ACYRFBT: Law on Corporations

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 incidental to its existence.

Artificial Being

A corporation has a juridical personality, separate and distinct from the persons composing it.

Implications of Corporations as Artificial Beings

There is an implication that a corporation cannot be held criminally liable particularly in the penalty of imprisonment, but it may be held liable for fines for corporate crimes.

Corporate Officers

Are the ones who shall be criminally liable when there is a corporate crime.

Implications of Corporations as Artificial Beings

There is an implication that a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments. Except when a corporation has a reputation that is debased, resulting in its humiliation in the business realm such in the case of civil action for damages on the ground of libel or defamation.

Implications of Corporations as Artificial Beings

There is an implication that a corporation is not entitled to constitutional rights against self-incrimination.

Corporate Entity Theory/Doctrine of Separate Personality

The theory or doctrine that states that a corporation has a juridical personality separate and distinct from the stockholders or members.

Corporate Entity Theory/Doctrine of Separate Personality

The theory or doctrine that states that a corporation can sue and be sued in its own name, it can possess properties belonging to it to the exclusion of the stockholders and their personal creditors, and in the same vein cannot be made to answer the personal obligations of the individual stockholders and vice versa.

Piercing the Veil of Corporate Entity/Fiction

The doctrine that states that whenever a court finds that the corporate fiction is being used to defeat public convenience, justify wrong doings, protect fraud, or defend crime, or confuse legitimate issues, or that a corporation is a mere alter ego or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, the concept of a corporation having a separate juridical personality shall be set aside.

Created by Operation of Law

A corporation's legal existence and possession of a separate and juridical personality must be acquired through the formalities required by law.

Private Corporations

Are corporations created under the authority of the State through the Corporation Code.

True

(True or False) There are certain corporations that are created by special laws enacted by Congress.

Concession Theory

A theory that states that a corporation owes its existence to the law and the state and the extent of its existence, powers and liberties is fixed by its chapter. Thus, it only possesses properties, attributes, rights and powers provided by law or incident to its existence.

At the Time of the Issuance of the Certificate of Incorporation or Registration

It is the the time of the commencement of corporate existence, as a general rule.

Corporations by Estoppel, Those Created by Special Laws, and Sole Corporations

Are corporations whose corporate existence does not yet commence at the time of its certificate of incorporation or registration.

Sole Corporations

Is a corporation that commences its corporate existence at the time of the filling of verified articles.

Right of Succession

The death, insolvency, incapacity or civil interdiction of one or more or even all of its stockholder does not result in its dissolution; this is otherwise referred to as the corporation's "strong" juridical personality.

Powers, Attributes and Properties Authorized by Law

The acts of a corporation are limited only to those which are authorized by law or implied therefrom or incidental to its existence.

Ultra Vires Acts

Are acts done outside the authorized actions of a corporation.

Express Powers

Are powers those expressly authorized by the Corporation Code and other laws, and its Articles of Incorporation.

Implied Powers

Are those powers that can be inferred from or necessary for the exercise of express powers.

Incidental Powers

Are powers that are incidental to the existence of the corporation.

Express Powers of a Corporation

Powers include:

a. To sue and be sued in its corporate name.

b. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation.

c. To adopt and use a corporate seal.

d. To amend its articles of incorporation in accordance with the provisions of this Code.

e. To adopt by-laws, and to amend or repeal the same.

f. In case of stock corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a non-stock corporation.

Express Powers of a Corporation

Powers include:

g. To purchase, receive, take or grant, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution.

h. To enter into merger or consolidation with other corporations as provided in this Code (now, a corporation can also enter into a partnership and joint venture).

i. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic or similar purposes.

j. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers, and employees.

True

(True or False) No foreign corporation shall give donations in aid of any political party or candidate or for purposes of partisan political activity.

Implied Powers

Are those powers inferred from or reasonably necessary for the exercise of the provided powers of the Corporation. They flow from the nature of the underlying business enterprise.

Implied Powers

Powers include:

a. To issue checks or promissory note or bill of exchange or mercantile documents.

b. To establish a local post office in case of a mining company.

c. To operate a power plant in case of a cement factory company.

d. To sell, supply or manage, advertising materials in case of an advertising company.

Incidental or Inherent Powers

Are powers that are attached to a corporation at the moment of its creation without regard to its expressed powers or particular primary purpose and may be said to necessarily arise from its being a juridical person engaged in business. They flow from the nature of the corporation as a juridical person.

Incidental or Inherent Powers

Powers include:

a. Right of succession

b. Right to have corporate name

c. Right to make by-laws for its governance

d. Right to sue and be sued

e. Right to acquire and hold properties for the purposes authorized by the charter.

Ultra Vires Acts or Contracts

Are acts committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the express, implied and incidental powers of the corporation.

