TABLE OF CONTENTS
(With Case References and Bar Question Frequencies)
CORPORATION CODE
I. General provisions, Definitions and Classifications (Sections 1 to 9)
A. Corporation-defined
CORPORATION- 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.
Four Attributes Of A Corporation:
1. An Artificial Being
2. Created By Operation Of Law
3. Has The Right Of Succession
4. Has Powers, Attributes And Properties Expressly Authorized By Law Or Incident To
Its Existence
B. Corporation as an artificial being-2013, 2012 Bar
DOCTRINE OF SEPARATE JURIDICAL PERSONALITY- provides that corporation has legal personality
separate and distinct from that of people comprising it. Hence;
PRINCIPLE OF LIMITED LIABILITY- the corporate debt is not the debt of the stockholder
(2013 BAR)
●
The BIR cannot hold the directors nor stockholders liable pursuant to the Doctrine of
Separate Juridical Personality. It is still premature for BIR to run after the unpaid
subscriptions being a collectible of ABC Corp.
●
As the corporation is considered separate from the stockholders, the stockholders merely
possess inchoate interest over corporate assets and therefore does not entitle them to
intervene in litigation involving corporate property.
●
While a share of stock represents a proportionate or aliquot interest in the property or
corporation, it does not vest the owner thereof with any legal right or title to any of the
property, his interest in the corporate property being equitable or beneficial in nature.
●
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.
●
Having powers, and attributes as if they were natural persons, with physical existence, and
capabilities to act on their own, corporations are likewise ENTITLED TO CONSTITUTIONAL
GUARANTEES such as THE RIGHT TO DUE PROCESS.
●
HOWEVER, A Corporation CANNOT INVOKE THE RIGHT AGAINST SELF INCRIMINATION.
●
Considering a corporation is an artificial being, it CANNOT BE ENTITLED TO MORAL
DAMAGES.
(2012 BAR)
*EXCEPTION on award of damages, if any , it only applies for hac vice. The grant is
nor automatic . The claim must still prove the factual, basis of the damage and the
Cases:
• Philippine National Bank vs. Hydro Resources Contractors Corp., 693 SCRA 294 • Magsaysay-Labrador
vs. Court of Appeals, 180 SCRA 266
• Palm Avenue Holding Co., Inc. vs. Sandiganbayan, 732 SCRA 156
• Bataan Shipyard & Engineering Co., Inc. vs. Presidential Commission on Good Government, 150 SCRA
181
• Noell Whessoe, Inc. vs. Independent Testing Consultants, Inc., G.R. No.199851, November 7, 2018
C. Corporation being created by operation of law - 2008 Bar.
“Mere consent of the parties to form a corporation is insufficient; before a corporation can be formed, the
state must give its consent either in the form of a special law or a general law.”
GOCCS- established by special charters
PRIVATE CORPORATIONS- formation, organization, and regulation of private corporations refer to the
Revised Corporation Code
*Government-Owned or -Controlled Corporation (GOCC)” – are stock or nonstock corporations
vested with functions relating to public needs that are owned by the government directly or
through its instrumentalities.
(2008 BAR)
Article XII, Section 16- “ The CONGRESS SHALL NOT , EXCEPT BY GENERAL LAW, provide for the
formation, organization, or regulation of private corporations. GOCCs may be created or established BY
SPECIAL CHARTERS in the interest of the common good and subject to the test of ECONOMIC VIABILITY.
D. A creature possessing powers.
“ The corporation has no power except those EXPRESSLY CONFERRED ON IT BY THE CORPORATION CODE
and those that are IMPLIED OR INCIDENTAL TO ITS EXISTENCE.”
“ A corporation exercises said powers THROUGH ITS BOARD OF DIRECTORS AND/OR ITS DULY-AUTHORIZED
OFFICERS AND AGENTS.”
E. Piercing the Veil of Corporate Fiction - 2019, 2018, 2014, 2012, 2011, 2006 Bar Cases:
DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION - While a corporation may exist for any lawful
purpose, the law will regard it as an association of persons or in case of two corporations, merge them into
one, when its corporate legal entity is used as a cloak for fraud or illegality.
