REVISED CORPORATION CODE 4.

It has the powers, attributes and properties

expressly authorized by law or incident to its
A. Corporation definition
existence.
A corporation is an artificial being1 created Doctrine of limited capacity
by operation of law2, having the right of succession3 - A corporation can exercise only the
and the powers, attributes, and properties expressly powers expressly conferred upon it by
authorized by law or incident to its existence.4 law and its articles of incorporation,
those implied from such powers
Attributes
expressly granted, and those that are
1. It is an artificial being. incident to its existence.
- Having a personality separate and - Any act exercised outside of such powers
distinct from the stockholders or is unauthorized and considered ultra
members vires.
- Corporation commences upon the
Similarities between a corporation and a
issuance of its certificate of
partnership
incorporation.
1. Both have a separate juridical personality.
Exception: Doctrine of Piercing the Veil of
2. Both are artificial persons. (Having no bodily
corporate entity or corporate fiction
existence, and can only act through agents)
- A doctrine that can disregard the 3. Both are composed of a group of persons
separate personality of a corporation with the exception of a corporation sole.
due to the following actions: 4. A partnership is taxed as a corporation, with
o Defeat public convenience the exception of a general professional
o Justify a wrong partnership.
o Protect fraud, or
Distinctions between a corporation and a
o Defend a crime
partnership
o Alter ego cases
▪ Where a corporation is Point of Corporation Partnership
merely a farce Comparison
- If disregarded, the corporation will be Manner of Created by Created by
treated as an association of persons and creation operation of mere
the stockholders or members will be law agreement of
considered as the corporation. the parties
Number of Formed by 5 May be formed
2. It is created by operation of law. organizers or more by 2 or more
persons but persons
- A corporation does not come into
not exceeding
existence by the mere agreement of the
15, except a
parties. corporation
- Persons desiring to form a private sole
corporation must comply with the Right of Has the right No right of
requirements of the law governing its succession of succession succession
creation. Powers Can only May exercise
exercise the any power
3. It has the right of succession. powers provided it is
- A corporation continues to exist for the expressly authorized by
period for which it has been formed authorized by the partners
regardless of changes in the ownership law or and is not
of its stocks or in its membership. incident to its contrary to law,
existence morals, good
- Its existence is not affected by the death,
customs, public
insolvency, or incapacity of the individual
order or policy
stockholders or members.
Management Acts through Acts through all
its board of the general
directors partners each
one of whom is
 considered an B. Classification of corporations
agent of the
partnership 1. As to whether shares of stock are issued or
unless not
otherwise
agreed Stock - Has capital divided into shares
Liability of Stockholders General - Authorized to distribute dividends
members for or members partners are or allotments of the surplus profits
debts are not liable liable with their on the basis of shares held
for the separate assets Non-stock - No part of the income of which is
obligations of for partnership distributable as dividends to its
the debts members, trustees or officers:
corporation Provided, that any profit which a
Commencement Commences Commences nonstock corporation may obtain
of existence on the date of upon the incidental to its operations shall,
the issuance execution of whenever necessary or proper, be
of its partnership used for the furtherance of the
certificate of contract, unless purpose or purposes for which the
incorporation a different date corporation was organized
is set by the
partners
2. As to the state or country under whose laws
Transferability Stockholders Partners cannot
it was created: Laws of Incorporation
of interest can transfer transfer their
their shares to interest to a Domestic Incorporated under Philippine laws
another third person Foreign - Formed, organized and existing
person without the under any laws other than those of
without the consent of the the Philippines
consent of the other partners - Whose laws allow Filipino citizens
other and corporations to do business in its
stockholders own country
Term of May exist for a May be formed
existence period not for an indefinite
exceeding 50 period 3. As to number of persons composing them
years
Corporation aggregate - Composed of more than
Dissolution Cannot be May be
one corporator
dissolved dissolved by the
without the partners
Corporation sole - Composed of only one
consent of the
person, like a bishop or rabbi
State
Firm name A corporation A limited
may adopt a partnership is 4. As to whether its purpose is public or private
firm name required to add
provided it is the word ‘Ltd.’ Public - Organized for the government of a
not identical to its name. portion of the state which have for their
or deceptively purpose the general good and welfare,
similar to any like provinces, cities, municipalities and
registered barangays
firm name or Private - Formed for a private purpose or end,
contrary to benefit, or aim, like Jollibee Foods
existing laws. Corporation
Governing laws Corporation Civil Code This classification includes the following:
Code 1. Government-owned or
controlled
- Created under a special law other than
those for the government of a portion of
the State, such as the Land Bank, GSIS,
etc.
