NATIONALITY OF A CORPORATION
CONSTITUTION AND SPECIFIC LAWS( NATIONALIZED).
Gen Rule: The country where the corporation was
incorporated determines the nationality of a corporation
(Domiciliary Test)
Foreign corporations classified under the domiciliary test are
subject to the laws of the country of their creation on the ff
matters:
1.creation,formation, organization or dissolution of corporations
2.relations, liabilities, responsibilities and duties of members,
stockholders or officers of corporation to each other or to the
corporation.
In times of war or national emergency , the control test is used,
whereby if the controlling stock of a corporation is owned by
citizens of a particular country which is at war with the Philippines
then that corporation although organized in the Philippines is a
foreign corporation.
FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY
,DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF
SMALL-AND-MEDIUM SCALE ENTERPRISES:
Upto 40% Foreign Equity:
a. manufacture ,repair ,storage and distribution of
products and ingredients requiring PNP clearance
b. manufacture, repair, storage and distribution of
products requiring Dept of National Defense clearance
c. manufacture and distribution of dangerous drugs
d. sauna and steam bathhouses, massage clinics and other
like activities regulated by law due to risk posed to
public health and morals
e. all forms of gambling
f. domestic market enterprises with paid in capital of less
than the equivalent of $200,000.
g. domestic market enterprise which involve advanced
technology or employ at least 50% direct employees
with paid in equity capital of less than the equivalent of
$100,000.
2005 notes: there is no law prohibiting a foreigner from becoming
a stockholder and consequently from becoming a director of a
corporation engaged in the lumber business, irrespective of
whether the lumber utilized is taken from private forest lands or
from timber lands of the public domain, provided that in the latter
case, at least 60% of the capital of said corporation is owned by
Filipinos. Corporation cannot however engage in retailing of
lumber.
4Blue 95 notes:A corp composed entirely of aliens may be
organized in the Philippines.The corp law only requires a majority
of the incorporators to be residents not necessarily citizens of the
Philippines.However,in nationalized corporations
(retail,agriculture, mining,tranpo and shipping)no aliens or some
but not all can form the corporation depending on its percentage
control.
2006 notes:Foreign corp can secure lease of lands but cannot own
it.They can acquire stock solely for investment but not to exercise
control.
FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE
Corporations with No Foreign Equity:
1.mass media except recording
2.retail enterprise with paid up capital of less than $2500000.
3.private security agencies
4.small scale mining
5.utilization of marine resources in archipelagic waters, territorial
sea and exclusive economic zone.
6.ownerhip, repair ,stockpiling and distribution of nuclear weapons
7.manufacture , repair ,stockpiling and distribution of biological
chemical and radiological weapons and anti-personal mines
8.manufacture of firecrackers and other pyrotechnic devices
9.rural banks except shareholdings of corporations organized
primarily to hold equities in rural banks and of Filipino-controlled
domestic banks.
Upto 60% Foreign Equity
a.financing companies regulated by SEC
b.investment houses regulated by SEC
Upto 40% Foreign Equity
a.exploration, development and utilization of natural resources
b.ownership of private lands
c.operation and management of public utilities
d.ownership/establishment and administration of educational
institutions
e.culture, production, milling, processing, trading except retail of
rice and corn and acquiring by barter or purchase of rice and corn
and by products thereof.
f. contracts for the supply of materials , goods and commodities to
GOCCs.
g.project proponent and facility operator of a BOT project
requiring a public utilities franchise
h.operation of deep sea commercial fishing vessel
2006 notes:if foreigner become head of board of directors of
logging company(exploitation of resources)it is possible, as long as
share must not exceed 40%.
