Ferdie Salao

CORPORATION LAW
Introduction severally liable for the debts and the
liabilities of the OPC.
Stakeholders of the Corporation– State,
stockholders, directors, and officers, and Liability of the Corporation for Torts
creditors. Committed by its Officers/ Agents

Governing Laws: - A corporation is liable, whenever a

tortuous act is committed by an
RCCP (RA 11232) – Feb. 2019, which repealed officer of agent under express
BP 68. direction or authority from the
stockholders or members acting as a
Salient Features of RCCP:
body, or, generally, from the
1. Promotes ease of doing business. directors as the governing body.
2. Adopted best practices on good
Criminal Liability of a Corporation –
corporate governance.
Considering that a corporation is merely
3. Afforded greater protection to minority
a legal fiction, it cannot be held liable for
stockholders.
crimes committed by its officers since it
4. Codifed internationally- accepted
does not have the essential element of
practices and norms of conducting
malice. XPN: If expressly provided by
business.
law then the corporation is held
5. Strengthened the powers of SEC to be
criminally liable (since in special law-
able to fully exercise its regulatory
intent is not necessary).
authority over corporations.
Recovery for damages
Unchanged Principles and Concepts:
GR: A corporation is not entitled to
1. Definition and classes of corporations
recover damages because it is an
2. Classifications of shares
artificial being and cannot express
3. Management structure
feelings. XPN: when its reputation, good
4. Corporate powers and capacity
name or good will has been besmirched
5. Dissolution process
(Art. 2219 (7)).
6. Mergers and consolidation
7. Licensing of foreign corporations Doctrine of Piercing the Veil – it is a
legal doctrine wherein the State is
Four Main reforms Under RCP
allowed to disregard the fiction that a
1. Policies that would enhance the ease of corporation has a separate legal
doing business in the Philippines personality from those people
2. Rules that prioritize corporate and composing the corporation.
stockholder protection
Applications of the Doctrine of
3. Provisions that instill corporate and civic
Piercing the Veil
responsibility.
- Defeat public convenience
CORPORATION (Sec 2 of RCCP) Requisites:
- Justify the wrong
1. An artificial being; - Protect fraud; or
- With legal personality distinct and - Defend a crime.
separate from the persons
How is Veil Pierced?
comprising it.
1. By disregarding the separate
DOCTRINE OF SEPARATE
personality of the corporation.
JURIDICAL PERSONALITY – provides
2. By holding the corporate officers
that a corporate has a legal personality
accountable for the obligation; and
that is separate and distinct from that of
3. By disregarding the corporation as
the people comprising it. XPN: OPC
an association of persons or in case
Limited Liability Rule – corporate debt of two corporations, treat them as
is not the debt of the stockholder nor an one and hold them liable as such.
officer or stockholder of the corporation
Elements of Alter Ego Theory/
does not make one’s property the
Instrumentality theory
property of the corporation. OPC may
invoke this rule however if not proved, 1. CONTROL – complete dominion of
the sole shareholder can be jointly and policy and business in respect to the
transaction attacked so that the
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CORPORATION LAW
corporate entity as to this transaction Formation of a Corporation
has at the time no separate mind, will, or
1. Private Corporation – governed by
existence of its own.
RCCP. Done by filing the appropriate
2. FRAUD – defendant committed fraud or
AOI and BL with SEC.
wrong in violation of the plaintiff’s legal
2. Public Corporation – special law/
rights with the use of his control;
charter.
3. INJURY – proximate cause of injury or
3. Government- Owned & Controlled
loss complained of.
Corporation (GOCC) – any agency
organized as stock or non-stock
corporation, vested with functions
2. Created by operation of law;
pertaining to public needs whether
- Cannot created by mere agreement
governmental or proprietary in nature,
of the incorporators.
and owned by the government directly
- There must be a law from which the
or through its instrumentalities, either
corporation derives its existence.
wholly or where applicable in the case of
stock corporation, at least 51% of its
3. Having a right of succession; and
capital stock.
