KINDS OF BUSINESS ORGANIZATION THAT MAY BE USED IN DOING BUSINESS

1. Single or sole proprietorship which is composed of one person doing business either his own
name or business name. It has no personality separate from its owner.
2. Partnership which is composed of two or persons who binds themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits among
themselves. A partnership has a juridical personality separate and distinct from that of each of
the partners, even in case of failure to comply with the requirements of Article 1772.
3. Corporation which is composed of one or more persons and created by operation of law. It has a
personality separate and distinct from its stockholder/s or member/s.
4. Joint Account which is a business arrangement whereby two or more persons contribute capital
in a business and participate in the results thereof. No common fund is formed and no juridical
personality is created. The business will be carried on in the name of the managing merchant.
5. Joint Venture which is an organization formed for some temporary purpose. It is hardly
distinguishable from the partnership, since their elements are similar – community of interest in
the business, sharing of profits and profits and mutual right of control. It has no juridical
personality.

SOLE OR SINGLE PROPRIETORSHIP – is a form of business organization conducted for profit by a single
individual, and requires the proprietor or owner hereof to secure licenses and permits, register the
business name, and pay taxes to the national government without acquiring juridical or legal personality
of its own.

CORPORATION – is an artificial being created by operation of law, having the right of succession and the
powers, attributes and properties especially authorized by law or incidental to its existence.

DISTINCTION BETWEEN PARTNERSHIP AND CORPORATION

1. Partnership may be formed by two or more persons while corporation may be formed by one
but not more than fifteen incorporators.
2. Partnership is formed by mere agreement of the parties even when they failed to register the
same, while a corporation is created by operation of law and its existence begins from the date
of issuance of its certificate of incorporation.
3. General partner are liable with their properties for the payment of the debts of the partnership,
while stockholders in a corporation are liable only to the extent of their unpaid subscription for
the payment of corporation debt.
4. Death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership,
while the death, insolvency, insanity or civil interdiction of a stockholder does not affect the
corporation’s existence.
5. A partner may dissolve the partnership by his act or withdrawal, while a corporation cannot be
dissolved without the approval of the board of directors and stockholders, and the consent of
the state.
6. A partner cannot transfer his interest in the partnership without the consent of the other
partners while in a corporation, a stockholder may transfer his shareholdings without the
consent of the other stockholders. Consequently, a person cannot become a partner without
the consent of the other partners, while a person can become stockholder of a corporation
without the consent of the other stockholders.
 7. A partnership may do anything by agreement among the partners while a corporation may
exercise only such powers as may be granted by law and its articles of incorporation, implied
therefrom or incidental thereto.
8. Unless otherwise agreed upon, each partner may act for and bind the partnership while in a
corporation, only those officers or persons authorized by the by-laws or by the board of
directors may act and bind the corporation.

DISTINCTION BETWEEN JOIN ACCOUNT AND PARTNERSHIP

1. Joint account does not form a common fund, while in partnership, the partners contribute
money, property or industry to a common fund.
2. A partnership has a personality separate and distinct from its partners while a joint account has
no separate personality.
3. In partnership, the business is conducted in the name of the partnership while the business of a
joint account is carried on in the name of the managing merchant.
4. In partnership, each partner may act for and bind the partnership unless otherwise agreed upon
while in a joint account, only the managing merchant may bind the joint account.

ADVANTAGES OF CORPORATION. The advantages of a corporation over other business organization are
as follows:

1. A corporation may sue and be sued, enter into contracts and acquire properties in its name and
in its own name.
2. The stockholders of a corporation are not liable for the debts and obligations of the corporation
beyond their unpaid subscriptions.
3. A corporation continues to exist despite changes in ownership of the stockholding in the
corporation or even when its members or stockholders should die.
4. Shares are transferred even without the consent of the other stockholders.
5. Management is clearly defined in a corporation and centralized through its board of directors.
6. It enables greater business ventures to be undertaken because of its ability to mobilize more
capital by being able to allow many individuals to contribute to its fund by the acquisition of
shares.

DISADVANTAGES OF A CORPORATION

1. The transferability of shares may result in persons having conflicting interest to be stockholders
in the same corporation.
2. The limited liability of stockholders limits the credit of the corporation.
3. Corporations are more difficult to organize.
4. Minority stockholders are not given any right to participate in the management of the
corporation.
5. The corporation’s business activities are limited by the powers limited by the powers provided in
its articles of incorporation and those which are incidental thereto.
 6. Corporation under pain of fines, suspension and even dissolution have to comply with the
reportorial requirements of SEC.

