Essentially, the concepts of the Corporation Code has not much change, except the introduction of new concepts,

example. the One Person Corporation, etc. But as to the effects in forming a corporation is still the same (to the old
Corporation Code).

Definition;

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.

What are the Four Attributes of a Corporation?

(1) It is an Artificial Being; Under this, you cannot exist as a corporation, unless the State
(2) It is created by operation of law; grants you separate juridical personality.

Under the Theory of Concession – the separate juridical

existence of a corporation is a concession given to it by the State.
It becomes an artificial being when the State gives its consent to
its creation, giving it such powers as provided for by law.
(3) It has the Right to Succession; and The attribute of the right to succession, because of the grant of
the State of separate juridical entity, its existence is separate
from the members or stockholders which composed it.
Therefore, even if there are changes in the membership or in the
stockholdings, it will remain to be the same corporation,
because, of its separate juridical existence or personality was
given, not in the individual members but to the corporation.

So long as at the onset, when the corporation tried to register, it

was granted registration because it complied with all the
requirements, provided under the Corporation Code. (from 2017
onwards – the Revised Corporation Code)
(4) The Powers, Attributes and Properties expressly
authorized by law or incident to its existence.

THEORIES ON THE FORMATION OF A CORPORATION

A. Theory of Concession – It is the general rule. Meaning, the State will grant the corporation, once registered, a
separate juridical personality. In relation to this is the Doctrine of limited liability for stockholders.

B. In instances where the corporation, its artificial existence is used as a means to commit fraud, to commit
violations of law, the doctrine of piercing the veil of corporate entity, the underlying theory there is theTheory
of Business Enterprise.

Where the Supreme Court recognizes the Corporation as an aggregate or aggregation of persons, doing
business, as a business enterprise. Therefore, in instances where there are allegations of fraud, violations of law,
when the corporate existence is used as a means to defeat public convenience, the court will use the theory of
business enterprise rather than the theory of concession, theory of limited liability, or doctrine of separate
juridical entity, because the corporation is used to escape liability. Therefore, the Supreme Court should have a
justification to make the individual members, stockholders, officers or directors liable.

The court recognizes, that a corporation, albeit it is granted a separate juridical personality, is ctually composed
of persons who undertake its business on its behalf.
FOUR BASIC ADVANTAGES OF A CORPORATE ORGANIZATION

(1) Strong juridical personality – the rights and obligations of the corporation is its own.

(2) Limited liability to its stockholders – there is limited liability to stockholders, because they are considered as
separate and distinct, whatever liabilities and obligations of the corporation will not be passed upon to its
individual stockholders or officers or directors, so long as the things, transactions, contracts entered into by that
corporation, is intra vires, meaning within its powers which are those expressly provided for under the
Corporation Code and those incidental to those express powers.

TRUST FUND DOCTRINE – those who subscribe to, or invest in a corporation, may only be made liable to the
extent of their subscription or investment in the corporation, and cannot be ran after and cannot be made liable
any further than what they have subscribe into that particular corporation.

On the other side (dalawang side yung trust fund doctrine), the subscription of the stockholders or the
investment of members of a corporation is intended to ensure that all the obligations and liabilities of the
corporation will be answered by those subscriptions or investments, such that, if you remember, in the old
Corporation Code, there is a minimum capitalization requirement, the outstanding capital stock should be
subscribe at least 25% and must be paid up in subscription up to atleast 25%.

But in any case, in the Revised Corporation Code, that initial requirement is no longer required. However, kahit
is lang yung binayaran, kunwari 100 shares, yun yung outstanding capital stock ng corporation, then you
subscribe only to 10 shares but you paid only one, you are liable for the 10 shares. And you relate this to
delinquent stocks, diba later on, when the corporation, either in the Articles of Incorporation or in the
Subscription Agreement, that there is a time where all of your subscriptions will become due or by the board
members call for the payment of that balance of your subscription, then after 30days it will become delinquent.

So you are actually liable, even if you paid up only one of your shares, you are liable for the entire shares,
because of the Trust Fund Doctrine.

The one side of the Trust Fund Doctrine is that you are only liable for that amount (kung magakano or ilan lang
yung subscription mo), but on the other side, even if you paid only one share but you subscribe 10 shares, you
are liable for every share that you subscribe. That promise to pay for that subscription, will ensure that the
corporation will be able to meet, to pay, its obligations and liabilities.

(3) Centralized management – a corporation acts through its board of directors if it’s a stock corporation, or
through its board of trustees if it is a non-stock corporation. Remember for a non-stock corporation, it can
actually designate its board of trustees, its Articles of Incorporation or by-laws as any other name, it is not
necessary that ang tawag sa kanila shall be board of trustees, pwedeng board of governor, kahit anong tawag sa
kanila, basta they are the group of people who will vote for or govern the day to day existence of the
corporation, or they will represent the decision making process of the corporation and how it is governed on the
daily basis.

(4) Free Transferability of Units of Ownership – this applies to stock corporation, where ownership of a share, in a
particular corporation, is a property right, unless otherwise, limited in the Articles of Incorporation or certificate
of Stock and in the titles, then you can freely sell it, transfer it, convey it, enjoy it, dispose it, as an owner. Of
course, for example, there are restrictions, the restriction cannot go beyond preventing him to sell this particular
stock to any other person. The most that the corporation can do is, to restrict it. For example, there is pre-
emptive right under the Corporation Code, and or there is grant for right of first refusal, but the corporation
cannot absolutely prevent him from disposing his stocks or ownership of that stocks.

For non-stock corporations, the general rule is still you can sell it, unless it is limited, restricted in its Articles of
Incorporation and its By-laws. For non-stock corporation, it can be more than just a right of first refusal or pre-
emptive right because you can actually limit as to whom you can sell your share (For example: Golf and Country
club, there can be, based on its AOI and by-laws, a procedure before you can enter into that club, so pwede
maging mas tedious ang sa non-stock corporation).

PIERCING THE VEIL OF CORPORATE FICTION – this is an exception to the rule on separate juridical personality of
a corporation.

Three Basic Areas of Application:

(1) Equity Piercing – the separate juridical personality of a corporation cannot be used to defeat public
convenience. In this case, there may be a valid corporation, a corporation which really exist for a legal
purpose. However, along the way, it used its separate corporate personality to defeat public convenience,
meaning to deny liability to certain legal obligation (for example, Tax)

(2) Fraud Piercing – it uses its separate juridical personality to commit fraud, violation of law to protect fraud or
defend any crime. This might be instances where there is really a corporation conducting a legal business.

(3) Alter-ego Piercing or Instrumentality Test – this is generally creation of a corporation in order to commit
either to defeat public convenience or to commit fraud or crime.

So, the difference between the three areas, is that the first and second areas presupposes a corporation already
conducting legal business, but eventually it uses its separate juridical personality as a means to commit fraud to
violate laws, etc. In alter-ego in determining through the instrumentality test, usually the corporation is
incorporated or registered to commit fraud. In the last one, wala talagang legal purpose si corporation, but to
commit fraud, so the corporation is used by the person or aggregate group of persons to commit violations of
law , fraud, defeat public convenience, etc. (20:35)