Law on Corporation

- The law governing private corporations in

the Philippines is the Revised Corporation
Code of the Philippines (Republic Act No.
11232) which took effect on February 23,
2019.
- It repealed the Corporation Code of the
Philippines (Batas Pambansa Blg. 68)
which was in effect from May 1, 1980 until
the new law came into effect.
Corporation; statutory definition and
attributes
 A corporation is an artificial being created by operation of
law, having the right of succession and the powers,
attributes and properties expressly authorized by law or
incidental to its existence.
Corporation as an artificial being or
person
 There are two kinds of persons under the law:
1. Natural persons or human beings; and
2. Artificial persons.
 A corporation falls under the second kind. A corporation is a
juridical entity with a legal personality separate and distinct
from the people comprising it whether stockholders (or
members, in the case of nonstock corporations) and which
juridical personality commences upon the issuance of the
certificate of incorporation by the Securities and Exchange
Commission (SEC).
As a juridical entity, a corporation is separated by
law by a dividing line from its stockholders (or
members, in case of nonstock corporations).

 Consequences:
1. The debts of the corporation are not the debts of its stockholders, nor are the
debts of the stockholders the debts of the corporation.
2. The stockholders are not the owners of the assets of the corporation but have
only an indirect interest therein.
3. In connection with corporate property or affairs, stockholders cannot
maintain actions in their own name and they have no right to recover
possession of property belonging to the corporation or to recover damages for
injury thereto.
4. In taxation, the income of the corporation is not the income of the
stockholders who may still be required to pay taxes on the dividends they may
derive from such income.
Doctrine of piercing the veil of
corporate entity
1. Doctrine concept
This is the doctrine to the effect that the separate personality of a corporation
will be disregarded if such entity is used to:
а. defeat public convenience, justify a wrong, protect fraud or defend crime; or
b. where a corporation serves as a mere alter ego or conduit of a person or an
instrumentality, agency or adjunct of another corporation; or
c. where the corporate fiction is used to evade contracts and obligations; or
d. confuse legitimate legal, or judicial issues.
2. Application of doctrine
- The doctrine may apply to corporations as well as natural persons involved
with the corporation.
3. Primary consequence of piercing the veil
- The primary consequence of piercing the veil is to hold the
stockholders directly liable for corporate acts or obligations.
Where the separate personality of the corporation is disregarded,
the corporation will be treated merely as an association of
persons and the stockholders or members will be considered as
the corporation, i.e., liability will attach personally or directly to
the officers and stockholders.
Summary of application of the doctrine
 The doctrine of piercing the corporate veil applies only in three
areas:
a. Defeat of public convenience as when the corporate fiction is
used as a vehicle for the evasion of existing obligation;
b. Fraud cases or when the corporate entity is used to justify a
wrong, protect fraud, or defend a crime; and
c. Alter ego cases, where a corporation is merely a farce since it is
a mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation.
 Piercing the corporate veil based on the alter ego theory
requires the concurrence of three elements:
1) Control of the corporation by the stockholder or parent
corporation;
2) Fraud or fundamental unfairness imposed on the plaintiff; and
3) Harm or damage caused to the plaintiff by the fraudulent or
unfair act of the corporation.
Corporation is created by operation of
law
 Unlike partnerships, corporations do not come into existence by the
mere agreement of the parties. They require special authority from
the sovereign power. Such authority may be granted either through
a general law providing the guidelines for the incorporation of
private corporations, which under our jurisdiction is the Revised
Corporation Code of the Philippines, or by a special law which by
itself confers juridical status upon the corporation, whether public
(such as in the case of local governments) or private (such as in the
case of government-owned or -controlled corporations, like the
Philippine Postal Corporation).
Corporation has the right of succession

 A corporation continues to exist perpetually or for the period

for which was formed regardless of the changes in the
ownership of its shares of stock or in its membership. Its
existence is not affected by the death, insolvency, or incapacity
of the individual stockholders or members. This means the
existence of a corporation is independent from the existence of
the stockholders or members.
Corporation has the powers, attributes and properties
expressly authorized by law or incidental to its
existence

