Week 2

A corporation is an artificial being created by operation of law. It possesses the right of succession
and such powers, attributes, and properties expressly authorized by law or incident to its existence.
It has a personality separate and distinct from the persons composing it, as well as from any other
legal entity to which it may be related. a corporation that purchases the assets of another will not be
liable for the debts of the selling corporation, provided the former acted in good faith and paid
adequate consideration for such assets (PNB v. Andrada Electric & Engineering Co.)
Except for the powers which are expressly conferred on it by the Corporation Code and those that
are implied by or are incidental to its existence, a corporation has no powers. It exercises its powers
through its board of directors and/or its duly authorized officers and agents. Thus, its 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.
(Pascual and Santos, Inc. v. The Members of the Tramo Wakas Neighborhood Assn. Inc.)
Corporation As A Person:
(a) Entitled to Due Process and Equal Protection –

The due process clause is universal in its application to all persons without regard to any differences
of race, color, or nationality. Private corporations, likewise, are "persons" within the scope of the
guaranty insofar as their property is concerned (Smith Bell & Co. v. Natividad)

(b) Unreasonable Searches and Seizure –

A corporation is but an association of individuals under an assumed name and with a distinct legal
entity. In organizing itself as a collective body it waives no constitutional immunities appropriate for
such body. Its property cannot be taken without compensation; can only be proceeded against by due
process of law; and is protected against unlawful discrimination. (Bache & Co. (Phil.), Inc. v. Ruiz)
Practice of Profession
(ULEP v. The Legal Clinic)
Liability 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 person or a corporation, and
whether the servant or agent be a natural or artificial person. That a principal or master is liable for
every tort which he expressly directs or authorizes, is just as true of a corporation as a natural
person. (PNB v. Court of Appeals)

(Professional Services, Inc. v. Court of Appeals)

Corporate Criminal Liability
(i) No Criminal Suit Can Lie Against a Corporation –
There is no provision in the law relating to practice and procedure in criminal actions whereby a
corporation, as such, may be proceeded against criminally and brought into court. The courts of
 the Philippine Islands have no powers except those conferred by statute and those implied
powers which are necessary to make the express powers effective. (West Coast Life Ins. Co. v.
Hurd)

No criminal suit can lie against an accused who is a corporation (Times, Inc. v. Reyes)

(ii) Stockholders As Such Cannot Be Held Liable for a Corporate Criminal Act
Bicol Gas is a corporation. As such, it is an entity separate and distinct from the persons of its
officers, directors, and stockholders. It has been held, however, that corporate officers or
employees, through whose act, default or omission the corporation commits a crime, may
themselves be individually held answerable for the crime. The "owners" of a corporate
organization are its stockholders and they are to be distinguished from its directors and officers.
Stockholders are basically investors in a corporation. They do not have a hand in running the
day-to-day business operations of the corporation unless they are at the same time directors or
officers of the corporation. Before a stockholder may be held criminally liable for acts
committed by the corporation, therefore, it must be shown that he had knowledge of the criminal
act committed in the name of the corporation and that he took part in the same or gave his
consent to its commission, whether by action or inaction. (Espiritu v. Petron Corp)

(ii) It Is the Acting Officers Who Shall Be Criminally Liable for the Corporate Act
It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal
Company. Speaking of such liability alone, as one arising from the contract, as distinguished
from the civil liability arising out of a crime, the petitioner was never intended to be equally
liable as the corporation. Without being made so liable personally as the corporation is, there
would then be no basis for holding him criminally liable, for any violation of the trust receipt.
(Sia v. Court of Appeals)
the corporation was directly required by law to do an ad in a given manner, and the same law
makes the person who fails to perform the act in the prescribed manner expressly liable
criminally. (TAN BOON KONG case)

(Ching v. Secretary of Justice)

Week 3
1. Advantages
(i) Strong and Solemn Juridical Personality
A corporation is an entity separate and distinct from its stockholder. While not in fact and in reality,
a person, the law treats the corporation as though it were a person by process of fiction or by
regarding it as an artificial person distinct and separate from its individual stockholders. 
(Remo, Jr. v. IAC, G.R. No. L-67626, April 18, 1989) 

To organize a corporation that could claim a juridical personality of its own and transact business as
such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as
the State may deem necessary to impose (Ang Pue & Co. v. Sec. of Commerce and Industry)

The Corporation has a strong legal personality separate and distinct from the shareholders or
members composing it. (Art. 44 (3), Civil Code)

a corporation may: (1) contract and transact in its own name; (2) acquire and possess property of all
kinds; (3) incur obligations; and (4) bring civil or criminal actions, in conformity with the laws and
regulations of their organizations. (Art. 46, NCC)

a Corporation begins to exist as a juridical person from the moment a certificate of incorporation is
granted to it by the Securities and Exchange Commission (SEC) (Sec 18, Revised Corporation
Code)

(ii) Centralized Management

a corporation’s corporate powers, the exercise of the attributes of ownership over its properties, and
the management of its business enterprise are all centralized in the Board of Directors Trustees.
(Section 22, RA 11232)

(iii) Limited Liability to Investors and Non-Liability to Officers

The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate
powers of the corporation, save in those instances where the Code requires stockholders’ approval
for certain specific acts. (Great Asian Sales Center Corp v. Court of Appeals)

EXCEPTION: Directors or trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as
such directors or trustees shall be liable jointly and severally for all damages resulting therefrom
suffered by the corporation, its stockholders or members and other persons. (B.P. 68, Sec. 31 & RA
11232, Section 30.)

