Sei sulla pagina 1di 13

CORPORATION LAW 1ST EXAM REVIEWER 1

ihipnghangin
• JRS BUSINESS VS IMPERIAL INSURANCE • International Express Travel and Tour v CA

Franchises, so far as relating to corporations, are divisible into It is a basic postulate that before a corporation may acquire
[1] corporate or general franchises; and juridical personality, the State must give its consent either in
[2] special or secondary franchises. the form of a special law or a general enabling act. Nowhere
can it be found in R.A. 3135 or P.D. 604 any provision creating
The former is the franchise to exist as a corporation, while the the Philippine Football Federation. Accordingly, we rule that
latter are certain rights and privileges conferred upon existing the Philippine Football Federation is not a national sports
corporations such as the right to use the streets of municipality association within the purview of the aforementioned laws and
to lay pipes or tracks, erect poles or string wires." does not have corporate existence of its own.

The primary franchise of a corporation - is, the right to exist as Thus being said, it follows that private respondent Henry Kahn
such, is vested "in the individuals who compose the should be held liable for the unpaid obligations of the
corporation and not in the corporation itself and cannot be unincorporated Philippine Football Federation.
conveyed in the absence of a legislative authority so to do,

The special or secondary franchises of a corporation - are It is a settled principal in corporation law that any person
vested in the corporation and may ordinarily be conveyed or acting or purporting to act on behalf of a corporation which has
mortgaged under a general power granted to a corporation to no valid existence assumes such privileges and becomes
dispose of its property, except such special or secondary personally liable for contract entered into or for other acts
franchises as are charged with a public use. performed as such agent.

The right to operate a messenger and express delivery Right of Succession


service, by virtue of a legislative enactment, is admittedly a
secondary franchise. The corporation has the capacity for continuous existence
despite the death or replacement of its shareholders or
Section 2. A corporation is an artificial being created by members, for it has a personality separate and distinct from
operation of law, having the right of succession and the those who compose it.
powers, attributes, and properties expressly authorized by law
or incident to its existence. Powers, Attributes, Privileges

Attributes of a corporation: Under the classic Theory of Concession, once a corporation


1. Artificial Being has been granted juridical personaloity by the State, it is
2. Created by operation of law allowed and can legally exercise only such powers granted by
3. Right of succession the law for its creation.
4. Powers, attributes, and properties
• Monfort Hermanos Agricultural Dev Corp v
Artificial Being
Monfort III
• Vasquez v Borja
It is well known that a corporation is an artificial being invested A corporation has no power except those expressly conferred
by law with a personality of its own, separate and distinct from on it by the Corporation Code and those that are implied or
that of its stockholders and from that of its officers who incidental to its existence. In turn, a corporation exercises
manage and run its affairs. said powers through its board of directors and/or its duly
authorized officers and agents. Thus, the power of a
corporation to sue and be sued in any court is lodged with the
The mere fact that its personality is owing to a legal fiction and
board of directors that exercises its corporate powers. In turn,
that it necessarily has to act thru its agents, does not make
physical acts of the corporation, like the signing of documents,
the latter personally liable on a contract duly entered into, or
can be performed only by natural persons duly authorized for
for an act lawfully performed, by them for an in its behalf.
the purpose by corporate by-laws or by a specific act of the
board of directors.
The fact that the corporation, acting thru Vazquez as its
manager, was guilty of negligence in the fulfillment of the
The General Information Sheet shall state, among others, the
contract, did not make Vazquez principally or even subsidiarily
names of the elected directors and officers, together with their
liable for such negligence.
corresponding position title. However, it was not duly
established that the 4 signatories in the 1997 Board
Since it was the corporation's contract, its nonfulfillment, Resolution were duly elected to replace the previous Board
whether due to negligence or fault or to any other cause, made members listed in the 1996 General Information Sheet
the corporation and not its agent liable. submitted by the Corporation to the SEC.

Creature of the Law Advantages of the Corporate Medium:

The juridical existence of a corporation is dependent on the 1. Strong juridical personality


consent or grant of the STATE. From a strict legal point of 2. Centralized management
view, and under the theory of concession, a corporation 3. Limited liability of investors
cannot come into being by mere consent of the parties; there 4. Free transferability of units of investment
must be a law granting it.
Disadvantages:
CORPORATION LAW 1ST EXAM REVIEWER 2
ihipnghangin
1. Complicated and costly formation and maintenance The act of liquidation made by the stockholders of the F.
2. Lack of personal element and abuse of corporate Guanzon and Sons, Inc. of the latter's assets is not and cannot
management be considered a partition of community property, but rather a
3. Double Taxation transfer or conveyance of the title of its assets to the individual
stockholders.
• San Juan Structural and Steel Fabricators v CA
A corporation is a juridical person distinct from the members
One of the advantages of a corporate form of business composing it. Properties registered in the name of the
organization is the limitation of an investor’s liability to the corporation are owned by it as an entity separate and distinct
amount of the investment. This feature flows from the legal from its members. The corporation has property of its own
theory that a corporate entity is separate and distinct from its which consists chiefly of real estate.
stockholders. However, the statutorily granted privilege of a
corporate veil may be used only for legitimate purposes. While shares of stock constitute personal property, they do not
represent property of the corporation. A share of stock only
Constitutional Rights typifies an aliquot part of the corporation's property, or the
right to share in its proceeds to that extent when distributed
according to law and equity but its holder is not the owner of
• Smith, Bell & Co v Natividad any part of the capital of the corporation. Nor is he entitled to
the possession of any definite portion of its property or assets.
The guaranties of due process of law and equal protection of The stockholder is not a co-owner or tenant in common of the
the laws are universal in their application to all persons within corporate property.
the territorial jurisdiction, without regard to any differences of
race, color, or nationality. • Traders Royal Bank v CA

