Professional Documents
Culture Documents
Corporate Law Notes
Corporate Law Notes
Corporation
artificial being created by operation of law
personality separate and distinct (from those comprising it or related to it) (Construction
& Dev. Corp/ v. Cuenca (2005)
2. 4 Corporation Attributes Based on Sec. 2:
Partnerships and associations for private interest or purpose are governed by the
provisions
Franchises of Corporation
Corporate or general franchise
to exist as a corporation
CANNOT be conveyed in the absence of a legislative authority
Special or secondary franchise
certain rights and privileges conferred upon existing corporations
may ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property EXCEPT: charged with public use
3. Strong Juridical Personality (With right of succession)
4. Creature of Limited Powers (No powers EXCEPT: for the powers which are expressly conferred on
it by the Corporation Code found in its charter and those that are implied by or are incidental to
its
existence. (Pascual and Santos Inc. v. The Members of the Tramo Wakas Neighborhood Assoc.
Inc. (2004))
1. Theory of Concession
Grant is only by virtue of a primary franchise given by the State
Benguet Consolidated, Inc. is a Philippine corporation owing full allegiance and subject to the
unrestricted jurisdiction of local courts
by-law < command of a court decree
To organize a corp. that could claim a juridical personality of its own and transact business =
privilege (NOT absolute right) (Ang Pue & Co, v. Sec. of Commerce (1962))
Before a corp. 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 (Int'l Express Travel & Tours
Services, Inc. v. CA (2000)
When the law vests in a government instrumentality corporate powers, it does NOT become a
necessarily a corporation
UNLESS: government instrumentality is organized as a stock or non-stock corporation
All corporations,big or small (includes family corporation), must abide by the provisions of the
Corporation Code (Torres v. CA (1997)
2. Theory of Enterprise Entity
Corp. is assoc. of indiv., allowed to transact under an assumed corp. name and with a distinct
legal personality. In organizing itself as a collective body, it waives no constitutional immunities and
perquisites to such a body. (PSE v. CA (1997))
Corps. are composed of natural persons and the legal fiction of a separate corporate personality
is not a shield for the commission of injustice and inequity (Tan Boon Bee & Co. Inc. v. Jarencio (1988))
State's approval of the corp. form sets up prima facie case that the assets, liabilities and
operation of the corp. are those of the enterprise. BUT where the corp. entity is defective, or
otherwise challenged, its existence, extent and consequences may be determined by the actual
existence and operations of the underlying enterprise, which by these very qualified and operation
acquires a "being" of its own, recognized by law
6. Advantages and Disadvantages of Corporate Form:
1. 4 Advantages:
Strong Juridical Personality
entity separate and distinct from its stockholders (Remo Jr. v. IAC (1989))
transfer of corporate assets to the stockholder = conveyance from one party to another
(NOT partition) (Stockholders of F. Guanzon and Sons, Inc v. Register of Deeds of Manila (1962))
Execution pending appeal maybe allowed when "the prevailing party is already of
advanced age and in danger of extinction" but NOT in this case where the winning party is a
corporation. (Manacop v. E-PCI Bank (2005))
A juridical entity's existence CANNOT be likened to a natural person (its precarious
financial condition is NOT by itself a compelling circumstance warranting immediate execution and
does NOT outweigh the long standing general policy of enforcing only final and executory judgment.
Case: Stockholders of F. Guanzon and Sons, Inc v. Register of Deeds of Manila (1962)
Properties registered in the name of the corporation are owned by it as an entity separate and
distinct from its members.
share of stock only typifies an aliquot part of the corporation's property, or the right to share in
its proceeds to that extent when distributed according to law and equity
holder is NOT the owner of any part of the capital of the corporation
Centralized Management
Sec. 23 of Corp. Code: BOD or trustees - exercises almost all the corporate powers in a
corporation (Firme v. Bukal Enterprises and Dev. Corp. (2003))
Exercise of the corporate powers of the corp. rest in the BOD save in those instances
where the Corp. Code requires SH's approval for certain specific acts (Great Asian Sales Center Corp.
v. CA (2002))
Limited Liability to Investors and Officers
GR: SH (distinguished from director's and trustees) = Owners of corporate
organization/investors (Don't run day-to-day operation or management) - NOT criminally liable for acts
for the corp.
