Atty.

Espedido: A Corporation, such as a One Person

Corporation (OPC) enjoys the veil of corporate fiction and a
limited liability whereas a Sole Proprietorship’s liability may
not be limited at all.
(1) Sole Proprietorship
(2) Partnership One of the requirements of an OPC to exist is to declare how
(3) Corporation much capital he intends so that his liability will be based on
that capital. He must prove that he has separated that
Sole Partnership Corporation capital from his personal funds. The amount declared as
Properietorship capital for the Corporation has been separated from
Commenceme Starts upon Created by mere Created by
the personal funds. Unless he can do that, he might be
nt selling agreement of operation of
the parties law
liable as a Sole Proprietor.

No. of Sole proprietor At least 2 New Law:

Incorporators persons One Person
Corporation is (1) More Capitalization
allowed (2) Limited liability – veil of corporate fiction applies
(3) Right of Succession – upon the death of a
Old Law: At stockholder, the heir becomes the new stockholder
least 5
which provides stability for the business to continue
incorporators
(4) Transferability of Interest – does not require
Commenceme No juridical Execution of the From the date consent of the other stockholders
nt of Juridical personality contract of issuance of (5) Easier Management - management is centralized
Personality the Certificate in the Board of Directors
of
Incorporation
by the SEC
(1) Higher Income Tax Liability (May be taxed
Liability Liable up to the Liable personally Stockholders
twice) – Corporate Income Tax and Income Tax to
extent of and subsidiarily are liable only
personal for partnership to the extent Stockholders
properties debts to 3rd of their
persons investments as Illustration. When the corporation acquires income, it
represented will be subject to corporate income tax. When it is
by the shares distributed to the shareholder as cash dividends, it
subscribed by will also be an income of the shareholder and such
them are taxable income of the shareholder.
Important:
Veil of (2) Less Participation in the Management -
Corporate participation of stockholders in a corporation is
fiction indirect
applies only
to a Indirect – means the management of the
Corporation corporation is entrusted to the Board of Directors.
The only participation of stockholders in the
Management Managed by the Absence of any Power to do
management is in the election of the Board of
sole proprietor agreement, business is
every partner is vested in the
Directors.
an agent of the Board of
partnership Directors (3) No delectus personae – investing with people you
(BOT) or do not know; there is no personal touch; no delectus
Board of personae
Trustees
(4) Dissolution – dissolution is granted by the State,
Transferability Needs consent Does not need unlike in a Partnership which can be dissolved
of Interest of all partners prior consent
anytime. Dissolution of a Corporation requires
(based on of the
delectus stockholders consent of the State because it is imbued with
personae) public interest.

Right of No right of There is right (5) Greater degree of government control and
Succession succession of succession supervision

(6) Difficulty in requirement – high cost of formation

Basic Distinction: The Veil of Corporate Fiction only
and operations
exists in a Corporation, not in a Sole Proprietorship or
a Partnership
 (c) Government Owned and Controlled
SECTION 3. Classes of Corporations. — Corporations formed or Corporations (GOCC) – created by Congress
organized under this Code may be stock or nonstock corporations. through a special charter for which the
Stock corporations are those which have capital stock divided into government is the majority stockholder
shares and are authorized to distribute to the holders of such shares, Examples: PAGCOR, Landbank of the
dividends, or allotments of the surplus profits on the basis of the
Philippines, SSS, GSIS
shares held. All other corporations are nonstock corporations .

