CORPORATE STATUS

De Jure and De Facto Corporations, Corporation by Estoppel, and

Disregarding the Corporate Entity

CIARI MENDOZA
 CORPORATE STATUS

Corporate Status/Corporate Existence

• De Jure and De Facto Corporations
• Corporation by Estoppel

• Disregarding the Corporate Entity (Piercing the Corporate Veil)

 CORPORATE STATUS

Corporation Code of the Philippines

Sec. 19. Commencement of corporate existence. - A private corporation
formed or organized under this Code commences to have corporate existence
and juridical personality and is deemed incorporated from the date the Securities
and Exchange Commission issues a certificate of incorporation under its official
seal; and thereupon the incorporators, stockholders/members and their
successors shall constitute a body politic and corporate under the name stated in
the articles of incorporation for the period of time mentioned therein, unless said
period is extended or the corporation is sooner dissolved in accordance with law.
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Corporation Code of the Philippines

Sec. 20. De facto corporations. - The due incorporation of any
corporation claiming in good faith to be a corporation under this
Code, and its right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to which such corporation
may be a party. Such inquiry may be made by the Solicitor General in
a quo warranto proceeding.
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Corporation Code of the Philippines

Sec. 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.
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De Jure and De Facto

DE JURE • Substantial compliance with all conditions precedent to
(Rightful and Lawful)
incorporation
• When all mandatory statutory provisions are met, the
corporation is properly formed and neither the state nor a third
party can attack it’s existence.

DE FACTO • A corporation where there exists a flaw in its incorporation

(statutory mandates)
• The corporation exists, even if not rightfully or lawfully
 CORPORATE STATUS

De Jure and De Facto

Requisites of a De Facto Corporation
1. A valid statute under which the corporation can be validly
incorporated

2. Use of Corporate Powers: The corporation must have performed

acts which are typical to a corporation

3. Must have made a good faith attempt to comply with the

requirements
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De Jure and De Facto

The existence of a de facto corporation can only be attacked
directly by the state through quo warranto proceedings.
 Quo Warranto - A legal proceeding during which an individual's right to
hold an office or governmental privilege is challenged

A de facto corporation will incur the same obligations, have the

same powers and rights as a de jure corporation.
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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.

• The existence of corporation by estoppel requires that there must be

dealings among the parties on a corporate basis.

• It shall not be allowed to use as a defense its lack of corporate

personality.
 CORPORATE STATUS

Corporation by Estoppel
• When justice requires, the courts treat an alleged corporation as if it
were an actual corporation for the purpose of determining the
rights and liabilities involved in a particular situation.

• Corporation by Estoppel is thus determined by situation. It does not

extend recognition of corporate status beyond the resolution of the
problem at hand.
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Disregarding the Corporate Entity

• Piercing the Corporate Veil: The court ignores the corporate
structure and exposing the shareholders to personal liability.

• The corporate existence is disregarded under this doctrine when the

corporation is formed or used for illegitimate purposes, particularly,
as a shield to perpetuate fraud, defeat public convenience, justify
wrong, evade a just and valid obligation or defend a crime.
CORPORATE FINANCING

GLENN MATTHEW MANLAPID

 CORPORATE FINANCING

Corporate Securities
• Corporations are financed by the issuance and sale of corporate
securities.
• Securities(stocks and bonds) evidence the obligation to pay money
or the right to participate in earnings and the distribution of
corporate property.
 CORPORATE FINANCING

Bonds
• Debt securities
• Represent the borrowing of money by the firms.
• Issued by business firms as evidence of the funds they are
borrowing from investors.
• Maturity date- when the principal amount of the bond is returned
to the investor.
• Sometimes referred to as fixed-income securities.
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Bond Indenture
• Lending agreement wherein various features and terms of a
particular bond issue are specified.
• Specifies the maturity date of the bond and the pattern of interest
payments until maturity.
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Types of Bonds
• Debenture Bonds- Bonds for which no specific assets of the
corporation are pledged as backing. Rather, they are backed by the
general credit rating of the corporation, plus any assets that can be
seized if the corporation allows the debentures to go into default.
• Mortgage Bonds- Bonds that pledge specific property. If the
corporation defaults on the bonds, the bondholders can take the
property.
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Types of Bonds
• Convertible Bonds- Bonds that can be exchanged for a specified
number of shares of common stock under certain conditions.
• Callable Bonds- Bonds that may be called in and the principal
repaid at specified times or under conditions specified in the bond
when it is issued.
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Stocks
• Represent ownership in a business firm.
• Represent a claim on part of the corporation’s assets and earnings.
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Characteristics of Stockholders
• They need not be paid back.
• Receives dividends only when so voted by the directors.
• Last investors to be paid off on dissolution.
• Stockholders vote for management and on major issues.
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Two Major Types of Stocks

• Common Stocks- voting shares that represent ownership interest in
a corporation. Has the lowest priority with respect to payment of
dividends and distribution of assets on the corporation’s dissolution.
• Preferred Stocks- shares of stock that have priority over common-
stock shares as to payment of dividends and distribution of assets
on dissolution. Dividend payments are usually a fixed percentage of
the face value of the share.
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Other Types of Stocks

• Cumulative Preferred Stock- Required dividends not paid in a given
year must be paid in a subsequent year before any common-stock
dividends are paid.
• Participating Preferred Stock- Stock entitling the owner to receive
the preferred-stock dividend and additional dividends if the
corporation has paid dividends on common stock.
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Other Types of Stocks

• Convertible Preferred Stock- Stock entitling the owners to convert
their shares into a specified number of common shares either in the
issuing corporation or sometimes in another corporation.
• Redeemable Preferred Stock- Preferred shares issued with the
express condition that the issuing corporation has the right to
repurchase the shares as specified.
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Difference between Stocks and Bonds

STOCKS BONDS
Stocks represent ownership. Bonds represent debt.

Stocks (common) do not have a fixed dividend Interest on bonds must always be paid, whether
rate. or not any profit is earned.
Stockholders can elect a board of directors, Bondholders usually have no control over
which controls the corporation. management of the corporation.
Stocks do not have a maturity date. Corporation Bonds have a maturity date, when the
does not usually repay the stockholder. corporation is to repay the bondholder the face
value of the bond.
All corporations issue or offer to sell stocks. Corporations do not necessarily issue bonds.

Stockholders have a claim against the property Bondholders have a claim against the property
and income of a corporation after all creditors’ and income of a corporation that must be met
claims have been met. before the claims of stockholders.
END