CORPORATION

Section 2. 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.

ATTRIBUTES OF A CORPORATION

1. Artificial Being/Separate Personality

EXCEPTION: (PIERCING THE VEIL) When corporate fiction is used to:

a. PERPETUATE FRAUD
b. DEFEAT PUBLIC CONVENIENCE
c. JUSTIFY WRONG
d. DEFEND CRIME

EFFECT: DIRECTORS/OFFICERS/ STOCKHOLDERS MAY BE HELD LIABLE

Likewise, the doctrine cannot be used to support an action for the enforcement of the
personal obligations of the directors, officers and incorporators. (Francisco Motors vs.
Court of Appeals)

CIRCUMSTANCES THAT MAY BE CONSIDERED TO JUSTIFY THE APPLICATION

OF THE DOCTRINE TO MAKE THE PARENT CORPORATION LIABLE FOR THE
OBLIGATIONS OF ITS SUBSIDIARY

1. The parent corporation owns all or most of the capital stock of the subsidiary.
2. Common directors or officers (P.S)
3. P finances the S
4. P subscribed to all the CS of the S or otherwise causes its incorporation.
5. S has grossly inadequate capital.
6. S has substantially no business except with P or no asset except those conveyed by
P.

DPV APPLIED

1. Used to evade obligations to employees or used as a pretext to dismiss employees

2. Used to evade lawful obligations or a money judgment
3. Alter ego/conduit/ domination by officers or SH by one to another

Q: Is ownership of substantial portion of the OCS in a corporation enough to

justify the application of DPV?

A: No. other circumstances must be present.

2. CREATED BY OPERATION OF LAW

Private corporations are generally created under the provisions of the CC by FILING the
appropriate AI with the SEC. The life of the corporations starts from the issuance of CI.

3. RIGHT TO SUCCESSION

Capacity to have continuity of existence despite the changes on the persons who
compose it.

4. POWERS, ATTRIBUTES AND PROPERTIES

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 Section 45. Ultra vires acts of corporations. – No corporation under this Code shall
possess or exercise any corporate powers except those conferred by this Code or by its
articles of incorporation and except such as are necessary or incidental to the exercise of
the powers so conferred.

The corporation’s capacity is limited to such express, implied, and incidental powers.

CLASSIFICATIONS AND DISTINCTIONS

AS TO STATUS

1. DE JURE CORPORATION- corporation organized in accordance with requirements of

law;
2. DE FACT CORPORATION- a corporation where there exists a flaw in its incorporation.
Requisites are:

a. The existence of VALID LAW under which it may be incorporated

b. Attempt in GOOD FAITH to incorporate
c. USE of corporate powers.

NOTE: issuance of CI by the SEC is a minimum requirement of continued

good faith.

If there is substantial compliance, de jure

If colorable compliance, de facto

3. CORPORATION BY ESTOPPEL

Section 21. Corporation by estoppel. – All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all debts,
liabilities and damages incurred or arising as a result thereof: Provided, however, That
when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.

On who assumes an obligation to an ostensible corporation as such, cannot resist

performance thereof on the ground that there was in fact no corporation.

This is actually not a real corporation.

LIABILITY OF THOSE WHO ACT AS CORPORATION:

Liable as GP, meaning up to their personal properties. Those who were not aware
of the defect are liable only up to their investment.

Lim vs. Philippine Fishing Gear Industries

All those who derived benefit from the transaction made by the ostensible
corporation, despite knowledge of its legal defects may be held liable for contracts
they impliedly ASSENTED TO OR TOOK ADVANTAGE

4. CORPORATION BY PRESCRIPTION- not formally recognized as such but has been duly
recognized by immemorial usage as a corporation with rights and duties maintainable at
law. Ex. RCC

EXISTENCE OF STOCKS

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 5. STOCK CORPORATION- Corporations which have capital stock divided into shares and
are authorized to distribute to the holders of such shares dividends or allotments of the
surplus profits on the basis of the shares held are stock corporations. Sec 3
6. NON-STOCK CORPORATION- a corporation which does not issue stocks and does not
distribute dividends to their members.

COMPONENTS OF A CORPORATION

1. INCORPORATORS- those mentioned in the AI as originally forming and composing the

corporation, having signed the AI and acknowledged the same before a notary public.

1. natural persons
2. not less than five (5) but not more than fifteen (15),
3. all of legal age and
4. a majority of whom are residents of the Philippines,
5. Each of the incorporators of stock corporation must own or be a subscriber to at least
one (1) share of the capital stock of the corporation.

2. CORPORATORS- all the SHs and members of a corporation including the incorporators
who are still SHs.
3. STOCKHOLDERS AND MEMBERS- SHs are persons who hold or own shares in a stock
corporation while members are those who compose a non-stock corporation.
4. DIRECTORS AND TRUSTEES- BD is the governing body in a stock corporation while BT
is the governing body in a non-stock corporation. They exercise the powers of the
corporation.
5. PROMOTER- self constituted organizer who finds an enterprise or venture and helps to
attract investors, forms a corporation and launches its business.

FOREIGN STOCKHOLDERS? YES EXCEPT IN FULLY OR PARTLY NATIONALIZED

CORPORATIONS.

100% Filipino ‘
1. Mass Media except recording
2. Private security agencies
3. Small Scale Mining
4. Utilization of Natural resources’
5. Cockpits
6. Firecrackers
20%
1. Radio Communications Network

25%
1. Recruitment
2. Construction and repair of locally funder works
3. Construction of defense related structures

40%
1. Realty companies
2. Sauna bathouses

60%
1. Financing companies
2. Investment

FORMATION OF A CORPORATION

The life of a corporation commences from the issuance of the CI of the SEC upon filing of AI and
other documents.

