R.A. No. 11232 - The Revised Corporation Code Concepts and Doctrines

The Revised Corporation Code (R.A. No. 11232) - Concepts and Doctrines decided by the Supreme Court

1. Corporation law CORPORATE CONCEPTS AND DOCTRINES THE REVISED CORPORATION CODE OF THE PHILIPPINES R.A. NO. 11232 Presentor: Jake Andrian C. Gerona

2. Definition of Corporation 1. A n Artificial Being “A corporation is granted a juridical capacity to own properties, to contract and to enter into legal relationships.” 2. Creature of the Law “Each corporation is created by operation of law pursuant to a covenant to pursue a business enterprise.” 3. With a Right of Succession “A corporation has a juridical personality separate and distinct from its stockholders or members, officers and directors or trustees.” 4. Creature of Limited Powers “A corporation has only such powers, attributes and properties as are expressly authorized by law or incident to its existence.” 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 incidental to its existence. ( Sec. 2, R.A. No. 11232 ) FOUR CORPORATE ATTRIBUTES BASED ON THE DEFINITION:

3. “ASSETS ONLY” LEVEL “ The corporation is an aggregation of Assets and Properties” “BUSINESS ENTERPRISE” LEVEL “The corporation’s primary purpose is to pursue business.” “JURIDICAL ENTITY” LEVEL “ The corporation’s juridical personality is primarily a medium through which to pursue a business enterprise .” “TRI-LEVEL EXISTENCE” IN THE CORPORATE SETTING

4. “JURIDICAL ENTITY” RELATIONSHIP Treats of the legal consequences arising from the relationship between the State as the creator, and the corporation as its creature . “INTRA CORPORATE” RELATIONSHIP Treat of the legal consequences arising from “corporate contractual relationships” “EXTRA CORPORATE” RELATIONSHIPS Deals with legal consequences arising from the relationships of the corporation with the public it deals with or those affected by its business enterprise “TRI-LEVEL RELATIONSHIP” IN THE CORPORATE SETTING

5. THEORIES ON THE FORMATION OF CORPORATIONS THEORY OF CONCESSION -A corporation’s claim of a juridical personality of its own and to transact business as such, is not a matter of absolute right, but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. (Ang Pue & Co. v. Sec. of Commerce & Industry) -There is thus a rejection of Gierke’s genossenschaft theory, the basic theme of which … ‘is the reality of the group as a social and legal entity, independent of state recognition and concession.’ A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state acting according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so.” (Tayag v. Benguet Consolidated)

6. -All corporations, big or small, must abide by the provisions of the Corporation Code; even a simple family corporation cannot claim an exemption nor can it have rules and practices other than those established by law. (Torres v. CA) - “It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general enabling act,” and the procedure and conditions provided under the law for the acquisition of such juridical personality must be complied with. Although the statutory grant to an association of the powers to purchase, sell, lease and encumber property can only be construed the grant of a juridical personality to such an association, ” nevertheless, the failure to comply with the statutory procedure and conditions does not warrant a finding that such association acquired a juridical personality, even when it adopts a constitution and a set of bylaws. (Int’l Express Travel & Tour Services v. CA)

7. THEORIES ON THE FORMATION OF CORPORATIONS THEORY OF ENTERPRISE ENTITY - A corporation is but an association of individuals, allowed to transact business under a corporate name with a distinct legal personality. In organizing itself as a collective body, the group or its members waives no constitutional immunities and perquisites appropriate to such a body. (PSE v. CA) - Corporations are composed of natural persons and their separate corporate personality is no shield for the commission of injustice and inequity, such as to avoid the execution of the property of a sister company. (Tan Boon Bee & Co. v. Jarencio)

8. ADVANTAGEOUS ATTRIBUTES AND DISADVANTAGES OF THE CORPORATION PRIMARY ATTRIBUTES OF THE CORPORATION UNDER CORPORATE LAW FRAMEWORK 1. Strong/Solemn Juridical Personality 2. Centralized Management. 3. Limited Liability to Stockholders and Non-Liability to Directors/Trustees and Officers for the Liabilities of the Corporation. 4. Free-Transferability of “Units of Ownership” (Shares). DISADVANTAGES OF THE CORPORATE MEDIUM 1. Agency Cost – Abuse of Management or Breach of Trust 2. Abuse of Limited Liability Feature 3. High Cost of Maintenance of the Corporate Medium 4. Double Taxation

9. ADVANTAGEOUS ATTRIBUTES AND DISADVANTAGES OF THE CORPORATION COMPARED WITH OTHER BUSINESS MEDIA 1. Sole Proprietorships - A sole proprietorship, although regulated separately from its owner for purpose of taxation and regulation, is not vested with juridical personality to file or defend an action. (Excellent Quality Apparel v. Win Multiple-Rich Builders) 2. Business Trusts -Article 1442, Civil Code. The following are juridical persons: x x x x (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member.

10. ADVANTAGEOUS ATTRIBUTES AND DISADVANTAGES OF THE CORPORATION COMPARED WITH OTHER BUSINESS MEDIA 3. Partnerships -Article 1768, Civil Code. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph. -Article 1775, Civil Code. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership.