EX: (piercing the veil) Shown that he had knowledge of the criminal act committed in the
name of the corp. and that he took part in the same or gave his consent of its commission (action or
inaction)(Espiritu v. Petron Corp. (2009))
Officers NOT personally liable where he signed in his official capacity (Consolidated Trust
Bank v. CA (2001))
Obligations incurred by the corp. acting through its directors, officers and employees
Free transferability of units of ownership for investors
It is the inherent right of the stockholder to dispose of his shares of stock anytime he so
desires (PNB v. Ritratto Group (2001))
Authority granted to corp. to regulate the transfer of its stock does NOT empower the
corp. to restrict the right of a stockholder to transfer his shares, but merely authorizes the adoption of
regulations as to the formalities and procedure to be followed in effecting transfer (Thomson v. CA
(1998))
NOTE: Above are its advantages over Unregistered Associations (secret among its members) = co-
ownership - no juridical personality
2. Disadvantages:
Sole Proprietorships
NOT vested with juridical personality to file or defend an action
highest form of unlimited liability
Partnerships and Other Associations (Arts. 1768 and 1775, Civil Code)
no right of succession (withdrawal, death,incapacity or insolvency of any partner would
automatically bring about the dissolution of the partnership
Can a defective attempt to form a corp. result at least in a partnership?
only with their intent = de facto partnership (liable as general partners) - delectus
personae feature
Case: Pioneer Insurance v. CA (1989) (pp. 32-34)
GR: Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume
the relation of partners as bet. themselves, when their purpose is that no partnership shall exist
EX: Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to
make others liable)
CASE:Lim Tong Lim v. Philippine Fishing Gear Industries (1999) - pp.34
having reaped the benefits of the contract entered into by persons w/ whom he previously had
an existing rel., he is deemed to be part of said assoc. and covered by the doctrine of estoppel
Joint Ventures -form of partnership and governed by the law on partnership
assoc. of persons or companies jointly undertaking some commercial enterprise
generally all contribute assets and share risks
requires community of interest in the performance of the subject matter, a right to direct
and govern the policy in connection therewith, and duty which may be altered by agreement to share
both in profit and losses (Kilosbayan v. Guingona (1994))
Cooperatives (Art. R.A. No. 6938)
autonomous and duly registered association of persons, with a common bond of interest,
who have voluntarily joined together to achieve their social, economical and cultural needs and
aspirations by making equitable contributions to the capital required, patronizing their products and
services and by accepting a fair share of the risks and benefits
primary objective: self-help
established to provide a strong social and economical organization to ensure that the
tenant-farmers will enjoy a lasting basis that benefits agrarian reforms (Corpuz v. Grospe (2000))
Business Trusts (Art. 1442 Civil Code) - no juridical personality and ownership is split between:
trustee who assumes legal or naked title
beneficiary who has beneficial title
Sociedades Anonimas
commercial partnership where upon the existence of the public instrument in w/c its
articles of agreement appear (NOT necessary to make it a judicial person but only to show that it
partook of a form of corp.), and the contribution of funds and personal property, becomes a judicial
person - artificial being, invisible, intangible and existing only in contemplation of law - with power to
hold, buy and sell property and to sue and be sued - a corp. - not a gen. nor a limited co-partnership .
Introduced by the Spanish Code of Commerce and are simile to English joint stock co.
than modern commerce corp. (Benguet Consolidating Mining Co. v. Pineda (1956))
Our corp. law recognizes the diff. bet. this and corp. and will NOT apply legal provision
similarly. (Phil. Product. Co. v. Primateria Societe Anonyme (1965))
Ceuntas En Participacion
accidental partnership constituted in a manner that its existence was only known to
those who had interest in the same, there being no mutual agreement bet. the partners, and w/ corp.
name indicating to the public in some way that there were other people besides the 1 who ostenibly
managed and conducted the business, governed under Art. 239 of the Code of Commerce.
