Corporation Law

BelerNotes

Chapter 2 Definitions and attributes

Section 2. 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:

1. Artificial Being- Juridical personality, created by operation of law. Has a separate and distinct
personality from the persons composing it.
2. Created by Operation of Law- Compliance with the strict compliance with the statutory
requirements
3. Right of Succession – Continuity of Existence despite of the incapacity or civil interdiction of its
stockholders or members.
4. Powers, attributes and properties expressly authorized by law or incident to its existence- it can
only exercises as such powers and can hold properties as granted by law, charter, articles of
incorporation and by laws.

Do Artificial being can claim moral damages?

- Yes as laid down by the decision of the high Court that whether the plaintiff is a natural or a
juridical person, can claim from damages arising from acts such as libel or any other form of
defamation and cafor moral damages. Also as provided in the case of Meralco vs team
electronics corp, when claim n it was ruled, citing that a corporation has a reputation that is
debased, resulting in humiliation in the business realm, hence moral damages may be
awarded.

Advantages of corporate form of business.

1. Capacity to act as a single unit

2. Limit Shareholder’s liability
3. Continuity of existence
4. Feasibility of greater undertaking
5. Transferability of shares
6. Centralized Management
7. Standardized method of organization, management and finance.

Disadvantages of the Corporate form of Business.

1. Formal proceedings to have a valid and binding corporate act.

2. Limited Capacity to Act.
3. Shareholder’s limited liability
4. Transferability at will of shares.
5. Limited participation of minority of shareholders in the conduct of corporate affairs.
6. In large enterprises, Voting rights may be fictitious by reason of disinterest in management.
 7. Double Taxation may be imposed on corporate income.
8. Strict governmental regulations for compliance.

Distinctions between a corporation and a partnership.

1. Corporation is created by law or by operation of law, While partnership is created by mere

agreement of the parties.
2. Organized by having at least 5 incorporators, except the corporation sole, which is incorporated
by one single individual, A partnership may formed by two or more natural persons.
3. A corporation can exercise only such powers and functions as granted to it by law. While in
Partnership can do anything by agreement of the parties,provided only that is not contrary to
morals, good customs and public order.
4. Unless validly delegated expressly or impliedly, a corporation must transact its business through
its board of directors.
5. A corporation has the right of succession, while Partnership is based on fiduciary relationship,
hence a case of civil interdiction or incapacity of the partners will deem the partnership
dissolved.
6. Any transfer of stockholder is valid and voluntary at will, while in the case of partnership, any
transfer needs the consent of the other partners.
7. The liability of the stockholders is limited only to the number of shares contributed in the capital
stock. While in partnership, the distribution of liability is based on a pro-rata sharing.
8. The term of corporate existence is for the period of 50 years per term, and unless extended by
amendment, while in partnership, may exists for an indefinite period.
9. A corporation cannot be dissolved by mere agreement, while a Partnership can be dissolved by
will of the partners.

Chapter 3: CLASSIFICATION OF CORPORATION

Section 3: Classes of Corporations- Corporation formed or organized under this Code, may either be
stock or non-stock corporations. Corporation which have capital stock divided into shares and are
authorized to distribute to the holders of such shares held are stock corporations. All other private
corporations are non-stock corporation.

Two requisites:

1. CAPITAL STOCK DIVIDED INTO SHARES

2. AUTHORIZED TO DISTRIBUTE DIVIDENDS OR ALLOTMENTS AS SURPLUS PROFITS TO ITS
STOCKHOLDERS ON THE BASIS OF THE SHARES HELD BY EACH OF THEM.

*non stock corporations are those where no part of their income is distributable as dividends to its
members, trustees or officers subject to the provisions on dissolution.

CAN A NON STOCK CORPORATION MAKE PROFITS?

- Yes, Since a Non stock corporation exists for purposes other than for profit, exception as
provided under the case decided by the high court in CIR vs Club Filipino De Cebu, That the
club derived its profits from the operation of its bar and restaurant, but such fact does not
 necessarily convert it into a profit making enterprise. Whether the shares of the club is
divided into shares does not detract from the finding of the trial court that it is not engaged
in the business of operator of bar and restaurant. What is determinative of whether or not
the club is engaged in such business is its object or purpose as stated in the articles of
incorporation and by laws, Also, as elaborated under the law,for a stock corporation to
exists, the two requisites must be validly complied with; 1) A Capital stock divided into
shares 2) an authority to distribute to the holders of such shares, dividends or allotments of
surplus profits on the basis of shares held. Hence Club Filipino strictly does not fall under
the said requisite, as a stock corporation.

CORPORATIONS CREATED BY SPECIAL LAW OR CHARTER

Sections 4 : Corporation created by special laws or charters – Corporations created by special laws or
charters shall be governed primarily by the provisions of the special laws or charter creating them,
supplemented by the provisions of this Code, in so far as they are applicable.

- Officers and employees of Government owned or controlled corporations created by special

laws are governed by the law creating them, Usually the Civil Service, While the
government subsidiaries, organized under the provision of the Corporation Code, are
governed by the Labor Code.