 A corporation, being a mere creation of the law, operates under

the doctrine of limited capacity. Hence, it can only perform
acts within the powers expressly granted to it by its charter,
those implied from such powers, expressly conferred, and those
that are incidental to its existence. Any act performed beyond
the range of such powers is considered ultra vires.
Similarities and distinctions between
partnership and corporation
1. Similarities
a. Both have a separate juridical personality.
b. Both are artificial persons, i.e., they have no bodily
existence, and can only act through agents.
c. Both are composed of a group of persons with the
exception of a corporation sole and One Person
Corporation (OPC).
d. A partnership, with the exception of a general
professional partnership, is taxed as a corporation.
2. Distinctions
a. Manner of creation
- A corporation is created by operation of law, while a partnership is
created by the mere agreement of the partners.
b. Number of organizers
- A corporation may be formed singly or jointly with others, but the
number should not exceed 15. A partnership may be formed by two or
more persons.
c. Right of succession
- A corporation has the right of succession, while a partnership has no such
right.
d. Powers
- A corporation can exercise only the powers expressly authorized by law,
those implied from the exercise of such express powers, and those
incidental to its existence. A partnership may exercise any power provided
it is authorized by the partners and it is not contrary to law, morals good
customs, public order or public policy.
e. Management
- A corporation acts through its board of directors, while a
partnership acts through all the general partners each one of
whom is considered an agent of the partnership, unless otherwise
agreed.
f. Liability of members for debts
- The stockholders or members are not liable for the obligations of
the corporation, while the general partners of a partnership are
liable with their separate property for partnership debts.
g. Commencement of existence
- A corporation commences to have juridical personality on the
date of the issuance of its certificate of incorporation. A
partnership, on the other hand, commences to have juridical
personality upon the execution of the partnership contract
unless a different date is set by the partners.
h. Transferability of interest
- In a corporation, a stockholder can transfer his shares to
another person without the consent of the other stockholders.
In a partnership, a partner cannot transfer his interest to a
third person for the purpose of making the latter a partner
without the consent of the other partners by reason of the
element of delectus personae which is inherent in a partnership
contract.
i. Dissolution
- A corporation cannot be dissolved without the consent of the
State, while a partnership may be dissolved by the partners.
Classes of corporations

1. In general
a. Stock corporation - One that has capital stock divided into
shares and is authorized to distribute dividends or allotments
of surplus profits on the basis of the shares held.
b. Nonstock corporation - One no part of the income of which is
distributable as dividends to its members, trustees or officers.
2. As to the state or country under whose
laws it was created
а. Domestic corporation - One incorporated under Philippine laws
(or one operating within the country under whose laws it was
incorporated).
b. Foreign corporation - One formed, organized and existing under
any laws other than those of the Philippines and whose laws allow
Filipino citizens and corporations to do business in its own country
or State.
3. As to number of persons composing
them
 a. Corporation aggregate - One that is composed of more than
one corporator.
 b. Corporation sole - One composed of only one person, like a
bishop or a rabbi, or a "One Person Corporation“.
 4. As to whether its purpose is public or private
а. Public corporation - One that is organized for the government
of a portion of the State, like provinces, cities, municipalities and
barangays.
"The true criterion to determine whether a corporation is public or
private is found in the totality of the relation of the corporation
to the State. If the corporation is created by the State as the
latter's own agency or instrumentality to help it in carrying out its
governmental functions, then that corporation is considered
public; otherwise, it is private. Applying the above test,
provinces, chartered cities, and barangays can best exemplify
public corporations. They are created by the State as its own
device and agency for the accomplishment of parts of its own
public works.
b. Private corporation - One that is formed for a private purpose or
end.
Private corporations include the following:
1) Government-owned or -controlled corporations - these refer to
corporations created by special law (Sec. 4, RCC other than those
for the government of a portion of the State, such as the Land
Bank, Government Service Insurance System, Philippine Postal
Corporation, etc., and those formed under the Revised
Corporation Code, where the government owns at least a majority
of its outstanding voting capital stock. They may be performing
governmental or proprietary function.
2) Quasi-public corporations - Those organized for profit which are
granted a franchise by the State to perform public service, such as
Meralco.
- Other examples: utility, railroad, warehouse, telephone,
telegraph, water supply corporations and transportation companies.
As to whether its purpose is religious or not
 а. Ecclesiastical or religious corporation - One formed for a
religious purpose.
 b. Lay corporation - One formed for a purpose other than
ecclesiastical or religious.
As to whether its purpose is charitable
or not
a. Eleemosynary corporation - One organized for public
charity.
b. Civil corporation - One organized for business or profit.
As to their legal right to corporate
existence
a. De jure corporation - One that has been created in strict
compliance with all the legal requirements and whose right to
exist as a corporation cannot be successfully attacked in a direct
proceeding for that purpose by the State.
b. De facto corporation - One that is defectively created but there
is an actual exercise of corporate rights and franchise resulting
from an attempt in good faith to incorporate on the part of the
members. It has all the powers of a de jure corporation but its due
existence can be attacked directly in a quo warranto proceeding.
As to their relation to another corporation or
other corporations

a. Parent or holding corporation - One which owns the shares of

another corporation and having the power, directly or
indirectly, over the latter including the election of the
directors thereof.
b. Subsidiary corporation - One whose shares of stock are owned
by another corporation, called the parent corporation, which
has the power to elect its directors.
As to whether its shares may be held by
the public or not
a. Close corporation - One whose articles of incorporation provide
that its shares are limited to a few, restricted as to their
transfer, and not listed in any stock exchange.
b. Open corporation - One whose shares are open to the public,
such as those whose shares are listed in the stock exchanges.
Other classifications
a. Corporation by prescription - One which has exercised
corporate powers for such a length of time without interference
from the State and which, by fiction of law, is given the status of a
corporation, such as the Roman Catholic Church.
b. Corporation by estoppel - One which is not in reality a
corporation but is considered as one with respect to those who are
precluded by their admission or conduct from denying its
existence.
Components of a corporation
1. Corporators - Those who compose a corporation, whether as
stockholders or members.
2. Stockholders - Corporators of a stock corporation.
3. Members - Corporators of a non-stock corporation.
4. Incorporators - Those stockholders or members mentioned in
the articles of incorporation as originally forming and
composing the corporation and are signatories of such
document.