ATTRIBUTES OF A CORPORATION

1. It is an artificial being that exists only in the contemplation of law. It means that while it has no
physical existence, it is given by law a personality separate and distinct from its members and
stockholders.
2. It has legal personality or juridical capacity of its own. As a consequence, it has the capacity to
enter into a contract, sue and be sued and acquire properties in its own name.
3. It is created by operation of law. It can exist only with the consent of the State or sovereign
power. It may be created under the general law called the Corporation Code or by special law
enacted by Congress.
4. It has the right of succession which means that the corporation continues to exist despite the
death of its stockholders or changes among the stockholders. This right does not mean
corporate immortality, but rather a continuity of existence, irrespective of that of its competent
members, limited in duration to the period stated in its charter or the act of authorizing the
grant thereof. The death or withdrawal of a stockholder does not affect corporate existence or
identity in any respect.
5. It has the powers, attributes and properties expressly authorized by law or incidental to its
existence.

RECOVERY OF DAMAGES

A corporation, being an artificial person, has no feelings, emotions nor senses; therefore, it cannot
experience physical suffering and mental anguish, which are bases for moral damages under Art. 2217 of
Civil Code.

Nevertheless, a corporation can recover moral damages under Art 2219(7), if it was the victim of
defamation. [Filipinas Broadcasting Network v. Ago Medical and Educational Center, G.R. No. 141994
(2005)]

Note: Filipinas Broadcasting pointed out that the doctrine in Mambulao Lumber v. PNB (1968), to the
effect that a corporation may recover moral damages for besmirched reputation, is obiter dictum.

CORPORATION’S RIGHT TO CONSTITUTIONAL GUARANTEES

- Due Process and Equal Protection Clause

RIGHT TO OBJECT ILLEGALLY SEIZED DOCUMENTS OF CORPORATION

- Purely personal and cannot be availed of by third parties. Officers of certain corporations cannot
validly object to the use in evidence against them of the documents, papers and things seized
from the offices and premises of the corporation since the right to object to their admission in
evidence belong exclusively to the corporations, to which the seized effects belong and may not
be invoked by the corporate officers in proceedings against them in their individual capacity.
LIABILITY OF CORPORATION FOR TORTS. A corporation is civilly liable in the same manner as natural
persons for torts, because generally speaking , the rules governing the liability of a principal or master
for a tort committed by an agent or servant are the same whether the principal or master be a natural or
artificial person. All of the authorities agree that a principal or master is liable for every tort which he
expressly, directs or authorizes, and this is just as true of a corporation of a natural person.

CRIMINAL PROSECUTION OF CORPORATION. A corporation is a mere artificial being and not having any
physical existence, it cannot be imprisoned. It may be fined but such fine is a consequence of the officers
being prosecuted for violation of the law. However, while the criminal law cannot apply to a corporation
as fully as it would to an individual, it is accepted that a corporation as fully as it would to an individual,
it is accepted that a corporation may be held liable criminally for crimes which its officers or agents may
have committed on its behalf. “While corporation cannot be arrested, imprisoned or executed.

CASES:

1. CEBU BIONIC BUILDERS SUPPLY, INC vs. DBP

SC held that the verification and certification of non-forum shopping in the instant petition was
proper and valid despite its being signed by only one of the two petitioners. A Corporation’s power to
sue and be sued in any court is lodged with the board of directors that exercises its corporate powers.
Physical acts, like the signing of documents, can be performed only by natural persons duly authorized
for the purpose by corporate by-laws or by a specific act of the board of directors. In this case,
respondents To Chip, Yap and Balila obviously overlooked the Secretary’s Certificate attached to the
instant petition, which was executed by the Corporate Secretary of Cebu Bionic. Unequivocally stated
therein was the fact that the Board of Directors of Cebu Bionic held a special meeting and they thereby
approved a Resolution authorizing Lydia Sia to elevate the present case to this Court in behalf of Cebu
Bionic.

2. REN Transport Corp. vs. NLRC

SC held that SMART is not entitled to an award of moral damages.

In addressing the petition of SMART, which faults the CA for deleting the grant of moral damages the SC
held that the CA correctly dropped the NLRC's award of moral damages to SMART. Indeed, a corporation
is not, as a general rule, entitled to moral damages. Being a mere artificial being, it is incapable of
experiencing physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish or
moral shock. Although this Court has allowed the grant of moral damages to corporations in certain
situations, it must be remembered that the grant is not automatic. The claimant must still prove the
factual basis of the damage and the causal relation to the defendant's acts. In this case, while there is a
showing of bad faith on the part of the employer in the commission of acts of unfair labor practice,
there is no evidence establishing the factual basis of the damage on the part of SMART.