Enumeration:
(A) As to purpose (1) Stock Corporation
1. Public Corporation Those which have capital stock divided into shares
2. Private Corporation and are authorized to distribute to the holders of
(a) Publicly Listed such shares, dividends, or allotments of the surplus
(b) Quasi-Public profits on the basis of the shares held
(c) Government Owned and Controlled
Corporation (GOCC) It has capital stocks divided into shares and
distributed to the holders.
(B) Under the Revised Corporation Code
1. Stock Corporation A stock corporation is also considered as a corporation
2. Non-Stock Corporation for profit.
(C) As to number of corporators Purpose of dividing shares: Determine the share in
1. Corporation Sole the profits
2. One Person Corporation
3. Corporation Aggregate (2) Non-Stock Corporation
All other corporations; they do not issue shares and
(D) Whether it is Open or Close do not distribute profits to its members
1. Open Corporation
2. Close Corporation However, they still own profits for expenditures and to
improve their facilities. They cannot distribute the
(E) As to Legal or Corporate Existence profits to its members. They have to tow this back to
1. De jure corporation the corporation for the benefit of the members in terms
2. De facto corporation of improvement of facilities.
(F) Whether it is for a religions purpose or not
1. Ecclesiastical Corporation
2. Lay Corporation (1) Corporation Sole – one member or corporator; for
purely religious purposes
(G) As to Formation
1. Domestic Corporation (2) One Person Corporation – one member or corporator
2. Foreign Corporation also but not limited to purely religious purposes
(H) As to their relation to another corporation (3) Corporation Aggregate – consisting of more than one
1. Holding or Parent Corporation corporator or member
2. Subsidiary Corporation
3. Affiliated Corporation Basis why the State is liberal in the establishment of
religious corporations as a corporation sole:
More detailed discussion: Constitutional right to Freedom of Religion and Separation
of Powers between the Church and the State
(1) Public Corporation – created to govern a portion Atty. Espedido: Any attempt of preventing anyone from
of a State exercising his religion, from establishing his own church, can
be considered as a violation to his freedom of religion. Thus,
(2) Private Corporation – created for private ends the State would just want to know where you are located and
(a) Publicly listed – private corporations that are the funds that the church has earned.
publicly listed in the Philippine Stock Exchange
which means their shares can be bought and
sold on the PSE
Examples: San Miguel Corporation,
Ayala Land Corporation

(b) Quasi-Public Corporations – private

corporations performing public functions
Example: VECO providing electricity
(1) Open Corporation – open to any person who may Although performing other activities, these activities are
wish to become shareholders. Most of these are publicly very much related or part of the other companies
listed. (e.g. they are part of the supply chain perhaps). Thus, if
the owner of the company creates another corporation
(1) Close Corporation – limited to selected persons or related to the other corporation, then it can be
members of a family. considered sister companies.

This qualification is contained in the Articles of

Incorporation (AOI) and the Stock Certificate. The Illustration.
stock certificate indicates that these holders shall not be
allowed to dispose the shares UNLESS he offers it to the
existing holders first.
Trucking Company
IOW, it cannot be an absolute prohibition. (Logistics
Company)
Otherwise, it will violate the right of an owner which
includes the right to own, right to possess, and right to
dispose. Warehouse
Warehouse Sales Force
Company
Relative Prohibition – you are required to offer this to Management (Marketing Arm)
(Leasing)
existing stockholders. Only when there are no
existing stockholders that would buy that you can
sell it to others.
A trucking company is engaged in hauling products. The
Example: In the Stock Certificate, you may contain a owner noted that the products are brought to various
qualification that ―The holder of these shares cannot sell warehouses that are owned by other people. Thus, the
these shares UNLESS the existing holders exercise their owner of the logistics company decided to construct a
right of first refusal xxx‖ warehouse.

The owner of the trucking company also convinced the

producer and the manufacturer that he can assign someone
(1) De jure corporation – corporation existing in fact or in to monitor the products. Thus, a third business was made –
law Warehouse Management. The owner also created another
(2) De facto corporation – existing in fact but not in law one as a marketing arm, thus a Sales Force company.

Summary: So the Trucking Company here is the parent

corporation, and it owns the subsidiaries: (1) Warehouse
(1) Ecclesiastical Corporation – for religious purposes Company for leasing, a (2) Warehouse Management and a (3)
(2) Lay Corporation – purpose other than religion Sales Force Company. These various businesses, in relation to
each other, are called sister companies and would
constitute a complete chain – they are related to each other.

(1) Domestic Corporation – incorporated under the laws Another example: Aboitiz Company as the owner of Union
of the Philippines Bank, VECO, real estate, and many other activities. So these
(2) Foreign Corporation – formed under any laws other are the subsidiaries of Aboitiz – the more generic term
than those of the Philippines would be affiliates.

(1) Holding or Parent Corporation – corporation which

holds ownership of various corporations, thereby having
control over such corporations. It has the capacity to
elect or control other corporations.

