4 Attributes of a Corporation

Limitation in the Enactment of Law, Section 16, Article XII, 1987 Constitution

Twin Conditions in forming a GOCC

Concession Theory ( Fiat Theory/ Government Paternity Theory/ Franchise Theory)

Doctrine of Limited Capacity.

CLASSES OF CORPORATION

1. As to existence of stocks: Stock or Non-stock

2. As to function/purpose: Public or Private
3. As to place of incorporation: Domestic or Foreign corporations.
4. As to legal status: De Jure or De Facto Corporation

Requisites of de facto Corporation

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for
the existence of a de facto corporation

What is an open and close corporation

Corporation by Estoppel

Corporate Juridical Personality

An action filed by a corporation to recover the properties of its shareholders or members should be
dismissed for failure to state a cause of action because the corporation is not a real party-in-interest.

Constitutional Rights of Corporations

Yes: Right Against Unreasonable Searches and Seizures

No Right against Self Incrimination

Yes: Due Process

Incorporators vs Corporators

Take note: Articles of Incorporation cannot be amended to change the names of the incorporators,
because the fact that the persons named therein are incorporators is an accomplished fact that can no
longer be undone.

DIRECTORS OR TRUSTEES

CAPITALIZATION

The Revised Corporation Code, however, has deleted such provision thereby removing the required
minimum and subscribed capital stock.

Authorized Capital Stock

Outstanding Capital Stock

Outstanding Capital Stock

Criminal Liability

General Rule:

Corporations, being artificial beings are incapable of intent, thus they cannot commit felonies that are
punishable under the RPC and neither in Special Laws.

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or
other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely
because of the nature of the crime and the penalty thereof. A corporation cannot be arrested and
imprisoned; hence, cannot be penalized for a crime punishable by imprisonment. ( Alfredo Ching vs.
Secretary of Justice, GR No 119858, 29 April 2003)

Exception: But a Corporation may be charged and prosecuted for a crime if the imposable penalty is fine,
Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted
and if found guilty, may be fined ( Alfredo Ching vs Secretary of Justice).
Yes: Tort Liability

RECOVERY OF MORAL DAMAGES

General rule: No

Exception: when the corporation has a good reputation that is debased, resulting in its humiliation in the
business realm.

DOCTRINE OF PIERCING THE CORPORATE VEIL

This doctrine is the exception to the doctrine of corporate entity.

THREE CASES OF PIERCING THE CORPORATE VEIL

THE 3 ELEMENTS IN PIERCING THE CORPORATE VEIL BASED ON ALTER EGO THEORY

Instrumentality Rule

Take note:

Any application of the doctrine of piercing the corporate veil should be done with caution.

Take note:

Paid -up capital is merely seed money to start a corporation or a business entity, xxx, it is not and should
not be taken as a reflection of the firm’s capacity to meet its recurrent and long-term obligations.

Existence of Interlocking Directors.

General rule

The court cannot pierce the veil of corporate fiction that was never impleaded in the complaint.

Pioneer Insurance Surety Corporation vs Morning Star’s liability.

Exception:
If it is shown “by clear and convincing proof that the separate and distinct personality of the corporation
was purposely employed to evade a legitimate and binding commitment and perpetuate a fraud or like
wrongdoings.”

Please see the case of International Academy of Management and Economics vs Litton and Company

GR 191525, 13, December 2017.

Traditional Veil-Piercing vs. Reverse Piercing

2 types of Reverse Piercing:

1. Outsider Reverse Piercing:

Occurs when a party with a claim against an individual or corporation attempts to be repaid with
assets of a corporation owned of 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, such as an interest in a lawsuit or protection of
personal assets.

Piercing the Corporate Veil may also apply to non-stock corporations.

CONSEQUENCES OF CORPORATE VEIL PIERCING

Take note:
Piercing the corporate veil does not result in the abrogation of the corporation.
INCORPORATION AND ORGANIZATION

CONCEPT

Incorporation is the formal and procedural requisite of drafting the Articles of Incorporation and
preparing other necessary supporting documents and their subsequent filing with, and approval by the
SEC thereof.

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/s. However, 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.

CORPORATE NAME

DOCTRINE OF SECONDARY MEANING

Under the Doctrine of Secondary Meaning a word or phrase originally incapable of exclusive
appropriation with reference to an article on the market, because geographically or otherwise
descriptive, might nevertheless have been used so long and so exclusively by one producer with
reference to his article that , in that trade and to the branch of the purchasing public, the word or
phrase has come to mean that the articles was his product.

Change of Name

PURPOSE CLAUSE

PRINCIPAL OFFICE

TERM OF EXISTENCE
Under the Revised Corporation Code, a corporation shall have perpetual existence unless its
articles of incorporation provide otherwise.

A corporate term for a specific period may be extended or shortened by amending its articles.
No extension may, however, be made earlier than 3 years prior to the original or subsequent
expiry date(s) unless there are justifiable reasons for an earlier extension as may be determined
by the SEC.

SHARES OF STOCK

Classes of Shares
a. Par Value Share
b. No Par Value Share

Under the Revised Corporation Code, shares or series of shares may or may not have a par value:
provided, that banks, trust, insurance, and pre-need companies, public utilities, building and loan
association, and other corporations 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 stock.

c. Voting shares
d. Non-voting shares.
General Rule:
Shareholder owning non-voting shares has no right to vote.

Exceptions: They can vote on certain corporate acts enumerated in Paragraph 3 , Section 6,

RCC

e. Common Shares
f. Preferred Shares:
Preferred shares as to assets
Preferred shares as to dividends
Participating shares as to dividends
Participating preferred shares
Non-participating preferred shares
Cumulative preferred shares
Non-cumulative preferred shares

g. Redeemable shares
h. Treasury Shares
i. Founder’s shares
-classified as such in the articles of incorporation may be given certain rights and
privileges not enjoyed by the owners of the other stocks, provided that where the
exclusive right to vote and be voted for in the election of directors is granted ,It must be
for the limited period not to exceed five (5) years subject to approval of the SEC. The
five (5) year period shall commence from the date of the approval by the SEC.

Take note: shall exclusive right shall not be allowed if tis exercise will violate Common
Wealth Act No. 108 (Anti dummy law), FIA, and other pertinent laws.

EQUALITY OF SHARES

NOTE ON TREASURER’S AFFIDAVIT

Under the Revised Corporation Code, however the Treasurer’s Affidavit is no longer
expressly required for the acceptance of the articles of incorporation.

GROUNDS FOR REJECTION OF THE ARTICLES OF INCORPORATION

FPFP