Those who contracted w/ person under whose name the business of such partnership of
cuentas en participation 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 3rd person who contracted w/ the manager UNLESS such manager formally transfers his right
to them (Bourns v. Carman (1906))
2. Corporation as a person
1. Due process and equal protection
3. Not entitled to privilege against self incrimination - personal one only applicable to
natural persons
3. Cannot Practice of Profession - lack moral and technical competence require by the PRC
(ULEP v. The Legal Clinic (1993))
Case: A corp. engaged in the selling of eyeglasses and which hires optomtrists - NOT
engaged in the practice of optometry (Alfalfa v. Acebedo Optical Co. (2002))
EX: Architectural professional corporations allowed under R.A. 9266 (2004)
FACTS:
Enrique Agana told his wife Natividad Agana to go look for their neighbor, Dr. Ampil, a surgeon staff member of Medical
City, a prominent and known hospital
Natividad suffered from injury due to 2 gauges left inside her body so they sued Professional Inc. (PSI)
Despite, the report of 2 missing gauzes after the operation PSI did NOT initiate an investigation
ISSUE: W/N PSI should be liable for tort.
Admission bars itself from arguing that its corp. resp. is NOT yet in existence at the time Natividad underwent treatment
Dr. Ampil - medial negligence
PSI - Corporate Negligence
NOTE:
Liability unique to this case because of implied agency and admitted corporate duty
26 years already and Dr. Ampil's status could no longer be ascertained
Regardless of its relationship with its doctor, the hospital may be held directly
liable to the
patient for its own negligence or failure to follow established standard of conduct
to which it
should conform as a corporation
Art. 102. Subsidiary civil liability of innkeepers, tavernkeepers and proprietors of
establishments. In default of the persons criminally liable, innkeepers, tavernkeepers, and
any other persons or corporations shall be civilly liable for crimes committed in their
establishments, in all cases where a violation of municipal ordinances or some general or
special police regulation shall have been committed by them or their employees.
Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or
theft within their houses from guests lodging therein, or for the payment of the value
thereof, provided that such guests shall have notified in advance the innkeeper himself, or
the person representing him, of the deposit of such goods within the inn; and shall
furthermore have followed the directions which such innkeeper or his representative may
have given them with respect to the care and vigilance over such goods. No liability shall
attach in case of robbery with violence against or intimidation of persons unless committed
by the innkeeper's employees.
Art. 103. Subsidiary civil liability of other persons. The subsidiary liability established in the
next preceding article shall also apply to employers, teachers, persons, and
corporations engaged in any kind of industry for feloniescommitted by their servants, pupils,
workmen, apprentices, or employees in the discharge of their duties.
FACTS:
West Coast Life Insurance, a foreign life insurance corporation doing business regularly and legally in the Philippine Islands
pursuant to its laws
Plaintiff in CFI criminal action together with:
1. John Northcott - general agent and manager for the Philippines
2. Manuel C. Grey - was an agent and employees and acting in the capacity of treasurer of the branch
Charged for printing, publish and distributing a large number of circulars to policy holders and prospective policy holders of
Insular Life Insurance Co. stating that the rumor about it is true regarding it being in a bad shape and it capital has diminished
ISSUE: W/N West Coast Life Insurance should also be criminally charged.
HELD: NO.
Provisions clearly indicate that the maker of the code of Criminal Procedure had no intention that corporations would be
included
Court only authorized to issue order of arrest; Court derives no authority to bring corporations before them in criminal
actions nor to issue processes for that purpose
Corporation = lack of malicious intent
Corporation = lack of malicious intent so cannot be held criminally laible
Case: People v. Tan Boon Kong (1930)
Lessons Applicable: Corporate Criminal Liability (Corporate Law)
FACTS:
Tan Boon Kong, manager of the Visayan Gen. Supply Co. Inc, enegaed in the purchase and sale of sugar "bayon:, copra and
other native projects voluntarily made a false return stating gross sales of only 2,352,761.94 when the true amount is 2,543,303. 44
with a difference of 190,541.50 (1 1/2 sales) resulting to a tax difference of 2,960.12.
