What is a Corporation?

A corporation is an artificial being

1. created by operation of law;

2. having the right of succession
3. the powers, attributes and properties expressly authorized by law or incident to its
existence. (CC, Sec. 2)

The same rate or percentage as to tax with corporation and partnership

In reality it is not prone to double taxation

Partnership vs Corporation

Partnership Corporation
Easier to form and less complicated More complicated in formation and
management
Lesser cost of formation of operation Higher cost of formation and operation
More personal Lack of personal element
Government has lesser control and partners Greater government control and regulation
has more control

More banks prefer to give them loans because it has right of succession.

Corporation

 More complicated in formation and management

 Higher cost of formation and operation
 Lack of personal element
 Greater government control and regulation (there are more reportorial task in corp vs
part.)
 Stockholders have little voice in the conduct of business
 Management and control are separate from ownership

You have to follow Batas Pambansa 68 to successfully created corporation.

Upon death or retirement of stockholder, he may pass on his share, it has continuity of
existency.

As an artificial of being it is the right of the corporation incidental to its existence- if you
manufacture then you have right to distribute it.

GR: Corporations have no power to enter into partnership. Corporation cannot make its own
decision.
In a joint venture does it have separate and distinct personality? Cannot have separate- unlike
partnership

Can the person claim damages?

Recovery of moral damages

GR: A corporation is not entitled to moral damages because it has no feelings, no emotions, no
senses. (ABS-CBN Broadcasting Corporation v. CA, G.R. No. 128690 January 21, 1999 and
Phillip Brothers Oceanic, Inc, G.R. No. 126204, November 20, 2001)

XPNs:

1. The corporation may recover moral damages under item 7 of Article 2219 of the New Civil
Code because said provision expressly authorizes the recovery of moral damages in cases of
libel, slander, or any other form of defamation.

2. When the corporation has a reputation that is debased, resulting in its humiliation in the
business realm. (Manila Electric Company v. T.E.A.M. Electronics Corporation, et. al., G.R. No.
131723, December 13, 2007)

Claimant must prove factual basis and causal relation of defendant’s act.

Corporations are entitled to the following rights under the constitution: 1. Right to Due Process
(Sec. 1, Art. III, Constitution) 2. Right against unreasonable searches and seizures (Sec. 2, ibid)

However, the corporation is not entitled to the right against self-incrimination, being a mere
creature of law. (Bataan Shipyard & Engineering v. PCGG, G.R. No. 75885, May 27, 1987)

Stonehill vs Diokno- The Supreme Court ruled The objection is personal to the owner of the
documents therefore it cannot be availed of by third parties.

Reason for liability in cases of torts

The rules governing the liability of a principal or master for a tort committed by an agent or
servant are the same, whether the servant or agent is a natural or artificial person.- only civilly
liable for tort

Liability of a corporation as a general rule cannot be held liable for crimes because it is mere
legal fiction.

DOCTRINE OF PIERCING THE CORPORATE VEIL/FICTION

The doctrine of piercing the corporate veil is the doctrine that allows the State to disregard for
certain justifiable reasons the notion that a corporation has a personality separate and distinct
from the persons composing it.

GROUNDS FOR APPLICATION OF DOCTRINE

It applies upon the following circumstances: (FACO)

a. if the fiction is used to perpetrate fraud (Fraud Test);

b. the complete control of one corporate entity to another which perpetuated the wrong is the
proximate cause of the injury (Control Test);

c. if a certain corporation is only an adjunct or an extension of the personality of the

corporation (Alter ego or Instrumentality Test); and

d. if the fiction is pierced to make the stockholders liable for the obligation of the corporation
(Objective Test)

Classes of corporations

Section 3. Classes of corporations. - Corporations formed or organized under this Code may be
stock or non-stock corporations. Corporations which have capital stock divided into shares and
are authorized to distribute to the holders of such shares dividends or allotments of the surplus
profits on the basis of the shares held are stock corporations. All other corporations are non-
stock corporations. (3a)

Stock Corporations- Board of Directors

Non Stock Corporations- Board of trustees

Nota Bene:
In corporation its either stockholders or members
If dili mag dividend will liable for Improperly Accumulated Earnings which is 10%

Sole Corporation vs Aggregate Corporation

De facto vs Dejure vs Corporation by Estoppel

Parent vs Subsidiary Corporation

Sec 60. Stocks and Stockholders

RIGHTS OF A STOCKHOLDER AND MEMBER

1. Management Right:

a. To attend and vote in person or by proxy at a stockholders’ meetings (CC, Secs. 50, 58)