The word ―person here was extended to private corporations A corporation has a personality distinct and separate from its
insofar as their property is concerned. Therefore, Smith, Bell individual stockholders or members. Being an officer or
& Co., as a person by fiction of law, is entitled as well to the stockholder of a corporation does not make one's property the
guarantees of due process and equal protection of laws. property also of the corporation, for they are separate entities.
Thus, property belonging to a corporation cannot be attached
• Stonehill v Diokno to satisfy the debt of a stockholder and vice versa, the latter
having only an indirect interest in the assets and business of
The right to object to the unlawful search and seizure belongs the former.
exclusively to the corporations, from whom the seized effects
belong, and may not be invoked by the corporate officers in • Good Earth Emporium v CA
proceedings against them in their individual capacity.
As a consequence of the separate juridical personality of a
• Bataan Shipyard v PCGG corporation, the corporate debt or credit is not the debt or
credit of the stockholder, nor is the stockholder's debt or credit
The right against self-incrimination has no application to that of the corporation.
juridical persons. Corporations are not entitled to all of the
constitutional protections which private individuals have. • DBP V NLRC

A corporation is a creature of the state. It is presumed to be Ownership of a majority of capital stock and the fact that a
incorporated for the benefit of the public. It received certain majority of directors of a corporation are directors of another
special privileges and franchises, and holds them subject to corporation created no employer-employee relationship nor
the laws of the state and the limitations of its charter. Thus, its did it make the controlling stockholders liable for employee’s
rights to act as a corporation are only preserved to it so long claim of the subject corporation.
as it obeys the laws of its creation.
Legal Consequences of the application of the Doctrine of
While an individual may lawfully refuse to answer Separate Juridical Personality (Villanueva):
incriminating questions, it does not follow that a corporation,
vested with special privileges and franchises, may refuse to 1. The property of the corporation is not the property
show its hand when charged with an abuse of such privileges. of it stockholders and vice versa
2. A parent or holding corporation has no proprietary
• San Fernando v Cargill Philippines interest in the property, rights and interests of its
subisdiaries or affiliates, consequently any suit
As a rule, moral damages are not awarded to a corporation against the parent company does not bind the
unless it enjoyed good reputation that the offender debased subsidiaries and vice versa
and besmirched by his actuations. 3. A corporation may not be held liable for the
obligations of the stockholders or members
comprising it, or those of its officers and vice versa
SEPARATE JURIDICAL PERSONALITY 4. Corporate officers are not personally liable for their
official acts in pursuing the affairs and business of
• Stockholders of Guenon and Sons v ROD of the corporation ubless it is shown that they
Manila exceeded their authority
5. Substantial ownership in the capital stock entitling
the stockholder a significant vote in corporate
CORPORATION LAW 1ST EXAM REVIEWER 3
ihipnghangin
affairs allows them no standing or claims pertaining Piercing the veil of corporate fiction may be allowed only if the
to corporate affairs. following elements concur:
6. The following facts by themselves or in combination
would not warrant a disregard of the veil of [1] control — not mere stock control, but complete domination
corporate fiction absence fraud or other public — not only of finances, but of policy and business practice in
policy considerations: respect to the transaction attacked, must have been such that
i. Ownership by a single stockholder or by the corporate entity as to this transaction had at the time no
another corporation of all or nearly all of the separate mind, will or existence of its own;
capital stock
ii. Substantial identity of the incorporators of two
corporations does not imply fraud [2] such control must have been used by the defendant to
iii. Interlocking directors of officers commit a fraud or a wrong to perpetuate the violation of a
iv. Location of head offices or facilities in the same statutory or other positive legal duty, or a dishonest and an
address unjust act in contravention of plaintiff's legal right; and

[3] the said control and breach of duty must have proximately
DOCTRINE OF PIERCING OF CORPORATE FICTION caused the injury or unjust loss complained of.

GR: Doctrine of Separate Juridical Entity Note: the fact that a stockholder is ruled liable for unpaid
subscription is not enough to pierce the corporate veil.
EXP: When the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the • CONCEPT BUILDERS. V. NLRC (alter ego)
law will regard the corporation as an association of persons.
Clearly, petitioner ceased its business operations in order to
• GENERAL CREDIT CORP. V. ALSONS DEV AND evade the payment to private respondents of back wages and
INVESTMENT CORP. to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its
3 grounds for piercing the veil: emergence was skillfully orchestrated to avoid the financial
liability that already attached to petitioner corporation.
[1] defeat of public convenience, as when the corporate fiction
is used as vehicle for the evasion of an existing obligation; • PNB vs RITRATTO

[2] fraud cases or when the corporate entity is used to justify The mere fact that a corporation owns all of the stocks of
a wrong, protect fraud, or defend a crime; or another corporation, taken alone is not sufficient to justify their
being treated as one entity. If used to perform legitimate
[3] alter ego cases, where a corporation is merely a farce since functions, a subsidiary's separate existence may be
it is a mere alter ego or business conduit of a person, or where respected, and the liability of the parent corporation as well as
the corporation is so organized and controlled and its affairs the subsidiary will be confined to those arising in their
are so conducted as to make it merely an instrumentality, respective business.
agency, conduit or adjunct of another corporation.
Circumstance rendering the subsidiary an
The corporate veil was pierced due to the presence of the instrumentality:
following circumstances: (1) the commonality of directors,
officers and stockholders and sharing of office between 1. The parent corporation owns all or most of the
petitioner GCC and respondent EQUITY; (2) certain financing capital stock of the subsidiary.
and management arrangements between the two, allowing 2. The parent and subsidiary corporations have
the petitioner to handle the funds of the latter; (3) the virtual common directors or officers
domination if not control wielded by the petitioner over the 3. The parent corporation finances the subsidiary.
finances, business policies and practices of respondent 4. The parent corporation subscribes to all the capital
EQUITY; (4) and the establishment of respondent EQUITY by stock of the subsidiary or otherwise causes its
the petitioner to circumvent CB rules. incorporation.
5. The subsidiary has grossly inadequate capital. 

