MT RCCP

Effectivity Date of RCCP

February 23, 2019

Corproation, 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.

Concession Theory

As an artificial being created by operation of law, a corporation owes its life and birth to the State’s will.

Genossenschaft Theory

The reality of the group as a social and legal entity, independent of state recognition and concession.

What corporations may be created by operation of special law?

The Constitution provides that only GOCCs are the private corporations may be created by special law.

Special laws may also recognize that certain entities may acquire juridical personality without directly conferring corporate status automatically by the mere passage of the law.

Perpetual Succession

That continuous existence which enables a corporation to manage its affairs, and hold property without the necessity of perpetual conveyances, for purposes of transmitting it.

Effect of death of a shareholder to perpetual succession

A corporation continues to exist even if there are changes in those who compose it. Death of a shareholder or transfer of his shares will not affect the continued existence of the corporation.

Doctrine of Separate Personality

A corporation has a personality distinct and separate from the persons who composing it as well as that any other entity to which it may be related.

Separate properties, separate obligations, separate acts

Nature of Stockholders’ Interest in Corporate Properties

The interest of the shareholder in the properties of the corporation is indirect, contingent, and inchoate. It becomes actual, direct, and existing only upon liquidation of the assets of the corporation and the same property is assigned to the shareholder concerned.

Limited Liability Rule

A stockholder is only liable for the financial obligations of the corporation to the extent of his unpaid subscription.

Also applies to OPC

Trust Fund Doctrine

The assets of the corporation, including its unpaid subscription, are held in trust for corporate creditors.

Doctrine of Piercing the Veil of Corporate Fiction

The corporation’s separate juridical personality may be disregarded when there is an abuse of the corporate form.

Whenever the doctrine applies, the principal and the conduit will be treated as one.

When may corporate personality be disregarded?

(1) When the corporate identity is used to defeat public convenience, justify wrong, protect fraud, or defend crime;

(2) Where the corporation is a mere alter ego or business conduit of a natural person or persons; or

(3) 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.

Traditional Veil-Piercing Action

A court disregards the existence of the corporate entity so a claimant can reach the assets of a corporate insider.

Reverse Veil-Piercing Action

The plaintiff seeks to reach the assets of the corporation to satisfy the claims against a corporate insider. Kinds:

(1) Outsider reverse piercing - when a party with a claim against an individual or corporation attempts to be repair with assets of the corporation owned or substantially controlled by the defendant.

(2) Insider reverse piercing - The controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit available to the corporation.

Instrumentality Rule or the Three-Pronged Control Test

The primary test in the application of the doctrine of piercing the veil of corporate fiction.

(i) Control, not mere majority or complete stock control, but complete domination of finances, policy, and business practice in respect to the transaction attacked;

(ii) Such control must have been used to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act;

(iii) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

Alter Ego Doctrine

There is unity of interest and ownership that the separate personalities of the corporation and the individual no longer exists and that if acts are treated as those of the corporation alone, an inequitable result will follow.

Total Circumstances Test

Focus on a set of circumstances or factors that serve as indicia of the applicability of the doctrine of piercing the veil of corporate fiction.

Indicias include:

(1) Commingling of funds and lther assets of the corporation and the individual;

(2) Diversion of corporate assets for non-corporate use;

(3) Failure to maintain the corporate formalities necessary for the issuance of stock;

(4) An individual shareholder representing to third persons that he or she is personally liable for corporate obligations;

(5) Failure to maintain corporate minutes or adequate records;

(6) Indentical equitable ownership in two entities;

(7) Failure to adequately capitalize a corporation;

(8) Absence of separately held corporate assets;

(9) Use of the same office or business location by the corporation and the individual shareholder;

(10) Formation and use of corporation to assume existing liabilities of another person or entity.

Subsidiary

A corporation more than 50% of the voting stock of which is owned or controlled directly or indirectly through one or more intermediaries by another corporation, which thereby become a parent company.

Primary Rules of Attribution

The action of the BOD will be treated as action of the corporation.

Acts of officers and employees, may also be attributed if they are authorized.

