INTRODUCTION

CORPORATE MANAGEMENT JURISPRUDENCE

 PHILIPPINE CORPORATE LAW
CORPORATION LAW / ACT NO. 1459

• Under American sovereignty, attention was drawn to the

fact that there was no entity in Spanish law exactly
corresponding to the notion "corporation" in English and
American law
• The Philippine Commission enacted the first corporate
statute - the Corporation Law (Act No. 1459), to introduce
the American corporation into the Philippines as the
standard commercial entity and to hasten the day when
the sociedad anónima of the Spanish law would be
obsolete.
• The statute is a sort of codification of American Corporate
Law. It rapidly became antiquated and not adapted to the
changing times.
Your Date Here Your Footer Here 2
 PHILIPPINE CORPORATE LAW
CORPORATION CODE /BATAS PAMBANSA BLG. 68

• The Corporation Code (Batas Pambansa Blg. 68) took

effect on 1 May 1980.
• It adopted various corporate doctrines enunciated by
the Supreme Court under the old Corporation Law.
• It clarified the obligations of corporate directors and
officers, expressed in statutory language established
principles and doctrines, and provided for a chapter
on close corporations.
 PHILIPPINE CORPORATE LAW

• Philippine Corporate Law comes from the common

law system of the United States.
• Therefore, although we have a Corporation Code that
provides for statutory principles, Corporate Law is
essentially, and continues to be, the product of
commercial developments.
• Much of this development can be expected to happen
in the world of commerce, and some expressed
jurisprudential rules that try to apply and adopt
corporate principles into the changing concepts and
mechanism of the commercial world.
 CORPORATION DEFINED

• A corporation is an artificial being created by operation

of law, having the rights of succession and the powers
attributes and properties, expressly authorized by law
or incident to its existence. (Sec. 2, BP 68)
• A corporation is but an association of individuals under
an assumed name and with a distinct legal entity.
(Bache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823, 837
[1971])
 JURIDICAL PERSON

• A non-human legal entity, in other words any

organization that is not a single natural person but
is authorized by law with duties and rights and
is recognized as a legal person and as having
a distinct identity.
• The following are JURIDICAL PERSONS –
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. (Art. 44(3),
Civil Code of the Phil)
 FOUR CORPORATE ATTRIBUTES
BASED ON SEC. 2 OF BP BLG. 68

1. A CORPORATION IS AN ARTIFICIAL BEING (“Ability to Contract

and Transact”)
• a person created by law or by state; a legal fiction
2. CREATED BY OPERATION OF LAW (“Creature of the Law”)
• its existence is dependent upon the consent or grant of the state
EXCEPT corporation by estoppel and de facto corporation
3. WITH RIGHT OF SUCCESSION (“Strong Juridical Personality”)
• the corporation exist despite the death of its members as a
corporation has a personality separate and distinct from that of its
individual stockholders. The separate personality remains even if
there has been a change in the members and stockholders of the
corporation.
4. HAS THE POWERS, ATTRIBUTES AND PROPERTIES EXPRESSLY
AUTHORIZED BY LAW OR INCIDENT TO ITS EXISTENCE
(“Creature of Limited Powers”)
 TRI-LEVEL EXISTENCE
OF A CORPORATION

1. AGGREGATION OF ASSETS AND RESOURCES –

physical assets of the corporation; the tangibles (
ex. in a grocery, the goods being sold)
2. BUSINESS ENTERPRISE OR ECONOMIC UNIT – the
commercial venture; this includes not only the
tangible assets but also the intangibles like goodwill
created by the business
3. JURIDICAL ENTITY – juridical existence as a person;
the primary franchise granted by the state
 RELATIONSHIPS IN A CORPORATE SETTING

A. JURIDICAL ENTITY LEVEL, which views the State-

corporation relationship the state cannot destroy a
corporation without observing due process of law
B. INTRA-CORPORATE LEVEL, which considers that the
corporate setting is at once a contractual relationship on
four (4) levels:
A. Between the corporation and its agents or representatives to
act in the real world, such as its directors and its officers,
which is governed also by the Law on Agency
B. Between the corporation and its shareholders or members
C. Between and among the shareholders in a common venture
C. EXTRA-CORPORATE LEVEL, which views the relationship
between the corporation and third-parties or “outsiders”,
essentially governed by Contract Law and Labor Law.
 ADVANTAGES OF A CORPORATE
ORGANIZATION

• Strong Legal Personality

• Centralized Management
• Limited Liability to Investors & Officers
• Free Transferability of Units of Ownership for
Investors
 STRONG LEGAL PERSONALITY
AN ADVANTAGE OF A CORPORATE ORGANIZATION

• “A corporation is an entity separate and distinct from its

stockholders. While not in fact and in reality a person, the
law treats the corporation as though it were a person by
process of fiction or by regarding it as an artificial person
distinct and separate from its individual stockholders.”
(Remo, Jr. v. IAC, 172 SCRA 405 [1989]).
•
• The transfer of the corporate assets to the stockholder is
not in the nature of a partition but is a conveyance from
one party to another. (Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila, 6 SCRA 373
[1962]).
 CENTRALIZED MANAGEMENT
AN ADVANTAGE OF A CORPORATE ORGANIZATION

• As can be gleaned from Sec. 23 of Corporation Code “It is

the board of directors or trustees which exercises almost
all the corporate powers in a corporation.” (Firme v. Bukal
Enterprises and Dev. Corp., 414 SCRA 190 [2003]).