ALTER EGO CASES 6. The parent corporation pays the salaries and other
expenses or losses of the subsidiary.
7. The subsidiary has substantially no business
• PNB V ANDRADA (alter ego)
except with the parent corporation or no assets
except those conveyed to or by the parent
The mere fact that PNB acquired ownership or management corporation.
of some assets of PASUMIL, which had earlier been 8. In the papers of the parent corporation or in the
foreclosed and purchased at the resulting public auction by statements of its officers, the subsidiary is
DBP, will not make PNB liable for the PASUMIL's contractual described as a department or division of the parent
debts to Andrada Electric & Engineering Company corporation, or its business or financial
responsibility is referred to as the parent
The corporate veil may be lifted only if it has been used to corporation's own.
shield fraud, defend crime, justify a wrong, defeat public 9. The parent corporation uses the property of the
convenience, insulate bad faith or perpetuate injustice. subsidiary as its own.
CORPORATION LAW 1ST EXAM REVIEWER 4
ihipnghangin
10. The directors or executives of the subsidiary do not considerations, other unjustifiable aims or intentions, in which
act independently in the interest of the subsidiary case, the fiction will be disregarded and the individuals
but take their orders from the parent corporation. composing it and the two corporations will be treated as
11. The formal legal requirements of the subsidiary are identical.
not observed.
• FRANCISCO V. MEJIA
Doctrinal Summation of Alter Ego Piercing Cases
(Villanueva): If it is proven that the officer has used the corporate fiction to
defraud a third party, or that he has acted negligently,
1. Even when the controlling stockholder/managing maliciously or in bad faith, then the corporate veil shall be lifted
officer conciosuly intends to do no evil, the use of and he shall be held personally liable for the particular
the corporation as an alter ego for personal agenda corporate obligation involved.
is a violation. Consequently, they make themselves
personally liable for having cast away the protective Doctrinal Summation of Fraud Piercing Cases
characteristic of limited liability of the separate (Villanueva):
juridical personality.
2. When the underlying business enterprise does not
really change and only the medium by which that 1. There must have been fraud or an evil motive in the
business enterise is changed, then there would be affected transaction, and the mere proof of control
occasion to pierce the veil of corporate fiction. of the corporation would not authorize piercing
2. Corporate entity has been used in the perpetration
• LANUZA JR. V. BF CORP. of the fraud or in the justification of wrong or to
escape personally liability
3. The main action should seek for the enforcement of
When corporate veil is pierced, the corporation and persons pecuniary claims pertaining to the corporation
who are normally treated as distinct from the corporation are against corporate officers or stockholders or vice
treated as one person, such that when the corporation is versa
adjudged liable, these persons, too, become liable as if they
were the corporation.
DEFEAT PUBLIC CONVENIENCE OR EQUITY CASES
When there are allegations of bad faith or malice against
corporate directors or representatives, it becomes the duty of Equity cases applying the piercing doctrine are termed the
courts or tribunals to determine if these persons and the dumping ground where no fraud or alter ego circumstances
corporation should be treated as one. can be culled by the courts to warrant piercing.

FRAUD CASES: • AD Santos v Vasquez

• CIR V. MENGUITO (fraud) Although Amador was at one time the sole owner of the taxi
business that employed Vasquez, which was later transferred
to AD Santos Inc, such testimony should not be allowed to
The following show that the two are actually one juridical confuse the facts relating to employer-employee relationship,
taxable personality: for when the veil of corporate fiction is used to confuse
legitimate issues, the same should be pierced.
1. the owner of one directs and controls the operations
of the other,
2. the payments effected or received by one are for
NATIONALITY OF A CORPORATION
the accounts due from or payable to the other;
3. when the properties or products of one are all sold
to the other, which in turn immediately sells them to Five tests:
the public, 1. Incorporation test - Determined by the state of
incorporation, regardless of the nationality of the
stockholders.
• MENDOZA AND YOTOKO V. BANCO REAL
2. Domicillary test - Determined by the principal place
(fraud)
of business of the corporation.
3. Control test – the nationality of a corporation is
GR: obligations incurred by a corporation, acting through its determined by the nationality of the majority of the
directors, officers or employees, are its sole liabilities. stockholders on whom equity control is vested.
4. War time test – in times of war, the nationality of a
EXP: the veil with which the law covers and isolates the private corporation is determined by the citizenship
corporation from its directors, officers or employees will be of its controlling stockholders.
lifted when the corporation is used by any of them as a cloak 5. Grand father rule - Nationality is attributed to the
or cover for fraud or illegality or injustice. percentage of equity in the corporation used in
nationalized or partly nationalized area.
• LIVESEY V. BINSWANGER PHILIPPINES (fraud)
Under the Philippine jurisdiction, the primary test is always
the place of incorporation since a corporation is a creature
The corporate existence may be disregarded where the entity of the state whose laws has been created.
is formed or used for non-legitimate purposes, such as to
evade a just and due obligation, or to justify a wrong, to shield
or perpetrate fraud or to carry out similar or inequitable Control Test applies in the following instances:
CORPORATION LAW 1ST EXAM REVIEWER 5
ihipnghangin
substantial evidence of a violation of the Foreign Equity
1. Sec 2 Art. 12 Consti The exploration, Restriction.
development, and utilization of natural resources
shall be under the full control and supervision of the • NARRA NICKEL MINING AND DEVELOPMENT
State. The State may directly undertake such CORP., ET AL. V. REDMONT CONSOLIDATED
activities, or it may enter into co-production, joint MINES CORP.,
venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at
least sixty per centum of whose capital is owned by The control testǁ is still the prevailing mode of
such citizens. determining whether or not a corporation is a Filipino
corporation, within the ambit of Sec. 2, Art. XII of the 1987
Villanueva: It must be neccesarily presumed that Constitution, entitled to undertake the exploration,
the control test would pertain only to domestic development and utilization of the natural resources of the
corporations and that a foreign corporation even Philippines.
though controlled by Filipinos would ne be qualified
to exploit our natural resources. When in the mind of the Court, there is doubt, based on
the attendant facts and circumstances of the case, in the
2. Sec 11 Art. 12 Consti No franchise, certificate, or 60-40 Filipino equity ownership in the corporation, then it may
any other form of authorization for the operation of apply the grandfather rule
a public utility shall be granted except to citizens of
the Philippines or to corporations or associations The Grandfather Rule is the method by which the
organized under the laws of the Philippines at least percentage of Filipino equity in a corporation engaged in
sixty per centum of whose capital is owned by such nationalized and/or partly nationalized areas of activities,
citizens. provided for under the Constitution and other nationalization
3. Sec 11 Art. 15 Consti The ownership and laws, is computed, in cases where corporate shareholders
management of mass media shall be limited to are present, by attributing the nationality of the second or
citizens of the Philippines, or to corporations, even subsequent tier of ownership to determine the
cooperatives or associations, wholly- owned and nationality of the corporate shareholder. Thus, to arrive at
managed by such citizens. Xxx the actual Filipino ownership and control in a corporation, both
the direct and indirect shareholdings in the corporation are
Only Filipino citizens or corporations or determined.
associations at least seventy per centumof the
capital of which is owned by such citizens shall be
allowed to engage in the advertising industry. It is a three level test. The target company is the grandson,
the holding company is the father, and the person or entity
holding the shares in the holding company is the grandfather.
Note: the control test is only applicable if there are
restrictions on owenship. The primary test is the incorporation
test. You apply the control test and Grand Father test if the SEC Memorandum 1977: Apply the Grandfather Rule on two
industry to which the corporation belongs is a restricted, levels of corporate relations for publicly-held corporations or
where shares are traded in the stock exchange, and to three
nationalized or partly nationalized industry.
levels for closely held ones or those which are not traded in
any stock exchange.