Secs. 1458 to 2723 seem to mention only about corporations
ISSUE: W/N Tan Boon Kong is criminally liable.
HELD: YES.
A corporation can act only through its officers and agents and where the business itself involves a violation of the law,
the correct rule is that all who participate in it = liable
corporation can act only through its officers and agents and where the business
itself involves a violation of the law, the correct rule is that all who participate in it = liable
Case: Sia v. People (1983)- *Strange and Exceptional Case
Lessons Applicable: Corporate Criminal Liability (Criminal Procedure)
FACTS:
Sia was the President and General Manager of the Metal Manufacturing of the Philippines Inc. (MEMAP)
He obtained 150 M/T Cold Rolled Sheets consigned to Continental Bank and converted it into personal used
instead of selling it and turning over the proceeds
It resulted to a damage of 46,819 php, interest of 28,736.47 php and forfeited deposit of 71,023.60 php
ISSUE: W/N Sia can be criminally charged.
HELD: NO. Acquit.
Sia did not act for and on behalf of MEMAP
For crimes committed by corp. officers criminally charged, existence of criminal liability for which the petition is
being prosecuted must be clear and certain, here it may not be said to be beyond reasonable doubt
Allegation v. evidence = strictly in harmony
The merchandise was manufactured before sold but although the bank was aware of this, it was not in the trust
agreement
Only a corp. officer can only be held liable for the crime committed by or in behalf
of a corp. only in cases when the "corp. was directly required by law to do an act in a given
manner, and the same law makes the person who fails to perform the act in the prescribed
manner expressly liable criminally"
For crimes committed by corp. officers criminally charged, existence of criminal
liability for which the petition is being prosecuted must be clear and certain, here it may
not be said to be beyond reasonable doubt - Sia was not criminally liable despite using
consigned goods for personal use
Case: Ong v. CA: The Trust Receipt Law recognizes the impossibility of imposing the
penalty of imprisonment on a corp, hence, if the entrustee is a corp. the law makes the
officers or employees or other persons responsible for the offense liable to suffer the
penalty of imprisonment
When the criminal statute forbids the corp. itself from doing an act, the prohibition
extends to the board of directors, and to each director separately and individually. (People
v. Concepcion (1922))
The existence of the corp. entity does NOT shield from prosecution the corp. agent who
knowingly and intentionally causes the corp. to commit the crime. The corp. obviously
acts, and can act, only by and through its human agents, and it is their conduct which the
law must deter (The Exec. Sec. v. CA (2004))
If the crime is committed 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 penalty thereof.
A corp. cannot be arrested and imprisoned. However, a corporation may be charged and
prosecuted for a crime if the imposable penalty is a fine (According to Atty. Dy, this is civil
liability). Even if the statute prescribes both prescribes both fine and imprisonment, corp.
only fined (Ching v. Sec. of Justice (2006))
Case: Ching v. Sec. of Justice (2006)
Lessons Applicable: Corp. Officers or employees, through whose act, default or omission the corp. commits a crime, are themselves
individually guilty of the crime (Corporate Law)
FACTS:
Sept-Oct 1980: PBMI, through Ching, Senior VP of Philippine Blooming Mills, Inc. (PBMI), applied with the Rizal
Commercial Banking Corporation (RCBC) for the issuance of commercial letters of credit to finance its importation of assorted goods
RCBC approved the application, and irrevocable letters of credit were issued in favor of Ching.
The goods were purchased and delivered in trust to PBMI.
Ching signed 13 trust receipts as surety, acknowledging delivery of the goods
Under the receipts, Ching agreed to hold the goods in trust for RCBC, with authority to sell but not by way of
conditional sale, pledge or otherwise
In case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the
relative acceptances and payment of other indebtedness to respondent bank.