Upto 30% Foreign Equity
a.advertising
b.domestic banks except where new bank is established as a result
of
-local incorporation of any of the existing branches or agencies of
foreign banks in the Philippines pursuant to sec 68 of General
Banking Act
-consolidation of existing banks in any of which there are foreign
owned voting stock at time of consolidation
Upto 25% Foreign Equity:
a.private recruitment ,whether local or overseas employment
b.contracts for the construction and repair of locally-funded public
works except:
-infrastructure/development projects covered by RA 7718
-contracts for construction of defense-related structure
-projects which are foreign funded or assisted and required to
undergo international competitive bidding
Upto 20% Foreign Equity:
Private radio communication network
CLASSIFICATIONS OF A CORPORATION
General classification of corporation is into Public and Private.
a.as to organizers:
Public-by state only
Private-by private persons alone or with the state
b.as to functions:
Public-governmental and other public functions
Private-private, usually for profit making
c.governing law
Public-special laws (with original charter)
Private-law of Private Corporations
4Blue 95 notes: by engaging in a particular business through the
instrumentality of a corporation, the government divest itself pro
hac vice of its sovereign character, so as to render the corporation
subject to the rules of law governing private corporations.
-- when government enters into a commercial business, it abandons
its sovereign capacity and is to be treated like any private
corporation so as to render the corporation subject to the rules of
law governing private corporations.
-- it therefore cannot invoke immunity from suit.
4Blue 95 notes: GOCC have personality of their own, separate and
distinct from the government and their funds although considered
to be public in character are not exempt from garnishment (PNB v
Pabalan)
There are distinctions between a corporation going public
and a corporation going private
1.corporation going public allows its stocks to be issued to person
other than its registered stockholders
Going private restricts the issue of its stocks to its registered
stockholders only, and prevents transfers by stockholders of their
stocks without first giving the corporation and its stockholders the
first opportunity of acquiring the same.
2.going public may allow its stock to be sold in stock exchanges,
going private may not allow its stock already issued to be traded in
stock exchanges/
3.articles of incorporation and by laws of a corporation going
private usually contains right of first refusal clause giving corp and
its stockholders preference as against non-stockholders in the
acquisition of stocks. The articles and or by laws of a corporation
going public would not contain the right of first refusal.
New Corporation Code(NCC) classifies corporations into stock
and non-stock corporations. And those created by Special laws
and those incorporated under the NCC.
NCC under scattered sections also provides for close
corporations and special corporations. No mention was made
of public corporation.
8 CLASSIFICATIONS OF PRIVATE CORPORATION:
1.Stock Corporation
Capital stock divided into shares and are authorized to distribute
profits on the basis of the shares thus held.
a.Par value is where latter is stated in the articles and which value
remains generally unchangeable.
b.No Par value are those which have stocks where the issue
value ,which changes from time to time, is left to the discretion of
the corporation to determine.jt may be issued at different prices.
2005 notes: A holder of one share of no par value stock is entitled
to the same rights as another holder of one share of par value stock
irrespective of the difference in issue values of the two shares.
2005 notes: when articles or by-laws are silent, the corporation is
deemed to have the power to declare dividends.
2005 notes: prohibition in its articles that at dissolution the assets
of the corporation shall be given to a charitable corporation does
not prohibit the corporation from declaring dividends before
dissolution.
2.Non Stock Corporation
Corporation organized for non profit purposes, and primarily for
charitable ,religious, educational ,fraternal etc..
2006 notes:di pwede ang stock and profit (like manufacture soap
and sell it ,di yan pwede pag non stock corporation)
3.Aggregate and Sole
Aggregate are those with incorporators not less than 5 nor more
than 15 in stock corp or up to more than 15 in non-stock
corporations
Corporation sole is a special form of corporation associated with
the clergy consisting of one person only and his successors to give
him some legal capacities and advantages for and in behalf of the
church represented by him.
4.Ecclesiastical and Lay
In Lay, it is divided into civil (organized for profit) and
eleemosynary which is a non religious corporation organized for
charitable purposes.