“ To disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed.”
“ Principle is applied only to determine established liability.”
“ This Doctrine should be applied with Caution”
“ The mere ownership of a subsidiary does not justify the imposition of liability on the present
company. Parent and Subsidiary companies are not separate entities. “
Applied in Three (3) Basic Areas:
a. Defeat of public convenience as when the corporate fiction is used as a vehicle for
the evasion of an existing obligation;
b. Fraud Cases or when the corporate entity is used to justify a wrong, protect fraud,
or defend a crime; or
c. Alter-ego cases, as when the corporation is a mere alter ego business conduit of a
person, OR where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.
ELEMENTS OF ALTER-EGO THEORY
1. CONTROL- not mere stock control, but such domination of finances, policy
and business practice in respect to the transaction attacked
2. Such control was used to commit a FRAUD OR WRONG TO PERPETUATE
THE VIOLATION of a statutory or other positive legal duty, or a dishonest
and unjust act in contravention of plaintiff’s legal right
3. CONTROL & BREACH OF DUTY caused the INJURY OR UNJUST LOSS
complained off
*The control must be shown to have been exercised at the time the acts
complained of took place. Moreover , the control and breach of duty must
proximately cause the injury or unjust loss for which the complaint is made.
(2006 BAR)
Definition of Doctrine of Piercing the veil of corporate entity. To what circumstances will the doctrine apply (
see 3 basic areas above)
(2019 BAR)
MR. P, the corporation’s representative, is not liable for any act taken on behalf of the corporation
UNLESS HE ACTED In BAD FAITH or with gross negligence in directing the affairs of the corporation
OR MADE HIMSELF SOLIDARILY LIABLE with the corporation.
Interlocking shareholders, directors, and officers, per se, is not enough basis in setting aside the
separate legal personalities of two corporations.
(2018 BAR)
DOCTRINE OF SEPARATE JUDICIAL PERSONALITY- provides that a corporation has a legal
personality separate and distinct from that of the people comprising it. By virtue of this doctrine,
stockholders of a corporation enjoy the principle of LIMITED Liability.
PRINCIPLE OF LIMITED LIABILITY- the corporate debt is not the debt of the stockholder.
* Acting in bad faith ( such as using corp funds for personal reasons), one loses the privileges of the
above doctrine and principle, hence, he then becomes solidarily liable with the corporation
(2014 BAR)
No. The control necessary to invoke the instrumentality or alter ego rule is NOT MAJORITY OR EVEN
COMPLETE STOCK CONTROL, but such domination of FINANCES, POLICIES, and PRACTICES that the
controlled corporation has, so to speak, no separate mind, will or existence of its own, and is but a
conduit for its principal.
(2012 BAR)
Two distinct corporations owned by one entity, has separate juridical personalities. Hence, one
could not be automatically held liable for the loan of the other.
(2011 BAR)
CONTROL is shown when there is a complete domination of the finances, policies, and business
practices of the other.
F. Reverse Piercing or Reverse Corporate Piercing or Piercing the Corporate Veil “In Reverse”
REVERSE PIERCING- the plaintiff seeks to reach the assets of a corporation to satisfy claims against
a corporate insider. Reverse-piercing flows in the opposite direction of traditional corporate
veil-piercing and makes the corporation liable for the debt of the shareholders.
(**traditional: the shareholders are liable for the debt of the corporation)
TWO (2) TYPES OF:
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 or 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.
G. Corporation vs. Partnership vs. Sole Proprietorship - 2010 Bar
A JOINT VENTURE- allows the coventurers to take full advantage of the limited liability feature of
the corporate vehicle which is not present in a formal partnership arrangement.
(2010 BAR)
EXPLAIN: Legal advantages and disadvantages of using a separate corporation, single
proprietorship, or a branch of an existing corporation. ( check page 24-25)
*A branch is not a separate entity from the corporation.
