Corporation defined
 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.
Attributes of a corporation
 the following are attributes of a corporation:
 (1) It is an artificial being;
 (2) It is created by operation of law;
 (3) It has the right of succession; and
 (4) It has only the powers, attributes and properties
expressly authorized by law or incident to its existence.
Nature of Corporation
 A corporation is a legal or juridical person with a
personality separate and apart from its individual
stockholders or members and from any other legal
entity to which it may be connected. It is not in fact
and in reality a person but the law treats it as though it
were a person by process of fiction. The stockholders
or members who, as natural persons, are merged in the
corporate body, compose the corporation but they are
not the corporation.
Nature of Corporation
 Corporation as a person, resident, or citizen.
 A corporation is regarded as a "person," "resident," or
"citizen“ within the purview of those terms as used in
constitutional or statutory provisions, whenever this
becomes necessary in order to give full effect to the
purpose or spirit of the Constitution or statute. The
tendency is to regard corporations, as far as their
inherent nature will permit, as on the same footing as
ordinary individuals.
 As a consequence of this legal concept of a
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corporation:
(1) Liability for acts or contracts.
(2) Liability when exceptional circumstances require
(3) Right to bring actions.
(4) Right to acquire and possess property
(5) Acquisition by court of jurisdiction.
(6) Changes in individual membership.
Doctrine of piercing the veil of
corporate entity.
 The doctrine that a corporation is a legal entity or a person
in law, distinct from the persons composing it or any other
corporation to which it may be related, is merely a legal
fiction for purposes of convenience and to subserve the
ends of justice.
 The doctrine requires the court to see through the
protective shroud which exempts its stockholders from
liabilities that ordinarily they could be subject to, or
distinguishes one corporation from a seemingly separate
one, were it not for the existing corporate fiction.
 where the fiction of corporate entity is being used as a
cloak or cover for fraud or illegality, or "to defeat public
convenience, justify wrong, protect fraud, or defend
crime" or for ends subversive of the policy and purpose
behind its creation, especially where the corporation is
a closed family corporation, on equitable
considerations, this fiction will be disregarded and the
individuals composing it or two corporations will be
treated as identical.
 The rationale is to remove the barrier between the
corporation from the persons comprising it to thwart
the fraudulent and illegal schemes of those who use
the corporate personality as a shield for undertaking
certain proscribed activities.
 In the absence of malice, bad faith, or a specific
provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for
corporate liabilities.
 (1) Corporations 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 are stock
corporations.
 (2) Non-stock corporations do not issue stock and
distribute dividends to their members; they are
created not for profit but for the public good and
welfare.
Other classifications of
corporations.
 (1) As to number of persons who compose them:
 (a) Corporation aggregate or a corporation consisting of
more than one member or corporator; or
 (b) Corporation sole or a special form of corporation
usually associated with the clergy. Under the Code, it is
a religious corporation which consists of one member or
corporator only and his successors, such as a bishop.
 (2) As to whether they are for religious purposes or
not:
 (a) Ecclesiastical corporation or one organized for
religious purposes. Under the Code, religious
corporations are classified into corporations sole and
religious societies (Sec. 109, par. 2.); or
 (b) Lay corporation or one organized for a purpose
other than for religion. Lay corporations, in turn, may
be either eleemosynary or civil.
 (3) As to whether they are for charitable purposes or
not:
 (a) Eleemosynary corporation or one established for or
devoted to charitable purposes or those supported by
charity; or
 (b) Civil corporation or one established for business or
profit, i.e., with a view toward realizing gains to be
distributed among its members.
 (4) As to State under or by whose laws they have been
created:
 (a) Domestic corporation or one incorporated under the
laws of the Philippines; or
 (b) Foreign corporation or one formed, organized, or
existing under any laws other than those of the
Philippines.
 (5) As to their legal right to corporate existence:
 (a) Dejure corporation or a corporation existing in fact
and in law; or
 (b) De facto corporation or a corporation existing in fact
but not in law. (see Sec. 21.)
 (6) As to whether they are open to the public or not:
 (a) Close corporation or one which is limited to selected
persons or members of a family (see Sees. 96-105.); or
 (b) Open corporation or one which is open to any person
who may wish to become a stockholder or member
thereto.