(2) Subsidiary Corporation – owned and controlled by

the holding or parent corporation. The holding
corporation elects the Board of Directors (BOD) for the
subsidiary.

(3) Affiliated Corporation – those related to the parent

corporation or subsidiary corporation

(4) Sister Company – fellow subsidiary with respect to

another subsidiary; both owned by the parent
corporation
 (1) Incorporators The founders are those who came about the idea – they are
(2) Corporators the think tanks of the corporation.
(3) Board of Directors/Trustees
(4) Promoters As a matter of fact, they are given privilege. They are
(5) Underwriters entitled to an exclusive right to vote and be voted for,
(6) Founders but limited for 5 years only from date of inception of the
Corporation.

Incorporators are the organizers of the corporation upon its Purpose of having the EXCLUSIVE right to vote and be
inception. They are mentioned in the Articles of Incorporation voted for:
(AOI) as originally forming and composing the corporation To ensure that the corporation will eventually succeed
and who are signatories thereof. because they are the ones who envisioned the Corporation.
Under the New Code: Juridical persons can now be They have the idea of how the business shall proceed.
incorporators
Thus, the laws provide that for a period of 5 years or less –
Old law: Only natural persons can be incorporators they have the right to vote and be voted upon. NO ONE
ELSE have the right to nominate and elect. This is used
to guide the infant corporation.
Corporators are those who fund the corporation. These refer
to the stockholders, investors, and incorporators themselves. The certificate of the founders’ shares defines the
They are people who have interest over the corporation. privilege that the holders of this share shall have.

Stockholders – in a stock corporation

Members – in a non-stock corporation

SECTION 6. Classification of Shares. — The classifcation of

shares, their corresponding rights, privileges, or restrictions, and their
The Board of Directors or Board of Trustees are the group of stated par value, if any, must be indicated in the articles of
people who manage the corporation. incorporation. Each share shall be equal in all respects to every other
share, except as otherwise provided in the articles of incorporation
and in the certificate of stock.

