Aviles, El-Jeie I.

BSA 2A

Corporation:

Discuss

A. General Principles, Nature and attributes, Nationality of Corporation

Corporation

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. (§ 2, RCC1)

Nature and Attributes

A corporation is an artificial being created by operation of law, invested by law upon coming into
existence with a personality separate and distinct from the persons composing it, and from any
other legal entity to which it may be related. (CDCP v. Cuenca, G.R. No. 163981, August 12,
2005)

A corporation has the capacity for continuous existence.

Nationality of Corporations

Legal basis for subjecting the enterprise or its activities to the laws, the economic and fiscal
powers, and various social and financial policies of the state to which it is supposed to belong.

1. Control test
- Controlling stockholders.
- A corporation is considered with Philippine nationality if Filipinos own 60% or more of the
shares.

2. Grandfather rule
- Where corporate shareholders are present (and when the Filipino-foreign equity
ownership is in doubt), the percentage of the Filipino equity in corporations is computed
by attributing the nationality of the second or subsequent tier of ownership to determine
the nationality of the corporate shareholder.
 3. Doctrine of Separate Juridical Personality
- General Rule: The Corporation has a separate and distinct juridical personality from its
directors, officers, trustees, and shareholders as well as to other corporations it may be
affiliated with.

- A corporation is a juridical entity with a legal personality separate and distinct from those
acting for and on its behalf, and, in general, from the people comprising it; the
obligations incurred by the corporation, acting through its directors, officers and
employees are its sole liabilities.

4. Doctrine of Piercing the corporate view

- When a corporate legal entity is using the corporation as a cloak for fraud or illegality. In
that case, Doctrine of Separate Juridical Personality is void.

- Classification of Piercing Cases:

(a) Fraud piercing - when a corporate entity is used to commit fraud or justify a wrong
or to defend a crime.
(b) Alter-ego piercing - when a corporate entity is used to defeat public convenience or
is merely a farce since the corporation is merely the alter ego, business conduit, or
instrumentality of a person or another entity.
(c) Equity piercing - when the application of the separate corporate personality would
be inconsistent with the business purpose of the legal fiction or when piercing the
corporate fiction is necessary to achieve justice or equity for those who deal in good
faith with the corporation.

5. Trust Fund Doctirne

- The subscriptions to the capital stock of a corporation constitute a fund to which the
creditors have a right to look for satisfaction of their claims and that the assignee in
insolvency can maintain an action upon any unpaid stock subscription in order to realize
assets for the payment of its debts.

- The contribution of shareholders to the corporation will be extended to creditors upon

dissolution.

B. Kinds of Corporation

1. Stock
- One which has capital stock divided into shares. The surplus profits are distributed based on
the number of shares.

2. Non Stock
- One where no part of its income is distributable as dividends to its members, trustees, or
officers.
3. Close
- is one whose articles of incorporation provides that:
(1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20).
(2) All the issued stock of all classes shall be subject to one or more specified restrictions on
transfer permitted by this Title.
(3) The corporation shall not list in any stock exchange or make any public offering of any of its
stock of any class.

4. Educational
- Educational corporations shall be governed by Special laws (e.g. Education Act of 1982), and
the General provisions of the Revised Corporation Code.(§ 105, RCC)

- The board of trustees of incorporated schools, colleges, or other institutions of learning shall
classify themselves that the term of office of one-fifth (1/5) of their number shall expire every
year.

5. Sole/Religious
- Religious corporations may be incorporated by one or more persons. Such corporations may
be classified into corporations sole and religious societies.

- Commonly, sole/religious corporation does not have any nationality but for purposes of
applying our nationalization laws, it is determined by the members’ nationality.

6. One person Corporation

- corporate structure that is managed or established by a single individual.

C. Articles of Incorporation

- (1) In accordance with Sec. 14 of the RCC

(2) If the single stockholder is a trust or an estate - the name, nationality, and residence of the
trustee, administrator, executor, guardian, conservator, custodian, or other person exercising
fiduciary duties together with the proof of such authority to act on behalf of the trust or estate

(3) Name, nationality, residence of the nominee and alternate nominee, and the extent,
coverage and limitation of the authority. (§ 118, RCC)

D. Corporate name

- The corporate name should Indicate the letters “OPC” either below or at the end of their
corporate name. (§ 120, RCC)

E. Term/commencement of Corporate Existence

- When a corporation is registered and legally granted by authorized establishments allowing

them to exercise their rights, and start its normal operation.
F. By laws

Relatively permanent and continuing rules of action adopted by the corporation for its own
government and of the individuals composing it and those having direction, management, and
control of its affairs, in whole or in part, in the management and control of its affairs and
activities.

Regulations, ordinances, rules or laws adopted by an association or corporation or the like for
its internal governance, including rules for routine matters such as calling meetings and the like.
(San Miguel Corp. v. Mandaue Packing Products Plants Union-FFW, G.R. No. 152356, 2005)

By-laws are intended merely for the protection of the corporation, and prescribe regulation, not
restrictions, they are always subject to the charter of the corporation. (Rural Bank of Salinas v.
CA, G.R. No. 96674, 1992)

G. Coporate Officers

- Corporate officers manage the corporation and perform such duties as may be provided in the
by laws, and/or as resolved by the board of directors of the corporation.

- Types of corporate officers

(1) President - director

(2) Treasurer – assigned in holding the funds.

(3) Secretary - he keeps the stock and transfer book and makes proper and necessary
entries therein. (Torres, Jr. v. CA, G.R. No. 120138, 1997)

(4) Compliance officer

(5) Such other officers as may be provided in the bylaws

NOTE: The same person may hold two (2) or more positions concurrently, except that no one
shall act as president and secretary or as president and treasurer at the same time. (§ 24, RCC)

H. De Facto Corporation

- A corporation failed to file bylaws within the allotted time.

I. Corporation by estoppel

- Those who assume to act as a corporation knowing it to be without the authority to do so shall
be liable as general partners for all debts, liabilities, and damages,

SOURCE:
Ateneo Central Bar Operations Blue Notes