Corporation
Corporation
Corporation
Civil Code:
BP Blg. 68 o Person of public corporations
governed by laws
x-----------------------------------------------------------x creating/recognizing them
I. General Principles o Person of private corporations
governed by laws of general
A corporation is an artificial being created by
application
operation of law, having the right of succession
Franchises of corporations
and the powers, attributes and properties
o Corporate/general franchises:
expressly authorized by law or incident to its
existence. (Sec. 2, BP blg. 68). It has a separate essential for franchise to exist as
and distinct personality from its incorporators. corporation; granted to individuals
(2000 Bar Examination) who compose the corporation
o Special/secondary franchises: rights
Corporation – person (juridical person) or privileges granted to existing
corporations
Theories on Formation
1. Concession theory
Distinguishing a corporation from a
partnership
Tayag v Benguet Consolidated: corporation
As to: (a) the manner of creation – a
is creature of State and has no existence
corporation is created by special law
independent of state recognition/concession
(GOCCs), while a partnership is created by
agreement
2. Enterprise entity theory
Looks at the underlying enterprise or By operation of law – comply all the reqmts.
group, which has to exist before the of the corporation code, in the eyes of the
corporate fiction is granted law there is corporation – private
Just because it is a juridical entity, it is corporation -
not a creature of the State – it is a
creature of its own volition and (b) the number of incorporators- a
maintains inherent rights under the law corporation generally requires a minimum
of 5 and a maximum of 15 incorporators,
– moral individuals lie under the
while a partnership requires a minimum of
corporate veil 2. The exception is a corporation sole
Tri-level existence in corporate setting (c) commencement of existence- a
1. Corporation as juridical entity – State and corporation commences to have existence
Corporation relationship upon the issuance of a certificate of
2. Intra-corporation: incorporation, while a partnership
a. Corporation and its agents commences to have existence upon
b. Corporation and its SHs agreement
c. Among SHs
d. Between corporation and third (d) the powers that may be exercised- a
parties corporation can only exercise powers
3. “Going concern” – business enterprise allowed by law, while a partnership can
exercise powers not contrary to law or
Corporation as creature of the law public policy
Constitution:
o Congress cannot create private (e) management – a corporation is
corporations except by general law managed by a board, while a partnership is
(Art XII, Sec 16) managed by the managing partner/s
Private corporation created
by special law – nullity (NDC (f) right of succession- a corporation enjoys
the right of succession, while a partnership
v Phil Veterans Bank)
does not
o GOCCs can be created by special
charters (g) personal liability- as a general rule,
stockholders do not have personal liability
2008 Bar Examination: Since February 8, 1935, beyond the value of their shares, while
the legislature has not passed even a single law partners are liable beyond what they have
creating a private corporation. What provision of contributed
the Constitution precludes the passage of such a
law?
COMMERCIAL LAW
(h) transferability of interest- one’s interest iii. Control Test – determined by the
in a corporation is transferable without nationality of the controlling
consent, while that in partnership, requires stockholders or members. This test is
consent applied in times of war. Also known as
the WARTIME TEST.
(i) term of existence- a corporation can exist As to Legal Status
for terms of no more than 50 years at any 1. De Jure Corporation
given time but subject to extension, while a 2. Corporation de Facto (2004 Bar
partnership is not limited as to term Examination)
A de facto corporation is one which
(j) dissolution- a corporation cannot be actually exists for all practical purposes
dissolved without the consent of the state, as a corporation but which has no legal
while a partnership can be dissolved right to corporate existence as against
without need for the consent of the state. the State. It is essential to the existence of
a de facto corporation that there be (1) a
Their similarities are: (a) both have juridical valid law under which a corporation
personality (b) both can only act through its might be incorporated, (2) a bona fide
agents (c) both are composed of an attempt to organize as a corporation
aggregate of individuals (d) distribution of under such law, and (3) actual use or
profits is given to those who have exercise in good faith of corporate
contributed capital (e) both can only be powers conferred upon it by law.
organized if there is a law authorizing its
registration 3. Corporation by Estoppel (2004 Bar
Examination)
A. Classification of Corporation
It exists when persons assume to act as a
In Relation to the State corporation knowing it to be without
1. Public and Private Corporations authority to do so. In this case, those
(Distinctions: 2004 Bar Examination) persons will be liable as general partners
Private Public for all debts, liabilities and damages
formed for some formed for the incurred or arising as a result of their
private purpose, government of a actions.