• TATAD VS GARCIA, JR.


Control Test Grandfather Rule
The Constitution, in no uncertain terms, requires a franchise
for the operation of a public utility. However, it does not require shares belonging to looks into the citizenship of
a franchise before one can own the facilities needed to corporations or the individuals who
operate a public utility so long as it does not operate them to partnerships at least 60% of ultimately own and control
serve the public. the capital of which is the shares of stock of a
owned by Filipino citizens corporation for purposes of
shall be considered of determining compliance
What private respondent owns are the rail tracks, rolling Philippine nationality. with the constitutional
stocks like the coaches, rail stations, terminals and the power requirement of Filipino
plant, not a public utility. While a franchise is needed to ownership.
operate these facilities to serve the public, they do not by
themselves constitute a public utility. What constitutes a public
utility is not their ownership but their use to serve the public. does not scrutinize further determines the actual
the ownership of the Filipino Filipino ownership and
shareholdings. control in a corporation by
• IN RE: RAPPLER, INC. tracing both the direct and
indirect shareholdings in
The ON PDR imposes obligations not just on the Issuer of the the corporation
derivative, RHC, but also on the Company which issued the
underlying shares, Rappler, Inc.

Paragraph 12.2.2 of the ON PDR would show that there is What constitutes capital?
some control – definitely not zero – granted to the foreign
holder. It clearly says that when a corporate action would
affect the PDR holders, the stockholders must consult the ON Gamboa Decision Gamboa Resolution
PDR holders and obtain their approval. Thus, there is
CORPORATION LAW 1ST EXAM REVIEWER 6
ihipnghangin
The term capital in Section The 60-40 ownership [1] Mere investment as a shareholder by a foreign entity
11 Article 12 refers only to requirements under the in a foreign corporation duly registered to do business.
shares of stock entitled to Constitution must apply to [2] The exercise of rights as a stock investor and
vote in the election of shares with voting rights [3] Having a nominee director or officer to represent its
directors. Considering that and also to those without interest in such corporation
common shares have voting rights. Preferred [4] Appointing a representative or distributor domiciled in
voting rights which shares, denied the right to the Philippines which transacts business in its own name
translate to control as vote in the election of and for its own account.
opposed to preferred directors, are still entitled to [5] Publication of general advertisement through any print
shares, capital refers only vote on the 8 specific or broadcast media
to the latter and not to the corporate matters. [6] Maintaining a stock of goods in the Philippines solely
total outstanding capital for the purpose of having the same processed by another
stock comprising both Thus, the 60-40 entity in the Philippines.
common and non-voting requirement must apply [7] Consignment by a foreign entity of equipment with a
preferred shares. separately to each class of local company to be used in the processing of products
shares whether common, for export and
preferred non-voting, [8] Performing services auxiliary to an existing isolated
preferred voting or any contract of sale which are not on a continuing basis, such
other class of chares. as installing in the Philippines machinery it has
manufactured or exported to the Philippines, servicing the
same, training domestic workers to operate it and similar
incidental services.

Issue resolved in ROY III V HERBOSA: Section 125. Application for a license.— A foreign
corporation applying for a license to transact business in the
Affirmed the Gamboa Decision. The application of the control Philippines shall submit to the Securities and Exchange
test in the Constitution pertains only to voting shares in the Commission a copy of its articles of incorporation and by-laws,
target company. certified in accordance with law, and their translation to an
official language of the Philippines, if necessary. The
application shall be under oath and, unless already stated in
FOREIGN INVESTMENTS ACT OF 1991 its articles of incorporation, shall specifically set forth the
following: xxx
SEC 3 (D) The praise "doing business" shall include:
Section 127. Who may be a resident agent. – A resident
1. soliciting orders, service contracts, opening offices, agent may be either an individual residing in the Philippines
whether called "liaison" offices or branches; or a domestic corporation lawfully transacting business in the
2. appointing representatives or distributors domiciled Philippines: Provided, That in the case of an individual, he
in the Philippines or who in any calendar year stay must be of good moral character and of sound financial
in the country for a period or periods totalling one standing.
hundred eighty (180) days or more;
3. participating in the management, supervision or Section 128. Resident agent; service of process.—The
control of any domestic business, firm, entity or Securities and Exchange Commission shall require as a
corporation in the Philippines; condition precedent to the issuance of the license to transact
4. and any other act or acts that imply a continuity of business in the Philippines by any foreign corporation that
commercial dealings or arrangements, and such corporation file with the Securities and Exchange
contemplate to that extent the performance of acts Commission a written power of attorney designating some
or works, or the exercise of some of the functions person who must be a resident of the Philippines, on whom
normally incident to, and in progressive prosecution any summons and other legal processes may be served in all
of, commercial gain or of the purpose and object of actions or other legal proceedings against such corporation
the business organization: xxx

Provided, however, That the phrase "doing business: shall Section 133. Doing business without a license.— No
not be deemed to include mere investment as a foreign corporation transacting business in the Philippines
shareholder by a foreign entity in domestic corporations without a license, or its successors or assigns, shall be
duly registered to do business, and/or the exercise of rights permitted to maintain or intervene in any action, suit or
as such investor; nor having a nominee director or officer to proceeding in any court or administrative agency of the
represent its interests in such corporation; nor appointing a Philippines; but such corporation may be sued or proceeded
representative or distributor domiciled in the Philippines which against before Philippine courts or administrative tribunals on
transacts business in its own name and for its own account; any valid cause of action recognized under Philippine laws.