5.Domestic and Foreign
6.De Jure, De Facto, by Estoppel & by Prescription
Prescription is recognize by immemorial usage as a corp though
not lawfully organized as corporation like the Roman Catholic
Archbishop of Manila before the law on corporation sole took
effect
7.Quasi-Public and Quasi-Corporation
Quasi-public is a private corp performing functions where public
has an interest(like MERALCO & PLDT) while Quasi-corp is a
municipal society though not vested with gen powers of
corporation is recognized as such (no charter like the BIR & AFP)
8.Condominium Corporation
Private corporation organized for the construction of a building
with complete living or office units which it sells creating full
ownership for the buyers of the units thus sold, and a co-ownership
over the land and other portions of the building used in common by
the unit buyers.
SPECIAL CORPORATIONS
1.EDUCATIONAL CORPORATIONS
For educational corporations, where the trustees should be divided
into multiples of five. So you should have five, ten, or fifteen
trustees if they are organized as non-stock corporation. And unless
otherwise provided in the articles of incorporation or by-laws, the
terms of the trustees should be five years, and every year only one
fifth (1/5) is elected, again to provide for continuity in policies. But
you can provide that they will all be elected instead for a term of
one year, so every year, everybody has to be elected.
2.CLOSE CORPORATIONS
It is one whose articles provides :
a.that its shares shall not be held by a group of more than 20
persons
b.all of the issued stocks shall be subject to one or more
restrictions on transfer
c.corporation shall not list in any stock exchange or make public
offering of any of its stocks
If at least 2/3 of the voting stock of the above corporations is
owned or controlled by another corporation which is not a close
corporation, then the above corporation shall not be deemed a
close corporation.
4blue 95 notes: In a close corporation, the restriction as to the
transfer of shares has to be annotated in the articles of
incorporation ,the by-laws and the certificate of stock. This serves
as notice to the person dealing with such shares ,as such, the
person is bound by the pricing stated in the by laws.
3.RELIGIOUS CORPORATIONS
There are three (3) ways by which a religious organization can
provide for the administration of its properties:
1. by forming a non-stock corporation
2. by corporation sole
3. by religious aggregate or society
Corporation sole may constitute of one person only so the head of
a religious sect would incorporate himself for the purpose of
administering the properties of a religious sect. To incorporate
what you will file with the SEC is an affidavit. The affidavit will
state that the affiant is the head of a religious denomination or sect
and would want to become a corporation sole. and the rules of his
religion allow him to incorporate as a corporation sole and that he
is charged with the administration of its properties and in fact he
will be required to submit an inventory and the manner in which
the successor will be chosen and the place where he will hold his
office.
The Roman Catholic Archbishop of Manila is a corporation sole so
if Cardinal Sin dies the new archbishop will simply submit his
appointment and he need not incorporate again because the
corporation is different from the occupant of the position. The
Iglesia ni Kristo is incorporated as a corporation sole.
The court has held in Roman Catholic Apostolic Adm. of Davao,
Inc. v. Land Registration Commission that although the Bishop
was a foreigner, he could register a parcel of land in his name
because he is a mere administrator the property really belongs to
the faithful and since they are Filipinos they could register the land
in the administrators name .
Under the law if a corporation sole wants to dispose of or mortgage
real property, he has to get authorization from the Regional Trial
Court unless the rules of the religious sect allow him to dispose of
or mortgage real property and that is usually the case.
The last is the religious aggregate or religious society. It can
incorporate for the purpose of managing its properties and the
articles would indicate that the members constitute a religious
order or society and that at least 2/3 of the members have agreed to
incorporate, that the rules allow them to incorporate they desire to
incorporate to manage their properties in the place where located.
The recollects are incorporated to manage their properties, they are
the single biggest bloc of stockholder of San Miguel Corporation.
2006 notes:the test of nationality in corporation sole is not the
nationality of the head in a corporation sole,but the nationality of
the congregation, as such, even if foreigner is the head, if the
whole congregation are Filipinos, then the nationality is that of a
Filipino.
4.CORPORATION BY ESTOPPEL
It is a corp, which is a group of a persons, which is so defectively
formed so that it is not a de jure or a de facto corp but is considered
as a corp with respect to those who cannot deny its existence
because of some agreement or admission or conduct on their part.
This doctrine requires that there must be dealings among the
parties on a corporate basis.
