CORPORATION

GENERAL PROVISION
 WHAT IS A
CORPORATION
A corporation is an artificial
being created by operation of law,
having the right of succession
and the powers, attributes and
properties expressly authorized
by law or incident to its
existence. (Section 2. Batas
Pambansa 68)
 TEST TO DETERMINE THE
NATIONALITY OF CORPORATION

1. Incorporation test –
Determined by the state
of incorporation,
regardless of the
nationality of the
stockholders.
 TEST TO DETERMINE THE
NATIONALITY OF CORPORATION

2. Domiciliary test –
Determined by the
principal place of
business of the
corporation.
 TEST TO DETERMINE THE
NATIONALITY OF CORPORATION

3. Control test – Determined

by the nationality of the
controlling stockholders or
members. This test is
applied in times of war.
 REASONS WHY NATIONALITY OF
CORPORATION IS IMPORTANT

To know what laws will govern the

corporation on the following matters:
1. Creation, formation, organization
and dissolution of corporation;
2.Relations, liabilities,
responsibilities and duties of
members, stockholders, or officer of
corporations to each other or to the
corporation.
 DIFFERENCE BETWEEN
CORPORATION AND PARTNERSHIP

1. Extent of Liability

Corporation - Stockholders liability

up to unpaid subscription.

Partnership- Liability of general

partners up to private properties
 DIFFERENCE BETWEEN
CORPORATION AND PARTNERSHIP
2. Effect of death withdrawal or
resignation of stockholder or partner.

Corporation - No effect

Partnership - Partnership is dissolved

 DIFFERENCE BETWEEN
CORPORATION AND PARTNERSHIP
3. Duration

Corporation - 50 years renewable for

periods of 50 years.

Partnership - Indefinite period except if

with a fixed term.
 DIFFERENCE BETWEEN
CORPORATION AND PARTNERSHIP

4. Transfer of interest

Corporation - Transferable without

consent of others.

Partnership - Consent of other

partners required.
 DIFFERENCE BETWEEN
CORPORATION AND PARTNERSHIP

5. How created

Corporation – by law

Partnership - by agreement
 DIFFERENCE BETWEEN
CORPORATION AND PARTNERSHIP
6. Powers

Corporation – Can exercise only those

powers expressly granted to them

Partnership - Can exercise any power

except those prohibited by law, morals,
good custom and public policy
 DIFFERENCE BETWEEN
CORPORATION AND PARTNERSHIP

7. How managed
Corporation – Through the board
of directors.

Partnership - Manage by all

partners, or through a managing
partners.
ATTRIBUTES OF A
CORPORATION
 ATTRIBUTES OF A CORPORATION

1. Artificial being with separate

and distinct personality.

2. Created by operation of law

3. Rights of succession
 ATTRIBUTES OF A CORPORATION

4. Power, attributes and

properties expressly authorized
by law or incident to its
existence.

10/8/2018
 ARTIFICIAL BEING WITH
SEPARATE PERSONALITY

10/8/2018
 DOCTRINE OF SEPARATE
PERSONALITY

A corporation is a legal or juridical

person with a personality separate and
apart from its individual stockholders
or members and from any other legal
entity to which it may be connected
(The Corporation Code of the
Philippines, Hector S. De Leon &
Hector M. De Leon, Jr., 2006 ed.).

10/8/2018
 CONSEQUENCES
SEPARATE PERSONALITY

10/8/2018
 a. Liability for acts or contracts
The general rule is that obligations
incurred by a corporation, acting
through its authorized agents are its
sole liabilities. Similarly, a corporation
may not generally, be made to answer
for acts or liabilities of its stockholders
or members or those of the legal
entities to which it may be connected
and vice versa (Creese vs. CA, 93
SCRA 483).
10/8/2018
 b. Right to bring actions
It may bring civil and criminal
actions in its own name in the
same manner as natural
persons (Art. 46, NCC).
Ex. Pepsi cola can file a case
against sarsi.

10/8/2018
c. Right to acquire and possess
property
Property conveyed to or
acquired by the corporation is
in law the property of the
corporation itself as a distinct
legal entity and not that of the
stockholders or members (Art.
44(3), NCC).
10/8/2018
 d. Acquisition of court of
jurisdiction
Service of summons may be
made on the president,
general manager, corporate
secretary, treasurer or in-
house counsel (Sec. 11,
Rule 14, Rules of Court).
10/8/2018
 e. Changes in individual
membership
Corporation remains
unchanged and unaffected in
its identity by changes in its
individual membership (The
Corporation Code of the
Philippines Annotated, Hector
de Leon, 2002 ed.).
10/8/2018
 f. Entitlement to
constitutional guaranties
Corporations are entitled to
certain constitutional rights:
a. Due process (Albert v.
University Publishing, Inc. 13
SCRA 84 [1965])
b. Equal Protection of the law
(Smith, Bell & Co. v. Natividad, 40
Phil. 136 [1919])
10/8/2018
 f. Entitlement to
constitutional guaranties
c. Protection against
unreasonable
searches and seizures
(Stonehill v. Diokno, 20
SCRA 383 [1967])
10/8/2018
 g. Entitlement to constitutional
guaranties
However, it is not entitled to certain
constitutional rights such as political rights
or purely personal rights not only because it
is an artificial being but also because it is a
mere creature of law (Reviewer in
Commercial Law, Jose R. Sundiang &
Timoteo Aquino, 2005 ed.)

