UNIVERSITY OF THE CORDILLERAS
College of Accountancy
Regulatory Framework for Business Transactions
I. Corporations
A. Nature and Classes of Corporations
Corporations are among the business organizations that are available for
individuals seeking to do business in the Philippines. (De Leon, 2013)
Under the Corporation Code, a corporation is defined as 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 (Sec 2., Corporation Code). This definition tells us that a corporation
is a legal or juridical person that is created by law. The corporation is a person
is separate and distinct from the persons composing it, which are the
stockholders or members. Though it is not a person in fact or in reality, under
Philippine laws, it is treated as though it is a person. (De Leon, 2013)
What are the Characteristics of a Corporation?
A corporation has the following characteristics:
1. It is an artificial being.
2. It is created by operation of law
3. It has the right of succession
4. It has the powers attributes and properties expressly authorized by
law or incidental to its existence. (Domingo , 2019)
1. Corporation as an artificial being
A corporation is a legal or juridical person with a personality separate
and distinct from its individual stockholders or members and from any
other legal entity into which it may be connected or related. It means
that if a corporation is formed, the corporation will be treated as if it is a
person(legal person). The corporation as a person shall also have certain
rights like that of a natural person such as acquiring property, entering
into transactions in its own name, file and maintain suits against persons,
etc. (De Leon, 2013)
As a separate legal or juridical entity, a corporation’s liabilities are
considered as its own liabilities and not that of its members or
stockholders. Likewise, the properties of the corporation are considered
as properties owned by the corporation under its name and not property
of its members or stockholders. (De Leon, 2013)
2. A Corporation is created by operation of Law
Corporations as an artificial being is created by operation of law. In
the Philippines, private corporations are created under the Corporation
code, or it may even be created through a legislative grant.
Corporations cannot exist without the approval of the state. The
power to create corporations is one of the attributes of the sovereignty of
a state. Corporations cannot come into existence by mere agreement of
the parties. (De Leon, 2013)
3. A corporation has the Right to succession / power of succession
A corporation has a capacity of continuous existence irrespective of
the death, withdrawal, insolvency, or incapacity of the individual
stockholders or members and regardless of the transfer of their interest or
shares of stock. (De Leon, 2013). A corporation may exist perpetually or
up to the period stated in the Articles of Incorporation if the incorporators
did not choose to exist perpetually.
4. A corporation has the Powers, attributes and Properties of a
Corporation
The powers that a corporation can exercise are only those which are
granted by the law of its creation. All powers which may be implied from
those expressly provided by law and those which are incidental or
essential to the corporation’s existence may also be exercised. (Sec 36,
Revised Corporation Code)
Classes of Corporations
Classes of corporations:
As to presence of stock/ shares
1. Stock Corporation
A stock corporation is a corporation having a capital stock which is
divided into shares. These share are the ones issued to the stockholders as
shares of stock. Stock corporations are also authorized to distribute the
corporate unrestricted retained earnings to its stock holders in the form of
dividends.
Requisites to be classified as a stock corporation:
a. That they have a capital stock divided into shares;
b. And that they are authorized to distribute dividends or allotments
as surplus profits to its stockholders on the basis of the shares held by
them. (Sec. 3, Revised Corporation Code)
2. Non-stock Corporation
Non-stock corporations are corporations which does not have a
capital stock. It is one where no part of its income is distributable as
dividends to its members, trustees, or officers. Likewise, the profits of a
non-stock corporation shall be used whenever necessary for the
furtherance of the purpose or purposes for which it was organized. (Sec
86, Revised Corporation Code)
Other classes of corporations:
1. Public and Private.
a. Public corporations –
Public corporations are created, formed or organized for political
or governmental purposes for the general welfare of the public.
(Domingo , 2019)
c. Private corporations
Those formed for private purposes, benefit, aim or end. (Ibid)
2. Ecclesiastical and Lay (eleemosynary or civil).
a. Ecclesiastical or religious corporations
They are corporations organized for religious purposes. (Ibid)
b. Lay corporations
Lay corporations are those established for the purposes other
than religion. (Ibid)
3. Aggregate and Sole.
a. Aggregate corporations
Those composed of a number of individuals vested with
corporate powers.
b. Corporations sole
Those that consist of one person or individual only and who was
incorporated for the purpose of managing the affairs or property, of
any religious denomination, sect, or church. (Ibid)
4. Close and Open.
a. Close corporations
Closed corporations are those whose shares of stocks are only
limited to certain persons or members of a family. (De Leon, 2013)
b. Open corporations
Corporations who openly accept stockholders or members are
considered as open corporations. (Ibid)
5. Domestic and Foreign.
a. Domestic corporations
Corporations which are organized under Philippine laws (either by
the corporation code or by legislative action) are considered as
Domestic corporations. (Domingo, 2019)
b. Foreign corporations
Corporations formed under laws other than Philippine laws and
whose laws allow Filipino citizens and corporations to do business in its
own country or state are considered as Foreign corporations. (Ibid)
6. Parent or Holding Companies and Subsidiaries and Affiliates.
a. Holding corporations
Holding corporations are corporations that confine their activities
to owning stock in, and supervising management of other
companies. (Ibid)
b. Subsidiary corporations
Corporations whose majority shares are controlled by another
corporation. (Ibid)
c. Affiliates
Corporations which are subject to common control and operated
as part of a system or a group of corporations.
7. De jure corporations.
De Jure corporations are corporations formed under strict
compliance with the requirements of the law. (De Leon, 2014)
8. De facto corporations.
De Facto corporations are those which have not complied with
all the requisites provided by law in order to be considered a de jure
corporation. (Ibid)
9. Corporation by Estoppel
Corporation formed by persons who assume to act as a
corporation knowing that it has no authority to do so. Such persons
shall be considered as general partners for all debts, liabilities, and
damages incurred or arising as a result thereof. (Domingo, 2019)
10. Corporation by prescription
A corporation which has exercised the powers of a corporation
since time immemorial. As such it has been recognized by the state as
a corporation. Example is the Roman Catholic church. (De leon, 2014)
-End of Module-
References:
Revised Corporation Code
Domingo,A. (2019). Business Laws and Regulations: partnership, Revised
Corporation, Cooperative Law, Laws, Principles, and Jurisprudence (2019
Edition). Itogon, Benguet: Coaching for Results Publishing.
De Leon, H. (2013), The Corporation Code of the Philippines, Quezon City,
Philippines: Rex Printing Company, Inc.
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