H. Classes of Corporations - 2020-21, 2013 Bar
1. Stock Vs. Non-Stock
●
STOCK- have capital stocks 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
●
NON-STOCK- is one where no part of its income is distributed as dividends to its members,
trustees, or officers
2. Public Vs. Private Vs. Quasi-Public
●
PUBLIC-created by the state as the latter’s own agency or instrumentality to help it in
carrying out its government functions
●
PRIVATE-not public
●
QUASI-PUBLIC- are private corporations that render PUBLIC SERVICE, supply public wants.
Are required by law to discharge functions for the public benefit.
3. Domestic Vs. Foreign
●
DOMESTIC- one formed, organized or existing under Philippine laws,
●
FOREIGN- 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.
4. De Jure Vs. Defacto
●
DE JURE- exists by reason of full compliance by incorporators with requirements of an
existing law permitting organization of such corporation
●
DE FACTO- one existing under color of law in pursuance of an effort made in good faith to
organize a corporation under the statute.
*(3) Requirements
- Existence of a valid law under which it may be incorporated
- Attempt in good faith to incorporate
- Assumption of corporate powers
* The filing of articles of incorporation and the issuance of the certificate of incorporation
are essential for its existence.
* An organization not registered with the Securities and Exchange Commission (SEC) cannot
be considered a corporation in any concept, not even as a corporation de facto.
5. Corporation by Estoppel Vs. Prescription
● CORPORATION BY ESTOPPEL- founded on principles of equity, designed to prevent
injustice and unfairness
- Applies when a non-existent corporation enters into contracts or dealings with third
persons;
- Wherein, the person who has contracted or otherwise dealt with the non-existent
corporation is estopped to deny the latter’s legal existence
*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.
*Where there is no third party involved and the conflict arises only among those assuming the
form of a corporation, who therefore know that it has not been registered, there is no corporation
by estoppel.
● CORPORATION BY PRESCRIPTION- a body though not lawfully organized as a corporation,
has been recognized by immemorial usage as a corporation, with right and duties
maintainable at law, for example, the Roman Catholic Archbishop of Manila,having
antedated the state.
6. Holding/ Parent Vs. Affiliate/ Subsidiary
●
HOLDING/ PARENT - owns or is organized to own a substantial portion of another
company’s voting shares of stock enough to control or influence the latter’s
management, policies, or affairs thru election of the latter’s board of directors or
otherwise
- is conducting its business by investing substantially in the equity securities of
another company for the purposes of controlling their policies and holding them in a
conglomerate or umbrella structure along with other subsidiaries.
●
AFFILIATE/SUBSIDIARY- a corporation that is controlled by another , or by the
parent or holding company
ADDITIONAL TAKE AWAY:
Corporators- those who compose a corporation ( stockholders, shareholders, members)
Incorporators-stockholders or members mentioned in the AOI as originally forming and composing the
corporation and who are signatories thereof
I. Nationality of Corporations - 2017, 2005 Bar
1. Place of Incorporation Test
❖ Determines whether a corporation is domestic or foreign
2. Control Test Vs. Grandfather Rule
●
CONTROL TEST
❖ If 60% of the shares of partnerships and corporations is owned by Filipinos,
PHILIPPINE NATIONALITY.
*The control test is still the most prevailing mode of determining whether or not a
corporation is a Filipino Corporation .
IN CASE OF DOUBT based on the attendant facts and circumstances in the 60-40 Filipino equity
ownership in the corporation, GRANDFATHER RULE may be APPLIED.
If NO DOUBT as to the beneficial ownership and control of the corporation, hence, a FILIPINO
CORPORATION.
*DOUBT- refers to various indications that the beneficial ownership and control of the
corporation do not in fact reside in Filipino Shareholders but in foreign stakeholders.
●
GRANDFATHER RULE
❖ method by which the PERCENTAGE OF FILIPINO EQUITY IN A CORPORATION
engaged in nationalized and or partly nationalized areas of activities, provided for
under the Constitution and other nationalization laws, IS COMPUTED,
Where Corporate Shareholders are present,
❖ By attributing the nationality of the second or even subsequent tier of ownership to
determine the nationality of the corporate shareholder.
❖ To arrive at the actual Filipino ownership and control in a corporation, both the
direct and indirect shareholdings in the corporation are determined.
ADDITIONAL NOTE:
❖ It is only when the CONTROL TEST IS FIRST COMPLIED with that the Grandfather
Rule may be applied.