And there are differences between a de facto corp and a corp by
estoppel. A de facto corp has a real existence in law, while a corp
by estoppel has none. A de facto corp may exist even if there are
no dealings among parties on a corporate basis. In corps by
estoppel, dealings on a corporate basis among the parties involved
are required. Also, where not all requisites for corp de facto are
present, you can have corp by estoppel.
2006 notes: The principle of estoppel can be invoked by the victim
but not by the corporation as duly organized as against the victim
of said misrepresentation.
Christian Childrens Fund Case
There was a teacher hired by the CCF, which was unincorporated.
She wanted to go after the one with money, the organization that
was funding CCF, and she was claiming Im an employee of that
org and not the CCF. But the court said that since she accepted
employment with CCF, she was estopped from claiming that CCF
is not a corp.
2006 notes:the people who represented themselves as forming that
corp would be liable as general partners, they will be solidarily
liable. Thats why in one case the court said the people who
represented themselves as the officers of a corporation that is really
an unincorporated org they were illegally recruiting persons the
court said they were liable as general partners, solidarily liable for
all claims.
5. DE FACTO CORPORATIONS
A de facto corporation is one that is defectively created so as not to
become a de jure corporation. It is the result of an attempt to
incorporate under an existing law coupled with the exercise of
corporate powers.
(while a dejure on the other hand is a corporation formed with all
of the requirements of law)
The existence of a de facto corporation can only be attacked
directly by the state through quo warranto proceedings. If the
corporation does not qualify as a de facto corporation, its existence
may be attacked collaterally. This doctrine is based on public
policy to ensure stability in business transactions.
4blue 95 notes: a corporation was created by special law, later, the
law creating it was declared invalid. May such corporation claim to
be a de facto corporation? No, a private corporation may be
created only under the corporation code. Only public corporation
may be created under a special law.
2006 notes:where private corporation is created under a special law
,there is no attempt at a valid incorporation, such cannot claim a de
facto status.
2006 notes: where a person convinces others to form a corporation,
which however was not formed at all, the parties are partners inter
se and are governed by the law on Partnerships .the relationship is
not that of a de facto corporation.
(BAR) 7 persons form a corporation by registering their articles of
incorporation with SEC. but after the certificate of incorporation
has been issued ,it is discovered that only 5 of the 7 have
acknowledged the articles of incorporation before a notary public.
HELD: It is a de facto corporation , although defectively formed
,it may nevertheless exercise corporate powers validly until the
state dissolves it by quo warranto proceedings.
4 REQUISITES OF A DE FACTO CORPORATION:
1.Valid law under which the corporation was incorporated.
Attempt in good faith form a corporation according to the
requirements of the law. Here the SC requires that you must have
filed with the SEC articles of incorporation and gotten the
certificate with the blue ribbon and gold seal. For instance the
majority of the directors are not residents of the Philippines or the
statement regarding the paid up capital stock is not true, those are
defects that may make the corporation de facto.
2.User of corporate powers. The corporation must have
performed acts which are peculiar to a corporation like entering
into a subscription agreement, adopting by-laws, electing directors.
3.It must act in good faith. So the moment, for example, there is
a decision declaring the corporation was not validly created, it can
no longer claim good faith.
4.A de facto corporation will incur the same obligations, have
the same powers and rights as a de jure corporation. It can
acquire property, sue or be sued, enter into contracts. Likewise,
the officers, directors, and stockholders will have the same rights,
powers, and liabilities as those of a de jure corporation.
6.FOREIGN CORPORATIONS

Section 123 defines what is a foreign corporation, one formed,
organized, or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and
corporations to do business in its own country or state. Note the
element of reciprocity is included in the definition of a foreign
corporation as an ingredient of a foreign corporation.
