Corporate Law

A. Corporation Code
1. Is the body of law governing the rights, relations, and conduct of persons, companies,
organizations and businesses. It refers to the legal practice relating to, or the theory
of corporations.
“Corporation” - Collection of individuals united into one body, under a special denomination,
having perpetual succession under an artificial form, and vested by the policy of aw with the
capacity of acting in several respect as an individual, according to the design of institution or
powers conferred upon it either at the time of its creation or any subsequent period of its
existence

2. Attributes of Corporation

Sec. 2 it is an artificial being;

it is created by operation of law;

it has the right of succession;

it has the powers, attributes and properties expressly authorized by law or incident
to its existence

TYPES OF BUSINESS ORGANIZATION

1. SOLE PROPRIETORSHIP – business organization with only 1 proprietor. A single individual

conducts business under his own name or business name
“business name” refers to any name different from the true name of an individual which is
used or signed in connection with his/her business. It is required to register to Bureau of
Trade Regulation and Consumer Protection of Department of Trade and Industry
2. PARTNERSHIP – when 2 or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves
3. JOINT ACCOUNT – when there is an arrangement whereby merchants, contributing the
amount they agreed upon and determine their proportion.
4. BUSINESS TRUST – legal relation whereby one person called the “trustor” conveys a
property to another for the benefit of a person called the “benificiary”
5. JOINT VENTURE – association of persons or companies undertaking some commercial
enterprise. Generally all contributes asset and share risk
** S corporation may enter this through contract or agreement if nature is in line with the
business authorized by their chapters
6. SYNCATE - group of people who come together to work for a common aim

B. Classes of Corporation

As to no. of components:

1. Aggregate corporation- a corporation consisting of more than one member

2. Corporation sole – consisting of only one person or member

As to Functions:

1. Public Functions – corporation organized for the government of a portion of a State(like

cities and municipalities) for the purpose of serving the general good and welfare
 2. Private Functions – formed for some private purpose, benefit, aim or end. They may be stock
or non-stock

As to manner of creation

1. Corporation created by special law – created by Congress through special law. Such
corporation must be government owned or controlled.
2. Corporation created under general law – created under Corporation Code or old Corporation
Law
3. Corporations by prescription – a corporation that was not formally organized as such but has
been duly recognized by immemorial usage as corporation, with rights and duties
enforceable under the law

As to legal status:

1. De jure corporation – organized in accordance with requirements of law

2. De facto corporation – a corporation that is formed where there exist a flaw in its
corporation but there is colorable compliance with the requirements of law
3. Corporation by estoppel – a group of persons which holds itself out as a corporation and
enters into a contract with third person on the strength of such appearance cannot be
permitted to deny its existence in an action under said contract.

As to existence of stocks

1. Stock corporation – a corporation with capital stock is divided into shares and is authorized
to distribute to holders thereof of such shared dividends or allotments of the surplus profits
on the basis of the shares held
2. Non-stock corporation – a corporation that does not issue stocks and does not distribute
dividends to its members

As law of incorporation

1. Domestic corporation – formed, organized and existing under the Philippine law
2. Foreign corporation - formed, organized and existing under any laws other than those of the
Philippine and whose allow Filipino citizens and corporation to do business in its own
country or state

Special types of corporation under Corporation Code

1. Close corporation – a corporation whose articles of incorporation provide that: (1) All the
corporation’s issued stock of all classes, exclusive of treasury shares, shall be held of record
by not more than a specified number of persons, not exceeding twenty (20); (2) all the
issued stock of all classes shall be subject to one or more specified restrictions on transfer
permitted by this Title; and (3) The corporation shall not list in any stock exchange or make
any public offering of any of its stock of any class.
2. Special Corporation – type of corporation that includes an educational corporation and a
religious corporation. Religious Corporation includes corporation sole and religious societies.

Ecclesiastical Corporation and Lay Corporation

1. Ecclesiastical Corporation – composing entirely of spiritual persons like bishops, deacons and
the like and are established for the furtherance of religion and for perpetuating the rights of
a church
2. Lay Corporation – all corporations other than ecclesiastical

Eleemosynary and Civil Corporation

 1. Eleemosynary Corporation - created not for private gain or profit but for charitable purposes
doe the administration of charitable trust. This corporation is lay corporation.
2. Civil Corporation – not for the purpose of charity but for the benefit, pecuniary or otherwise
of its members

As to relationship:

1. Subsidiary – a corporation more than 50% of the voting stock of which is owned or
controlled directly or indirectly through one or more intermediaries by another corporation,
which thereby becomes a parent company
2. Affiliate – directly or indirectly, through one or more intermediaries, is controlled by, or is
under the control of another corporation which thereby becomes its parent company
3. Parent Corporation – a corporation that has control over another corporation directly or
indirectly through one or more intermediaries. It is the corporation that owns all or
substantially all or the controlling shares in the industry.

As to

1. Private Corporation – organized under Corporation Law

2. Public Corporation – may refer to government owned. It is formed or organized for the
state.

C. Nationality of Corporations - Shares belonging to corporations or partnerships at least 60% of the

capital of which is owned by Filipino citizens shall be considered as Domestic Corporation

1. Place of incorporation test – the sovereignty by which a corporation was created determines its
national character and the facts that some of its incorporators were residents and citizens of foreign
country does not change this rule.

2. Control Test - Under the control test, if, on the basis of the documents submitted, it can be seen that
at least 60 percent of a corporation’s capital is owned by Filipinos, the corporation will be
considered of Philippine nationality.
Once the 60 percent Filipino ownership is established, no further inquiries will be made on the
citizenship of the rest of the stockholders.

3. Grandfather Rule - The grandfather rule, on the other hand, provides that the nationality of the
stockholders is material or critical in determining the nationality of a corporation or its compliance
with our laws on permissible foreign investments.

*the control test is still the prevailing mode of determining whether or not a corporation is a Filipino
corporation. When in mind of the Court there is doubt, then it may apply the Grandfather Rule.

D. Corporate Judicial Personality

1. Doctrine of Separate Judicial Personality – the corporation is separate and distinct to its
incorporators and stockholders. It can file a case against another and be sued upon.

a. Liability for Torts and Damages – may be liable in the same manner as a natural person
for torts because generally speaking, the rules governing the liability of a principal or
master for a tort committed by an agent or servant are the same whether the principal
or master be a natural or a corporation and whether agent or servant be a natural or
artificial person.
 b. Recovery for Moral Damages – cannot be granted in favor of corporation because being
an artificial person and having existence only in legal contemplation, it has no feeling, no
emotions, no sense
2. Doctrine of Piercing the Veil –soctrine that allows the state to disregard the notion of
separate personality of a corporation for justifiable reason. It is an exception to the Separate
Judicial Personality of a corporation.
a. Grounds for Application
Violation of alter-ego doctrine
Existence of fraud
Failure to maintain the separate identity of the copmpany
b. The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:

1. Control, not mere majority or complete stock control, but complete domination,
not only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and

3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual
defendant's relationship to that operation.