CORPORATION LAW

1. Definition of Corporation
2. Attributes of Corporation
3. Classes of Corporations
4. Corporation vs. partnership
5. De facto corporations vs. De jure corporations
6. Advantages and Disadvantages of corporation
7. Components
8. Formation

CORPORATION
A corporation is a legal entity that is distinct from its owners, recognized by law as having its own rights
and responsibilities. Here are the key characteristics and functions of a corporation:

Definition and Characteristics

1. Separate Legal Entity: A corporation is treated as a separate person under the law, which
allows it to enter into contracts, own assets, incur debts, sue, and be sued independently of its
shareholders.
2. Limited Liability: One of the most significant advantages of a corporation is limited liability. This
means that shareholders are not personally liable for the corporation's debts beyond their
investment in shares. Their personal assets are protected from claims against the corporation.
3. Perpetual Existence: Corporations can continue to exist indefinitely, even if ownership changes
or shareholders die. This continuity is beneficial for long-term business operations.
4. Ownership Structure: Corporations can have multiple owners (shareholders) who hold shares
representing their ownership stake. The number of shareholders can vary widely, from a single
individual in a one-person corporation to thousands in publicly traded companies

KEY ATTRIBUTES OF CORPORATIONS

1. Separate Legal Personality:

o A corporation is recognized as a separate legal entity, distinct from its owners
(shareholders). This allows it to enter contracts, sue, and be sued in its own name,
similar to an individual.
2. Limited Liability:
o Shareholders' liability for the corporation's debts is limited to the amount they invested in
shares. This means that personal assets of shareholders are generally protected from
claims against the corporation.
3. Transferable Shares:
o Ownership in a corporation is represented by shares, which can be easily bought and
sold. This transferability facilitates investment and liquidity, especially in publicly traded
companies where shares can be traded on stock exchanges.
4. Centralized Management:
o Corporations are managed by a board of directors elected by shareholders. The board
delegates day-to-day operations to executives, allowing for professional management
while maintaining a clear governance structure.
5. Absentee Ownership:
o Shareholders can invest in a corporation without needing to participate in its daily
management. This characteristic allows for a diverse ownership base and enables
individuals to invest capital without being involved in operational decisions.
6. Perpetual Existence:
o Corporations can continue to exist indefinitely, regardless of changes in ownership or the
death of shareholders. This continuity is beneficial for long-term business planning and
stability.
 o
7. Standardized Governance:
o Corporations operate under established rules and regulations defined by corporate law,
which standardizes processes for governance, reporting, and compliance, thereby
protecting shareholders and creditors.
8. Ability to Raise Capital:
o Corporations can raise funds more easily than other business forms by issuing stocks or
bonds, attracting a larger pool of investors due to the limited liability and potential for
dividends.

These attributes make corporations a popular choice for conducting business, providing both flexibility
and protection for investors while facilitating large-scale economic activities.

CLASSES OF CORPORATION

Under Philippine law, corporations are classified into several types based on their structure and purpose.
Here’s an overview of the main classes of corporations:

Classes of Corporations in the Philippines

1. Domestic Corporation:
o A legal entity incorporated within the Philippines, independent from its stockholders. It
can be classified further based on ownership:
 100% Filipino-owned
 60% Filipino-owned and 40% foreign-owned
 40.01% to 100% foreign-owned .
2. Stock Corporation:
o A type of domestic corporation where the capital is divided into shares. Shareholders
receive dividends based on their shareholdings. This structure allows for raising capital
through the sale of shares .
3. Non-Stock Corporation:
o This corporation does not issue shares and is typically formed for charitable, educational,
religious, or cultural purposes. Members do not receive dividends but may benefit from
the organization's activities .
4. One-Person Corporation (OPC):
o A relatively new classification allowing a single individual to form a corporation. This
structure combines the benefits of limited liability with complete control over the business
.
5. Foreign Corporation:
o A corporation organized under the laws of another country but operates in the Philippines
through a branch office or representative office. It must comply with local regulations and
appoint a resident agent for legal processes .
6. Branch Office:
o An extension of a foreign corporation that conducts business in the Philippines. It is not
considered a separate legal entity; thus, its liabilities are tied to the parent company .
7. Representative Office:
o A liaison office for foreign corporations that does not engage in revenue-generating
activities within the Philippines. It serves mainly for marketing and communication
purposes and is funded entirely by its parent company .
8. Regional Headquarters (RHQ) and Regional Operating Headquarters (ROHQ):
o These are specific types of offices established by foreign companies to manage their
operations in the Asia-Pacific region, focusing on administrative functions rather than
direct revenue generation .
Conclusion