There are different ways by which a foreign corporation can
establish its presence here. one is by setting a branch office,
another is by setting up subsidiary, for tax purposes there are no
trade-offs because a branch and a subsidiary are taxed in the same
way but a subsidiary may be beneficial in the sense that it limits
the exposure of the mother company to its subscription instead of
risking all the assets of the mother company. Another is the
regional headquarters which does not do business, it is just a
coordinating and communication center. Foreign companies are
setting up regional headquarters here because it has subsidiaries in
Southeast Asia or licensees and franchisees and its function is to
supervise and coordinate with those subsidiaries or franchisees so
normally a regional headquarters would have a one room office
here probably with country manager and secretary, a telephone,
computer and fax machine.
If a foreign corporation wants to do business here it has to appoint
a resident agent who may be a corporation, partnership or
individual, if individual he must be of good moral character, sound
financial standing, although his only function is to receive
summonses in behalf of the corporation.
If a foreign corporation is being sued, the summons must be served
on the resident agent. The corporation is also required to file with
the SEC a power of attorney or resolution which says that if it has
no resident agent it agrees that the summons be served with the
SEC which will forward the summons and the complaint to the
foreign corporation. If no resident agent and any officer who will
be in the Philippines may be served with summons.
Section 133 says that if the foreign corporation will be doing
business without a license it cannot sue or intervene in any action
in court or administrative agency.
The SC had said that if a foreign corporation is doing business here
without a license, a contract it entered into is valid, it is not
rendered void so the court said the legislature made a judgment
call that imposing penal sanctions and denying access to the courts
are sufficient penalties for doing business without a license. The
legislature did not provide that the contract it entered into is void.
Although the foreign corporation did not have license to do
business when it entered into in that contract, it could sue if later
on it acquired a license to do business.
(BAR) If a foreign corporation which has been licensed to do
business in the Philippines by the BOI and SEC ,wants to expand
its business activities in the Philippines, is further approval from
the BOI necessary?
HELD: Board of Investments (BOI) approval of the expansion of
business of a foreign corporation already licensed on or before the
effectivity date of the foreign investments law(1968) to engage in
business is not necessary. BOI approval is needed only in
situations where foreign enterprise desires to exceed the permitted
percentage of equity of its investments under the Foreign
Investments Law.
The Foreign Investment Act and its implementing regulations
define what is doing business. It includes:
Soliciting orders. When we talk of soliciting orders we
mean negotiations of the specific terms and conditions
of the contract. If you just advertise, that is not doing
business.
Opening offices
Appointing representatives or distributors
Operating under full control of the foreign corporation
Domiciled in the Philippines or who in any calendar
year stay in the Philippines for at least 180 days
Participating in the management, supervision or
control of any domestic corporate entity
Any other acts that involve continuity of commercial
dealings, and
Performance of acts or functions incident to or in
progressive prosecution of commercial gain
The rules also state certain acts which do not constitute doing
business like:
Mere investment in a domestic corporation. This
repudiates the ruling in the Granger case where Justice
Cruz said that being a mere investor is doing business.
That is wrong. It could have been just a passive
investment. So that decision is being repudiated here.
Having a director to represent you in a corporation
because of your investment.
Appointing a representative distributor which transacts
business in the distributors own name. The usual
distributorship agreement will contain a provision
something like this, The relationship between the
parties is that of seller and buyer. This means that the
local distributor has to pay for the goods he purchased
irrespective of whether he is able to resell them or not.
And it is up to him to sell them for whatever price he
can get. Now if the distributor is transacting business
not in his own name, but as agent of the foreign
corporation, then the foreign corporation will be doing
business. This is what happened to BMW. They have a
distributor here but if somebody wants to buy a car, the
distributor will merely forward the order to BMW in
Bavaria and he will send the payment to BMW in
Bavaria and BMW in Bavaria will ship the car to him.
So the court said that BMW was actually doing
business here, because the agent was dealing with
customers in the name of BMW.
Publication of advertisement. Like the advertisement in
magazines which are sold here.
Maintaining stock of goods to have them processed like
this garment business in the United States which send
their textiles to be processed into dresses which are then
shipped back to United States or components for
electronic products which are sent here to be processed
and sent back to Silicon Valley.