11. ADVANTAGEOUS ATTRIBUTES AND DISADVANTAGES OF THE CORPORATION COMPARED WITH OTHER BUSINESS MEDIA 4. Joint Ventures -an association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to direct and govern the policy in connection therewith, and agreement to share both in profit and losses. (Kilosbayan v. Guingona)

12. ADVANTAGEOUS ATTRIBUTES AND DISADVANTAGES OF THE CORPORATION COMPARED WITH OTHER BUSINESS MEDIA 5. Joint Accounts or Cuentas en Participacion -an accidental partnership constituted in a manner that its existence was only known to those who had an interest in the same,there being no mutual agreement between the partners, and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, governed under Art. 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against third person who contracted with the manager unless such manager formally transfers his right to them. (Bourns v. Carman)

13. ADVANTAGEOUS ATTRIBUTES AND DISADVANTAGES OF THE CORPORATION COMPARED WITH OTHER BUSINESS MEDIA 6. Cooperatives Article 3, Cooperative Code. General Concepts. - A cooperative is a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles. )

14. CLASSIFICATION OF CORPORATIONS IN RELATION TO THE STATE: 1. Private Corporations Section 3, Act No. 1459. Corporations may be public or private. -Private corporations are divided into stock corporations and nonstock corporations. Corporations which have a 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 are stock corporations. All other private corporations are nonstock corporations. 2. Public Corporations or Local Government Units (LGUs) -Public corporations are those formed or organized for the government of a portion of the state. Private corporations are those formed for some private purpose, benefit, aim, or end, as distinguished from public corporations, which have for their purpose the general good and welfare.

15. CLASSIFICATION OF CORPORATIONS IN RELATION TO THE STATE: 3. Quasi-Public Corporations -Private corporations that render public service or supply public wants. While purposely organized for the gain or benefit of its members, they are required by law to discharge functions for the public benefit. (Martin Definition) 4. Government-Owned-or-Controlled Corporations (GOCCs) -refers to any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government of the Republic of the Philippines directly or through its instrumentalities either wholly or, where applicable as in the case of stock corporations, to the extent of at least a majority of its outstanding capital stock: Provided, however, That for purposes of this Act, the term “GOCC”- shall include GICP/GCE and GFI as defined herein.

16. CLASSIFICATION OF CORPORATIONS AS TO LEGAL STATUS: 1. De Jure Corporation A de jure corporation is a fully incorporated company. To be considered de jure, the company must have fulfilled all of the statutory requirements for properly forming a corporation. (Investopedia) 2. De Facto Corporation SEC. 19. De facto Corporations. – The due incorporation of any corporation claiming in good faith to be a corporation under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding.

17. CLASSIFICATION OF CORPORATIONS AS TO LEGAL STATUS: 3. Corporation by Estoppel SEC. 20. Corporation by Estoppel. – All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use its lack of corporate

18. CLASSIFICATION OF CORPORATIONS AS TO THE NATURE OF THE BUSINESS ENTERPRISE: 1. Corporation whose business only affects private interests 2. Corporation whose business is vested with public interests

19. CLASSIFICATION OF CORPORATIONS AS TO THE EXISTENCE OF SHARES: 1. Stock Corporation SEC. 3. Classes of Corporations. – 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. 2. Non-stock Corporation -is one where no part of its income is distributable as dividends to its members, trustees, or officers: Provided, That any profit which a nonstock corporation may obtain incidental to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized.

20. CLASSIFICATION OF CORPORATIONS AS TO PURPOSE OF INCORPORATION: 1. Business (for-profit) Corporations 2. Non-stock and Non-profit Corporations: Charitable, Scientific or Vocational Corporations 3. Educational Corporations Section 25. Education Act of 1982. Establishment of Schools - All schools shall be established in accordance with law. The establishment of new national schools and the conversion of existing schools from elementary to national secondary or tertiary schools shall be by law: Provided, That any private school proposed to be established must incorporate as an non-stock educational corporation in accordance with the provisions of the Corporation Code of the Philippines. This requirement to incorporate may be waived in the case of family-administered pre-school institutions. Government assistance to such schools for educational programs shall be used exclusively for that purpose.

21. CLASSIFICATION OF CORPORATIONS AS TO PURPOSE OF INCORPORATION: 4. Religious Corporations SEC. 107. Classes of Religious Corporations.– Religious corporations may be incorporated by one or more persons. Such corporations may be classified into corporations sole and religious societies. Religious corporations shall be governed by this Chapter and by the general provisions on nonstock corporations insofar as applicable. 5. Other Special Corporations SEC. 4. Corporations 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.

22. CLASSIFICATION OF CORPORATIONS AS TO NUMBER OF INCORPORATORS: 1. Aggregate Corporation – no limit of stockholders or members. 2. Close Corporation – not more than 20 stockholder of records. 3. One Person Corporation – available only for stock corporations. AS TO NUMBER OF INCORPORATION: 1. Domestic Corporation 2. Foreign Corporation -a foreign corporation is one formed, organized or existing under laws other than those of the Philippines’ and whose laws allow Filipino citizens and corporations to do business in its own country or State. It shall have the right to transact business in the Philippines after obtaining a license for that purpose in accordance with this Code and a certificate of authority from the appropriate government agency. (SEC. 140)

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