting was authorized;
4. The fact that notice was given;
5. The agenda for the meeting;
6. Whether the meeting was regular or special;
7. If the meeting is special, its object must be stated;
8. Those present and absent; and
9. Every act done or ordered done at the meeting. 

• The Minutes need not be a word-for-word transcription of the proceedings.
• However, the following must be stated in the Minutes upon the demand of any director, trustee, stockholder or member: 

1. The time when any director, trustee, stockholder or member entered or left the meeting; 
2. A carefully made record of yeas and nays on any motion or proposition; and
3. The protest of any director, trustee, stockholder or member on any action or proposed action. 

• While the Minutes can be signed by the directors upon the approval thereof, such signature of the directors is not necessary. 
•  The mere certification of the Corporate Secretary gives the Minutes probative value.

3.01. Minutes as Proof of Contract

• The Minutes of Meeting of the Board of Directors may be proof of the existence of a contract.
•  For purposes of extinctive prescription under Article 1144(1) of the New Civil Code, the minutes of meeting of the Board can be considered a written contract.

4. Stock and Transfer Book.

• The stock and transfer book contains the following:

1. All stocks m the name of the stockholders alphabetically arranged;
2. Amount paid and unpaid on all stocks and the date of payment of any installment;
3. Alienation, sale or transfer of stocks; and 
4. Other entries as the By-Laws may prescribe. 

• The object of the requirement that the contents of the stock and transfer book as to the above-enumerated details must be accurate is "to protect the right of stockholders, so that the books may be open to examination to aid the state in exercising its visitorial power over the corporation, and perhaps to enable the creditors to examine the books also."
• Only the corporate secretary is duly authorized to make entries on the stock and transfer book. 
• Hence, entries made by the Chairman or President are invalid. 
• Any officer other than the secretary cannot cause the registration of a transfer of shares in the stock and transfer book. 
• The stock and transfer book is the best evidence of the transactions that must be entered or stated therein. 
• However, the entries are considered prima facie evidence only and may be subject to proof to the contrary
• As between the Articles of Incorporation and the stock and transfer book, the Articles of Incorporation prevail. 
• For instance, the number of original subscribers appearing in the Articles of Incorporation is controlling even if a lesser number is entered in the stock and transfer book.

4.01. Stock and Transfer Book as Evidence.

• The "books and records of a corporation (including the stock and transfer book) are admissible in evidence in favor of or against the corporation and its members to prove the corporate acts, its financial status and other matters (like the status of the stockholders), and are ordinarily the best evidence of corporate acts and proceedings. Specifically, a stock and transfer book is necessary as a measure of precaution, expediency, and convenience because it provides the only certain and accurate method of establishing the various corporate acts and transactions and of showing the ownership of stock and like matters."
• For instance, the fact that a party in a case claimed that she has fully paid her subscription but tendered no explanation why the stock and transfer book was not presented, warrants the inference that the book did not reflect the actual payment of her subscription.

4.02. Loss of Stock and Transfer Book.

• When the original stock and transfer book has been lost or destroyed, secondary or extrinsic evidence may be introduced to reconstitute its contents. 
• However, the new stock and transfer book should be presented to the SEC for registration, accompanied by a sworn statement executed by any responsible officer setting forth the circumstances attending the loss.

5. Stockholder's Right to Inspect. 

• A stockholder can inspect the books of the corporation. 
• This right is part of the right of shareholders to information.
• It is a right that is personal to each stockholder.
• Hence, it can be granted only upon demand by a shareholder. 
• The Corporation Code, now the RCCP, grants this right to inspect to all stockholders and "in so doing has not required any specific amount of interest for the exercise of the right to inspect."
• For example, even a shareholder who holds only .001 % of the shareholdings is entitled to exercise such right. 

5.01. Right of Inspection and Reproduction. 

• Section 73 of the RCCP provides that corporate records, regardless of the form in which they are stored, shall be open to inspection by any director, trustee, stockholder or member in person or by a representative under the following conditions:

1. The right must be exercised at reasonable hours on business days;
2. The director, trustee, stockholder or member has not improperly used any information he secured through any previous examination; 
3. Demand is made in good faith or for a legitimate purpose; 
4. The inspecting or reproducing party must respect and is bound by confidentiality rules under prevailing laws such as the Intellectual Property Code, Data Privacy Act, Securities Regulation Code, and the Rules of Court; and 
5. The requesting party who is not a stockholder or member of record, or who is a competitor, director, officer, controlling stockholder or otherwise represents the interest of a competitor shall have no right to inspect or demand reproduction of corporate records.