benefit or end portion of the State
for the general 4. Corporation by Prescription
good or welfare A body not lawfully organized as a
created by special Must be organized corporation but has been recognized by
legislation or act of under the immemorial usage as a corporation with
Congress Corporation Code. rights and duties maintainable by law
NOTE: The true test is for the purpose As to Existence of Shares of Stocks
of the corporation. If the corporation is 1. Stock Corporations
created for political or public purpose 2. Non-Stock Corporations
connected with the administration of Distinctions between Stock and Non- Stock
government, then it is a public Corporations (2004 Bar Examinations)
corporation. If not, it is a private
corporation although the whole or A stock corporation is one that has
substantially the whole interest in the capital stock divided into shares and is
corporation belongs to the State. authorized to distribute to the holders of
such shares dividends or allotments of
2. Quasi-Public Corporations the surplus profits on the basis of the
shares held. All other corporations are
As to Place of Incorporation non-stock corporations.
1. Domestic Corporations
2. Foreign Corporations
B. Corporation, kinds by method of
Test To Determine Nationality Of Corporation creation:
personality separate and distinct from its 4. The wrong-doing must be clearly and
members or stockholders may be convincingly established. It cannot
disregarded and the corporation will be be presumed. (Lim v. Court of
considered as a mere associations of
Appeals, et al., G.R. No. 124715,
persons, such that liability will attach
directly to the officers and the stockholders prom. January 24, 2000)
(Umali v. Court of Appeals, 189 SCRA 529,
542 [1990]). It is an equitable doctrine
3. TRUST FUND DOCTRINE
developed to address situations where the
separate corporate personality of a
(2007 Bar Examination)
corporation is abused or used for wrongful
purposes
The subscribed capital stock of the
corporation is a trust fund for the payment of
a. To what circumstances will the
debts of the corporation which the creditors
doctrine apply? (2006 Bar
have the right to look up to satisfy their
Examination)
credits. Corporations may not dissipate this
and the creditors may sue the stockholders
The doctrine of “piercing the veil of
directly for their unpaid subscriptions Thus,
corporate entity” will apply when the
dividends must never impair the subscribed
corporation’s separate juridical
capital; subscription commitments cannot be
personality is used:
condoned or remitted; nor do the
1. to defeat public convenience;
corporation buy its own shares using the
2. to justify wrong, protect fraud, or
subscribed capital as the consideration
defend crime;
therefore. (National Telecommunications
3. as a shield to confuse the legitimate
Commission v. Court of Appeals, et al., G.R.
issue;
No. 127937, prom. July 28, 1999)
4. where the corporation is the mere
alter ego or business conduit of a
Instances where the Doctrine was applied:
person; or
1. Where the corporation has
5. Where the corporation is so
distributed its capital among
organized and controlled and its
the stockholders without
affairs are so conducted as to make it
providing for the payment of
merely an instrumentality, agency,
creditors;
conduit or adjunct of another
2. Where it had released the
corporation (Umali v. Court of
subscribers to the capital stock
Appeals, 189 SCRA 529, 542 [1990]).
from their subscriptions;
3. Where it has transferred
b. Tests in determining whether to
corporate property in fraud of its
pierce veil of corporate personality. creditors; and
1. Control, not mere majority or 4. Where the corporation is
complete stock control, but complete insolvent.
domination, not only of the finances,
but of policy and business practice in 5. If the corporation is solvent,
respect to the transaction attacked so the TFD extends to the capital
stock represented by the
that the corporate entity as to this
corporation's legal capital.
transaction had at the time no 6. If the corporation is insolvent,
separate mind, will or existence of its the TFD extends to the capital
own; stock of the corporation and all
2. Such control must have been used by of its property and assets.
the defendant to commit fraud or
wrong, to perpetuate the violation of Exceptions to the Trust Fund Doctrine
a statutory or other positive legal 1. Redemption of redeemable
shares (Sec. 8)
duty, or dishonest and unjust act in
2. In a close corporation, when
contravention of plaintiff’s legal there is a deadlock and the SEC
right; orders the payment of the
3. The aforesaid control and breach of appraised value of the
duty must proximately prevent stockholder's share. (Sec. 104)
“piercing the corporate veil.”