Ex. Right against self-incrimination (Bataan

Shipyard v. PCGG, 150 SCRA [1987]).
10/8/2018
 h. Moral Damages

A corporation is not entitled

to moral damages because
it has no feelings, no
emotions, no senses (ABS-
CBN vs. Court of Appeals,
G.R. No. 128690, Jan. 21,
1999).
10/8/2018
 Obiter Dictum
An obiter dictum has been defined
as an opinion expressed by a court
upon some question of law which
is not necessary to the decision of
the case before it. It is a remark
made, or opinion expressed, by a
judge, in his decision upon a
cause, by the way, that is,
incidentally or collaterally, and not
10/8/2018
 Obiter Dictum
directly upon the question before
him, or upon a point not
necessarily involved in the
determination of the cause, or
introduced by way of illustration,
or analogy or argument. Such are
not binding as precedent.
(Villanueva Jr. vs. CA et al. GR
142947)
10/8/2018
 Moral Damages
Amount of compensation for wounded
feelings.
Moral damages include the “physical
suffering, mental anguish, fright,
serious anxiety, besmirched reputation,
wounded feelings, moral shock, social
humiliation, and similar injury.
(Ventanilla vs. Centeno G.R. No. L-
14333.)
10/8/2018
 i. Liability for torts
A corporation is liable whenever a
tortuous act is committed by an officer
or agent under the express direction
or authority of the stockholders or
members acting as a body, or,
generally, from the directors as the
governing body (PNB vs. CA, 83 SCRA
237 [1978]).

10/8/2018
 j. Liability for Crimes
Since a corporation is a mere legal
fiction, it cannot be held liable for a
crime committed by its officers since it
does not have the essential element of
malice, except if by express provision
of law, the corporation is held
criminally liable. In such case the
responsible officers would be
criminally liable (People vs. Tan Boon
Kong, 54 Phil. 607 [1930]).
10/8/2018
2. CREATED BY OPERATION OF LAW

“by operation of law" is a

legal term that indicates
that a right or liability has
been created for a party,
because it is dictated by
existing legal principles.
3. RIGHTS OF SUCCESSION

The law provides who

takes over a company
if certain situations
occur. (Usually person
with majority shares)
RIGHTS OF SUCCESSION
Perpetual succession is the
continuation of existence of the
corporation despite the death,
bankruptcy, insanity, change
in membership or an exit from
the business of any owner or
member, or any transfer of
stock etc.
RIGHTS OF SUCCESSION
Thus the life of the company
does not depend upon the life
of its members it shall
continue forever irrespective
of continuity of its members or
directors, except in case of
winding up or liquidation of a
company.
4. POWER, ATTRIBUTES AND PROPERTIES
EXPRESSLY AUTHORIZED BY LAW OR
INCIDENT TO ITS EXISTENCE

The powers, attributes

and properties of a
corporation is also
provided for by law or by
the nature of its
business.
CLASSIFICATION OF
CORPORATION
 CLASSES OF
CORPORATION

1. Stock Corporation

2. Non-stock Corporation
1. STOCK CORPORATION
Stock Corporations – are
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.
 STOCK CORPORATION
ARE DIVIDED INTO

1. Par Value Stock

Corporation
2. No Par Value
Stock Corporation
WHAT IS PAR VALUE FOR A SHARE

Par value for a share

refers to the stock
value stated in the
corporate charter
MARKET VALUE OF STOCK
Par value is the amount of
stocks specified in the articles
of incorporation.

Market Value is the selling

price of the stock in the stock
market.
1. PAR VALUE STOCK
CORPORATION
Par Value Stock Corporation where
the par value of shares issued is stated
in the articles of incorporation and
which value remains generally
unchangeable.

Par value of stock is different from its

market value. The market price of the
stock of well established companies is
usually much higher than its par value.
 ISSUANCE OF
PAR VALUE STOCK
The par value stock can be issued in
three ways – at par, above par and
below par.
1. When stock is issued at a price
equal to its par value, it is said to be
issued at par.
EXAMPLE AT PAR
Stock with P100 par value issued at
P100
 ISSUANCE OF
PAR VALUE STOCK
2. When stock is issued at a price
higher than its par value, it is said to
have been issued above par.

EXAMPLE ABOVE PAR

Stock with P100 par value issued at P150
 ISSUANCE OF
PAR VALUE STOCK
3. When stock is issued at a price
lower than its par value, it is said to
have been issued below par.

EXAMPLE BELOW PAR

Stock with P100 par value issued at P75
 NO PAR VALUE STOCK
A no-par value stock is issued without
the specification of a par
value indicated in the company's
articles of incorporation or on the
stock certificate itself.