- The corporation has the power to
Governance Commission for GOCCs-
exist continuously, either by opting
central policy making and regulatory
to have perpetual existence or to
body mandated to safeguard the State’s
extend its corporate life if a fixed
ownership rights. (RA 10149- GOCC
term is specified in its articles of
Governance Act of 2011)
incorporation.
-oversee the selection and nomination
of directors/ trustees.
4. Powers, attributes and properties
-institutionalize transparency,
expressly authorized by law, or incident
accountability, financial viability and
to its existence.
responsiveness in corporate
-corporation can only exercise powers
performance by monitoring and
conferred upon it by law, by its articles
evaluating GOCC’s performance.
of incorporation, those implied from the
- rationalize the Sector through
conferred powers, or incidental to its
streamlining, reorganization, merger as
existence.
well as recommending to the President
Any act of the corporation contrary to or
of the Philippine the privatization or
outside of these powers is ULTRA
abolition of the GOCC; and
VIRES.
- establish compensation standards to
Theories on the Formation of Corporation ensure reasonable and competitive
renumeration schemes that attract and
1. Concession Theory – (also Fiat, retain the right element.
Government paternity, Imprimatur, Classifications of GOCCs
Franchise Theory). Under this theory, a a. Development/ social corporation
corporation is treated as a person by b. Proprietary commercial corporation
legal fiction or as an artificial person with c. Government financial, investment
distinct and separate from its individual and trusts institutions
shareholders/ stockholders. d. Corporations with regulatory
Franchises of Corporation functions
a. Primary – those franchises granted e. Others
by the RCCP.
b. Secondary – special authority given Requisites of GOCCs:
to a corporation to engage in a
a. Organized as stock or non-stock
specialized business.
corporation;
2. Enterprise Entity/ Corporate
b. The function is of public character;
Enterprise Theory – the corporation is
and
not merely an artificial being but more
c. Government ownership over the
an aggregate of persons doing business
same (at least 51% of capital stock).
or underlying business unit (consent is
necessary).
3. Genosenchaft Theory – It treats a
corporation as a reality of the group as a
social and legal entity independent of
the State recognition and concession.
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CLASSES OF CORPORATIONS
1. Stock corporation – capital stocks are
divided into shares and is authorized to
distribute to its holders of such shares,
dividends, or allotments of the surplus
profits on the basis of the shares held.
2. Non-stock – no portion of its income is
distributable to its members, trustees, or
officers.
3. As to organizers
a. Public – State alone
b. Private – private persons alone or
with the State
4. As to purpose or Function
a. Public – organized for the
government for the general good
and welfare;
b. Private – usually organized for profit
b.1. GOCC- 51% majority
stockholder. Ex. SSS, GSIS,
NAPOCOR, etc.
b.2. Quasi-public corporation –
private corporations which have
accepted from the State the grant of
franchise or contract involving the
performance of public duties but
which are organized for profits. Ex.
MERALCO, PLDT, GMA, etc.
5. Governing law- Public/ Private
6. Laws of Incorporation
a. Domestic Corporation – one formed,
organized and existing under
Philippine laws;
b. Foreign Corporation – one formed,
organized and existing under laws
other than those of the Philippine
and whose laws allow Filipinos to do
business in its own country or State.
7. Open to the public or not
a. Open corporation – one which is
open to any person who may wish to
become a stockholder or member
thereto.
b. Close corporation – one whose
shares are held by not more than 20
persons.
AOI provides:
- All corporation’s issued stock of all
classes, exclusive of treasury
shares, shall be held of record by
not more than a specified number of
persons, not exceeding 20
- All the issued stock of all classes
shall be subject to one or more
specified restrictions on transfer
permitted; and
- Corporation shall not list in any stock
exchange or make any public
offering of its stock of any class.
XPNs:
- A corporation shall not be deemd a
close corporation when at least 2/3
of its voting stock or voting rights is
owned or controlled by another
corporation which is not close
corporation.