Foreign corporations need license to: Can a foreign corporation sue even without license? Yes,
by Doctrine of Estoppel. Gained benefit from foreign
[1] Place them under the jurisdiction of the court; corporation. A foreign corporation doing business in the
[2] Place them in the same footing as domestic corporation;
 Philippines may sue in Philippine Courts although not
[3] Protect the public in dealing with the said corporation. authorized to do business here against a Philippine citizen or
entity who had contracted with and benefited by said
Not considered doing business: corporation. To put it in another way, a party is estopped to
CORPORATION LAW 1ST EXAM REVIEWER 7
ihipnghangin
challenge the personality of a corporation after having Foreigners may acquire condominium UNITS and SHARES in
acknowledged the same by entering into a contract with it. condominium corporations up to not more than 40% of the
total and outstanding capital stock of a Filipino-owned or
controlled corporation.
11th REGULAR FOREIGN INVESTMENT NEGATIVE LIST

Under this set up, the ownership of the land is legally


LIST A: NO FOREIGN EQUITY separated from the unit itself. The land is owned by a
Condominium Corporation and the unit owner is simply a
1. Mass Media member in this Condominium Corporation. As long as 60% of
2. Practice of Profession the members of this Condominium Corporation are Filipino,
3. Retail trade enterprises with paid-up capital of the remaining members can be foreigners.
less than US$2,500,00 

4. Cooperatives CLASSIFICATION OF CORPORATIONS
5. Organizations and operation of private detective,
watchmen or security guards
6. Small scale mining Section 3. Classes of corporations. – Corporations formed or
7. Utilization of marine resources in archipelagic organized under this Code may be stock or non-stock
waters, territorial sea and exclusive economic zone corporations. Corporations which have capital stock divided
as well as small-scale utilization of natural into shares and are authorized to distribute to the holders of
resources in rivers, lakes, bays and lagoons such shares dividends or allotments of the surplus profits on
8. Ownership , operation and management of cockpits the basis of the shares held are stock corporations. All other
9. Manufacture, repair, stockpiling and/or distribution corporations are non-stock corporations.
of nuclear weapons
10. Manufacture, repair, stockpiling and/or distribution Section 4. Corporations created by special laws or charters.—
of biological, chemical and radiological weapons Corporations created by special laws or charters shall be
and anti-personnel mines governed primarily by the provisions of the special law or
11. Manufacture of firecrackers and other pyrotechnic charter creating them or applicable to them, supplemented by
devices the provisions of this Code, insofar as they are applicable.

FOREIGN EQUITY ALLOWED UP TO 30%


STOCK NONSTOCK

1. Advertising
DEFINITION Corporations which All other pirvate
have capital stock corporations are
FOREIGN EQUITY ALLOWED UP TO 40% divided into shares non stock
and are authorized to corporations
1. contracts for the construction and repair of locally- distribute to the
funded public works except holders of such
Infrastructure/development projects shares dividends or
2. Exploration, development and utilization of natural allotments of the
resources surplus profits on the
3. Ownership of private lands basis of the shares
4. Operation of public utilities held are stock
5. Educational institutions other than those corporations
established by religious groups and mission
boards, for foreign diplomatic personnel and their PURPOSE Primarily for profits For charitable,
dependents, and other foreign temporary residents religious,
or for short-term high-level skills development that educational,
do not form part Of the formal education system professional,
6. Culture, production, milling, processing, trading cultural, fraternal,
except retailing, of rice and corn and acquiring, by literary, scientific,
barter, purchase or otherwise, rice and corn and the social, civic
by-products thereof service, or similar
7. Contracts for the supply of materials, goods and purposes, like
commodities to government-owned or controlled trade, industry,
corporation, company, agency or municipal agricultural and
corporation like chambers, or
8. Operation of deep sea commercial fishing vessels any combination
9. Ownership of condominium units thereof
10. Private radio communications network

DISTRIBUTI Profits allowed to be It should not be the


FOREIGN EQUITY ALLOWED UP TO 25% ON OF distributed main purpose:
PROFITS whatever
1. Private recruitment agencies incidental profit
2. Contracts for the construction of defense related may in stock be
structures distributed among
its members but is
• JACOBUS HULST V PR BUILDER used for
CORPORATION LAW 1ST EXAM REVIEWER 8
ihipnghangin
furtherance of its Promoter - a person who, acting alone or with others, takes
purpose. initiative in founding and organizing the business or enterprise
of the issuer and receives consideration therefor
Composition Stockholder/shareho Members
lder Promoter’s Liability – attaches when the pre-incorporation
agreement that the corporation will ratify this document. So
that is the basis of the liability of the promoter as found in:
SCOPE OF Each stockholder each member
RIGHT TO holds according to regardless of class
VOTE the proportion of is entitled to one Art. 1898 If the agent contracts in the name of the principal,
shares vote exceeding the scope of his authority, and the principal does
not ratify the contract, it shall be void if the party with whom
the agent contracted is aware of the limits of the powers
SCOPE OF may be denied by Cannot be denied
granted by the principal.
VOTING the articles of
RIGHT BY incorporation] or by-
PROXY laws In this case, however, the agent is liable if he undertook to
secure the principal‘s ratification
VOTING BY May be authorized Not possible under
MAIL by the bylaws under non stock Promoters contracts—refers to contracts entered into when
stock the parties know fully well that the corporation does not yet
even exist. Once the corporation is created, the contracts are
deemed transferred.
GOVERNIN BOARD OF BOARD OF
G BOARD DIRECTORS TRUSTEES
GR: Promotors contracts do not bind the corporation
TRANSFER TRANSFERRABLE Generally
ABILITY OF nontransferable EXP: When the corporation receives the benefit of the
INTEREST since membership contract at the time of its constitution
and all rights
arising therefrom Section 60. Subscription contract. – Any contract for the
are personal, acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription
within the meaning of this Title, notwithstanding the fact that
Classification as to relationship of management and the parties refer to it as a purchase or some other contract.
control:
1. Holding Company – a corporation organized to hold Note: A subscription contract is not necessarily a pre-
the stock of another or other corporations. It is incorporation contract.
equivalent to a parent corporation, having such an
interest in another corporation, or power of control,
that it may elect its directors and influence its Section 61. Pre-incorporation subscription. – A subscription
management. for shares of stock of a corporation still to be formed shall be
2. Subsidiary – daughter corporation irrevocable for a period of at least six (6) months from the date
3. Operating Holding Company—a holding company of subscription, unless all of the other subscribers consent to
can also have its own operations, and does not only the revocation, or unless the incorporation of said corporation
hold the shares of the subsidiary or daughter fails to materialize within said period or within a longer period
company as may be stipulated in the contract of subscription: Provided,
That no pre- incorporation subscription may be revoked after
the submission of the articles of incorporation to the Securities
PRE INCORPORATION STAGE and Exchange Commission.

