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CORPORATION

I.
Corporation; Definition
- 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.
(sec. 2, BP 68)
Note:
1. All corporations, big or small, must abide by the provisions of the
Corporation Code. Being a simple family corporation is not an
exemption. Such corporations cannot have rules and practices other
than those established by law. (Manuel Torres, Jr. v. CA)
2. A corporation is an artificial being created by operation of law. It
owes its life to the State, its birth being purely dependent on its
will. (Tayag v. Benguet)
3. A corporation is subject to SECs jurisdiction, regulation and
control. The SEC has the authority to look into the rulings issued by
the corporation. The SEC is the entity with the primary say as to
whether or not securities, including shares of stock of a corporation,
may be traded or not in the stock exchange. (PSE v. CA)\
A. Art. XII Section 16, 1987 Philippine Constitution
- Section 16. The Congress shall not, except by general law, provide
for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may
be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
Note:
1. The Constitution recognizes two classes of corporations. The first
refers to private corporations created under a general law. The
second refers to GOCCs created by special charters. Under existing
laws, that general law is the Corporation Code.
B. Attributes of a Corporation
1. It is an artificial being with separate and distinct personality.
- It is entitled to own properties in its own name and its properties
are not the properties of its stockholders, directors and officers
(Wise v. Man Sung Lung)
- The interest of the stockholders over the properties of the
corporation is merely inchoate (Saw v. CA)
- It can incur obligations and its obligations are not the obligations
of its stockholders, directors and officers (Vasquez v. De Borja)
- Rights belonging to the corporation cannot be invoked by the
stockholders even if the latter owns substantial majority of the
shares in that corporation and rights of the stockholders, directors
and officers cannot be invoked by the corporation (Stonehill v.
Diokno)
- Tax exemptions in favor of the corporation cannot be invoked by its
stockholders. (Manila Gas Corp v. Collector of Internal Revenue)

Corporations are entitled to certain constitutional rights (e.g. right


against unreasonable searches and seizure)
However, it is not entitled to certain constitutional rights not only
because it is an artificial being but also because it is a mere
creature of law (e.g. the right against self-incrimination
particularly production of corporate documents)
It is liable for tort (PNB v. CA)
It is liable when the act was committed by the officer or agent
under express direction or authority from the stockholders or
members acting as a body or generally from the directors as the
governing body. (ibid)
Generally, the corporation is considered a national of the country
where it was incorporated (Place of incorporation test), except; (a)
in times of war, the nationality of a corporation is determined by
the nationality of the controlling stockholders (control test); (b) a
corporation organized under Phil. Laws of which 60% of the capital
stock outstanding and entitled to vote is owned and held by
Filipino citizens, and a corporation organized a broad as doing
business in the Phil. Under the Corporation Code of which 100% of
the capital stocks entitled to vote belong to Filipinos.

* Artificial Being
- It exists by fiction/operation of law only, hence, it is subject to
limitations that are inherent because of its nature.
- It can act only through its directors, officers and employees.
- Corporations are incapable of intent, hence, they cannot commit
felonies that are punishable under the RPC and SPL because
crimes are personal in nature.
- A corporation may, however, be dissolved for violation of one
Corporation Code (sec. 144)
- Moral damages cannot be awarded in favor of corporations
because they do not have feelings and mental state.
- However, a corporation can recover moral damages under Art.
2219(7) of NCC if it was the victim of defamation (Filipinas
Broadcasting Network Inc v. Ago Medical and Educational Center)
- If the veil of corporate entity or fiction is used as a shield to
perpetuate fraud, to defeat public convenience, justify wrong or
defend crime, this fiction shall be disregarded and the individuals
composing it will be treated identically. (Doctrine of Piercing the
Veil of Corporate Fiction)
- The Doctrine, however, cannot be used to make the corporation
liable for the personal obligations of directors, officers or
shareholders.
- The separate personality may be disregarded if such personality is:
i.
Used to evade obligations to employees or used as a pretext
to dismiss employees;
ii.
Used to evade lawful obligations or a money judgment;
iii.
Dominated by officers or stockholders or other person or
entity to the extent that the corporation is a mere alter ego,
adjunct or business conduit;
iv.
Used to defeat public convenience;
v.
Used to justify wrong;

vi.
vii.
viii.
ix.
-

Used to protect fraud;


Used to defend crime;
Used to confuse legitimate legal or judicial issues; or
Used to perpetrate deception or otherwise circumvent the
law (LBP v. CA)
Mere ownership by a single stockholder or by another corporation
of all or nearly all of the capital stock of the corporation does not
justify the application of the doctrine. There must be other
circumstances that must be present. (Francisco v. Mejia)
Note: The elements that must be present to justify the piercing the
veil of corporate fiction on the ground that the corporation is a
mere alter ego are;
i.
Control not mere stock control but complete domination
ii.
Such control must have been used by the defendant to
commit a fraud or wrong to perpetuate the violation of a
statutory or other positive legal breach of duty, or a positive
legal breach of duty, or a dishonest and unjust act in
contravention of the plaintiffs legal right.
iii.
Said control and breach of duty must have proximately
caused the injury or unjust loss complained of (PNB v.
Andrada Electric & Eng. CO)

2. Created by Operation of Law


a. Concession Theory
A principle under which a corporation is an artificial creature
without any existence until it has received the imprimatur of the State
acting according to law, through the SEC.
b. Franchises of Corporation
i.
Primary, corporate or general franchises
- The right to exist as such is vested in the individuals who compose
the corporation and not in the corporation itself (JRS v. Imperial
Insurance)
ii.
Special or secondary franchises
- These are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation
to dispose of its property, except such special or secondary franchises as
are charged, with a public use.
- Subject to levy and sale on execution together and including all the
property necessary for the enjoyment thereof.
- Private corps. Are generally created under the provisions of the
Corporation Code.
- Done by filing appropriate Articles of Incorporation with the SEC;
the life of the corporation starts from the issuance of the
Certificate of Incorporation.
- Public corporations are created through special laws.
- Private corps. Cannot be created by special laws, except GOCC
which are actually private corporations.
3. Right of Succession
- This is the capacity to have continuity of existence despite the
changes on the persons who compose the corp. Thus, the
personality continues despite the change of stockholders,
members, board members or officers.

4. Powers, Attributes, and Properties


- No corporation under the Code shall possess or exercise any
corporate powers, except those conferred by law, its Articles of
Incorporation, those implied from express powers and those as are
necessary or incidental to the exercise of the powers so conferred.