Consignment of the equipment to be used in processing
the products for export. So that if the foreign company
sends its equipment to be used by the local processor,
that is not doing business.
Gathering information about the Philippines
Performing service auxiliary to an isolated contract not
in a continuing basis such as installing in the
Philippines machinery, servicing the same, and training
workers to operate it.
2006 notes: Consequences on Foreign corporations engaging in
business in the Philippines without license :
(1) it shall not be permitted to transact business in the
Philippines
(2) it cannot sue, but it can be sued.
Contract Test- foreign corporation not doing business in RP and
entered into contract w/ a domestic corporation whereby the
perfection and consummation was done outside, the same would
not constitute doing business in RP.
When Unlicensed Foreign Corporation can sue:
1. corporation not doing business in the Philippines can bring
suits on isolated acts, If it can sue, it can likewise be sued.
-- if a foreign corporation not engaged in business is not barred to
seek redress from Philippine courts, with more reason can said
corporation not claim exemption from being sued in Philippine
courts.
Isolated transactions means a series of transactions set apart form
the common business of a foreign enterprise in the sense that there
is no intention to engage in a progressive pursuit of the purpose
and object of the business organization.
The fact that a foreign corporation does not do business here,that is
a matter that should be ventilated in the trial on the merits but not
in a motion to dismiss.
2.action to protect good name ,good will and reputation of
foreign corporation
3.where contract provides Philippine court as venue for
controversies
4.license subsequently granted enables foreign corporation to
sue on contracts executed before grant of license
5.recovery of misdelivered property
6.where the unlicensed foreign corporation has domestic
corporation as co-plaintiff
7.estoppel
Acquisition by Philippine courts of Jurisdiction over Foreign
Corporation
1. by serving upon the resident agent designated in accordance
with law to accept service of summons
when corporation designated a person to receive service
of summon pursuant to corporation code, that
designation is exclusive and service of summons on
other person is inefficacious.
2.it there is not resident agent ,by service on the government
official designated by law (like the SEC)
3.by serving on any officer or agent of said corporation without the
Philippines.
IMPORTANT RULES:
GRANDFATHER RULE
The test being used here is the nationality/ citizenship of the
stockholders. According to the formula under the grandfather rule,
if you have a corporation owned by another corporation, you trace
who are the owners of this owning corp.
In other words, if a company is 60% Filipino and such 60% is
acquired by company w/c is 50%fil & 50% foreign, so it is 30%
Filipino (60 x 50%); but if it the acquiring company is 60%
Filipino, so since lampas 50 then the whole 60% of the acquired
corporation is Filipino
2006 notes: in JG Summit v CA (2005 case)- the stockholders are
not limited to transfer their shares to another even if it is a
foreigner, such limitation only apply to the corporation.
An illustration is that you can sell your 60% shares to foreign
corporation which would not violate the 60-40 rule, the only effect
of such undertaking is that such foreign corporation cannot acquire
real property.
4blue 95 notes: However, the Foreign Investment Act has
disregarded the grandfather rule. It adopted the liberalized
interpretation of Filipino-ownership.
ONE MAN CORPORATION
2006 notes: A one man corporation is a corporate entity where one
person holds directly or indirectly all or substantially all of the
stocks of the corporations.
-- this form of corporation enjoys all the attributed of a corporation
although it always faces the risk of its corporate existence being
attacked of said corporate fiction is utilized for unlawful pruposes.
-- to assure that corporation will continue to enjoy the attributes,
the corporation should have a duly constituted board which should
meet regularly to pass upon the problems of the corporation. The
stockholder who holds substantial stocks should consider his
holdings as merely for investment purposes.
2006 notes: in concession theorythe state concedes that youre a
person (the corp) and once it is created, it should be for public
purpose.
As such, congress cannot enact law creating private corp with
special charter.
All waterworks are public corp, exception to such is a de facto
corporation where it failed to comply in a fatal matter resulting to a
fatal defect but once a special law is enacted ,it is not anymore a
defacto corp