 - Formed under the Corporation Code Some defects that will result in the
where the government owns at least a creation of a de facto corporation are:
majority of its outstanding voting capital 1. When majority of the incorporators
stock are not residents of the Philippines
- May be performing governmental or 2. When the name of the corporation is
proprietary function similar to that of an existing
2. Quasi-public
corporation or one that is protected
- Organized for profit which are granted
by law
a franchise by the State to perform
public service, such as Meralco 3. When the acknowledgement is
defective

3. As to whether its purpose is religious or not However, the following will preclude
even the existence of a de facto
Ecclesiastical or Formed for a religious purpose corporation:
religious
1. Absence of articles of incorporation
Lay Formed for a purpose other than 2. Failure to file the articles of
ecclesiastical or religious incorporation
6. As to their relation to another corporation or
other corporations: Control
4. As to whether its purpose is charitable or
not Parent or holding - Owns the share of another
corporation
Eleemosynary Organized for public charity - Having power, directly or
indirectly, over the latter
Civil Organized for business or profit including the election of the
directors thereof
5. As to their legal right to corporate existence Subsidiary - Whose shares of stock are
owned by another
De jure - Created in strict compliance with all corporation
the legal requirements
- Whose right to exist as a corporation
cannot be successfully attacked in a 7. As to whether its shares may be held by the
direct proceeding for that purpose by public or not
the State Close Whose shares are limited to a few and
De facto - Defectively created but there is an restricted as to their transfer, and not
exercise of corporate rights and listed in any stock exchange
franchise resulting from an attempt in Open Whose shares are open to the public such
good faith to incorporate on the part as those whose shares are listed in the
of its members stock exchanges
- Has all the powers of a de jure
corporation but its due existence can
be attacked directly in a quo warranto 8. Other classifications
proceeding
Corporation by - Has exercised corporate
prescription powers for such a length
For a de facto corporation to exist, the of time without
following conditions must be present: interference by the State
1. There must be a valid law under - Which by fiction of law,
which it is incorporated. is given the status of a
2. There must be an attempt in good corporation
faith to incorporate. Corporation by Which is in reality not a
3. There must be an actual exercise of estoppel corporation but is
considered as one with
corporate powers.
respect to those who are
4. A certificate of incorporation is
precluded by their
issued despite a defect in its admission or conduct
incorporation. from denying its existence
 Liability of persons assuming to act as a - No foreign equity – mass
corporation and those dealing with it (Sec. 21) media by mandate of the 1987
constitution
1. All persons who assume to act as a - Up to 25% foreign equity –
corporation knowing it to be without private recruitment, whether
authority to do so shall be liable as for local or overseas
general partners for all debts, liabilities employment by mandate of PD
and damages incurred arising as a result No. 442
thereof. - Up to 40% foreign equity –
2. Any person who assumes an obligation ownership of private lands by
to an ostensible corporation as such, mandate of the Constitution
cannot resist performance thereof on - If a corporation is at least 60%
the ground that there was in fact no Filipino-owned, then all shares
(100%) are recorded as Filipino
corporation.
(domestic) shares.