Ultra Vires Acts

Are not necessarily illegal.

Null and Void

The status of an ultra vires act which are illegal.

Null and Void but the Declaration of Nullity may be Barred by Estoppel

The status of an ultra vires act for failure to comply with voting formality required by law.

Voidable on the Part of the Other Party

The status of an ultra vires act for being outside the primary and secondary purposes of the corporation.

Null and Void

The status of an ultra vires act by the corporate officers on behalf of the corporation, which are illegal.

Unenforceable but they may Become Enforceable on the Basis of:

a. Express or Implied Ratification by the Corporation.

b. Doctrine of Estoppel

c. Doctrine of Apparent Authority of the Corporate Officers

The status of an ultra vires act by the corporate officers on behalf of the corporation, when such officers have exceeded their authority.

Stock Corporations

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.

Non-Stock Corporations

Corporations which are not authorized to distribute surplus profits.

Domestic Corporations

Are those organized or created under or by virtue of the Philippine laws, either by legislative act or under the provisions of the General Corporation Law.

Foreign Corporation

Are those formed, organized or existing under any laws other than those of the Philippines.

Close Corporations

Are those whose shares of stock are held by a number of persons not exceeding twenty (20) and are usually formed by closely related individuals such as a family. They cannot list in a stock exchange and certain restrictions are placed in the transfer of the shares.

Twenty (20) Shareholders

The maximum number of shareholders in a Close Corporation.

Open Corporations

Are those which can accept outsiders as stockholders and are authorized to list in a stock exchange and the transfer of shares are not required to have restrictions.

Publicly Listed Corporations

Are open corporations who have become listed in a stock exchange.

Private Corporations

Those formed for some private purpose, benefit, aim or end, created under the provisions of a general enabling law.

Public Corporations

Are those created by special law for a public purpose.

Municipal Corporation

A public corporation created by a special law for the governance of a particular local territory.

Government Owned and Controlled Corporation

Is a public corporation created by special law for public purpose but performing proprietary or commercial functions.

Religious or Ecclesiastical Corporations

Are corporations which are formed for religious or spiritual purposes which may be classified as a religious society or a corporation sole.

Corporation Sole

Is that which of only of one individual formed for the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect or church.

Corporation Sole

May be formed by the chief archbishop, bishop, priest, minister, rabbi, or other presiding elder of such religious denomination, sect, or church.

Religious Societies

Are composed of more than one individual and may be formed by a religious society, order, diocese, synod or district organization of any religious denomination, sect or church, upon written consent/affirmative vote of at least 2/3 of its membership for the administration or management of its affairs, properties, and estate by filing with the SEC, its Article of Incorporation verified by the affidavit of the presiding elder, secretary or clerk/any member of such religious society.

Lay Corporations

Are those organized for purposes other than religion. They may be further classified as: Eleemosynary or Civil.

Eleemosynary Corporations

Are corporations formed or created for charitable purposes.

Civil Corporations

Are corporations formed or created for the benefit of the persons composing it and not for charitable purposes.

De Jure Corporation

A corporation that has full compliance with requirements for valid incorporation. It has a separate and distinct personality from stockholders. There is an absence of a direct attack and collateral attack, in terms of questioning the personality of the corporation.

De Facto Corporation

A corporation that, for its existence, may have existed a valid law under which it may be incorporated, there is also an attempt in good faith to incorporate (colorable compliance), and there may also be a use of corporate powers. There is a separate and distinct personality from stockholders. In terms of questioning the personality of the corporation, there is a direct attack, via a quo warranto proceeding; but, there is an absence of a collateral attack.

Corporation by Estoppel

A corporation that has no compliance at all with the applicable laws. The persons who compose it only set themselves out as a corporation. There is no existence of a separate juridical personality from its stockholders. There are both direct and collateral attacks, in terms of questioning the personality of the corporation.

Direct Attack

Means the very subject of the case is the legal existence or personality of the corporation. This is allowed in a de facto corporation via a quo warranto proceeding.

Collateral Attack

Means that the main subject of the case is other than attacking the personality of the corporation, but is questioned as a side subject.

True

(True or False) There is an attempt of good faith to incorporate, if there is a filing of the Articles of Incorporation.

Holding or Parent Corporation

Is a corporation that controls another corporation.

Subsidiary Corporation

Is a corporation being controlled by another corporation.

Affiliate

Is a corporation which is a member of a group of companies.

Associate

Is a corporation being significantly influenced by an investor.

Formation of Private Stock Corporation or Incorporation

Refers to the performance of conditions, acts, deeds, and writings by incorporators, and the official acts, certification or records, which give the corporation its existence.

Promotional Stage

The stage undertaken by promoters or organizers who look for investors and bring them together to form the corporation.