 (7) As to their relation to another corporation:
 (a) Parent or holding corporation or one which is so related to
another corporation that it has the power, either directly or
indirectly, to elect the majority of the directors of such other
corporation;
 (b) Subsidiary corporation or one which is so related to
another corporation that the majority of its directors can be
elected either directly or indirectly by such other corporation.
It is one in which another corporation17 owns at least a
majority of the shares and thus has control; or
 (c) Affiliated corporation or one related to another by owning
or being owned by common management or by a long term
lease of its properties or other control device.
 (8) As to whether they are for public (government) or
private purpose:
 (a) Public corporations or those formed or organized for
the government of a portion of the State for the general
good and welfare; or
 (b) Private corporations or those formed for some
private purpose, benefit, or end; it may be either a stock
or non-stock corporation, government-owned or controlled corporation or quasi-public corporation.
 Sec. 5. Corporators and incorporators, stockholders
and members. — Corporators are those who compose
a corporation, whether as stockholders or members.
Incorporators are those stockholders or members
mentioned in the articles of incorporation as originally
forming and composing the corporation and who are
signatories thereof.
 Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a nonstock corporation are called members. (4a)
 There are three other classes of persons who play
important roles in the formation and organization of a
corporation, namely:
 (1) Promoters or persons who bring about or cause to
bring about the formation and organization of a
corporation by bringing together the incorporators or
the persons interested in the enterprise
 (2) Subscribers or "persons who have agreed to take
and pay for original, unissued shares of a corporation
formed or to be formed."
 (3) Underwriter or "a person, usually an investment
banker, who (a) has agreed, alone or with others, to
buy at stated terms an entire issue of securities or a
substantial part thereof; or (b) has guaranteed the sale
of an issue by agreement to buy from the issuing party
any unsold portion at a stated price; or (c) has agreed
to use his "best efforts" to market all or part of an issue;
or (d) has offered for sale stock he has purchased from
a controlling stockholder.
Capital stock and capital
explained.
 (1) Capital stock is the amount fixed in the articles of
incorporation, to be subscribed and paid in or agreed
to be paid in by the stockholders of a corporation, in
money, property, services, or other means at the
organization of the corporation or afterwards and
upon which it is to conduct its business such
contribution being made either directly through stock
subscription (see Sec. 60.) or indirectly through the
declaration of stock dividends.
 The capital stock is the money value assigned to a
corporation's issued shares, constituting generally the
legal capital (infra.) of the corporation. (E.L. Kohler,
op. cit., p. 84.) It represents the equity of the
stockholders in the corporate assets. It limits the
maximum amount or number of each class of shares
that may be issued by the corporation without formal
amendment of the articles of incorporation, (see Sec.
16.) It remains the same even though the actual value
of the shares as determined by the assets of the
corporations is diminished or increased, unaffected by
profits and losses.
 (a) Authorized capital stock refers to the amount of
capital stock as specified in the articles of
incorporation. It is synonymous with capital stock
where the shares of the corporation have par value,
(see Sees. 14[8], 15 [seventh].) If the shares of stock
have no par value, the corporation has no authorized
capital stock, but it has capital stock the amount of
which is not specified in the articles of incorporation
as it cannot be determined until all the shares have
been issued.
 (b) Subscribed capital stock is the amount of the
capital stock subscribed, whether fully paid or not. It
connotes an original subscription contract for the
acquisition by a subscriber of unissued shares in a
corporation (see Sees. 60, 61.) and would, therefore,
preclude the acquisition of shares by reason of
subsequent transfer from a stockholder or resale of
treasury shares. (Sec. 9.)
 (c) Outstanding capital stock is the portion of the
capital stock which is issued and held by persons other
than the corporation itself.
 (d) Paid-up capital stock is that portion of the
subscribed or outstanding capital stock that is actually
paid.27 (see Sec. 13.) The term actual capital stock is
also used to refer to the amount of the capital stock
actually subscribed and paid for.
 (e) Unissued capital stock is that portion of the
capital stock that is not issued or subscribed. It does
not vote and draws no dividends.
 (f) Legal capital is the amount equal to the aggregate
par value and/or issued value of the outstanding
capital stock. When par value shares are issued above
par, the premium or excess is not to be considered as
part of the legal capital.
 (2) Capital is used broadly to indicate the entire
property or assets of the corporation. It includes the
amount invested by the stockholders plus the
undistributed earnings less losses and expenses. It
includes all balances or installments due the
corporation for shares of stock sold by it and all unpaid
subscription for shares.