In case the goods remained unsold within the specified period, the goods were to be returned to RCBC
without any need of demand.
goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or
accounts separate and capable of identification - RCBCs property
When the trust receipts matured, Ching failed to return the goods to RCBC, or to return their value amounting
toP6,940,280.66 despite demands.
RCBC filed a criminal complaint for estafa against petitioner in the Office of the City Prosecutor of Manila.
December 8, 1995: no probable cause to charge petitioner with violating P.D. No. 115, as petitioners liability
was only civil, not criminal, having signed the trust receipts as surety
RCBC appealed the resolution to the Department of Justice (DOJ) via petition for review
On July 13, 1999: reversed the assailed resolution of the City Prosecutor
execution of said receipts is enough to indict the Ching as the official responsible for violation of P.D. No. 115
April 22, 2004: CA dismissed the petition for lack of merit and on procedural grounds
Ching filed a petition for certiorari, prohibition and mandamus with the CA
ISSUE: W/N Ching should be held criminally liable.
Corporate Nationality
Sec. 123. Definition and rights of foreign corporations. For the purposes of this Code, a
foreign corporation is one formed, organized or existing under any 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 it
shall have obtained a license to transact business in this country in accordance with this Code
and a certificate of authority from the appropriate government agency.
GR: Place of incorporation test - under whose laws incorporated (Sec. 123)
Example: foreign corp. even when 100% of its equity is owned by Filipino citizens
continues to be considered as a foreign corp.
EX: Foreign Investment Act 91 - a corp. organized abroad and registered as doing
business in the Phils. under the Corp. Code 100% of the capital stock outstanding and
entitled vote is wholly owned by Filipinos
Citizen Retention and Re-acquisition Act of 2003: reacquisition of Phil. citizenship
by a former Filipino had been neutralized as an American citizen had the legal effect of
converting his equity holdings in a domestic corp. to be re-classified as Filipino investment
EX: Control Test (also applies) - by nationality of the majority of the SH on whom equity
control is vested on theory that they will be able to elect the majority of the BODs
does NOT distinguish between voting and non-voting shares
1. Exploitation of Natural Resources
Sec. 140. Stock ownership in certain corporations. - Pursuant to the duties specified by
Article XIV of the Constitution, the National Economic and Development Authority shall, from
time to time, make a determination of whether the corporate vehicle has been used by any
corporation or by business or industry to frustrate the provisions thereof or of applicable laws,
and shall submit to the Batasang Pambansa, whenever deemed necessary, a report of its
findings, including recommendations for their prevention or correction.
Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations
declared by it to be vested with a public interest pursuant to the provisions of this section,
belonging to individuals or groups of individuals related to each other by consanguinity or
affinity or by close business interests, or whenever it is necessary to achieve national
objectives, prevent illegal monopolies or combinations in restraint or trade, or to implement
national economic policies declared in laws, rules and regulations designed to promote the
general welfare and foster economic development.
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of agricultural
lands, all other natural resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and supervision of the State.
The State may directly undertake such activities, or it may enter into co-production, joint
venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. Such
agreements may be for a period not exceeding twenty-five years, renewable for not more
than twenty-five years, and under such terms and conditions as may be provided by law. In
cases of water rights for irrigation, water supply fisheries, or industrial uses other than the
development of water power, beneficial use may be the measure and limit of the grant.
The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea,
and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino
citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino
citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish-
workers in rivers, lakes, bays, and lagoons.
The President may enter into agreements with foreign-owned corporations involving either
technical or financial assistance for large-scale exploration, development, and utilization of
minerals, petroleum, and other mineral oils according to the general terms and conditions
provided by law, based on real contributions to the economic growth and general welfare of
the country. In such agreements, the State shall promote the development and use of local
scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this
provision, within thirty days from its execution.
Sec. 2, Art. XII of the 1987 Constitution
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or hold
lands of the public domain.
