ATTRIBUTES OF A CORPORATION
Artificial being1
Created by
operation of law
1
a) Corporate Entity Theory
b) Piercing the Veil of Corporate Entity2: subject to equitable limitations to prevent its being
used as a cloak/cover for fraud/illegality or to work injustice
Commencement of corporate existence: upon issuance of COI except:
a) Corporations by estoppel
b) Those created by special laws
c) Corporation sole: from filing of verified articles
Commencement of business: upon COI issuance must formally organize & commence business
a) Organization meeting of SH to elect BOD
b) Adoption of by-laws
c) Organizational meeting of BOD to elect officer, adoption of corporate seal, accepting
pre-incorporation subscriptions, establishing principal office, etc.
Right of succession Death, incapacity or civil interdiction of one or more of its SH does not result in its dissolution
Implications of corporation for being artificial being:
-
Corporation cannot be held criminally liable particularly imprisonment, but it may be held liable for fines for
corporate crimes. Corporate officers who approve particular corporate crime will be held criminally liable
As a GR, a corporation is not entitled to moral damages except when a corporation has reputation that is
debased, resulting in its humiliation in business real case of civil action for damages for libel/defamation
Corporation is not entitled to constitutional right against self-incrimination
2
Doctrine of piercing the veil of corporate fiction as an exception to doctrine of separate personality:
a)
b)
c)
d)
Fraud cases – when corporate fiction is used to commit fraud
Alter ego cases – when corporation is a mere instrumentality or alter ego of stockholders or owners
Defeat public convenience cases –corporate fiction is used to commit tax evasion or to justify/defend crime
Equity cases – in case of labor cases in order to promote social justice
STATUS OF ULTRA VIRES ACTS
BY THE CORPORATION
Those illegal per se
Failure to comply w/ voting
formality required by law
For being outside primary and
secondary purposes of corporation
Null and void
Null and void
but declaration of nullity maybe barred by estoppel
Voidable on the part of the other party
BY THE CORPORATE OFFICERS IN BEHALF OF CORPORATION
Those illegal per se
Those unauthorized or when
corporate officers exceed their
authority
Null and void
Unenforceable but they may become enforceable on the basis of:
- Express or implied ratification by corporation
- Doctrine of estoppel
- Doctrine of apparent authority of the corporate officers
FORMING A CORPORATION
ADVANTAGES
Continuity of existence
Limited liability on the part of investors
Strong juridical personality
Legal capacity to act as a distinct unit
Centralized management
Ease in transferability of shares of stocks (stock corp.)
Ease in raising funds
DISADVANTAGES
High cost of formation
Little voice of stockholders in management
Weakened credit rating because of limited liability feature
Being subject to greater degree of governmental regulation
More taxes
REMEDIAL RIGHT OF A STOCKHOLDER
INDIVIDUAL SUIT
REPRESENTATIVE SUIT
For direct violation of his contractual rights (SH vs Corporation)
In his own behalf or on behalf of all similarly situated (Association of SH vs Corporation)
DERIVATIVE SUIT
Brought by one or more stockholders or members in the name and on behalf of
corporation to redress wrongs committed against it or to protect or vindicate corporate
rights, whenever officials of corporation refuse to sue or are ones to be sued or hold
control of corporation (SH in behalf of corporation vs Board of Directors of Corporation)
TYPES OF CORPORATIONS
STOCK
NON-STOCK
MUNICIPAL
FOREIGN
CLOSE
BY ESTOPPEL
(OSTENSIBLE)
DE JURE
DE FACTO
PRIVATE/CIVIL
PUBLIC
QUASI-PUBLIC
ECCLESIASTICAL
LAY
AGGREGGATE
GOCC
Authorized to distribute to SH dividends or allotment of surplus profits on basis of shares held
Not authorized to distribute surplus profits
Public corporation created by special law for governance of a particular local territory
formed under any laws other than those of Philippines
Whose shares of stock are held by limited number of persons like family or another closely-knit
group. Shareholders are active in the conduct of corporate affairs
Group of persons which hold itself out as a corp. which enter into contract with 3rd persons on
strength of such appearance can’t be permitted to deny its existence in action under said contract
A corporation organized in accordance with requirements of law
A corporation where there exists a flaw in its incorporation. The requisites:
a) There exists a valid law under which it may be incorporated;
b) An attempt in good faith to incorporate;
c) Use of corporate powers
Formed for some private purpose, benefit, aim or end
Formed for gov’t and which have for their purpose are the general good and welfare
Owned by private individuals but performing an essential governmental function
Organized for spiritual purposes or for administering properties held for religious ones
Organized for purposes other than religion. They may further be classified as:
a. ELEEMOSYNARY: created for charitable purposes
b. CIVIL: organized for benefit of its members
Composed of no. of individuals vested with corporate powers.