; b. To elect and remove directors (CC, Secs. 24, 28);

c. To approve certain corporate acts (CC, Sec. 58);

d. To adopt and amend or repeal the by-laws of adopt new by-laws (CC, Secs. 46, 48);

e. To compel the calling of the meetings (CC, Sec. 50);

f. To enter into a voting trust agreement (CC, Sec. 59);

g. To have the corporation voluntarily dissolved. (CC, Secs. 118, 119)

2. Proprietary rights

a. To transfer stock in the corporate book (CC, Sec. 63);

b. To receive dividends when declared (CC, Sec. 43);

c. To the issuance of certificate of stock or other evidence of stock ownership (CC, Sec. 64);

d. To participate in the distribution of corporate assets upon dissolution (CC, Sec. 118, 119);

e. To pre-emption in the issue of shares. (CC, Sec. 39)

3. Remedial rights

a. To inspect corporate books (CC, Sec. 74);

b. To recover stock unlawfully sold for delinquent payment of subscription (CC, Sec. 69);

c. To be furnished with most recent financial statements or reports of the corporation’s

operation (CC, Sec. 74, 75);

d. To bring suits (derivative suit, individual suit, and representative suit);

e. To demand payment in the exercise of appraisal right. (CC, Secs. 41, 81).
 SUBSCRIPTION
May be made before or after incorporation
Subscriber becomes a stockholder even if he
has not fully paid the subscription
Cannot be released from his subscription
unless all stockholders agree thereto and no
creditor is thereby prejudiced
Corporate creditors may proceed against the
subscriber for his unpaid subscription in case
the assets of the corporation are not
sufficient to pay their claims
Not covered by the Statute of Frauds (can be
oral written, express or implied)
Subscription price are considered assets of
the corporation, hence, creditors may go
after them
PURCHASE
May be made only after incorporation
Buyer does not become a stockholder until
the fulfillment of the terms of the sale and
registration thereof in the books of the
corporation
The corporation may rescind or cancel the
contract for nonfulfillment of the contract by
the buyer
Creditors may not proceed against the buyer
for the unpaid price as there is no privity of
contract between them
In purchase amounting to more than 500
pesos, the Statute of Frauds shall apply
Purchase price does not become assets of the
corporation unless fully paid

Elements for Purchase

1) Record in corporate book that original subscribers already sold the share (notify
corporate secretary)
2) Agreement between existing shareholder and purchaser

Purchase (can be withdrawn because there is no violation of the Trust Fund Doctrine)

Subscription (cannot be withdrawn unless there is consent of the stockholders)

Can the contract between corporation and subscriber states that payment shall be deducted
from the dividends?

NO.

Section 62. (Memorize) Valuable consideration for the shares of stocks- tantamount to violation
of the Trust Fund Doctrine

If property is consideration made then it shall be valued by the incorporators or board of

directors subject to the approval of the SEC.

Stocks are personal properties (subject to mortgage, transfer, tax) - it is intangible- research
the situs

Stocks certificate- a certificate is the paper representation or tangible evidence of the share but
it is not the share itself.

It is issued to stockholder when the requirement sare complied with such as the full payment of
the purchased stocks
Not the only evidence of ownership but also the book of records kept by the corporate
secretary.

Should be signed by president or vice president countersigned by the secretary or assistant

secretary and sealed with the seal of corporation shall be issued in accordance with the by-
laws.

Sec 73 when certificate of stock is lost or destroyed (memorize)

Street Certificate – certificate of stock indorsed in blank

The Case of Ponce vs Alsons cement corporation vs Rural Bank of Salinas

How reconciled?

China Banking Corporation vs CA- only monthly dues on the golf club but the subscription has
already been fully paid…so the bank can demand the transfer.

Unpaid subscription cannot be transferred to several persons because it is an indivisible

contract-

Single Novation take note if this

Delinquent Shares Sale- The highest bidder shall be considered the one willing to pay the full
amount of the balance.

Memorize Section 68

MERGER VS CONSOLIDATION

PHIL NATIONAL BANK VS ANDRADA ELECTRIC

A + B= C –consolidation A+B=A or B --- merger

Effects of Merger or Consolidation memorize this take note

Is there winding up or dissolution in M or C?

Bpi vs Bpi Employees and Geothermal vs Unocal Philippine