Place of Incorporation Test / Entity Test

In determining if a corporation is foreign or domestic, it looks to the nation where the corporation was incorporated.

The sovereignty by which a corporation was created, under whose laws it was organized, determines its national character.

Control Test / Aggregate Test

In determining if a corporation is foreign or domestic, look into the nationality, domicile, or residence of the individuals who control the organization.

Voting Control Test and Beneficial Ownership Test

Full beneficial ownership of the stocks, coupled with voting rights (60-40 rule) is essential.

Grandfather Rule

A method of determining the nationality of a corporation, which in turn is owned by another corporation by breaking down the equity structure of the shareholders of the corporation that owns the other.

Applicable when in the mind of the Court there is doubt, based on attendsnt facts and circumstances, in the 60-40 Filipino-equity ownership in the corporation

Modern Rule

A corporation may be criminally liable for acts or omissions made by its officers or agents in its behalf.

Classes of Corporation

Corporations formed or organized under this Code may be stock or nonstock corporations. Stock corporations are those 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. All other corporations are nonstock corporations. (Sec. 3, RCCP)

Corporationd Created by Special Laws or Charters

Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable.

Public Corporations

A corporation organized for the government of a postion of a State for the purpose of serving general good and welfare.

De Jure Corporation vs De Facto Corporation

De Jure - Organized in accordance

De Facto - There exists a flaw in its incorporation but there is colorable compliance with the requirements of law. (has AOI)

Government-Owned or Controlled Corporation

Any agency organized as a stock or non-stock vested with functions relating to public needs whether governmental or propriety in nature, and owned by the Government directly or through its instrumentalities either wholly or where applicable (at least 51% of capital stock in stock corporations)

Affiliates

A corporation 50% or less of the OCS of which is owned or controlled, directly or indirectly, by the GOCC.

Parent / Holding Company

A corporation which owns or is organized to own a substantial portion of another company's voting shares enough to control or influence the latter’s management, policies, or affairs.

Corporators and Incorporators, Stockholders and Members

Corporators are those who compose a corporation, whether as stockholders or shareholders in a stock corporation or as members in a nonstock corporation. Incorporators are those stockholders or members mentioned in the AOI as originally forming and composing the corporation and who are signatories thereof. (Sec. 5, RCCP)

Classification of Shares

(Sec. 6, RCCP)

Common Shares vs Preferred Shares

Common shares - basic class of stock ordinarily and usually issued without extraordinary rights or privileges and entitles the shareholder to a pro rata division of profits.

Preferred shares - those that entitle the shareholder to some priority on dividends and/or asset distribution.

Founder's Shares

Founders' shares may be given certain rights and privileges not enjoyed by the owners of other stock. Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years from the date of incorporation: Provided, That such exclusive right shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the "Anti-Dummy Law"; Republic Act No. 7042, otherwise known as the "Foreign Investments Act of 1991"; and otherwise known as "Foreign Investments Act of 1991"; and other pertinent laws. (Sec. 7, RCCP)

Redeemable Shares

Redeemable shares may be issued by the corporation when expressly provided in the articles of incorporation. They are shares which may be purchased by the corporation. They are shares which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions stated in the articles of incorporation and the certificate of stock representing the shares, subject to rules and regulations issued by the Commission. (Sec. 8, RCCP)

Treasury Shares

Treasury shares are shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors. (Sec. 9, RCCP)

Incorporation

The performance of conditions, acts, deeds and writings by incorporators, and the official acts, certification or records, which give the corporation its existence. Incorporation is a mere grant of privilege from the State.

Number and Qualifications of Incorporators

Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes: Provided, That natural persons who are licensed to practice a profession, and partnerships or associations organized for the purpose of practicing a profession, shall not be allowed to organize as a corporation unless otherwise provided under special laws. Incorporators who are natural persons must be of legal age.

Each incorporator of a stock corporation must own or be a subscriber to at least one (1) share of the capital stock.

A corporation with a single stockholder is considered a One Person Corporation as described in Title XIII, Chapter III of this Code. (Sec. 10, RCCP)