Sec. 7, Art. XII of the 1987 Constitution
Policy of the State it to ensure that the exploitation of natural resources or the pursuit
of activities deemed to be of public of public or national interest are in the control of
policies
Place of principal business test
corp. is subject to the jurisdiction of the place where its principal office or center
of management (siege is social) is located
to determine whether a state has jurisdiction over the existence and legal
character of a corp, its capacity or powers, internal org., capital structure, the rights and
liabilities of directories, officers, and SHs towards each other and to creditors and 3rd
persons
Case: Roman Catholic Apostolic Administrator of Davao v. LRC (1957) - pp.59
A corporation sole consists of one person only, and his successors (who will always be
one at a time), in some particular station, who are incorporated by law in order to give
them some legal capacities and advantages, particularly that of perpetuity, which in their
natural persons they could not have had.
Corporation sole (a Canadian Citizen) would have no nationality at all to disqualify
it from owning land in the Philippines -depends on its members
Members of the Roman Catholic Apostolic faith within the territory of Davao
are predominantly Filipino citizens
According to Dean Villanueva it has flaws unlike in
Constitution demands that in the absence of capital stock, the controlling
membership should be composed of Filipino citizens because (Register of Deeds of Rizal
vs. Ung Sui Si Temple)
ownership divorced from control is NOT true ownership
members of the religious association CANNOT overrule or override the
decision of the sole corporator
3. Public Utilities
Section 11. No franchise, certificate, or any other form of authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least 60% of whose capital is
owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in
character or for a longer period than 50 years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in
the governing body of any public utility enterprise shall be limited to their proportionate
share in its capital, and all the executive and managing officers of such corporation or
association must be citizens of the Philippines.
Sec. 11 Art. XII Constitution
Case: People v. Quasha (1953)- pp.61
Primary franchise: mere formation of public utility corp. - NOT prohibited
Secondary Franchise: granting of a franchise or other form of authorization for the
operation of a public utility to a corp. already in existence but w/o the req. proportion of
Filipino capital -prohibited
The primary franchise - right to exist is vested in the indiv. who compose the corp. and
NOT in the corp. itself and CANNOT be conveyed in the absence of a legislative authority
so to do
Special or secondary franchise - vested in the corp. and may ordinarily be conveyed or
mortgaged under a general power granted to a corp. to dispose of its property EX: special
or secondary franchises as are charged w/ a public use (JR Business Corp. v. Imperial
Insurance (1964))
Clear distinction bet.: (Tatad v. Garcia Jr. (1995)) - pp. 62
operation of a public utility (component of corp. venture)
ownership of the facilities and equipment used to serve the public (assets-only
level of existence)
4. Mass Media
Section 11. (1) The ownership and management of mass media shall be limited to citizens of
the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed
by such citizens.
The Congress shall regulate or prohibit monopolies in commercial mass media when the
public interest so requires. No combinations in restraint of trade or unfair competition therein
shall be allowed.
Sec. 11(1) Art XVI, 1987 Constitution - 100% Filipino ownership + 100% Filipino
Management
Sources:
P.D. 36 amended by P.D.s 191 and 197
DOJ Opinion No. 120.s of 1982
Sec. 2 OD 576
SEC Opinion Mar 24 1983
DOJ Opinion 163 s. 1973
SEC Opinion 15 July 1991
XXV SEC Quarterly Bulltin (No. 4 Dec 1991) pp. 31
a. Cable Industry
Cable TV operations shall be governed by E.O. No. 205 s. 1987
CATV operators offer public telecommunications services - treated just like a
public telecommunications entity (NTC Memo Circular No. 8-9-95)
Cable TV as a form of mass media which must be owned and managed by Filipino
citizens, or corps., cooperatives or assocs., wholly-owned and managed by Filipino citizens
pursuant to the mandate of the Constitution (Allied Broadcasting v. Federal Comm)
b. Advertising Business
(2) The advertising industry is impressed with public interest, and shall be regulated by law
for the protection of consumers and the promotion of the general welfare.
Only Filipino citizens or corporations or associations at least 70% of the capital of which is
owned by such citizens shall be allowed to engage in the advertising industry.
The participation of foreign investors in the governing body of entities in such industry shall
be limited to their proportionate share in the capital thereof, and all the executive and
managing officers of such entities must be citizens of the Philippines.