Grandfather rule - If a corporation is less than
(Strict rule) 60% Filipino-owned, then the
C. Nationality of corporations corresponding percentage
Foreign Corporation definition (Sec. 140) belonging to Filipino shall be
the only shares to be recorded
- one formed, organized or existing under as Filipino shares
laws other than those of the Philippines’ - Applied to corporations where
and whose laws allow Filipino citizens the 60-40 Filipino-foreign
and corporations to do business in its ownership is in doubt
own country or State
- shall have the right to transact business D. Corporate juridical personality
in the Philippines after obtaining a
license for that purpose in accordance Doctrine of separate juridical personality
with this Code and a certificate of Can a General rule: NO
authority from the appropriate corporation be Exception:
government agency. a partner in a a. The authority to enter into a
partnership? partnership relation is expressly
conferred by the charter of (or)
the articles of incorporation of
the corporation and the nature to
be undertaken by the partnership
is in line with the business of the
corporation.
b. If it is a foreign corporation, it
Tests to determine nationality of a corporation
must obtain a license to transact
Incorporation - Primary test under Philippine business in the Philippines.
test jurisdiction Is a corporation YES, whenever a tortuous act is
- Test where a corporation is liable for committed by an officer or agent
considered a national of the TORTS? under the express direction or
country under whose laws it authority of the stockholders or
was incorporated members acting as a body, or,
generally, from the directors as
Control test - Test used to determine the the governing body.
(Liberal rule) eligibility of a corporation, Is a corporation General rule: NO
which has foreign equity liable for - Since a corporation is a mere
participation in its ownership CRIMES? legal fiction, it cannot be held
structure, to engage in liable for a crime committed by its
nationalized or partly officers, since it does not have the
nationalized activities essential element of malice, in
Wholly/Partly nationalized such case the responsible officers
industries would be criminally liable.
 Exception: Test in determining applicability
- If the penalty of the crime is only
fine or forfeiture of license or Control or Where one corporation is so
franchise Instrumentality organized and controlled and
Rule its affairs are conducted so that
Can a General Rule: YES
in fact, a mere instrumentality
corporation Exception: Moral Damages
or adjunct of the other
RECOVER Excp. to the Excp.:
(principal corporation)
DAMAGES? - The corporation may recover
moral damages because, under
- The fiction of corporate
item 7 of Article 2219, it expressly
entity of the instrumentality
authorizes the recovery of moral
may be disregarded.
damages in cases of libel, slander,
or any other form of defamation. Fraud Test This requires that parent
The said provision does not corporation’s conduct in using
specify if the injured party is a the subsidiary corporation be
natural or juridical person, hence, unjust, fraudulent or wrongful
the application. - It recognizes that piercing
- When the corporation has a is appropriate only if the parent
reputation that is debased, corporation uses the subsidiary
resulting in its humiliation in the in a way that harm the creditor.
business realm. - “Totality of
Circumstances Test” may be
applied or considered.
Doctrine of Piercing the Veil of corporate entity or Harm or Causal This requires the plaintiff to
corporate fiction Connection show that the defendant’s
Test control, exerted in a
- Refers to a situation in which courts put fraudulent, illegal or otherwise
aside limited liability and hold a unfair manner toward it,
corporation's shareholders or directors caused the harm suffered.
personally liable for the corporation's - There must be a causal
actions or debts. connection between the
- A doctrine that disregards the separate fraudulent conduct committed
personality of a corporation through the instrumentality of
the subsidiary and the injury
Grounds for application of doctrine suffered or the damage
incurred or damage incurred by
Defeat of public When the corporate
the plaintiff.
convenience fiction is used as a
- “Totality of Circumstances
vehicle for the evasion
Test” may be applied or
of existing obligation
considered.
Fraud cases When the corporate
entity is used to justify
a wrong, protect fraud,
or defend a crime
Alter ego cases When corporation is
merely a farce, alter
ego, business conduit,
instrumentality, agency
or adjunct of a person
or another entity.
Equity cases When piercing the
corporate veil/ fiction is
necessary to achieve
justice or equity.