• The exercise of the corporate powers of the corporation

rest in the Board of Directors save in those instances
where the Corporation Code requires stockholders’
approval for certain specific acts. (Great Asian Sales
Center Corp. v. Court of Appeals, 381 SCRA 557 [2002]).
 LIMITED LIABILITY TO INVESTORS AND
OFFICERS
AN ADVANTAGE OF A CORPORATE ORGANIZATION

• One of the advantages of the corporation is the limitation of an

investor’s liability to the amount of investment, which flows from
the legal theory that a corporate entity is separate and distinct
from its stockholders. (San Juan Structural and Steel Fabricators,
Inc. v. Court of Appeals, 296 SCRA 631 [1998]).
• It is hornbook law that corporate personality is a shield against
personal liability of its officers—a corporate officer and his
spouse cannot be made personally liable under a trust receipt
where he entered into and signed the contract clearly in his
official capacity. (Consolidated Bank and Trust Corp. v. Court of
Appeals, 356 SCRA 671 [2001]).
• Obligations incurred by the corporation acting through its
directors, officers and employees, are its sole liabilities.
(Malayang Samahan ng mga Manggagawa sa M. Greenfield v.
Ramos, 357 SCRA 77 [2001]).
 FREE TRANSFERABILITY OF UNITS OF
OWNERSHIP FOR INVESTORS
AN ADVANTAGE OF A CORPORATE ORGANIZATION

• Authority granted to corporations to regulate the

transfer of its stock does not empower the
corporation 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. Court of Appeals, 298 SCRA 280 [1998]).
 DISADVANTAGES OF A CORPORATE FORM

1. Abuse of corporate management

• There is severance of control and ownership. Control will be
vested with the BoD, thus, investors have no say over the use of
their investment and little voice in the conduct of the business.
2. Abuse of limited liability feature
• this feature had been abused and may hurt innocent creditors
3. High cost of maintenance
• the formation and incorporation of a corp. entails a lot of
difficulties and costs, particularly the requirements made by
the law so as to qualify for incorporation
4. Double taxation
• Dividends received by individuals from domestic corporations
are subject to tax
 NATURE & ATTRIBUTES OF
A CORPORATION

Created by I am a
law person

I can be
I can be
criminally
liable for
liable
TORTS

I can sue for

I cannot damages
practice a
profession
I have a
nationality
 POWER TO CREATE A CORPORATION

• The Congress shall not except by general law, provide for

the formation, organization or regulation of private
corporations.
• Government-owned or controlled corporations may be
created or established by special charters in the interest
of the common good and subject to the test of economic
viability.
• Congress cannot enact a law creating a private
corporation with a special charter, and it follows that
Congress can create corporations with special charters
only if such corporations are government-owned or
controlled. (Feliciano v. Commission on Audit, 419 SCRA
363 [2004]).
 A CORPORATION IS A PERSON

• Juridical persons may acquire and possess property of

all kinds, as well as incur obligations and bring civil or
criminal actions, in conformity with the laws and
regulations of their organization. (Art. 46, Civil Code
of the Phil)
• A corporation is entitled to DUE PROCESS and the
EQUAL PROTECTION CLAUSE of the Constitution.
(Smith Bell & Co. v. Natividad, 40 Phil. 136 [1920]).
• Unreasonable Searches and Seizure
• Its property cannot be taken without compensation; can
only be proceeded against by due process of law; and is
protected against unlawful discrimination. (Bache & Co.
(Phil.), Inc. v. Ruiz, 37 SCRA 823, 837 [1971])
 A CORPORATION CANNOT PRACTICE
PROFESSION

• Corporations cannot engage in the practice of a

profession since they lack the moral and technical
competence required by the PRC.

