LAWS ON CORPORATION Handout No. 1 1.

Historical Background- the present law that governs private corporation is the Batas Pambansa (BP) Bilang 68 otherwise !nown as the "orporation "ode o# the Philippines which too! e##ect on $a% 1 1&8'. (t supplanted the )ct 1*+& as amended also !now as the "orporation ,aw which too! e##ect in 1&'6. BP 68 reproduced a lot o# provisions o# )ct 1*+&. Intendment of the Corporation Code-to establish a new concept o# business corporations so that the% are not merel% entities established #or private gains but e##ective partners o# the National -overnment in spreading the bene#its o# capitalism #or the social and economic development o# the nation. 2. De inition o t!e Cor"oration #See Section 2 o '. Attri(utes o a cor"oration a. It is an arti icial (eing . "orporation is a legal or /uridical person with a personalit% separate and distinct #rom members and stoc!holders who ma% be natural person or individuals who merged as a corporate bod%. "orporation is not in realit% a man a human being or a person but the law has endowed it with the rights and privilege as though it is a person. i. 0hus liabilit% o# stoc!holders is not the debt o# the corporation. "onversel% the corporate debt is not the liabilit% o# the stoc!holder. ii. 0he corporation being a person can ac1uire properties and have it titled in his name. (t ca sell and purchase properties. iii. "an enter into contracts and memorandum o# agreements (through a dul% authori2ed representative as evidenced b% Board 3esolution or "orporate 4ecretar%5s "erti#icate) iv. "an sue and be sued in his own name. Corporate Entity Theory (Fiction of Corporate Entity) . means the corporation has the personalit% separate and distinct #rom the members or the stoc!holders composing it. BP $%&

Doctrine of Piercing the Veil of Corporate Entity. 0his means that when the #iction o# corporate entit% is being used as a cloa! or cover or to de#end #raud illegalit% or crime the #iction will be disregarded and the individuals will be treated as identical. 0hus the law will not recogni2e separate corporate personalit%. (Read notes and instances in the text book where the fiction of corporate entity will be disregarded) 46P37$7 "8630 ")474 P),)"(8 94. :7,; 03)N4P830 "8. (+ 4"3) 1'11) )ACTS* )l#redo "arillo a /eepne% driver was convicted o# a crime due to a vehicular mishap. 0he operator o# the /eepne% was (sabelo "alingasan. 6nder the law in case o# conviction o# the driver the operator o# a public utilit% vehicle is subsidiaril% liable to the o##ended part% with respect to civil damages. )#ter the conviction (sabelo "alingasan his wi#e and his three (<) children #ormed a corporation named :el% 0ransport. "o. 0hereupon the /eepne% was sold to :el% 0ransport "o. (sabelo "alingasan re#used to pa% the civil damages (subsidiar% civil liabilit%) on the ground that the /eepne% was owned b% :el% 0ransport "o. which had a personalit% distinct and separate #rom him. :el% 0ransport "o li!ewise disowned subsidiar% liabilit% on the ground that its personalit% was separate #rom that o# (sabelo "alingasan. ISS+,* =hether or not the #iction o# "orporate 7ntit% o# :el% 0ransport "orp. should be disregarded so as to hold :el% 0ransport "orp. subsidiaril% liable> H,LD* ;es. (t was #ound that an incorporator?s main purpose in #orming the corporation was to do #raud and to evade subsidiar% civil liabilit%. 0he corporation should be made liable #or such subsidiar% liabilit%. (n determining the attempt to de#raud the "ourt too! into consideration the #act that the onl% propert% o# the corporation was the /eepne% owned b% the main stoc!holder (sabelo "alingasan being held accountable because o# the accident.