(iv) Free-Transferability of Units of Ownership (Shares) for Investors

 Shares of stock so issued are personal property and may be transferred by delivery of the certificate or
certificates indorsed by the owner, his attorney in-fact, or any other person legally authorized to make
the transfer. No transfer, however, shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the parties to the transaction, the date
of the transfer, the number of the certificate or certificates, and the number of shares transferred.
(Section 62, RA 11232)
EXCEPTION: If the transfer would cause violations of the law (ex. Ratio requirement for local-
foreign holdings), then the corporation may restrict the right transfer of the holder’s shares.
2. Disadvantages of the Corporate Medium
(i) Abuse of corporate management; breach of trust
(ii) Abuse of limited liability feature

A corporate officer of a Philippine corporation becomes personally liable for certain corporate acts
under the following circumstances:
1. When he willfully and knowingly votes or assents to patently unlawful acts.
2. When he is guilty of gross negligence or bad faith in the conduct of the corporate affairs; or
3. When he acquires personal or pecuniary interest which conflicts with his duty as such officer. (Sec.
30 of the Revised Corporation Code)

(iii) High cost of maintenance of the corporate medium

(iv) Double taxation

The profits of the corporation which are already subjected to (1) corporate income tax and 10%
Improperly Accumulated Earnings Tax (IAET.

Compared with Other Business Media

(a) Sole Proprietorships:
A sole proprietorship does not possess a juridical personality separate and distinct from that of the
owner of the enterprise. Thus, the owner has unlimited personal liability for all the debts and
obligations of the business, and it is against him that a decision for illegal dismissal is to be
enforced. (ALPS Transportation v. Rodriguez)
(b) Joint Ventures
Joint venture is defined as an association of persons or companies jointly undertaking some
commercial enterprise; generally, all contribute assets and share risks. It requires a community of
interest in the performance of the subject matter, a right to direct and govern the policy in
connection therewith, and duty, which may be altered by agreement to share both in profit and
losses. (Kilosbayan v. Guingona)

Week 4
Test to determine corporate share:

(i) Primary “Place of Incorporation Test” - (Section 140, RA 11232, Section 123, B.P. 68)
(ii) Ancillary “Control Test”: In cases involving properties, business or industries reserved for
Filipinos, in addition to the place of incorporation test, the nationality of a corporation is
determined by the nationality of the “controlling” stockholders.
 (Narra Nickel Mining and Development Corp. vs McArthur Mining Inc.)– The "control test" is still
the prevailing mode of determining whether or not a corporation is a Filipino corporation, When in the mind of
the Court, there is doubt, based on the attendant facts and circumstances of the case, in the 60-40 Filipino equity
ownership in the corporation, then it may apply the "grandfather rule." (Justice Leonel)
Grandfather Rule is "the method by which the percentage of Filipino equity in a corporation is computed, in
cases where corporate shareholders are present, by attributing the nationality of the second or even subsequent
tier of ownership to determine the nationality of the corporate shareholder." In the case of a multi-tiered
corporation, the stock attribution rule must be allowed to run continuously along the chain of ownership until it
finally reaches the individual stockholders.

(iii) Wartime Test

the assets of enemy corporations, especially banks incorporated under the laws of the country at war with the occupant
and doing business in the occupied territory, may be legally sequestered, and the business thereof wound up or
liquidated. Such sequestration or seizure of the properties is not an act for the confiscation of enemy property, but for the
conservation of it, subject to further disposition by treaty between the belligerents at the end of the war. (Haw Pia v.
China Banking Corp.)
(iv) Exploitation of Natural Resources
(v) Ownership of Private Land
Section 5, Article 13 of the Constitution, which limit the acquisition of land in the Philippines to its citizens, or to
corporations or associations at least 60% of the capital stock of which is owned by such citizens, adopted after the
enactment of said Act 271. (Register of Deeds of Rizal v. Ung Sui Si Temple)

The corporation sole cannot be considered as aliens because they have no nationality at all. church properties acquired
by the incumbent of a corporation sole pass, by operation of law, upon his death not to his personal heirs but to his
successor in office. It could be seen, therefore, that a corporation sole is created not only to administer the temporalities
of the church where he belongs but also to hold and transmit the same to his successor in said office. A corporation sole
consists of one person only, and his successors, in some particular station, who are incorporated by law in order to give
them some legal capacities and advantages, particularly that of perpetuity, which in their natural persons they could not
have had. In this sense, the king is a sole corporation, so is a bishop, or deans, distinct from their several chapters.
(Roman Catholic Apostolic Administrator of Davao, Inc. v. LRC and the Register of Deeds of
Davao)

(vi) Public Utilities

The Constitution does not prohibit the mere formation of a public utility corporation without the required proportion of
Filipino capital. What it does prohibit is the granting of a franchise or other form of authorization for the operation of a
public utility to a corporation already in existence but without the requisite proportion of Filipino capital. For a
corporation to be entitled to operate a public utility it is not necessary that it be organized with 60% of its capital owned
by Filipinos from the start. A corporation formed with capital that is entirely alien may subsequently change the
nationality of its capital through transfer of shares to Filipino citizens. (People v. Quasha)
(Kilosbayan, Inc. v. Guingona, Jr.)
(vii) Mass Media - The ownership and management of mass media shall be limited to citizens of the Philippines,
or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.
(viii) Cable Industry- Should be treated like mass media hehe
(ix) Advertising Business - The advertising industry is impressed with public interest and shall be regulated by
law for the protection of consumers and the promotion of the general welfare.

Only Filipino citizens or corporations or associations at least seventy per centum of the capital of which is
owned by such citizens shall be allowed to engage in the advertising industry.