4. BUSINESS JUDGEMENT RULE
Business judgment rule exists to protect certificate of incorporation for said company,
and promote the full and free exercise of are:
managerial power granted to directors. The
rule is “a presumption that in making a 1. Articles of Incorporation
business decision, the directors of a 2. Treasurer’s Affidavit;
corporation acted on an informed basis, in good 3. Certificate of authority from the
faith and in the honest belief that the action Monetary Board of the BSP;
taken was in the best interest of the company.” 4. Verification slip from the records of the
(Smith v Van Gorkam) SEC whether or not the proposed name
x-----------------------------------------------------------x has already been adopted by another
III. Articles of Incorporation and By-
corporation, partnership or association;
Laws 5. Letter undertaking to change the
A. Corporation, incorporation documents: proposed name if already adopted by
another corporation, partnership or
The following incorporation documents are
association;
required:
6. Bank certificate of deposit concerning
a. Articles of Incorporation; the paid-up capital;
b. By-laws; 7. Letter authorizing the SEC or Monetary
c. Treasurer's Affidavit which should state Board or it’s duly authorize
compliance with the authorized representative to examine the bank
subscribed and paid-up capital stock records regarding the deposit of the
requirements. paid-up capital;
d. Bank Certificate that the paid-up capital 8. Registration sheet;
portion of the authorized capital stock
has been deposited with the issuing x-----------------------------------------------------------x
bank. IV. Corporate Management
Levels of management
B. Corporation, where filed: The incorporation There are three levels of control in the
documents should be filed with the corporate hierarchy: (a)The Board-
Securities and Exchange Commission [SEC] which determines corporate policy and
of the Philippines. prescribes the manner of general
C. Corporation, what should be stated: management of its business activities
(b)The Corporate Officers- who are
a. the name of the corporation which must
charged with the mandate to execute the
not be identical or deceptively or
decisions of the board and who,
confusingly similar to any existing
oftentimes, determine the best manner
corporation;
by which the business is to be run (c) The
b. the purpose of the corporation; Stockholders or Members- who are
c. principal office of the corporation; considered as having residual power
over fundamental corporate changes as
d. The term or life of the corporation which they are required by law to give their
should not exceed fifty [50] years. This assent by the exercise of the right to vote.
corporate lifetime may, however, be The powers that are expressly reserved
extended for another fifty [50] years but by law to stockholders or members are:
the extension must not be effected earlier (a) removal of directors or trustees (b)
than five [5] years before the expiration granting of compensation, other than per
of its term diems, to directors (c) ratification of acts
2002 Bar Examination: You have been asked of self dealing director or trustee,
to incorporate a new company to be called interlocking director/s, disloyal
FSB Savings & Mortgage Bank, Inc. List the director/s (d) delegation of power to
documents that you must submit to the amend by-laws (e) calling of a meeting,
Securities and Exchange Commission (SEC) to upon good cause, when no person is
obtain a certificate of incorporation for FSB authorized to call it (f) when
Savings and Mortgage Bank, Inc. management of a close corporation is
vested in the stockholders.
A: The documents to be submitted to the
Securities and Exchange Commission (SEC) to
incorporate a new company to be called FSB
Savings & Mortgage bank, Inc., to obtain the
Definition Basic contract document defining the charter Meant to be an intramural document, to govern
of the corporation the relationship between and among the
members of a corporate family.
Effect as to Bind a third person dealing with the Does not bind outsiders
Outsiders corporation
Requisites 1. filed and registered with the SEC Requisites of VALID BY – LAWS:
for Validity 2. Banks, public utilities, insurance 1. By-Law Provisions Cannot Contravene Law
companies: needs favorable 2. By-Law Provisions Cannot Contravene the
recommendation from appropriate Charter
agency that articles are in accordance 3. By-Laws Must be reasonable and Cannot
with law. Discriminate
3. SEC shall examine AOI upon filing and
upon satisfaction of all legal Effectivity – upon issuance of SEC of
requirements, issue certificate of certification that by-laws are not inconsistent
incorporation and only then shall with Corporation Code
Corporation have a personality separate
and distinct from its stockholders or
members.
4. Sworn Statement of the Treasurer
regarding subscription requirement.
corporation.
Form File with the Securities and Exchange Signed by the SH or Members voting for them;
Commission articles of incorporation A copy duly certified to by majority of directors
In any of the official languages or trustees & counter-signed by Corporation
Duly signed and acknowledged by all of the secretary shall be filed w/ SEC attached to
incorporators original AOI.