The shares in stock corporations may be divided into classes or series

The promoters promote the corporation itself. They of shares, or both. No share may be deprived of voting rights except
convince the people to invest. They tell people that they those classifed and issued as "preferred" or "redeemable" shares,
are organizing such corporation. unless otherwise provided in this Code: Provided, That there shall
always be a class or series of shares with complete voting rights.
They are not committed to buy. They are pure salesmen.
Holders of nonvoting shares shall nevertheless be entitled to vote on
the following matters:
(a) Amendment of the articles of incorporation;
(b) Adoption and amendment of bylaws;
Underwriters are mostly banking companies. (c) Sale, lease, exchange, mortgage, pledge, or other disposition of
all or substantially all of the corporate property;
As distinguished from promoters who have no commitment (d) Incurring, creating, or increasing bonded indebtedness;
since they simply promote, underwriters have (e) Increase or decrease of authorized capital stock;
commitment such that they guarantee the sale of stocks (f) Merger or consolidation of the corporation with another
and if these were not sold, they will be the ones who will buy corporation or other corporations;
(g) Investment of corporate funds in another corporation or business
the shares. The underwriters therefore assume liability.
in accordance with this Code; and
(h) Dissolution of the corporation.
Example: The underwriters commit that 60% of the stocks
will be bought. If they cannot sell such committed shares, Except as provided in the immediately preceding paragraph, the vote
they will guarantee that they will buy such stocks themselves. required under this Code to approve a particular corporate act shall
be deemed to refer only to stocks with voting rights.
ROADSHOW – usually done by big corporations. If you want
to promote the formation of a corporation, you may conduct a The shares or series of shares may or may not have a par value:
Provided, That banks, trust, insurance, and preneed companies,
roadshow. You go around the country or the world and do a
public utilities, building and loan associations, and other corporations
roadshow. authorized to obtain or access funds from the public, whether publicly
listed or not, shall not be permitted to issue no-par value shares of
You tell them about the corporation and the business, and stock.
convince them to join – usually accompanied by the
underwriters who help convince. Preferred shares of stock issued by a corporation may be given
preference in the distribution of dividends and in the distribution of
corporate assets in case of liquidation, or such other preferences:
Provided, That preferred shares of stock may be issued only with a
stated par value. The board of directors, where authorized in the
articles of incorporation, may fix terms and conditions of preferred
shares of stock or any series thereof: Provided, further, That such Amount you have to pay but not indicated in the Articles of
terms and conditions shall be effective upon filing of a certificate Incorporation. There is no fixed value stated in the
thereof with the Securities and Exchange Commission, hereinafter
Articles of Incorporation but issued for a consideration not
referred to as the "Commission".
less than five (5) pesos per share.
Shares of capital stock issued without par value shall be deemed fully
paid and nonassessable and the holder of such shares shall not be Who cannot issue non-par value shares?
liable to the corporation or to its creditors in respect thereto: Corporations that have access to public funds, such as:
Provided, That no-par value shares must be issued for a consideration (1) Banks
of at least Five pesos (P5.00) per share: Provided, further, That the (2) Trust
entire consideration received by the corporation for its no-par value (3) Insurance and Preneed Companies
shares shall be treated as capital and shall not be available for
(4) Public Utilities
distribution as dividends.
(5) Building and Loan Associations
A corporation may further classify its shares for the purpose of
ensuring compliance with constitutional or legal requirements. Why can’t corporations lower the par value shares?
Because value of which are stated in the Articles of
SECTION 7. Founders' Shares. — Founders' shares may be given Incorporation. Therefore, it cannot be changed – you cannot
certain rightsand privileges not enjoyed by the owners of other sell shares lower than the par value. Otherwise, it will
stocks. Where the exclusive right to vote and be voted for in the mislead the public.
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 Illustration. 100 ACS sold at 1 peso per share;
Commonwealth Act No. 108, otherwise known as the "Anti-Dummy However, the 1M share was sold for 0.50 which is less
Law"; Republic Act No. 7042, otherwise known as the "Foreign than the par value (of 1 peso per share)
Investments Act of 1991"; and other pertinent laws. The authorized capital stock (ACS) of the corporations is
100M, divided by 100M shares, the par value is 1 peso per
SECTION 8. Redeemable Shares. — Redeemable shares may be share.
issued by the corporation when expressly provided in the articles of
incorporation. They are shares which may be purchased by the
If all of the 100M have been fully subscribed and paid, the
corporation from the holders of such shares upon the expiration of a
fixed period, regardless of the existence of unrestricted
capital of the corporation is 100M. The corporation may use
retainedearnings in the books of the corporation, and upon such this 100M in acquiring other assets, as long as the corporation
other terms and conditions stated in the articles of incorporation and declared that it has assets of more than 100M.
the certificate of stock representing the shares, subject to rules and
regulations issued by the Commission. Say for example that part of the 100M was sold.
1M shares were sold at 0.50 (instead of 1 peso per share).
SECTION 9. Treasury Shares. — Treasury shares are shares of How much capital would that corporation have?
stock which have been issued and fully paid for, but subsequently
Answer: 500,000
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 . So our authorized capital stock was 100M. But the actual
capital that came was only 99,500,000 – which is short of
500,000. [because based on the example, the 1M share was
SHARES – represents the interest or the investment of a
sold only less than par (0.50), while the 99M share was sold
stockholder.
at par (1 peso)] . What is the effect?
CLASSIFICATION OF SHARES
Answer: The corporation is misleading the public. It is not
(1) Founder’s Share
fair to the public. It does not anymore reflect the capital
(2) Preferred Shares
structure of the corporation.
(3) Common Shares
(4) Voting Shares
(5) Non-Voting Shares
[CBPT: So in this illustration, the 100M share is worth 1 peso
(6) Redeemable Shares
par value. However, the 1M shares were sold for 0.50
(7) Par Value Shares
centavos, which is less than the 1 peso par value. So if all the
(8) Non-Par Value Share
shares were sold: the 99M (from the 99M shares) + the
(9) Treasury Shares
500,000 (from the 1M shares); we have a total of only 99.5M
(10) Shares in Escrow
capital (instead of 100M), which is short of 500K.]

This is the minimum price state in the Articles of

NEXT MEETING: Up to Section 15
Incorporation. If the incorporators agreed to the price, that is
the price they will sell to the public.

Who could issue par-value shares?

Any stock corporation is free to issue par-value shares as
indicated in the Articles of Incorporation.