Attributes of a corporation
1. It is an artificial being
With separate personality- legal and juridical person
Consequences
The obligation incurred by the corporation are its sole liabilities.
The corporation is also not liable to the personal obligations of each member
Has the right to file cases on its own name
It may possess and acquire property
Jurisdiction may be acquired over the corporation itself by the service of someone
A corporation is entitled to constitutional rights: due process, equal protection and
protection against unlawful search and seizures
A corporation may be held liable for a tort committed by its officers (doctrine of
corporate responsibility)
In crime, a corporation may only be liable if there is an express provision of law
Corporation generally is not entitled to moral damages (exemption: reputation is ….),
libel
Principle of Limited Liability (the corporate debt or credit is not the debt or credit of the
stockholders) It is a protection from liability for stockholders
. “Corporate Veil” It follows the principle that a corporation is an artificial being. A doctrine that
disregard the separate personality of a corporation if this separate personality is used as an alter ego of
another entity and was used to justify wrong, protect fraud, perpetrate deception, or defeat public
convenience. This doctrine may also be used to achieve equity.
Veil may be pierced: to see those who should be liable for using the corporate vehicles as a
mean to achieve a wrongful end
This remedy is only used to prevent or redressed fraud or wrong and is essentially judicial
prerogative only. (Remedy of last resort)
Even if the veil is pierced there will be no res judicata-there is still a juridical personality in
different situation
Tests: Fraud Test , Alter-ego or instrumentality or conduit test. Public convenience or objective test and
equity cases/test
2. Created by operation of law
General Law- Private Corporations
Primary Franchise- granted to individual
Special Franchise- granted to corporation
Special Law or Charter- Public Corporation
Laws on nationality
Incorporation test- the corporation is a national of the state where it was incorporated (Phil)
Domicile Test-
Control Test- The nationality of the controlling stockholder is the nationality of the corporation
(Applied for the sake of investment and foreign investment acts) LIBERAL RULE if a corporation is at least
60 % filipino-owned then all shares are recorded as filipino shares
Wholly or partly nationalized industries (FOREIGN INVESTMENT ACT)
No foreign equity(100% filipino owned)- mass media by mandate of the 1987 constitution
Up to 25% foreign equity- private recruitment whether for local or overseas employment by mandate of
PD 442
Up to 40% foreign equity- ownership of private lands by mandate of the Constitution
Grandfather Rule(strict rule)- if a corporation is less than 60% filipino-owned, then the
corresponding % belonging to filipino shall be the only shares to be recorded as Filipino Shares
It is applied to corporations where the 60-40 Filipino-foreign share is in doubt
Theories on the Formation of Corporation
Concession Theory
Also Known as Fiat Theory, Government Paternity Theory, Franchise Theory
A corporation is not in fact and in reality, a person
By process of legal fiction and by regarding it as an artificial person distinct and separate from its
individual SHs, the law treats it as though it were a person.
Although the fiction cannot be created unless there is an enterprise or group of individuals upon whom
it may be conferred… the grant is only by virtue of a primary franchise given by the state.
Franchise of Corporations
Primary Franchise- The authority to exist as a corporation, granted by the RCC except those with special
charters
Secondary Franchise- special authority given to a corporation to engage in a specialized business
Theory of Enterprise Entity/ Corporate Enterprise
The corporation is not merely an artificial being, but more of an aggregation of persons doing business,
or underlying business unit (it does not need imprimatur or approval of the state)
It is not a legal fiction alone that creates a corporate entity but also the consent of those who will form
corporation
Genossenchaft Theory
Treats a corporation as the reality of the group as a social and legal entity, independent of the state
recognition and concession (Concession rejected this theory)
Formation of Corporation
Sec 16, Article 12 Expressly prohibit the formation of private corporation by a special law
Private Corporation- by general corporation law particularly by the RCC
Public Corporations- created for political purposes by general law or special law
Quasi-Public Corporations(Public Utilities)- created by operation of general corporation law but
performs governmental functions. Engaged in business involving public interest (MERALCO,
COOPERATIVES, PLDT)
De Facto Corporations- one which actually exists for all practical purposes as a corporation but which
has no legal right to corporate existence as against the state.
Corporation by Estoppel- no real existence in law, neither de jure or de facto, a mere fiction existing
for the particular case, and vanishing where the element of estoppel is absent
Requisites: organized under a valid law, attempt in good faith to form a corporation according
to the requirements of the law (colorable compliance) and there must be use of corporate powers
Government Owned and Controlled Corporation- any agency organized as a stock and nonstock
corporation vested with functions relating to public needs whether the governmental or proprietary in
nature, owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least 51% of its capital stock.
Attributes of GOCC
Its organization as stock and non-stock corporation
The public character of its function
Government ownership over the same
Stock Corporation- controlling interest of the government is assured by its ownership of at least
51% of the corporate capital stock
Non-stock corporation- controlling interest of the government is affirmed when at least a
majority of the members government officials holding such membership by appointment or designation
of there is otherwise substantial participation of the government in the selection of the corporation’s
governing board.
3. Has the right of succession- capacity of continuance
4. Has the powers, attributes and properties expressly authorized by law …
Other attributes of Corporation
Acquires juridical personality upon issuance of Certificate of Registration by the SEC
Management of its business and affairs is vested in the BOD or BOT
Owners are generally allowed to transfer their interests even without the consent of the other owners
May exist in perpetuity unless a fixed term is stated in the articles of incorporation
Can a corporation become a partner in partnership?
No. Exemption: Expressly conferred by the charter of the Article, if it is a foreign corporation it
must obtain license to transact business in the Philippines
Is a corporation liable for torts?
Yes!
Is a corporation liable for crimes?
No, since it is a mere legal fiction and it does not have the essential element of malice.
Exception: if the penalty is only fine or forfeiture of license or franchise
Can a corporation recover damages?
Yes, except moral damages (exception:under item 7 of article 2219 of new civil code: in case of
libel, slander or any other form of defamation and if the reputation is debased resulting in its
humiliation in the business realm)
Capital Structure of Corporations
Number and Qualifications of Incorporators (RCC Sec. 10)
Natural or Artificial Person (old: only natural person is allowed)
Not more than 15 (old: 5 to 15)
Cannot organize corporations for practice of profession
Legal Age (If natural Person)
Holder or subscriber of at least 1 stock
Subscription Requirements
Initial subscription requirements (not less than 5000, 25-25%) were removed in the RCC
Stock Corporation shall not be required to have a minimum capital stock, except as otherwise specially
provided by special law (RCC Sec. 12)
Mining, Non-vessel Operating Common Carrier, Pawnshop, Pre-Need Plan Issuer, Pre-need Plan
Agent… etc
Corporate Term
Old: up to 50 years
A Corporation shall have perpetual existence unless its AOI provides otherwise. (RCC Sec. 11 par 1)
Corporations with certificate of incorporations issued prior to the effectivity of this code, and which
continue to exist, shall have perpetual existence, unless the corporation, upon a vote of its stockholders
representing a majority of its outstanding capital stock, notifies the Commission (sec) that it elects to
retain its specific corporate term pursuant to its article of incorporation: Provided, that any change in
the corporate term under this section is without prejudice to the appraisal right of dissenting
stockholders in accordance with the provisions of this code. (RCC Sec. 11 par 2)
A Corporate term for a specific period may be extended or shortened by amending the AOI: Provided,
that no extension may be made earlier than three years prior to the original or subsequent expiry dates
unless there are justifiable reasons for an earlier extension as may be determined by the Commission:
Provided further that such extension of the corporate term shall take effect only on the say following
the original or subsequent expiry dates.