No-par value stock prices are

determined by what investors are
willing to pay for them in the market.
 NO PAR VALUE STOCK

Companies may find it beneficial to

issue no-par value stock as they
have flexibility in setting higher
prices for future public offerings
and have less liability to
shareholders in the case their
stock falls dramatically.

10/8/2018
 REASON FOR PRICE FLUCTUATIONS OF
STOCK PRICES IN THE MARKET

The vast bulk of stock trades are

made by professional traders who
buy and sell shares all day long,
hoping to profit from small changes
in share prices. If a trader believes
that others will buy shares (in the
expectation that prices will rise),
then she will buy as well, hoping to
sell when the price rises.
2. NON-STOCK CORPORATION

All other corporations are

non-stock corporations.

(Section 3. Batas Pambansa 68)

 REQUISITE TO BE CLASSIFIED
AS STOCK CORPORATION
1. The corporation have a capital stock
divided into shares; and

2. The corporation are authorized to

distribute dividends or allotments as
surplus profits to its stockholder on
the basis of the shares held by them.
 OTHER CLASSES OF CORPORATION

1.Public corporations EXAMPLE OF PUBLIC

- those created, CORPORATION
formed or organized National Food Authority
is mandated to ensure
for political or national food security
governmental and stabilize supply
purposes with and prices of staple
political powers to be cereals both in the farm
exercised for and consumer levels.
purposes connected TESDA is tasked to
manage and supervise
with the public good technical education
in the administration and skills development
of civil government. (TESD) in the
Philippines.
 OTHER CLASSES OF CORPORATION

2.Private corpo EXAMPLE OF

rations– those PRIVATE
formed for CORPORATION
some private San Miguel
purpose, Corporation,
benefit, aim or Ayala Land Inc.
end.
 OTHER CLASSES OF CORPORATION

3.Ecclesiastical or EXAMPLE OF
religious corporations– ECCLESIASTICAL
those composed
CORPORATION
exclusively of
ecclesiastics organized
for spiritual purposes Roman Catholic
or for administering Churches
properties held for
religious ones. They
are further classified as
religious societies or
corporation sole.
 OTHER CLASSES OF CORPORATION

4. Eleemosynary
Lay corporations– corporations are
created for
those established charitable and
for the purposes benevolent
other purposes.
than religion. Civil corporations
are organized not
for the purpose of
They are further public charity but
for the benefit,
classified as pecuniary or
eleemosynary or otherwise, of its
civil. members.
 OTHER CLASSES OF CORPORATION

5. Aggregate corporation–
those composed of
a number of individuals
vested with corporate
powers.
 OTHER CLASSES OF CORPORATION

6. EXAMPLE OF
Corporations sole– CORPORATION
those that consist of
one person or SOLE
individual only and
who are made as
bodies corporate Bishops (for and in
and politic in order behalf of the church
to give them some represented by him)
legal capacity and
advantage which,
as natural persons,
they cannot have.
 OTHER CLASSES OF CORPORATION

7.Close corpor 8.Open corpora

ations- those tions– those
whose shares formed to
of stock are openly accept
held by limited
number of outsiders as
persons. stockholders or
investors.
 OTHER CLASSES OF CORPORATION

9.Domestic cor EXAMPLE OF

porations– DOMESTIC
those that are CORPORATION
organized or San Miguel
created under Corporation
or by virtue of
the Philippine
laws.
 OTHER CLASSES OF CORPORATION

10. Foreign corporations– those

formed, organized or existing
under any laws other than those
of the Philippines and whose laws
allow Filipino citizens and
corporations to do business in its
own country or state.
 OTHER CLASSES OF CORPORATION

EXAMPLE
11.Holding corpo
JGS(JG Summit) of the
rations– Gokingwei’s,
corporations AC(Ayala Corp.) of the Ayala’s,
SM(SM Investments) of
that confine their the Sy’s,
activities to LPZ(Lopez Group) of the
Lopez’s, and
owning stock in, MPI(Metro Pacific
and supervising Investments) of Manny V.
Pangilinan of First Pacific
management of are the known holding firms
other companies. in the Philippines.
 OTHER CLASSES OF CORPORATION

12.Subsidiary corp EXAMPLE

San Miguel Corporation is
orations–those the Philippines’ largest
which another food, beverage, and
packaging company. Its
corporation owns divisions and subsidiaries
include San Miguel
at least a majority Beer, Ginebra San Miguel,
of the shares, and Incorporated, Coca-Cola
Bottlers Philippines
thus have control. Inc., Purefoods-Hormer
Company, San Miguel
Packaging Products, and
other businesses.
 OTHER CLASSES OF CORPORATION

13. Affiliates– EXAMPLE

those SM Group of
corporations companies affiliates
which are subject SM Shoemart
to common SM Appliance
control and Center
operated as part SM Cinema
of a system. Megatrade Hall
Toy Kingdom
 OTHER CLASSES OF CORPORATION

14. Quasi- EXAMPLE

public corporations– Leyte Water District
private corporations
which have accepted Malolos Water
from the State the District
grant of a franchise
or contract involving
the performance of
public duties (public
service corporations).
 References
San Beda Corporation Law
Memory Aid
Wikipedia
Batas Natin Law Library

10/8/2018