The classification of corporations under Philippine law provides various structures to accommodate
different business needs and ownership scenarios, facilitating both local and foreign investments in the
country. Each type has specific regulatory requirements and implications for liability, taxation, and
governance.
In the Philippines, partnerships and corporations are two distinct types of business structures, each with
unique characteristics, advantages, and disadvantages. Here’s a comparison of the two:

CORPORATION VS. PARTNERSHIP

Definition and Formation

 Partnership: A partnership is formed when two or more individuals agree to conduct business
together for profit. It can be established through a simple agreement, and there are two types:
o General Partnership: All partners share unlimited liability for the debts and obligations of
the business.
o Limited Partnership: Includes general partners with unlimited liability and limited
partners whose liability is limited to their investment in the partnership.
 Corporation: A corporation is a legal entity that is separate from its owners (shareholders). It
requires at least five incorporators to form and must be registered with the Securities and
Exchange Commission (SEC). Corporations can be classified as stock or non-stock corporations,
depending on whether they issue shares of stock.

Liability

 Partnership: In a general partnership, all partners are personally liable for the debts of the
business, meaning their personal assets can be at risk. In a limited partnership, only general
partners have unlimited liability while limited partners are protected up to their capital contribution.
 Corporation: Shareholders in a corporation enjoy limited liability, meaning they are only liable for
corporate debts up to the amount they invested in shares. Their personal assets are generally
protected from corporate creditors.

Management Structure

 Partnership: Management is typically shared among partners, who have equal authority unless
otherwise agreed upon. Decisions can be made collectively, allowing for flexibility but also
potential conflicts.
 Corporation: Corporations have a more formal management structure. They are governed by a
board of directors elected by shareholders, which provides a clear separation between ownership
and management.

Taxation

 Partnership: Partnerships are not taxed as separate entities. Instead, profits are passed through
to partners who report their share on their individual tax returns. This can lead to simpler tax
filings compared to corporations.
 Corporation: Corporations face double taxation; they pay corporate income tax on profits, and
shareholders also pay taxes on dividends received. This structure can complicate tax obligations
but may offer other financial advantages.
Ownership Restrictions

 Partnership: Partnerships allow foreign ownership up to 40% in certain cases. They require at
least two partners but do not have a maximum limit on the number of partners.

 Corporation: Corporations can also have up to 40% foreign ownership depending on the nature
of the business. They require at least five shareholders (incorporators) but can have many more.

Conclusion

Choosing between a partnership and a corporation in the Philippines depends on various factors such as
desired liability protection, management structure preferences, tax implications, and ownership
considerations. Partnerships may offer simplicity and flexibility, while corporations provide limited liability
and a more formal governance structure suitable for larger operations or those seeking significant
investment.

DE FACTO CORPORATIONS vs. DE JURE CORPORATIONS

In the context of corporate law, particularly in the Philippines, "de jure" and "de facto" corporations
represent two different statuses of corporate existence. Here’s a detailed comparison of the two:

DE JURE CORPORATION

 Definition: A de jure corporation is one that has been properly formed in accordance with all
legal requirements as stipulated by the Corporation Code of the Philippines. This includes filing
necessary documents, such as articles of incorporation, and paying applicable fees.
 Legal Standing: The legal existence of a de jure corporation is secure and cannot be questioned
by the state or third parties. It enjoys full recognition under the law, which means it can conduct
business, enter into contracts, and hold property.
 Rights and Privileges: De jure corporations have all the rights and privileges granted to
corporations, including limited liability protection for shareholders. This means that shareholders
are not personally liable for the corporation's debts beyond their investment.
 Regulatory Compliance: These corporations must adhere to ongoing compliance requirements,
such as holding regular board meetings and maintaining proper records.