• Copies or Excerpts. 
• Section 73 of the RCCP likewise provides that written demand may be made by a director/trustee, stockholder/member to secure copies of or excerpts from corporate records at his/her expense. 
• "The general right given by the statute may not be lawfully abridged to the extent attempted in this resolution. It may be admitted that the officials in charge of a corporation may deny inspection when sought at unusual hours or under other improper conditions; but neither the executive officers nor the board of directors have the power to deprive a stockholder of the right altogether. A By-Law unduly restricting the right of inspection is undoubtedly invalid."

5.02. Rationale. 

• The stockholder's right of inspection of the books and records of the corporation is based upon his interest over the assets and properties of the corporation. 
• It is therefore an incident of such interest though the interest is only inchoate in character. 
• In one case, the Supreme Court explained that the right is predicated upon the necessity of self-protection. 
• It is generally held by courts that where the right is granted by the statute to the stockholder, it is given to him as such and must be exercised by him with respect to his interest as a stockholder and for some purpose germane thereto or in the interest of the corporation. 
• In other words, the inspection has to be germane to one's interest as a shareholder, and has to be proper and lawful in character and not inimical to the interest of the corporation. 
• n another case, the Supreme Court reiterated that "the stockholder's right of inspection of the corporation's books and records is based upon his ownership of shares in the corporation and the necessity for self-protection. 
• After all, a shareholder has the right to be intelligently informed about corporate affairs. Such right rests upon the stockholder's underlying ownership of the corporation's assets and property." 

5.03. Extent. 

• According to the SEC, the right to inspect covers all the books of the corporation including the journal, ledger, financial statements, income tax returns, vouchers, receipts, contracts and all papers pertaining to the operation of the corporation which are of interest to its stockholders. 

5.04. Time and Place.

• As to the time and place of inspection, the same may be undertaken only at reasonable hours on business days throughout the year at the principal office of the corporation.
• However, this means at reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days chosen by the directors.

5.05. Purpose. 

• The inspection must be for proper or legitimate purpose. 
• This means that the inspection should be germane to the stockholder's interest as where the purpose is to find out how his investment is being used or to determine the actual condition of the company. 
• The inspection should not be made merely to gratify the curiosity of the stockholder.
• In the context of large corporations, inspection can be akin to a weapon in corporate warfare. "Considering the huge size of many modern corporations and the necessarily complicated nature of their bookkeeping, it is plain that to permit their thousands of stockholders to roam at will through their records would render impossible not only any attempt to keep their records efficiently, but the proper carrying on of their businesses."
• Because the power to inspect may be the power to destroy, it is important that only those with bona fide interest in the corporation enjoy that power.
• If the right is denied, the burden of proof is upon the corporation to show that the purpose of the shareholder is improper by way of defense.
• A stockholder is entitled to inspect the books and to full information as to the management of the corporation and the manner of expenditure of its funds if it appears that the company is being mismanaged or that it is being managed for the personal benefit of officers or directors or certain stockholders to the exclusion of others. 
• The Supreme Court ruled in one case that a stockholder who wants to avail of his right to inspect must set forth in his request for inspection the reasons or purpose of his inspection. 
• Improper purposes include: 
1. learning business secrets to aid a competitor corporation;
2. to secure prospects of personal business; 
3. to look for defects in corporate transactions fo rblackmail and extortion purposes; or 
4. to pursue one's social or political goals.
• The demand for inspection is properly denied if it is established that the stockholder's demand for an inspection of the corporation's books is based on:
1. the latter's attempt in bad faith at having his advances in millions of pesos from the corporation written off; 
2. that the stockholder is unjustly demanding that he be given the office of the Vice Presidency for Finance and Corporate Secretary;
3. that the stockholder is usurping rights belonging exclusively to the corporation; and that the stockholder attempts to coerce the corporation, its directors and officers into giving in to his baseless demands involving specific corporate assets.

5.06. Manner. 

• The stockholder is not only entitled to go over the records but he can also make copies, extracts and memoranda of pertinent records.
• However, the stockholder cannot demand that he be allowed to take corporate books out of the principal office of the corporation for the purpose of inspecting them. 
• The right to inspect may be exercised by the stockholder himself or he may ask for the assistance of an accountant or lawyer who may be appointed as his representative. 
• Consistently, it is now expressly stated in the RCCP that inspection can be through a representative. 
• A representative may be necessary because "some stockholders may not be well versed to interpret the contents of corporate documents."
• Note that the right is not limited to the corporation where one owns shares. It is more in accord with equity, good faith and fair dealing that the right to inspect under the conditions set forth in the law, extends to books and records of a wholly owned subsidiary of the corporation.
• There are matters that are not covered by the right to inspect. 
• For instance, a corporation engaged in manufacturing goods can keep secret the formula or process which is not generally well known.
• Probable cause for the offense punishable under Section 74 of the Corporation Code (now Section 73 of the RCCP), in relation to Section 144 of the Corporation Code (now Section 161 of the RCCP) was duly established in one case because ample evidence was presented by the complainant including the declaration of the accountants who were part of the inspection team that the documents presented to them were limited. 
• In addition, the inspection team alleged that on the day of the inspection, they brought a portable photocopying machine to the company premises but they were not allowed to use the same.