• A corporation engaged in the selling of eyeglasses and

which hires optometrists is not engaged in the
practice of optometry. (Samahan ng Optometrists v.
Acebedo International Corp., 270 SCRA 298 [1997]);
(Alfafara v. Acebedo Optical Company, 381 SCRA 293
[2002]).
 A CORPORATION CAN BE LIABLE
FOR TORTS
TORT - A WRONGFUL ACT OR AN INFRINGEMENT OF A RIGHT
LEADING TO CIVIL LEGAL LIABILITY

• A corporation can be civilly liable in the same manner

as natural persons for torts.
• A principal or master is liable for every tort which he
expressly directs or authorizes, is just as true of a
corporation as a natural person. (PNB v. Court of
Appeals, 83 SCRA 237 [1978]).
• A corporation is liable for tort when: (a) the act is
committed by an officer or agent (2) under express
direction of authority from the stockholders or
members acting as a body or through the Board of
Directors.
 A CORPORATION CAN BE CRIMINALLY
LIABLE

• Where a law requires a corporation to do a particular act,

failure of which on the part of the responsible officer to do so
constitutes an offense, the responsible officer is criminally
liable therefore.
• The reason is that a corporation can act through its officers
and agents and where the business itself involves a violation
of law, all who participate in it are liable.
• While the corporation may be fined for such criminal offense
if the law so provides, only the responsible corporate officer
can be imprisoned. (People vs. Tan Boon Kon, 54 Phil. 607
[1930])
• However, a director or officer can be held liable for a criminal
offense only when there is a specific provision of law making a
particular officer liable because being a corporate officer by
itself is not enough to hold him criminally liable.
 A CORPORATION CAN RECOVER MORAL
DAMAGES

• A corporation, being an artificial person, cannot

experience physical sufferings, mental anguish, fright,
serious anxiety, wounded feelings, moral shock or
social humiliation which are basis for moral damages
under Art. 2217 of the Civil Code. However, a
corporation may have a good reputation which, if
besmirched, may be a ground for the award of moral
damages. (Mambulao Lumber Co. v. Philippine
National Bank, 22 SCRA 359 [1968]; APT v. Court of
Appeals, 300 SCRA 579 [1998]).
 A CORPORATION HAS A NATIONALITY

• There are three tests to determine the nationality of the

corporation, namely:
1. Place of incorporation – that a corporation is of the
nationality of the country under whose laws it has been
organized and registered, embodied in Sec. 123 of the
Corporation Code.
2. Control test – nationality determined by the nationality of
the majority stockholders, wherein control is vested.
3. Principal place of business – applied to determine whether
a State has jurisdiction over the existence and legal
character of a corporation, its capacity or powers, internal
organizations, capital structure, rights and liabilities of
directors.
 A CORPORATION HAS A NATIONALITY

• It is necessary the nationality of a corporation so as to

determine whether or not a corporation can enter into
various transactions or engage in different industries.
• There are certain aspects of the Philippine economy that
require that the controlling test in corporations engaging
in said type of business be that of Filipinos.
• Ex. : “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 sixty per centum of whose capital is owned by such
citizens...” (Sec. 11, Art XII, 1987 Phil Constitution)
 FILIPINO CORPORATION

• Shares belonging to corporations or partnerships at least 60%

of the capital of which is owned by Filipino citizens shall be
considered as of Philippine nationality, but if the percentage
of Filipino ownership in the corporation or partnership is less
than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality.
(Opinion of DOJ No. 18, s. 1989, 19 January 1989; SEC
Opinion, 6 November 1989)
• It must be stressed however that the aforequoted SEC rule
applies only for purposes of resolving issues on investments.
• The GRANDFATHER RULE is applied to determine percentage
of Filipino control in cases where the corporation has
corporate stockholders with alien stockholdings.
 THE GRANDFATHER RULE

• It should be applied when two requisites are met: (1)

when there is involved a nationalized or partly
nationalized sector of Philippine economy and (2)
when there is tierring, meaning the corporation is
partly-owned by another corporation.
• Illustrative Example:
 CORPORATE JURIDICAL PERSONALITY

• A corporation has a personality separate and distinct

from its stockholders or members. (Art. 44, Civil Code
of the Phil & Sec. 2, BP Blg. 68)

• Ownership of a majority of capital stock and the fact

that majority of directors of a corporation are the
directors of another corporation creates no employer-
employee relationship with the latter's employees.
(DBP v. NLRC, 186 SCRA 841 [1990])
 CORPORATE JURIDICAL PERSONALITY

• Being an officer or stockholder of a corporation does not by

itself make one's property also of the corporation, and vice -
versa, for they are separate entities, and that shareholders
are in no legal sense the owners of corporate property which
is owned by the corporation as a distinct legal person. (Good
Earth Emporium, Inc. v. CA, 194 SCRA 544 [1991]).
• The mere fact that one is president of the corporation does
not render the property he owns or possesses the property
of the corporation, since that president, as an individual, and
the corporation are separate entities. (Cruz v. Dalisay, 152
SCRA 487 (1987); Booc v. Bantuas, 354 SCRA 279 [2001]).
 CORPORATE JURIDICAL PERSONALITY