Promotional Stage

In this stage, the corporation has not validly existed yet and a promoter/organizer who enters into contracts on behalf of the proposed corporation is generally personally liable on such unless there is a stipulation for novation on the person of the promoter after the corporation is formed.

Process of Incorporation

The stage that includes the preparation and filing of the Articles of Incorporation and relevant supporting documents with the SEC, and the issuance of the Certificate of Incorporation.

Contents of the Articles of Incorporation

The contents of the AOI:

a. The name of the corporation

b. 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.

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

d. The term for which the corporation is to exist.

e. The name, nationalities and residences of the incorporators.

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

g. 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.

h. 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.

i. 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.

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

True

(True or False) A non-stock corporation may not include a purpose which would change or contradict its nature, as such.

True

(True or False) A corporation must be located within the Philippines. What must be indicated in the Articles is the principal office which is not necessarily the place of operations.

True

(True or False) The principal office is not necessarily the place of operations of a corporation.

Perpetual Existence

The default term of existence of a corporation, under the Revised Corporation Code of the Philippines.

Fifty (50) Years

The default term of existence of a corporation, prior to the Revised Corporation Code of the Philippines.

Not Earlier than 3 Years (from 5 Years) Prior to Expiry Date, Unless there are Justifiable Reasons to Allow Earlier Extensions.

The earliest date within which a corporation with a definite term of existence, can extend its corporate term.

Revival of Corporate Term

Is allowed after the expiration of a corporate term. It happens upon approval by the Commission. When such happens, the corporation shall be deemed revived and a certificate of revival of corporate existence shall be issued, giving it perpetual existence, unless its application for revival provides otherwise.

Corporators

Are those who compose the corporation at any given time. They are the stockholders.

Incorporators

Are the founders of the corporation or the original stockholders whose names are indicated in the Articles and signatories thereof.

Incorporator

May be considered as a corporator as long as he continues to be a stockholder or a member.

True

(True or False) Not all corporators are incorporators. But all incorporators who are stockholders/members, are corporators.

Not More than 15 (Previously 5 to 15)

The maximum number of incorporators of a corporation.

Qualifications of an Incorporator

Qualifications include:

a. Must be a natural person (now can also include a partnership, association or corporation)

b. Of legal age (still a requirement for natural person-incorporators).

c. Must own or subscribe to at least one (1) share.

d. Majority must be residents of the Philippines (already removed).

Mass Media Corporation

A corporation whose incorporators must 100% be Filipinos.

Advertising Corporations

A corporation whose incorporators must 70% be reserved to Filipinos.

Public Utility Corporations

A corporation whose incorporators must 60% be reserved to Filipinos.

Educational Institution

A corporation whose incorporators must 60% be reserved to Filipinos.

Exploration, Evaluation and Development of Natural Resources

A corporation whose incorporators must 60% be reserved to Filipinos.

Ownership of Land

60% of the stockholders of the Corporation must be Filipinos.

Not Less than Five (5) Nor More than Fifteen (15)

The numerical limit (Minimum and Maximum) of directors or trustees of a corporation.

Directors

Compose the governing board in stock corporations. They should not exceed fifteen (15).

Trustees

Pertain to the governing board of non-stock corporations. They may exceed fifteen (15).

Independent Directors

Are persons who, apart from shareholdings and fees received from the corporation, are independent of management and free from any business or other relationship which could, or could reasonably be perceived to materially interfere with the existence of independent judgement in carrying out the responsibilities as a director.

At least 20% of the Board

The minimum percentage of independent directors in corporations vested with public interest.

Corporations Covered by the SRC, Banks and Quasi-Banks, NSSLAs, Pawnshops, Corporations Engaged in Money Service Business, Pre-need, Trust and Insurance Companies, and Other Financial Intermediaries, Other Corporations Engaged in Business Vested with Public Interest

These are some of the examples of corporations vested with public interest.

Stock Corporations with Par Value Shares

Are corporations which are required to indicate in its AOI, Authorized Capital Stock, the number of shares into which it is divided, and the par value of each shares.

No-Par Value Shares (Stated Value or Issue Price)

Need not to be indicated in the Articles, as it may be fixed by the Board of Directors after incorporation, if they are authorized, or by the stockholders themselves.

True

(True or False) The fact that a corporation has no-par value shares, must be indicated in the AOI.

At least 25% of the Authorized Capital Stock Must be Subscribed and that 25% of the Subscription must be Paid-Up

The minimum percentage of ACS that must be subscribed, and the minimum percentage of such subscription is paid (Already been removed under the RCC).

At least 25% of the Increase in Authorized Capital Stock Must be Subscribed and that 25% of the Subscription of the Increase in Authorized Capital Stock must be Paid-Up

The minimum percentage of the increase in ACS that must be subscribed, and the minimum percentage of such subscription is paid.