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Classes of shares in general.
Shares of stock may be:
(1) Par value or no par value;
(2) Voting or non-voting;
(3) Common or preferred,
 (a) Preferred as to assets in case of liquidation or
 (b) preferred as to dividends
 (4) Founders' share (see Sec. 7.);
 (5) Redeemable share (see Sec. 8.); and
 (6) Treasury share, (see Sec. 9.)
 Par value share is one with a specific money value
fixed in the articles of incorporation and appearing in
the certificate of stock.
 No par value share is one without any stated value
appearing on the face of the certificate of stock. In
other words, it is a stock which does not state how
much money it represents.
 Voting share is share with right to vote.
 It is generally customary to give the right to vote to the
common stock and to withhold it from the preferred.
 Only shares classified and issued as "preferred" or
"redeemable" may be deprived of voting rights.
 Non-voting share is share without right to vote.
 If stock is originally issued as voting stock, it may not
thereafter be deprived of the right to vote without the
consent of the holder.
 Common share of stock is one which entitles the
holder thereof to a pro rata division of the profits, if
there are any, and in its assets upon dissolution,
without any preference or advantage in that respect
over other stockholders or class of stockholders but
equally with all other stockholders except preferred
stockholders.
 Common shares have complete voting rights. They
cannot be deprived of said rights except as provided by
law.
 Preferred share of stock is one with a stated par
value which entitles the holder thereof to certain
preferences over the holders of common stock.
 Promotion shares are such shares as are issued to
promoters, or those in some way interested in the
company, for incorporating the company, or for
services rendered in launching or promoting the
welfare of the company, such as advancing the fees for
incorporating, advertising, attorney's fees, surveying,
etc.
 Founders' shares are shares issued to the organizers
and promoters of a corporation in consideration of
some supposed right or property. Such shares usually
share in profits only after a certain percentage has
been paid upon the common stock, but are often given
special privileges over other stock as to voting and as to
division of profits in excess of a minimum dividend on
the common stock."
 Redeemable or callable shares are shares, usually
preferred, which by their terms are redeemable at a
fixed date or at the option of either the issuing
corporation or the stockholder or both at a certain
redemption price.
 Treasury shares are shares which have been lawfully
issued by the corporation and fully paid for and later
reacquired by it either by purchase, redemption.
Stockholders’ Rights and
Protection of Minority
Stockholders’ Interests
1.
Voting Right
 Shareholders have the right to elect, remove and
replace directors and vote on certain corporate acts in
accordance with the Corporation Code.
 The Code mandates the use of cumulative voting in
the election of directors. Although directors may be
removed with or without cause, the Code prohibits
removal without cause if it will deny minority
shareholders representation in the Board. Removal of
directors requires an affirmative vote of two-thirds of
the outstanding capital.
2. Pre-emptive Right
 All stockholders have pre-emptive rights, unless there
is a specific denial of this right in the articles of
incorporation or an amendment thereto. They shall
have the right to subscribe to the capital stock of the
corporation. The Articles of Incorporation may lay
down the specific rights and powers of shareholders
with respect to the particular shares they hold, all of
which are protected by law so long as they are not in
conflict with the Corporation Code.
3. Power of Inspection
 The Corporation Code mandates corporations to allow
shareholders to inspect corporate books and records
including minutes of Board meetings and stock
registries in accordance with the Corporation Code
and to provide them an annual report, including
financial statements, without cost or restrictions.
4. Right to Information
 The Shareholders shall be provided, upon request, with periodic
reports which disclose personal and professional information
about the directors and officers and certain other matters such as
their holdings of the company�s shares, dealings with the
company, relationships among directors and key officers, and the
aggregate compensation of directors and officers. The
Information Statement/Proxy Statement where these are found
must be distributed to the shareholders before annual general
meetings and in the Registration Statement and Prospectus
in case of registration of shares for public offering with the
Commission.
 The minority shareholders should be granted the right to
propose the holding of a meeting, and the right to propose items
in the agenda of the meeting, provided the items are for
legitimate business purposes.
 The minority shareholders should have access to any
and all information relating to matters for which the
management is accountable for and to those relating
to matters for which the management should include
such information and, if not included, then the
minority shareholders can propose to include such
matters in the agenda of stockholders� meeting,
being within the definition of �legitimate
purposes�.
