Doctrine of corporate entity

GR: A corporation comes into existence upon the issuance of the certificate
of incorporation by the SEC under its official seal. Then and only then will it
acquire a juridical personality (CC, Sec. 19).

XPN: In case of a corporation sole, the corporation sole commences

existence upon the filing of the articles of incorporation.

CORPORATE ENTITY THEORY

The corporation is possessed with a personality separate and distinct from

the stockholders or persons composing it. It is not affected by the personal
rights, obligations or transactions of the latter.

In the same vein, the stockholders, members or individual directors or

officers are not also affected by the rights and obligations incurred or
accrued for the corporation.

Note that this is a General Rule, because we have the Doctrine of Piercing
the Veil of Corporate Fiction

Classification of facts on which corporate entity may be disregarded:

1. Avoidance of redress of fraud;

2. Prevention of evasion of statute or law;

3. Prevention of evasion of contract;

4. Internal corporate dealings disregarding corporate entity where third

persons are not involved;

5. Corporation agencies or instrumentalities of undisclosed principals

 These enumerations are not exclusive and sometimes two or more of

these elements concur.
DOCTRINE OF CORPORATE ENTITY

 A corporation comes into existence upon the issuance of the certificate

of incorporation (Sec. 19). Then and only then will it acquire a juridical
personality to sue and be sued, enter into contracts, hold or convey
property or perform any legal act, in its own name (Corporation Code of the
Philippines, Ruben C. Ladia, 2001 Ed.).

 Corporations cannot come into existence by mere agreement of the

parties as in the case of business partnerships. They require special
authority or grant from the State. This power is exercised by the State
through the legislature, either by a special incorporation law or charter
which directly creates the corporation or by means of a general corporation
law under which individuals desiring to be and act as a corporation may
incorporate (The Corporation Code of the Philippines, Hector S. De Leon &
Hector M. De Leon, Jr., 2006 ed.).

DOcTRINE OF PIERCING THE CORPORATE VEIL

The doctrine of piercing the corporate veil is the doctrine that allows the
State to disregard, for certain justifiable reasons, the notion that a
corporation has a personality separate and distinct from the persons
composing it.

Where it appears that business enterprises are owned, conducted and

controlled by the same parties, law and equity will disregard the legal fiction
that these corporations are distinct entities and shall treat them as one.
This is in order to protect the rights of third persons (Vicmar Development
Corporation v. Elarcos, et al., G.R. No. 202215, December 09, 2015, Del
Castillo, J.).

In order to justify the piercing of the corporate veil, allegation or proof of

fraud or other public policy considerations is needed (Hacienda Luisita
Incorporated vs. Presidential Agrarian Reform Council, G.R. No. 171101,
November 22, 2011).

NOTE: This is an exception to the Doctrine of Separate Corporate Entity.

Effect of piercing the corporate veil

1. The corporation will be treated merely as an association of persons

-undertaking a business and the liability will attach directly to the
officers and stocholders.
2. Where there are two (2) corporations, they will be merged into one,
the one being merely regarded as the instrumentality, agency,
conduit or adjunct of the other.

NOTE: Notwithstanding that the corporate veil has been pierced, the
corporation continues for other legitimate objectives, the corporate
character is not necessarily abrogated (Reynoso IV vs. CA, G.R. Nos.
116124-25, November 22, 2000).

GROUNDS FOR APPLICATION OF DOCTRINE

It applies upon the following circumstances: (FACO)

a. if the fiction is used to perpetrate fraud (Fraud Test)

b. if the complete control of one corporate entity to another which
perpetuated the wrong is the proximate cause of the injury (Control
Test)
c. if a certain corporation is only an adjunct or an extension of the
personality of the corporation
(Alter ego or Instrumentality Test)
d. if the fiction is pierced to make the stockholders liable for the
obligation of the corporation (Objective Test)

Circumstances which do not warrant the piercing of the corporate veil

The mere fact that: (FiCoS)
1. A corporation owns Fifty (50%) of the capital stock of another
corporation, or the majority ownership of the stocks of a corporation is
not per se a cause for piercing the veil.
2. Two corporations have Common directors or same or single
stockholder who has all or nearly all of the capital stock of both
corporations is not in itself sufficient ground to disregard separate
corporate entities.
3. There is a Substantial identity of the incorporators of the 2
corporations does not necessarily imply fraud and does not warrant
piercing the corporate veil.