Created by special law for public purpose but performing proprietary or commercial functions
BOD
BOT
Notes
Term
1 year
3 years
Not more
Maybe more than 15
Composition
than 15
Majority of
Majority of members
Each stockholder/member shall have right to nominate
1
2
OSC
entitled to vote
any director/trustee except when exclusive right is
Election
reserved for holders of founder’s shares;
In person/proxy/remote
no delinquent stock shall be voted
communication/in absentia
Only reasonable per diems in absence of
a by-laws provision
Corporations with public interest submit to their SH and
Compensation Limit: Total yearly compensation not to
SEC an annual report of total compensation of the board
exceed 10% of NI before taxes of
preceding year
1
SH may:
a) Vote such number of shares for as many persons as there are directors to be elected
b) Cumulate said shares and give one candidate as many votes as number of directors to be elected multiplied
by number of shares owned
c) Distribute them
Subject to limit: # of shares owned X # of directors to be elected
2
May cast as many votes as there are trustees to be elected but may not cast more than 1 vote for 1 candidate
1) Jointly and severally for all damages resulting therefrom
GROUNDS:
a) Willfully and knowingly vote for patently unlawful acts
Liability
b) Guilty of gross negligence/bad faith in directing affairs
c) c. Acquire any personal or pecuniary interest
Composition
2) As a trustee, he must account for the
profits which would’ve accrued to the
corporation
GROUND: acquiring an interest adverse
to the corporation
OFFICERS
NOTES
President
Treasurer
Must be a director
Must be a resident
Secretary
Must be a resident citizen
Compliance Officer
Only if corp. is vested with public interest
Person may hold 2 or more positions concurrently
except no one shall act as president-secretary or as president-treasurer at same time
Same with that of the board
Liability
MEETINGS OF BOARD
BOD
BOT
Time
Place
Monthly unless bylaws provide
Anytime upon call of president or bylaws
Anywhere in/out PH unless bylaws provide
Within PH only
2 days prior meeting unless longer period in bylaws is provided
Notice
May be waived by a D/T expressly or impliedly
Quorum
Majority
Manner of
In person or remote communication (videoconferencing, etc.);
voting/attending
NO PROXY
Vote needed for a valid
Majority of quorum
corporate act
except for election of officers (majority of all board in this case)
Note: if D/T has potential interest in any related party transaction: he must recuse from voting on approval of such
MEETINGS OF SH/M
REGULAR
SPECIAL
When fixed in bylaws or if not fixed, any date
Anytime deemed
after April 15 of every year determined by board
necessary called by SH/M
Principal office of corporation set in AOI or if not practicable, in the
Place
city/municipality where principal office is located
(a) In person, (b) through a proxy,
(c) though remote communication, (d) in absentia
Manner of voting/attending
(c) and (d) shall be allowed when authorized in bylaws or by majority vote of
board provided votes are received before corporation finishes tally of votes
and they shall be deemed present for quorum purposes
21 days prior
1 week
Notice
May be waived expressly or impliedly provided
general waivers of notice in AOI/bylaws NOT BE ALLOWED
Closing of stock and transfer book
20 days
7 days
Quorum
Majority of OSC/M unless provided in bylaws
2 weeks prior meeting
Postponement
unless different period in bylaws
Who may propose an inclusion to
SH/M and board provided
SH/M
the agenda?
FS shall be presented always
SEC, upon petition of SH/M upon showing of good cause, may issue order
Whenever there is no person
directing petitioning SH/M to call meeting by giving proper notice and
authorized or person authorized
petitioning SH/M shall preside until majority of SH/M present have chosen
unjustly refuses to call meeting
from among themselves
Note: All proceedings and any business transacted, if within the powers or authority of the corporation, shall be valid
even if the meeting is improperly held or called provided, all SH/M are present or duly represented at meeting and
not one of them expressly states at beginning of meeting that purpose of their attendance is to object to the
transaction of any business because meeting is not lawfully called or convened
Date
OFFENSES and PENALTIES
FINE
OFFENSE
Any person, w/o justifiable cause,
fails/refuses to comply with any
lawful order or decision or
subpoena issued by SEC
SEC finds any RCC provision has
been violated
(Any or all of ff)
Unauthorized use of corporate
name
When, despite knowledge of
existence of ground for disquali.
(from being D/T/O), he willfully
conceals disqualification
Violation of duty to maintain
records, to allow their inspection
or reproduction
Willful certification of incomplete,
inaccurate, false or misleading
statements/reports
Independent auditor collusion
Those responsible for formation of
corporation through fraud or who
assisted directly or indirectly
Corporation conducts its business
through fraud
Corporation used for fraud, for
concealing graft and corrupt
practices
Not
detrimental
Detrimental
to public
OTHER PENALTIES
WITH COURT
DISCRETION?
Contempt plus P1,000 daily
if refusal amounts to clear
P30,000
and open defiance until it is
complied with
a) P5,000 to P2M AND not more than P1,000 for each day
of continuing violation but not to exceed 2M
b) Issuance of permanent cease-and-desist order
c) Suspension or revocation of COI
d) Dissolution of corporation and forfeiture of its assets
P10,000 to
P200,000
P10,000 to
P200,000
P20,000 to
P400,000
Permanent disqualification
from being D/T/O
YES
YES
P20,000 to
P200,000
P40,000 to
P400,000
P80,000 to
P500,000
P100,000 to
P600,000
P200,000 to
P2M
P400,000 to
P5M
P200,000 to
P400,000
P2M
to P5M
Notes:
The ff. be prima facie evidence of if D/T/O or agents or
representatives are engaged in it:
Failure to install
a) safeguards for transparent & lawful discovery of services
b) policies, code of ethics & procedures against graft &
corruption
Any person who, knowingly and
P100,000 to Note: such as interfering with lawful
with intent to retaliate, commit
YES
P1M
employment or livelihood of whistleblower
acts detrimental to whistleblower
Other violations of other RCC
Dissolution Note: dissolution won’t preclude institution
provisions
(if corp.)
of appropriate action against D/T/O
NOTE: Liability for any of the foregoing offenses shall be separate from any other administrative, civil or criminal
liability under RCC and other laws