DE FACTO CORPORATION

 Definition: A de facto corporation operates as a corporation but has not fully complied with all
statutory requirements for incorporation. This could be due to minor errors or omissions during
the formation process.
 Legal Standing: While a de facto corporation is recognized for many practical purposes, its legal
status can be challenged. It does not have the same level of protection as a de jure corporation,
meaning its existence can be questioned by third parties or the state.
 Rights and Privileges: De facto corporations may enjoy some rights similar to those of de jure
corporations, such as entering into contracts and conducting business. However, their ability to
assert certain rights may be limited because their legal standing is not fully established.
 Liability: The directors and officers of a de facto corporation may face personal liability for
actions taken on behalf of the corporation if its status is challenged. This contrasts with a de jure
corporation where personal liability is generally shielded by the corporate veil.
Conclusion : Understanding the distinction between de jure and de facto corporations is crucial for
business owners in the Philippines. While both types may function similarly in practice, their legal
protections and implications differ significantly. Establishing a de jure corporation is generally advisable to
ensure full legal protection and compliance with corporate laws.

Incorporating a business as a corporation offers several advantages and disadvantages. Here’s a detailed
overview based on the search results:

ADVANTAGES AND DISADVANTAGES OF CORPORATIONS

Advantages of Corporations

1. Limited Liability Protection:

o Shareholders are typically not personally liable for the debts and obligations of the
corporation. This means personal assets are protected in case of bankruptcy or legal
issues faced by the corporation.
2. Access to Capital:
o Corporations can raise funds more easily by issuing stocks or bonds, which can attract
investors and facilitate business growth. This ability is particularly beneficial for publicly
traded corporations that can access capital markets.
3. Perpetual Existence:
o Corporations can continue to exist independently of their owners. This means that the
death or departure of shareholders does not affect the corporation's operations, ensuring
continuity and stability.
4. Transferability of Ownership:
o Shares in a corporation can be easily transferred, allowing for smoother ownership
transitions. This feature makes it easier to attract investors and facilitates the buying and
selling of interests in the business.
5. Tax Benefits:
o Corporations may benefit from various tax advantages, including lower corporate tax
rates compared to personal income tax rates, and the ability to deduct certain expenses
like health insurance premiums and retirement plan contributions.
6. Credibility:
o Incorporating can enhance a business's credibility with customers, suppliers, and
potential partners, signaling a commitment to professionalism and long-term viability.
o
7. Easier Access to Grants and Loans:
 o Many financial institutions prefer lending to incorporated businesses due to the formal
structure and limited liability, making it easier to secure funding.

Disadvantages of Corporations

1. Double Taxation:
o C Corporations face double taxation where corporate profits are taxed at the corporate
level, and dividends distributed to shareholders are taxed again as personal income. This
can reduce overall profitability for shareholders.
2. Increased Regulatory Requirements:
o Corporations are subject to more stringent regulatory requirements, including regular
reporting, record-keeping, and compliance with corporate governance standards. This
can lead to higher administrative costs.
3. Ongoing Costs:
o Incorporating involves initial setup costs (such as filing fees) and ongoing expenses (like
annual fees), which may be higher compared to sole proprietorships or partnerships.
4. Complex Management Structure:
o The presence of a board of directors and formal management structure can lead to less
flexibility in decision-making compared to simpler business forms like partnerships or sole
proprietorships.
5. Potential for Loss of Control:
o In larger corporations, shareholders may have limited influence over day-to-day
operations, especially if they do not hold a majority stake. This separation between
ownership and management can lead to conflicts of interest.

Conclusion

Incorporating a business as a corporation provides significant benefits such as limited liability protection,
access to capital, and continuity of existence. However, it also comes with challenges like double taxation
and increased regulatory burdens. Business owners should weigh these factors carefully when deciding
whether to incorporate their venture.

Corporate law encompasses various components that govern the formation, operation, and dissolution of
corporations. Here are the key components:

Key Components of Corporate Law

1. Corporate Formation and Structure:

o This involves the legal processes required to establish a corporation, including drafting
and filing articles of incorporation, and determining the corporate structure (e.g., stock vs.
non-stock corporations) .
2. Corporate Governance:
o Corporate governance refers to the system by which corporations are directed and
controlled. It includes the roles and responsibilities of the board of directors,
management, and shareholders, ensuring accountability and transparency in decision-
making .
3. Shareholders' Rights and Duties:
o This component outlines the rights of shareholders, such as voting rights and rights to
dividends, as well as their responsibilities, including compliance with corporate bylaws .
4. Corporate Finance:
o Corporate finance deals with how corporations manage their funding through equity
(stocks) and debt (bonds). It includes regulations regarding capital structure, financing
options, and securities issuance .
 5. Mergers and Acquisitions:
o This area governs the processes involved in merging with or acquiring other companies.
It includes legal requirements for conducting due diligence, regulatory approvals, and
shareholder agreements .
o
6. Corporate Taxation:
o Corporate law addresses the tax obligations of corporations, including income tax rates
applicable to corporate profits and regulations surrounding tax deductions and credits .
7. Corporate Insolvency and Liquidation:
o This component outlines the legal procedures for handling a corporation's financial
distress, including bankruptcy filings and asset liquidation processes .
8. Compliance with Regulatory Frameworks:
o Corporations must adhere to various laws and regulations set by government authorities,
including labor laws, environmental regulations, and industry-specific standards .
9. Dissolution and Winding Up:
o The legal procedures for dissolving a corporation involve settling debts, distributing
remaining assets to shareholders, and formally terminating the corporation's existence .

Conclusion

These components form the foundation of corporate law, ensuring that corporations operate within a legal
framework that protects the interests of shareholders while promoting fair business practices.
Understanding these elements is crucial for navigating corporate transactions and regulatory compliance
effectively.

FORMATION
The formation of a corporation involves several essential steps, each critical to establishing a legal entity
that can operate independently. Here’s a detailed overview of the process, particularly in the context of
the Philippines:

Steps in the Formation of a Corporation

1. Promotion Stage:
o Idea Generation: This initial phase involves identifying a viable business opportunity and
determining the type of corporation to establish.
o Feasibility Study: Conducting a feasibility study to assess the economic, technical, and
legal aspects of the proposed business is crucial. This helps in understanding market
conditions and potential challenges.
o Capital and Resources: Promoters gather necessary resources and capital, often
forming a preliminary agreement among themselves.
2. Registration Stage:
o Preparation of Documents: Key documents must be prepared, including:
 Memorandum of Association (MoA): This outlines the corporation's purpose
and structure. It must be signed by at least five incorporators for stock
corporations.
 Articles of Association (AoA): This document details the internal rules
governing the corporation.
o Filing with SEC: The completed MoA and AoA, along with other required documents
(e.g., list of directors, written consents), are submitted to the Securities and Exchange
Commission (SEC) for registration.
o Certificate of Incorporation: Upon approval, the SEC issues a Certificate of
Incorporation, officially recognizing the corporation as a legal entity.
3. Incorporation Stage:
 o Bylaws Adoption: After incorporation, bylaws are created to establish operational
procedures and governance structures for the corporation.
o Initial Board Meeting: The first meeting of the board of directors is held to elect officers,
adopt bylaws, and address other foundational matters.

4. Commencement of Business Stage:

o Certificate of Commencement of Business: For public corporations, this certificate is
required before commencing operations. Private corporations can start business activities
upon receiving their Certificate of Incorporation.
o Compliance with Other Regulations: The corporation must secure additional permits
and licenses from various government agencies as needed for specific business
activities.

Conclusion

The formation of a corporation is a structured process that involves several stages from promotion to
commencement. Each step requires careful planning and adherence to legal requirements to ensure that
the corporation operates smoothly and in compliance with Philippine laws. Proper execution during these
stages not only establishes the corporation legally but also sets the foundation for its future operations
and success.

Republic Act No. 11232, also known as the Revised Corporation Code of the Philippines, was
enacted to modernize and streamline corporate governance in the country. Signed into law on February
20, 2019, this legislation repealed the previous Corporation Code, which had been in place for nearly four
decades.

Key Features of RA 11232

1. Perpetual Existence: Corporations can now exist perpetually, eliminating the previous 50-year
limit on corporate terms.
2. Incorporators: Juridical entities (like partnerships and associations) can serve as incorporators,
whereas before only natural persons were allowed.
3. Minimum Capital Requirements: The law abolishes the minimum paid-up capital requirement,
which previously mandated at least PHP 5,000 ($96) to be paid at incorporation.
4. One-Person Corporations: The formation of one-person corporations is now permitted, allowing
a single individual to establish a corporation.
5. Corporate Governance Enhancements:
o Expanded requirements for independent directors in corporations engaged in public
interest businesses.
o Broadened grounds for disqualification of corporate directors and officers.

Implementation

The law took effect on February 23, 2019, following its publication in two newspapers of general
circulation. It aims to improve the ease of doing business in the Philippines while ensuring better
protection for shareholders and promoting corporate accountability