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ARTICLES OF INCORPORATION CONTENTS (SEC 14)

Section 14. Contents of the articles of incorporation. – All corporations organized under this code
shall file with the Securities and Exchange Commission articles of incorporation in any of the
official languages duly signed and acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise prescribed by this Code or by special law:

1. The name of the corporation;

2. The specific purpose or purposes for which the corporation is being incorporated. Where a
corporation has more than one stated purpose, the articles of incorporation shall state which is
the primary purpose and which is/are the secondary purpose or purposes: Provided, That a non-
stock corporation may not include a purpose which would change or contradict its nature as such;

3. The place where the principal office of the corporation is to be located, which must be within
the Philippines;

4. The term for which the corporation is to exist;

5. The names, nationalities and residences of the incorporators;

6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen
(15);

7. The names, nationalities and residences of persons who shall act as directors or trustees until
the first regular directors or trustees are duly elected and qualified in accordance with this Code;

8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the
Philippines, the number of shares into which it is divided, and in case the share are par value
shares, the par value of each, the names, nationalities and residences of the original subscribers,
and the amount subscribed and paid by each on his subscription, and if some or all of the shares
are without par value, such fact must be stated;

9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and
residences of the contributors and the amount contributed by each; and

10. Such other matters as are not inconsistent with law and which the incorporators may deem
necessary and convenient.

The Securities and Exchange Commission shall not accept the articles of incorporation of any
stock corporation unless accompanied by a sworn statement of the Treasurer elected by the
subscribers showing that at least twenty-five (25%) percent of the authorized capital stock of the
corporation has been subscribed, and at least twenty-five (25%) of the total subscription has been
fully paid to him in actual cash and/or in property the fair valuation of which is equal to at least
twenty-five (25%) percent of the said subscription, such paid-up capital being not less than five
thousand (P5,000.00) pesos.

WHAT CORPORATE NAME CANNOT BE USED?

1. the proposed name is identical or deceptively or confusingly similar to that of any

existing corporation
2. already protected by law or is patently deceptive, confusing or contrary to existing
laws.
3. Contrary to law, morals or public policy.

MAXIMUM TERM OF A CORPORATION

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 Section 11. Corporate term. – A corporation shall exist for a period not exceeding fifty (50)
years from the date of incorporation unless sooner dissolved or unless said period is
extended. The corporate term as originally stated in the articles of incorporation may be
extended for periods not exceeding fifty (50) years in any single instance by an amendment
of the articles of incorporation, in accordance with this Code; Provided, That no extension can
be made earlier than five (5) years prior to the original or subsequent expiry date(s) unless
there are justifiable reasons for an earlier extension as may be determined by the Securities
and Exchange Commission.

STOCKS

1. ACS- the amount fixed in the AI to be subscribed and paid by the SHs of the corporation
2. SUBSCRIBED CAPITAL- the portion of the ACS that is covered by agreements whether
fully paid or not,
3. PAID-UP CAPITAL- the portion of the ACS which has been subscribed and actually paid.
4. OCS-the total shares of stock issued to subscribers or stockholders, whether or not fully
or partially paid except treasury shares so long as there is binding subscription agreement.

AMENDMENT OF THE AI (SEC 16)

1. PROCEDURE: any provision or matter stated in the articles of incorporation may be

amended by a majority vote of the board of directors or trustees and the vote or written
assent of the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock.
2. WHEN EFFECTIVE: The amendments shall take effect upon their approval by the
Securities and Exchange Commission or from the date of filing with the said Commission
if not acted upon within six (6) months from the date of filing for a cause not attributable to
the corporation.

SUSPENSION/ CANCELLATION OF CR/CI

Sec 6 (i) PD 902-A

i) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of
registration of corporations, partnerships or associations, upon any of the grounds provided
by law, including the following:

1. Fraud in procuring its certificate of registration;

2. Serious misrepresentation as to what the corporation can do or is doing to the great

prejudice of or damage to the general public;

3. Refusal to comply or defiance of any lawful order of the Commission restraining

commission of acts which would amount to a grave violation of its franchise;

4. Continuous inoperation for a period of at least five (5) years;

5. Failure to file by-laws within the required period;

6. Failure to file required reports in appropriate forms as determined by the Commission

within the prescribed period;

BY LAWS
By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate,
govern and control its own actions, affairs and concerns and its stockholders or members and
directors and officers with relation thereto and among themselves in their relation to it. In other

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words, by-laws are the relatively permanent and continuing rules of action adopted by the
corporation for its own government and that of the individuals composing it and having the
direction, management and control of its affairs, in whole or in part, in the management and control
of its affairs and activities.

VALID BY-LAWS

1. It must be consistent with the CC and other laws. (permanent seat bawal)
2. It must be consistent with AI.
3. Reasonable and not arbitrary
4. Must not disturb vested rights.

ADOPTION OF BY LAWS

ORIGINAL BY-LAWS

1. May accompany the AI and SEC will approve it together with the AI
2. Filed within 1 month from notice of issuance of CI. Approved by SH majority.

Non filing in 1month, not automatic dissolution but a ground.

AMENDMENT

a. SH together with the Board: double majority

b. Board only delegated by 2/3

BINDING EFFECT OF BYL

1. As to the corporation and its components

a. Third persons- not binding unless there is actual knowledge.

POWERS OF A CORPORATION

1. Express – expressly authorized by the CC and other laws and its Ai or charter.
2. Implied Powers- those that can be inferred from or necessary for the exercise of the
express powers.
3. Incidental- those that are incidental to the existence of the corporation.