Section 5. Corporators and incorporators, stockholders Subscription contract Pre-incorporation


and members. — Corporators are those who compose a subscription
corporation, whether as stockholders or as members.
Incorporators are those stockholders or members mentioned
Presupposed there is Presupposes the non
in the articles of incorporation as originally forming and
already a corporation existence of a corporation
composing the corporation and who are signatories thereof.

Corporators in a stock corporation are called stockholders


or shareholders. Corporators in a non-stock corporation are
called members. • CAGAYAN FISHING DEVELOPMENT CO., INC.
V. SANDIKO
NOTE: It is the grant of a CERTIFICATE OF
INCORPORATION which grants juridical personality TABORA made a transfer to CAGAYAN FISHING on MAY 31,
1930 and the actual incorporation of said company was
effected later on OCTOBER 22, 1930.
Pre-Incorporation Contracts - these are contracts between the
subscriber and the corporation, at the same time they are
deemed to be contracts among the stockholders of the In other words, the transfer was made almost five months
corporation. before the incorporation of the company. the plaintiff was not
yet incorporated when it entered into the contract of sale.
CORPORATION LAW 1ST EXAM REVIEWER 9
ihipnghangin
The contract itself refered to it as in the process of [2] The enterprise enters into a contract with an outsider,
incorporation. It was not even a defacto corporation at that and subsequently brings an action in corporate form
time. Not being in legal existence, it did not possess juridical against the outsider, the outsider is held liable to the
capacity to enter into the contract. enterprise;
[3] The enterprise enters into a contract with an outsider,
Here, the contract was entered into not only between Tabora and the outsider brings an action against the component
and a non-existent corporation but between Tabora as owner individuals, they are absolved from liability and the
of four parcels of land on the one hand and the same Manuel outsider is limited to his remedy against the enterprise
Tabora, his wife and others, as mere promoters of a only; or
corporation on the other hand. For reasons that are self- [4] The enterprise enters into a contract with an outsider,
evident, these promoters could not have acted as agents for and the component individuals seek to hold the outsider
a projected corporation since that which had no legal liable on his contract, where logically the individuals are
existence could have no agent. not allowed to recover, recovery must be by the
enterprise.
A corporation, until organized, has no life and therefore no
• HALL V. PICCIO
faculties. This is not saying that under no circumstances may
the acts of promoters of a corporation be ratified by the
corporation if and when subsequently organized. There are, The personality of a corporation begins to exist only from the
of course, exceptions, but under the peculiar facts and moment such certificate is issued and not before. Not having
circumstances of the present case we decline to extend the obtained the certificate of incorporation, the Far Eastern
doctrine of ratification which would result in the commission of Lumber and Commercial Co. — even its stockholders — may
injustice or fraud to the candid and unwary. not probably claim "in good faith" to be a corporation.

• RIZAL LIGHT & ICE CO., INC V. THE • SAWADJAAN V CA


MUNICIPALITY OF MORONG
A corporation which has failed to file its by-laws within the
The fact that a company is not completely incorporated at the prescribed period does not ipso facto lose its powers as such.
time the grant is made to it by a municipality to use the streets By its failure to submit its by- laws on time, the AIIBP may be
does not, in most jurisdictions, affect the validity of the grant. considered a de facto corporation whose right to exercise
But such grant cannot take effect until the corporation is corporate powers may not be inquired into collaterally in any
organized. private suit to which such corporations may be a party.

the fact that MORONG ELECTRIC had no corporate Purpose of the De Facto Corporation Doctrine
existence on the day the franchise was granted in its name
does not render the franchise invalid, because later MORONG The de facto corporation doctrine is meant to protect the
ELECTRIC obtained its certificate of incorporation and then enforceability of corporate dealings and contracts, to allow the
accepted the franchise in accordance with the terms and public to take at least reasonable face value the authority of
conditions thereof. the corporation and its officer to enter into valid and binding
contracts, thereby providing a healthy system by which to
DE FACTO CORPORATION encourage the public to deal with corporate entities.

CORPORATION BY ESTOPPEL
Section 20. De facto corporations. – The due incorporation of
any corporation claiming in good faith to be a corporation
under this Code, and its right to exercise corporate powers, Section21. Corporation by estoppel. – All persons who
shall not be inquired into collaterally in any private suit to assume to act as a corporation knowing it to be without
which such corporation may be a party. Such inquiry may be authority to do so shall be liable as general partners for all
made by the Solicitor General in a quo warranto proceeding. debts, liabilities and damages incurred or arising as a result
thereof:
REQUISITES:
Provided, however, That when any such ostensible
1. The existence of a valid law under which the corporation is sued on any transaction entered by it as a
corporation may be incorporated; corporation or on any tort committed by it as such, it shall not
2. An attempt in good faith to incorporate. Or be allowed to use as a defense its lack of corporate
existence of a colorable compliance with the personality.
provisions on incorporation; and
3. The assumption by the enterprise of corporate On who assumes an obligation to an ostensible corporation
power. as such, cannot resist performance thereof on the ground that
there was in fact no corporation
The main consequences of the de facto corporation doctrine
are as follows: • ASIA BANKING CORPORATION V. STANDARD
PRODUCTS,
[1] The enterprise enters into a contract with an outsider,
who later brings an action against the enterprise as The general rule is that in the absence of fraud a person who
though it were a corporation, and the enterprise is held has contracted or otherwise dealt with an association in such
liable in corporate form; a way as to recognize and in effect admit its legal existence
as a corporate body is thereby estopped to deny its corporate
CORPORATION LAW 1ST EXAM REVIEWER 10
ihipnghangin
existence in any action leading out of or involving such Subscription Contract – it is indivisible. The subscription
contract or dealing, unless its existence is attacked for cause contract is between you only and the corporation. You cannot
which have arisen since making the contract or other dealing have someone pay for your deficiency.
relied on as an estoppel and this applies to foreign as well as
to domestic corporations. PAID UP CAPITAL:

The STANDARD PRODUCTS having recognized the • MSCI-NACUSIP LOCAL CHAPTER VS NWPC
corporate existence of the ASIA BANKING by making a
promissory note in its favor and making partial payments on
the same is therefore estopped to deny said ASIA BANKING's Paid-up capital is that portion of the authorized capital
corporate existence. It is, of course, also estopped from stock which has been both subscribed and paid. To
denying its own corporate existence. illustrate, where the authorized capital stock of a corporation
is worth P1 million and the total subscription amounts
toP250,000.00, at least 25% of this amount, namely,
CAPITAL STRUCTURE - Refers to the mixture of liabilities P62,500.00 must be paid up per Section 13. The latter,
and capital (investments/debt financing) P62,500.00, is the paid-up capital or what should more
accurately be termed as "paid-up capital stock."
• THE PRESIDENT OF PDIC V. REYES
Note: the subscription cannot be greater than the authorized
Does an investment earn interest? No. capital stock. The excess shall be void since the corporation
is not authorized to issue that shares.
An investment is an expenditure to acquire property or other
assets in order to produce revenue. Thus, unlike a deposit of SHARE PREMIUM:
money or a loan that earns interest, the investment of the
Singaporeans cannot be assured of a dividend or an interest The share premium is an equity account found on a
on the amount invested. For, interests or dividends are company's balance sheet. The amount in the account
granted only after profits or gains are generated. represents the additional amount shareholders paid for their
issued shares that was in excess of the par value of those
SHARES shares.

Section 174. Outstanding Capital Stock. Defined. The term WATERED STOCK:
outstanding capital stock, as used in this Code, means the
total shares of stock issued under binding subscription Watered stock is stock that is issued at a price far higher than
agreements to subscribers or stockholders, whether fully or the value of the issuer's assets.
partially paid, except treasury shares.
Par value is that amount that is indicated in the certificate of
• PLDT VS NTC shares. It is the designation of a particular share.

Dividends, regardless of the form these are declared, that is, Section 6. The classification of shares, their corresponding
cash, property or stocks, are valued at the amount of the rights, privileges, or restrictions, and their stated par value, if
declared dividend taken from the unrestricted retained any, must be indicated in the articles of incorporation. Each
earnings of a corporation. Thus, the value of the declaration share shall be equal in all respects to every other share,
in the case of a stock dividend is the actual value of the except as otherwise provided in the articles of incorporation
original issuance of said stocks. and in the certificate of stock.

It cannot be said that no consideration is involved in the The shares in stock corporations may be divided into classes
issuance of stock dividends. In fact, the declaration of stock of series of shares, or both. No share may be deprived of
dividends is akin to a forced purchase of stocks. By declaring voting rights except those classified and issued as preferred
stock dividends, a corporation ploughs back a portion or its or redeemable shares, unless otherwise provided in this
entire unrestricted retained earnings either to its working Code: Provided, that there shall always be a class or series of
capital or for capital asset acquisition or investments. shares with complete voting rights.

When stock dividends are distributed, the amount declared Holders of non-voting shares shall nevertheless be entitled to
ceases to belong to the corporation but is distributed among vote on the following matters:
the shareholders.
[1] Amendment of the articles of incorporation; 

In essence, therefore, the stockholders by receiving stock [2] Adoption and amendment of by-laws; 

dividends are forced to exchange the monetary value of their [3] Sale, lease, exchange, mortgage, pledge, or other
dividend for capital stock, and the monetary value they forego disposition of all or substantially all of the corporate property;
is considered the actual payment for the original issuance of 

the stocks given as dividends
[4] Incurring, creating or increasing bonded indebtedness; 

[5] Increase or decrease of capital stock 

CAPITAL STOCK - is composed of the authorized capital [6] Merger or consolidation of the corporation with another
stock, subscribed capital, and paid up capital.
corporation or other corporation 

[7] Investment of corporate funds in another corporation or
business in accordance with this Code; and 

CORPORATION LAW 1ST EXAM REVIEWER 11
ihipnghangin
[8] Dissolution of the corporation subscribe for shares of a corporation. Preferred shares take a

 multiplicity of forms.
Except as provided in the immediately preceding paragraph,
the vote required under the Code to approve a particular The most common forms may be classified into two:
corporate act shall be deemed to refer only to stocks with
voting rights.
(1) preferred shares as to assets - gives the holder thereof
preference in the distribution of the assets of the corporation
The shares or series may or may not have a par value in case of liquidation
except that banks, trust, insurance, and pre-need companies,
public utilities, building and loan associations, and other
(2) Preferred shares as to dividends - holder of which is
corporations authorized to obtain or access funds from the
entitled to receive dividends on said share to the extent
public, whether publicly listed or not, shall not be permitted to
agreed upon before any dividends at all are paid to the holders
issue no- par value shares of stocks.
of common stock.

Preferred shares of stock issued by a corporation may be


Preferences granted to preferred stockholders, moreover, do
given preference in the distribution of dividends and in the
not give them a lien upon the property of the corporation nor
distribution of corporate assets in case of liquidation, or such
make them creditors of the corporation, the right of the former
other preferences: Provided, that preferred shares of stock
being always subordinate to the latter.
may be issued only with a stated par value. The board of
directors, where authorized in the articles of incorporation,
may fix the terms and conditions of preferred shares of stock Cumulative dividends entitle the holders thereof to payment
or any series thereof: Provided further, that such terms and not only of current dividends but also of back dividends not
conditions shall be effective upon filing of a certificate thereof previously paid, when and if dividends are to the extent
with the Securities and Exchange (hereinafter referred as agreed upon, before holders of common shares are paid.
―Commissionǁ)
Non-cumulative entitles the holders merely to the payment
Shares of capital stock issued without par value shall be of current dividends that are paid from unrestricted earnings
deemed fully paid and non-assessable and the holder of such and to lose whatever agreed rate of return in any year where
shares shall not be liable to the corporation or its creditors in there are no available unrestricted retained earnings.
respect thereto: Provided, that no-par value shares must be
issued for a consideration of atleast five pesos (P5.00) per If cumulative preferred dividend is not paid in full in any year,
share. Provided further, that the entire consideration received whether or not earned, the deficiency must be made up before
by the corporation for its no-par value shares shall be treated any dividend may be paid on common stock.
as capital and shall not be available for distribution as
dividends. Participating preferred shares entitle the holders to
participate with the holders of common shares in the retained
A corporation may further classify its shares for the purpose earnings after the amount stipulated dividend has been paid
of ensuring compliance with constitutional or legal to the preferred shares.
requirement.
Non-participating entitles the holders of preferred shares
Note: only to the stipulated preferred dividends and no more.

