CORPORATION LAW
Introduction
Different forms of business organization
Individual Proprietorship: individual operates a small
business with a limited capital. Registration to DTI
Partnership: by the contract of partnership, two or more
persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of
dividing the profits among themselves. Two or more
persons may also form a partnership for the exercise of
profession. (article 1767 CC)Registration to SEC
Joint Stock Company: formed under a contract and
requires no special sanction from the state/ The
members are liable jointly and severally for the
company’s debts.
Cooperative Association: Registration to the Cooperative
development authority
Business trust: formed by a contract and that te title to
the properties and the conduct of business is in the
hands of trustees who act for a large group of
beneficiaries.
Corporation: Creation of law and all its rights, powers
and duties are derived from legislation.
Theories of Corporations
1. Ethnological Theory: under this theory, the
corporate idea therefor, is the product of no
one people and no one country, but on the
contrary, developed more or less
independently, in varying forms among several
ethnological units.
2. Imitative Theory:
SECTION 1
Corporation an artificial being created by operation of
law, having the right of succession and the powers,
attributes and properties expressly authorized by law or
incidental to its existence. ABCOL RS PAPEAL IE
A corporation is a legal or a 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.
It has a personality separate and distinct from its
stockholders.
Corporate officers cannot be held liable for their own
acts so long as they acted within the scope of their
authority and in good faith.
Properties of corporation cannot be sold by the
stockholder without express authority from the board.
Their interest is merely indirect, contingent and
inchoate. Hence, they have no right to intervene in a
litigation involving the property of corporation.
Instances when corporate officers can be held liable in
their personal capacity
1. Acted maliciously or in bad faith or with gross
negligence;
2. Agreed to hold himself personally and solidarilly
liable with the corporation;
3. Made personally liable for corporate action by a
specific provision of law;
4. When it is proven that the officer has used the
fiction of separate corporate personality to
defraud a third party or for wrongful ends.
Corporation not entitled to Moral Damages
A juridical person is not entitled to moral damages
because, not being a natural person, it cannot
experience physical suffering or such sentiments as
wounded feelings. However, a corporation may have a
good reputation which if debased or besmirched
resulting in social humiliation, may be a ground for
recovery of moral damages and attorney’s fees.
Doctrine of Peircing the Veil of Corporate Fiction
Being a mere creation of law, a corporation may be
allowed to exist solely for lawful purposes but where
the fiction of corporate entity is being used as a cloak or
cover for fraud or illegality, or to “defeat public
convenience, justify a wrong, protect fraud, or to
defend a crime”, or for ends subversive of the policy
and purpose behind its creation. On equitable
consideration, this fiction will be disregarded and the
CORPORATION LAW
individuals composing it or two corporations will be instrumentality, agency, conduit or adjunct of
treated as identical. another corporation.

Law will not recognize the separate and distinct

personality; this non-recognition is called the doctrine
Sec. 2 page 30
of piercing the veil of corporate fiction.

The rationale is to remove the barrier between the

corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use the
corporate personality as a shield for undertaking certain
proscribed activities.

The wrongdoing must be clearly and convincingly

established; it cannot be presumed. The presumption is
that the stockholders or officers and the corporation
have distinct separate juridical personality.

Burden of proof falls upon the party seeking to pierce

the veil.

 Effect of Liability
In any of the cases where the separate corporate
identity is disregarded, the corporation will be treated
merely as an association of persons and the
stockholders or members will be considered as the
corporation, that is, the liability will attach personally or
directly to the officers and the stockholders; or when
there are two corporations, they will be merged into
one, the one being regarded merely as the
instrumentality, agency, conduit or adjunct of the other.
Even if fraud is established, this fact alone is not
sufficient to justify the piercing of the veil where it is
not sought to hold the officers and stockholders
personally liable for corporate debt.

 Application of the Doctrine in Three Areas

1. Defeat public convenience – as when the
corporate fiction is used as a vehicle for the
evasion of an existing obligation;
2. Fraud Cases – or when the corporate entity is
used to justify a wrong, protect a fraud or
defend a crime;
3. Alter ego cases – where a corporation is merely
a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is
so organized and controlled and its affairs are
so conducted as to make it merely an