Sec. 11(2) Art XVI, 1987 Constitution - 70% Filipino owned + all Filipino executive and
managing officers
c. War-Time Test (Filipinas Compania de Seguros v. Christern (1951)
In times of war, the nationality of a private corp. is determined by the char. or
citizenship f its controlling SH
d. Investment Test as to "Phil. Nationals"
Philippine national =
citizen of the Philippines
of a domestic partnership or association wholly owned by citizens of
the Philippines
corp. organized under the laws of the Philippines of which at least 60% of
the capital stock outstanding and entitled to vote is owned and held by citizens of the
Philippines
corp. organized abroad and registered as doing business in the Philippines under
the Corporation Code of which 100% of the capital stock outstanding and entitled to
vote is wholly owned by Filipinos; or
a trustee of funds for pension or other employee retirement or separation
benefits, where the trustee is a Philippine national and at least 60% of the fund will accrue
to the benefit of Philippine nationals
PROVIDED: That where a corporation and its non-Filipino stockholders own stocks
in a SEC registered enterprise, at least 60% of the capital stock outstanding and entitled
to vote of each of both corporations must be owned and held by citizens of the Philippines
and at least 60% of the members of the BODs of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a "Philippine
national." [as amended by Republic Act No. 8179]
investment = equity participation in any enterprise organized or existing under the
laws of the Phils.
Sec. 3 (a) & (b), RA 7042, Foreign Investment Act of 1991
e. Grandfather Rule
method by w/c the % of Filipino equity is computed, in a corp. engaged in fully or
partly nationalized areas of activities provided for under the Constitution and other
nationalized laws, in cases where corp. SH are present in the situation, by attributing the
nationality of the 2nd or even subsequent tier of ownership to determine the nationality of
the corporate SH
Up to what level do you apply the grandfather rule?
Case: Palting v. San Jose Petroleum - pp. 65
SC: refused the registration and sale into the Phils. of securities of a
Panamanian registered co. the proceeds of w/c were to be exclusively used to finance the
oil exploration efforts of a domestic corp., which was owned 90% by the Panamanian Co
SJP > SJO (domestic)- 90% owned by SJP (foreign) wholly owned by
Pantepec Oil Co. and Pancoastel Petroleum, both organized and existing under the laws of
Venezuela
CANNOT go beyond the level of what is reasonable
1977 SEC internal memorandum
2 levels of corp. relations - publicly-held corps. or where shares are traded
in the stock exchange
3 levels of corp. relations - closely held corps. or where shares of w/c are
not traded in the stock exchange
CB Circular # 1171
4 level of corp ownership - banking institutions
Section 140. Stock ownership in certain corporations. - Pursuant to the duties specified by
Article XIV of the Constitution, the National Economic and Development Authority shall, from
time to time, make a determination of whether the corporate vehicle has been used by any
corporation or by business or industry to frustrate the provisions thereof or of applicable
laws, and shall submit to the Batasang Pambansa, whenever deemed necessary, a report of
its findings, including recommendations for their prevention or correction.
Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations
declared by it to be vested with a public interest pursuant to the provisions of this section,
belonging to individuals or groups of individuals related to each other by consanguinity or
affinity or by close business interests, or whenever it is necessary to achieve national
objectives, prevent illegal monopolies or combinations in restraint or trade, or to implement
national economic policies declared in laws, rules and regulations designed to promote the
general welfare and foster economic development.
In recommending to the Batasang Pambansa corporations, business or industries to be
declared vested with a public interest and in formulating proposals for limitations on stock
ownership, the National Economic and Development Authority shall consider the type and
nature of the industry, the size of the enterprise, the economies of scale, the geographic
location, the extent of Filipino ownership, the labor intensity of the activity, the export
potential, as well as other factors which are germane to the realization and promotion of
business and industry.
f. Special Classifications (Sec. 140) (Policy of the Corp. Code on the Control Test)
Phil. authority will always consider the person from the point of view of Phil. doctrine
and will treat it as Phil. national if it falls squarely w/in the test