1. No-par value, the entire consideration is NO PAR VALUE SHARES:


considered as capital and cannot be distributed as
dividends. • DELPHER TRADES CORP VS IAC
2. The par value is capital and those exceeding the
par value, share premium, can be declared as
dividends. A no-par value share does not purport to represent any stated
proportionate interest in the capital stock measured by value,
but only an aliquot part of the whole number of such shares of
COMMON STOCK: the issuing corporation.

• CIR VS CA AND A SORIANO CORP The holder of no-par shares may see from the certificate itself
that he is only an aliquot sharer in the assets of the
A common stock represents the residual ownership interest corporation. But this character of proportionate interest is not
in the corporation. It is a basic class of stock ordinarily and hidden beneath a false appearance of a given sum in money,
usually issued without extraordinary rights or privileges and as in the case of par value shares.
entitles the shareholder to a pro rata division of profits.
The capital stock of a corporation issuing only no-par value
PREFRRED STOCK: shares is not set forth by a stated amount of money, but
instead is expressed to be divided into a stated number of
shares, such as, 1,000 shares. This indicates that a
• REPUBLIC PLANTERS BANK VS AGANA
shareholder of 100 such shares is an aliquot sharer in the
assets of the corporation, no matter what value they may
A preferred share of stock, is one which entitles the holder have, to the extent of 100/1,000 or 1/10.
thereof to certain preferences over the holders of common
stock. The preferences are designed to induce persons to
CORPORATION LAW 1ST EXAM REVIEWER 12
ihipnghangin
Section 7. Founders’ Share.—Founders‘ Share may be Treasury shares can be
given certain rights and privileges not enjoyed by the owners issued lower than the par-
of other stocks. value

Where the exclusive right to vote and be voted for in election This is the exception to the
of directors is granted, it must be for a limited period not to rule that you cannot issue
exceed five (5) years from the date of incorporation or shares lower than the par
approval of increase of additional authorized capital stock. value. It may be disposed
Provided, that such exclusive right shall not be allowed if its of for a reasonable price
exercise will violate Commonwealth Act No. 108 or the Anti- fixed by the board of
Dummy Law, Republic Act No. 7042 or the foreign Investment directors.
Act and other pertinent laws.

Section 8. Redeemable shares.— Redeemable shares are


shares which may may be purchased by the corporation from TRUST FUND DOCTRINE
the holders of such shares upon the expiration of a fixed
period, regardless of the existence of unrestricted retained
The contribution or the capital of the investor, the
earnings in the books of the corporation, and upon such other
stockholders, is in trust for the payment of the debts to
terms and conditions stated in the articles of incorporation and
the creditors. Thus, before any distribution to the
the certificate of stock representing said shares, subject to
stockholders, the assets should be sufficient for the payment
rules and regulations issued by the Commission.
of the debts to the creditors.

Redeemable shares, on the other hand, are shares usually


• WOOD VS DUMMER
preferred, which by their terms are redeemable at a fixed date,
or at the option of either issuing corporation, or the
stockholder, or both at a certain redemption price. A The capital stock of the corporation, especially its unpaid
redemption by the corporation of its stock is, in a sense, a subscription, is a trust fund for the benefit of the general
repurchase of it for cancellation. creditors of the corporation. If the capital stock is a trust fund,
then it may be followed by creditors into the hands of any
persons, having notice of the trust attaching to it.
Redemption, therefore, may not be made where the
corporation is insolvent or if such redemption will cause
insolvency or inability of the corporation to meet its debts as The trust fund doctrine usually applies in four cases:
they mature.
[a] Where there has been a distribution or an attempt to
Redemption is repurchase, a reacquisition of stock by a distribute corporate properties, or a return of the capital or
corporation which issued the stock in exchange for property, portion thereof, to the stockholders, without providing for
whether or not the acquired stock is cancelled, retired or held the payment of creditors
in the treasury. [b] Where it had released the subscribers to the capital
stock from their subscriptions without valuable
consideration
For the protection of the stockholders, all corporations which
[c] Where it has transferred the corporate property in fraud
have issued redeemable shares with mandatory redemption
of its creditors
features are required to set up and maintain a sinking fund
[d] where the corporation is insolvent
which shall be deposited with a trustee bank and not be
invested in risky or speculative ventures.
• TURNER VS. LORENZO SHIPPING
CORPORATION
A sinking fund refers to a fund set up by the corporation
where cash is gradually set aside in order to accumulate the
Under the trust fund doctrine, the capital stock, property, and
amount necessary to meet the redemption price of
other assets of a corporation are regarded as equity in trust
redeemable shares at special dates in the future.
for the payment of corporate creditors, who are preferred in
the distribution of corporate assets.
Section 9. Treasury Shares. - Treasury shares are the
shares of stock which have been issued and fully paid for, but There can be no distribution of assets among the stockholders
subsequently reacquired by the issuing corporation through without first paying corporate debts. Thus, any disposition of
purchase, redemption, donation or some other lawful means. corporate funds and assets to the prejudice of creditors is null
Such shares may again be disposed of for a reasonable price and void.
fixed by the board of directors.
Fraud Theory - the actionable wrong is the fraud or
REDEEMABLE SHARES TREASURY SHARES misrepresentation by directors, officers, or stockholders in
falsely misrepresenting that the capital stock has been fully
CANNOT BE REISSUED MAYBE REISSUED OR paid or covered by binding subscription contracts.
SOLD Consequently, only creditors who may have been defrauded
are entitled to relief; creditors who had notice are not
protected.

• PLDT V NTC
CORPORATION LAW 1ST EXAM REVIEWER 13
ihipnghangin
As a fund in trust for creditors in case of liquidation, the actual
value of the subscriptions and the value of stock dividends
distributed may not be decreased or increased by the
fluctuating market value of the stocks.

Capital stock - the entire amount paid by the stockholders in


consideration of the issued shares.

Potrebbero piacerti anche