5.07. Remedies. 

• The RCCP now provides for the remedy of availing of a Summary Investigation by SEC. 
• If the corporation denies or does not act on a demand for inspection and/or reproduction of corporate books or records, the aggrieved party may report such denial or inaction to the SEC.
• Within five days from receipt of such report, the SEC shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records. 
• Before the RCCP took effect, the remedy was to file a complaint under Rule 7 of the Interim Rules for Intra-Corporate Controversies issued by the Supreme Court.
• While such judicial remedy still remains effective, the SEC remedy may be more expeditious.

5.08. Criminal Liability for Unlawful Denial. 

• Section 73 of the RCCP provides that any officer or agent of the corporation who shall refuse to allow the inspection and/or reproduction of records in accordance with the provisions of this Code shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 161 of the RCCP.
• Section 161 of the RCCP provides that "the unjustified failure or refusal by the corporation, or by those responsible for keeping and maintaining corporate records, to comply with Sections 45, 73, 92, 128, 177 and other pertinent rules and provisions of this Code on inspection and reproduction of records shall be punished with a fine ranging from Ten thousand pesos (Pl0,000.00) to Two hundred thousand pesos (P200,000.00), at the discretion of the court, taking into consideration the seriousness of the violation and its implications. When the violation of this provision is injurious or detrimental to the public, the penalty is a fine ranging from Twenty thousand pesos (P20,000.00) to Four hundred thousand pesos (P400,000.00)." 
• Section 161 further provides that "the penalties imposed under this section shall be without prejudice to the Commission's exercise of its contempt powers under Section 157" of the RCCP.

b. Liability of Directors.

• Section 73 provides that if the refusal to allow inspection and/or reproduction of records is made pursuant to a resolution or order of the Board of Directors or Trustees, the liability for such action shall be imposed upon the directors or trustees who voted for such refusal. 

c. Defenses. 

• Section 73 of the RCCP provides for the following defenses to any action thereunder: 

1. that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of the corporation; or 
2. the person was not acting in good faith or for a legitimate purpose in making the demand to examine or reproduce corporate records; or 
3.  the person demanding examination and/or reproduction of records is a competitor, director, officer, controlling stockholder or otherwise represents the interests of a competitor. 

• In a case decided under the Corporation Code, the Supreme Court stated that the elements for the penal provision under Section 74 (now Section 73, RCCP) in relation to Section 144 of the Corporation Code (now Section 161, RCCP) are as follows: 

1. A director, trustee, stockholder or member has made a prior demand in writing to examine and copy excerpts from the corporation's records or minutes; 
2. Any officer or agent of the concerned corporation shall refuse to allow the said director, trustee, stockholder or member of the corporation to examine and copy said excerpts;
3. If such refusal is made pursuant to a resolution or order of the Board of Directors or Trustees, the liability under the mentioned provisions/sections for such action shall be imposed upon the directors or trustees who voted for such refusal; and 
4. Where the officer or agent of the corporation sets up the defense that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand, the contrary must be shown or proved. 

• In a criminal complaint for violation of Section 74 of the Corporation Code (now Sections 73 and 161 of the RCCP), the defense of improper use or motive is in the nature of a justifying circumstance that would exonerate those who raise and are able to prove the same. 
• Accordingly, where the corporation denies inspection on the ground of improper motive or purpose, the burden of proof is taken from the shareholder and placed on the corporation.
• The case can prosper only against officers who denied the demand for the exercise of the right to inspect.
• An officer who did not deny the demand cannot be held liable.
• It should be noted in this connection, that, the penal sanction under Section 161 applies to the unjustified failure or refusal by the corporation, or by those responsible for keeping and maintaining corporate records, to comply with Sections 45, 73, 92, 128, 1 77 and other pertinent rules and provisions of the RCCP on inspection and reproduction of records. 
• It is not limited to refusal to allow examination of the records and minutes.
• As explained earlier, the rights of stockholders provided in the RCCP are mandatory.
• However, it should be emphasized that the criminal action based on the violation of Sections 74(2) and (4) of the Corporation Code (now Section 73 of the RCCP) can only be maintained against corporate officers or any other persons acting on behalf of the corporation.
• The same rule applies under Sections 73 and 161 of the RCCP because the criminal liability under the same provisions may be imposed on: 
• officers, 
• agents, 
• directors or trustees.
•  In addition, Section 161 provides that "those responsible for keeping and maintaining corporate records" may also be made criminally liable. Hence, the penal sanction does not apply to a third person who, not being an officer or director and not acting in behalf of a corporation, refuses to deliver the stock and transfer book.