❖ If the subject corporation’s Filipino equity falls below the threshold 60%, the
corporation is immediately considered foreign-owned, hence, no need to apply
grandfather rule.
❖ Control Test and Grandfather Rule can be used cumulatively in the determination of
the ownership and control of corporations engaged in fully or partly nationalized
activities.
(2005 BAR)
Board Membership ( of foreign individuals) is still possible provided that the foreign national’s
equity did not exceed 40% maximum allowable requirement. Logging activity business is akin to
exploration, development and utilization of national resources, which is reserved to Filipinos.
(2007 BAR)
If there is a doubt as to who exercises beneficial ownership and control, the grandfather rule
should apply.
J. Classification of Shares – 2013, 2012 Bar Cases:
1. Voting Vs. Non-voting
●
VOTING- those granted voting rights
●
NON-VOTING-those deprived of voting rights
*No shares may be deprived of voting rights, EXCEPT Preferred or Redeemable Shares(may be
deprived of voting rights)
* HOLDERS OF NON-VOTING SHARES , are entitled to vote on the following matters:
a. Amendment of Articles of Incorporation
b. Adoption and Amendment of bylaws
c. Sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially
all of the corporate property.
d. Incurring, creating, or increasing bonded indebtedness;
e. Increase or decrease of authorized capital stock
f.
Merger or Consolidation of the corporation or business in accordance with this
Code;
g. Investment of corporate funds in another corporation or business in accordance
with this Code; and
h. Dissolution of the corporation.
(2020-2021 BAR)
Holders of non-voting shares can vote in case of sale, disposition of all or substantially all of the
corporate property.
2. Common Vs. Preferred
●
●
COMMON- represents the residual ownership interest in the corporation,
○
issued without extraordinary rights or privileges,
○
entitles the shareholder to a pro rata division of profits
PREFERRED-entitles the shareholder to some priority on dividend and asset
distribution
○
May be ISSUED ONLY WITH A STATED PAR VALUE
PARTICIPATING VS. NON-PARTICIPATING PREFERRED STOCKS
PPS- after getting their fixed dividend preference, share with the common
stock the rest of the dividends.
NPPS- not share with the common
CUMULATIVE - means that if any given year or years no dividends are
declared, The ARREARS for such year or years have to be made up in the
subsequent years before any dividends can be paid to the common stocks.
NON CUMULATIVE-
3. Par Vs. No-Par Value
PAR
NO-PAR VALUE
4. Founders’ Shares
FOUNDER’S SHARES
5. Redeemable Shares
REDEEMABLE SHARES
6. Treasury Shares
TREASURY SHARES
CHAPTER II. Incorporation and Organization of Private Corporation (Sections 10-21)
A. Number and Questions of Incorporators – 2006 Bar
B. Corporate Term – 2011 Bar
C. Minimum Capital Stock of Stock Corporations
D. Contents of the article of incorporation
E. Form of Articles of Incorporation
F. Amendment of Articles of Incorporation
G. Grounds When Articles of Incorporation or Amendment may be Disapproved H. Corporate Name –
2011 Bar
I. Registration, Incorporation and Commencement of Corporate Existence- 2014, 2012
J. Effect of Non-use of Corporate Charter and Continuous Inoperation
III. Board of Directors/Trustees and Officers (Sections 22 to 34)
A. Qualification and Term of the Board of Directors or Trustees - 2011, 2006
B. Independent Directors 2020-21 Bar
C. Election of Directors or Trustees 2012 Bar
D. Cumulative Voting for Stockholders - 2012, 2011 Bar
E. Corporate Officers - 2010 Bar
F. Compliance Officer
G. The Doctrine of Apparent Authority - 2015 Bar
H. Disqualification of Directors, Trustees or Officers - 2011 Bar.
I.Removal of Directors or Trustees – 2017 Bar
J. Vaccancies in the Offices of Director or Trustees
K. Emergency Board
L. The Executive Committee – 2014 Bar
M. Compensation of Director or Trustees
N. Liability of Directors, Trustees or Officers – 2012, 2011, 2005 Bar
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