• The tax exemption clause in the charter of a corporation cannot

be extended to nor enjoyed by even its controlling stockholders.
(Manila Gas Corp. v. Collector of Internal Revenue, 62 Phil. 895
(1936).
• Corporate debt or credit is not the debt or credit of the
stockholder nor is the stockholder's debt or credit that of the
corporation. (Traders Royal Bank v. Court of Appeals, 177 SCRA
789 [1989]).
• A corporation has no legal standing to file a suit for recovery of
certain parcels of land owned by its members in their individual
capacity, even when the corporation is organized for the benefit
of the members. (Sulo ng Bayan v. Araneta, Inc., 72 SCRA 347
[2001]).
 DOCTRINE OF PIERCING THE VEIL OF
CORPORATE PERSONALITY

• General Rule: A corporation cannot be generally held

liable for acts or liabilities of its stockholders or
members, and vice versa because a corporation has a
personality separate and distinct from its members or
stockholders.
• Exception: The corporate existence is disregarded
when the corporation is formed or used for illegitimate
purposes, particularly, as a shield to perpetuate fraud,
defeat public convenience, justify wrong, evade a just
and valid obligation or defend a crime.
 DOCTRINE OF PIERCING THE VEIL OF
CORPORATE PERSONALITY

• The notion of corporate entity will be pierced or disregarded and

the individuals composing it will be treated as identical if the
corporate entity is being used as a cloak or cover for fraud or
illegality; as a justification for a wrong; or as an alter ego, an
adjunct, or a business conduit for the sole benefit of the
stockholders. (Gochan v. Young, 354 SCRA 207 [2001]; DBP v. Court
of Appeals, 357 SCRA 626, 358 SCRA 501, 363 SCRA 307 [2001]).
• In the cases of fraud, the piercing is done because there is a
wrong committed. Therefore, a person behind the wrong must be
held liable which in a corporation are the directors, since the
corporation acts through them. A piercing of the corporate veil in
fraud cases is for the purpose of making the directors directly
liable.
 CLASSES OF CORPORATION
IN RELATION TO THE STATE

• Public Corporation (Sec. 3, Act No. 1459) - one formed or

organized for the government or a portion of the state;
its purpose is for general good and welfare
• Private Corporation (Sec. 3, Act 1459). - one formed for
some private purpose, benefit or end.
• Government’s majority shares does not make an entity a public
corporation. (National Coal Co., v. Collector of Internal Revenue,
46 Phil. 583 [1924]).
• A corporation is created by operation of law under the
Corporation Code while a government corporation is normally
created by special law referred to often as a charter. (Bliss Dev.
Corp. Employees Union v. Calleja, 237 SCRA 271 [1994]).
 CLASSES OF CORPORATION
AS TO PLACE OF INCORPORATION

• Domestic Corporation - incorporated in the Philippines

• Foreign Corporation - incorporated in another country and
that country grants the same rights to Filipinos in terms of
doing business there
• 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 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 authority. (BP Blg. 68)
 CLASSES OF CORPORATION
AS TO PURPOSE OF INCORPORATION

• Municipal Corporation – local government units (LGU)

• Religious Corporation
• Section 109. 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. (BP Blg. 68)
• Educational Corporation – for educational purposes;
Educational corporations shall be governed by special laws and by
the general provisions of this Code (Sec 106, BP Blg. 68)
• Charitable, Scientific or Vocational Corporation - one
established for charitable, scientific or vocational purposes
• Business Corporation - one established for business purposes
 CLASSES OF CORPORATION
AS TO NUMBER OF MEMBERS

• Aggregate Corporation - incorporated by more than

one person
• Corporation Sole - is one formed for the purpose of
administering and managing, as trustee, the affairs,
property and temporalities of any religious
denomination, sect, or church, by the chief
archbishop, bishop, priest, rabbi, or other presiding
elder of such religious denomination, sect or church
(Secs. 110 to 115; Roman Catholic Apostolic
Administrator of Davao, Inc. v. LRC and the Register of
Deeds of Davao City, 102 Phil. 596 [1957]).
 CLASSES OF CORPORATION
AS TO LEGAL STATUS

• De Jure Corporation – a corporation duly registered

with the SEC complying with all the requirements
• De Facto Corporation - a corporation with some flaw
in its incorporation (Sec. 20, BP Blg 68)
• Corporation by Estoppel - a status acquired by
persons who assume to act as a corporation knowing
it to be without authority (Sec. 21, BP Blg 68)
 CLASSES OF CORPORATION
AS TO EXISTENCE OF SHARES

• Stock Corporation - 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. (Sec. 3, BP Blg 68)
• Non-Stock Corporation – All others which are not stock
corporations. (Sec. 3, BP Blg 68)

Corporators in a stock corporation are called stockholders or

shareholders.
Corporators in a non-stock corporation are called members.