,)N@ B)NA 8: 0H7 PH(,(PP(N74 petitioner 973464 0H7 "8630 8: )PP7),4 7"8 $)N)-7$7N0 "83P83)0(8N and 7$$)N67, ". 8B)07 respondents. (-.3. No. 1CD181 4eptember * C''1) )ACTS* (n 1&8' ,and Ban! o# the Philippines (,BP) eEtended loan to 7"8 $anagement "orporation (7"8) in the amount o# PC6 1'& '''.''. 0he proceeds were received b% 7manuel ". 8Fate a representative and principal stoc!holder o# 7"8. 8n maturit% date 7"8 #ailed to pa% ,BP due to economic distress. 7"8 through 8Fate proposed and submitted to ,BP a GPlan o# Pa%mentG. However the plan was re/ected b% ,BP. 8n Hune C8 1&8C ,andban! #iled a complaint #or "ollection o# 4um o# $one% against 7"8 and 7mmanuel ". 8Fate be#ore the 3egional 0rial "ourt (30") o# $anila. 0he 30" rendered /udgment in #avor o# ,BP and against 7"8 but 7mmanuel ". 8Fate was absolved #rom an% liabilit%. )bsolving 8Fate #rom an% liabilit% was a##irmed b% the "ourt o# )ppeals. @issatis#ied ,BP went to the 4upreme "ourt. )ccording to ,BP the personalit% o# 7"8 should not be considered as separate #rom that o# 7mmanuel ". 8Fate because (1) 8Fate owns the ma/orit% o# the interest holdings in respondent corporation (C) the acron%m 7"8 stands #or the initials o# 7mmanuel ". 8Fate. ISS+,* =hether or not the legal #iction o# "orporate 7ntit% o# 7"8 $anagement "orporation should be pierced or li#ted so that 7mmanuel ". 8Fate will be held solidaril% liable with 7"8 #or the loan incurred #rom ,BP . H,LD* 4upreme "ourt sa%s there should be no Piercing o# the 9eil o# "orporate 7ntit%. ,BP #ailed to prove that there were bad #aith #raud and illegalit% being covered or cloa!ed b% the separate personalit% o# 7co $anagement "orp. (n #act 7mmanuel 8Fate submitted Plan o# Pa%ment. 4uch plan or proposal to pa% indebtedness is a mani#estation o# good #aith on the part o# 8Fate. (# there was intention to de#raud ,BP 8Fate could /ust easil% abscond instead o# o##ering the said Plan o# Pa%ment. 0he mere #act that 8Fate owned the ma/orit% o# the shares o# 7"8 $anagement "orp is not a ground to conclude that 8Fate and 7"8 are one and the same. $ere ownership b% a single stoc!holder o# all or nearl% all o# the capital stoc! o# a corporation is not b% itsel# su##icient reason #or disregarding the #iction o# separate corporate personalities. Neither is the #act that the name G7"8G represents the #irst three letters o# 8Fate5s name su##icient reason to pierce that veil.

0here is nothing illegal in a corporation ac1uiring the name or as in this case the initials o# one o# its shareholders. b. Created (- o"eration o t!e La. #Read co//ents in t!e te0t (ook& c. Rig!t o succession o t!e te0t (ook& t!e cor"oration #Read co//ents in

d. Po.er attri(utes and "ro"erties e0"ressl- aut!ori1ed or incident to its e0istence #Read co//ents in t!e te0t (ook& *. Cor"oration and Partners!i"2 distinguis!ed (Please readIre#er to comments in the teEt boo!) i. ii. iii. iv. v. vi. vii. )s to manner o# creation )s to number o# incorporators )s to commencement o# /uridical personalit% (3elate to 4ection 1&) )s to powers )s to management (3elate to 4ec. C<) )s to right o# succession )s to the principle o# Delectus Personarum

+. Ad3antages o t!e Cor"oration (3ead comments in teEt boo!) 6. Di erent kinds o Cor"oration (3ead 4ection < and comments) Per 4ection < o# BP 68 a. stock corporations . those which have capital stoc! divided into shares. 0he% are organi2ed #or pro#it and are authori2ed to distribute the pro#its to the stoc!holders b% wa% o# dividends. b. non-stock corporations are those which are created not #or pro#it but #or public good and wel#are such as religious social scienti#ic civic and similar organi2ations. 4ince the% have no capital stoc! the corporators in non-stoc! corporation are called members. )s to number o# persons composing it a. Corporation aggregate-compose o# more than one person composing it

b.

Corporation sole-a religious corporation composed o# onl% one corporator. xample ! "he Roman Catholic #rchbishop of $anila

)s to the law o# the countr% the% have been created a. b. Domestic Corporation-incorporated in accordance with the law o# the Philippines %oreign Corporation-incorporated or organi2ed in accordance with the law o# a #oreign countr%

)s to right to corporate eEistence a. de &ure corporation . corporation eEisting in #act and in law b. de facto corporation- corporation eEisting in #act but not in law. )s to statutor% authorit% a. "rue corporation - which eEist b% statutor% authorit% b. 'uasi Corporation-eEisting even withour corporate granteEception to common attribute o# corporation that it must be created b% operation o# the law. i. Corporation by prescription- one which eEercises corporate powers since the time immemorial without inter#erence on the part o# the 4tate. B% #iction o# law it is given the status o# a corporation. xample! "he Roman Catholic Church( the bishops and archbishops of the Diocese of the Roman Catholic Church ii. Corporation by estoppel not in realit% a corporation because it is de#ectivel% #ormed but treated as a corporation b% reason o# its acts and admissions. ) such it is estopped #rom den%ing that it is a corporation. )s to whether it is public or private a. Public corporations- those organi2ed #or the purpose o# governing a portion o# the territor% o# the state. 7g. 0he provinces the municipalities and the cities. 0he% are also !nown as local government or municipal government. 0he% include autonomous regions o# "ordillera and $uslim $indanao. Pri)ate corporations . those which are organi2ed #or private purpose such as pro#it service and other social and civic purpose.

b.

c.

d.

'uasi-public corporations- are those organi2ed #or pro#it but carr%ing out business o# a public nature a such the% have accepted #ranchise #rom the government. 0hus the% are sub/ected to higher degree o# government control. 7EampleJ $73),"8 P,@0 B);)N07, water and transportation companies. *o)ernment owned and controlled corporations- owned or controlled b% the government per#orming governmental proprietar% #unctions. 7E. -4(4 N)P8"83 PN3 P"48 etc.