5. Right to Dividends
 Shareholders have the right to receive dividends subject to the
discretion of the Board. However, the Commission may direct
the corporation to declare dividends when its retained earnings
is in excess of 100% of its paid-in capital stock, except:
 a) when justified by definite corporate expansion projects or
programs approved by the Board or
 b) when the corporation is prohibited under any loan agreement
with any financial institution or creditor, whether local or foreign,
from declaring dividends without its consent, and such consent has
not been secured; or
 c) when it can be clearly shown that such retention is necessary
under special circumstances obtaining in the corporation, such as
when there is a need for special reserve for probable contingencies.
6. Appraisal Right
 The Corporation Code allows the exercise of the shareholders�
appraisal rights under the following circumstances:
 a. In case any amendment to the articles of incorporation has
the effect of changing or restricting the rights of any
stockholders or class of shares, or of authorizing preferences in
any respect superior to those of outstanding shares of any class,
or of extending or shortening the term of corporate existence;
 b. In case of sale, lease, exchange, transfer, mortgage, pledge or
other disposition of all or substantially all of the corporate
property and assets as provided in the Corporation Code; and
 c. In case of merger or consolidation.
 An appraisal right is the statutory right of a
corporation's minority shareholders to have a judicial
proceeding or independent valuator determine a fair
stock price and oblige the acquiring corporation to
repurchase shares at that price
 Under Philippine law, two or more corporations can
merge into a single entity, taking on the identity of one
of the constituent corporations or that of a new
corporation, which will be known as the consolidated
corporation.
 Merger: A + B = B
 Consolidation = A + B = W
 When the board of trustees of constituent corporations
makes a majority vote, they must send it for approval by
stockholders and members at separate meetings.
 Notice of these meetings must be sent to all stockholders
or members of constituent corporations at least two weeks
before the date of the meeting, either in person or through
registered mail. The notice must indicate the purpose of
the meeting, as well as include a summary or a copy of the
plan of merger or consolidation.
 Stockholders must vote for the plan to get approved.
With stock corporations, the merger or consolidation
must get the affirmative vote of stockholders
representing at least two-thirds of the outstanding
capital stock of each constituent corporation. In the
case of non-stock corporations, the plan must get at
least two-thirds of the members’ affirmative votes.
 Dissenting stockholders in stock corporations can
exercise their appraisal rights in accordance with the
Corporation Code of the Philippines.
 However, if the board decides to abandon the plan
after gaining the approval of stockholders, dissenting
stockholders’ appraisal right will be extinguished.
 Amendments can be made to the plan of merger or
consolidation if the amendment gets approved by
majority vote of the boards of directors or trustees of
all constituent corporations and gets ratified by the
affirmative vote of stockholders representing at least
two-thirds of the outstanding capital stock, or twothirds of members of each constituent corporation.
 There are three ways by which a corporation can be
dissolved voluntarily.
 1. The most common method of voluntary dissolution is by
shortening the corporate term through the amendment
of the articles of incorporation.
 2. Other than that, if no creditors are affected, a
corporation may be dissolved by filing an application for
issuance of certificate of dissolution with the
Securities and Exchange Commission (SEC).
 3. If creditors will be affected by the dissolution, a formal
petition for dissolution must be filed with the SEC,
with due notice and hearing.
 On the other hand, a corporation may also be
involuntarily dissolved by the SEC upon filing of a
verified complaint and after proper notice and
hearing on grounds provided by existing laws, rules
and regulations.
 Regardless of the mode of dissolution, a corporation
shall remain a body corporate for a limited purpose,
despite the revocation of its license or termination of
its corporate existence. Once dissolved, a corporation’s
existence continues only for purposes of liquidation
and winding up of its affairs and can no longer
conduct the usual business provided in its primary
purpose.
 “Liquidation” - the process of settling the affairs of a
corporation, which consists of adjusting the debts and
claims, that is, collecting all that is due the
corporation, the settlement and adjustment of claims
against it and payment of its just debts.
(Yu v. Yukayguan, et al., GR 177549, June 18, 2009).
 Winding up the affairs of the corporation means
the collection of all assets, the payment of all its
creditors and the distribution of the remaining assets,
if any among the stockholders in accordance with their
contracts, or if there be no special contract, on the
basis of their respective interests (Yu v. Yukayguan, et
al., GR 177549, June 18, 2009).