- Mining or oil companies, stock
exchanges, banks, insurance
companies, public utilities,
educational institutions, and other
corporations declared to be vested
with public interest ( to be
determined by the NEDA under
Section 176).
Corporations vested with Public
Interest
1. Corporation whose securities are
registered with the SEC,
corporations listed with an exchange
or with assets of at least Php 50M
and having 200 or more
shareholders, each holding at least
100 shares of a class of its equity
shares
2. Banks and quasi banks, non-stock
savings and loan associations,
pawnshops, corporations engaged in
money service businesses, preneed,
trust companies, insurance
companies and financial institutions.
3. Other corporations engaged in
businesses vested with public
interest as SEC may determine.
8. As to legal status
a. De jure corporation- one that has
fulfilled all the requirements
mandated by law and can
successfully resist a suit by the state
to challenge its existence.
b. De facto corporation – one
organized with colorable compliance
with the requirements of a valid law.
Its existence cannot be inquired
collaterally but only by direct attack
by the State through a quo warranto
proceeding.
c. Corporation by estoppel – one
where two or more persons to act as
corporation knowing it to be without
to do so.
d. Corporation by prescription – one
which has exercised corporation
powers for an indefinite period of
time without interference from the
State. Ex. Roman catholic Church
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9. As to relationship of management &
control
a. Holding corporation – one that hold
stocks in other companies for
purposes of control rather than for
mere investment.
b. Subsidiary corporation – one that is
owned or controlled by another
company called the parent company.
c. Affiliate – when one company owns
less than the majority of the voting
stock of the other.
d. Parents company – one that owns
enough voting stock in another
company to control management
and operation by influencing or
electing its BOD.
10. Special Corporation – educational
corporations and religious corporations.
11. One person corporation (OPC) – with a
single stockholder who can be a natural
person, trust, or estate.
NATIONALITY & CITIZENSHIPS OF
CORPORATIONS
GR: Corporation cannot be considered as a
citizen. However, it is important to determine
the nationality of a corporation for certain
purposes.
TESTS
1. Aggregate test – also a control test.
Looks into the nationality, domicile, or
residence of the individuals who control
the corporation.
2. Entity test – also a place of
incorporation test. Looks into the nation
where the corporation was incorporated.
Regarded during the times of war.
3. Control test – determines the
nationality of a corporation enaged in
nationalized areas of activities, provided
for under the Constitution and other
applicable laws, where corporate
shareholders with foreign shareholdings
are present, by ascertaining the
nationality of the controlling stockholder
of the corporation. (at least 60%- capital
investment)
4. Grandfather Rule – the 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 applicable laws,
is accurately computed, in cases where
corporate shareholdes with foreign
shareholdings are present, by attributing
the nationality of the second or even
subsequent tier of ownership to
determine the nationality of the
corporate shareholder. It is aimed to
trace the nationality of the stockholder of
the investor corporations to ascertain
the nationality of the corporation where
the investment is made.
Conditions for the Application of Control
test & Grandfather Rule
1. Corporation is engaged in economic
activities that are reserved, in whole or
in part, for Filipinos (nationalized
activities);
2. Stockholders include corporations; and
3. Foreign stockholders are present either
by owning shares directly in the
corporation or owning hares in a
corporation that invested in the equity of
the corporation whose nationality is in
issue.
CORPORATORS & INCORPORATOS,
STOCKHOLDERS and MEMBERS
Composition of a corporation
1. Corporators- those compose a
corporation. STOCK – SH; NON
STOCK- members.
2. Incorporator – stockholders or members
mentioned in the AOI as originally
composing the corporation and who are
signatories thereof.
3. Directors/ trustees – generally elected
by SH or by fellow directors to conduct
the business, control the property and
exercise corporate powers.
4. Officers – appointed/ employed to assist
in the management of the affairs of the
corporation.
TRI-LEVEL HIERARCHY
1. Board of directors
2. Corporate officers
3. Stockholders
Shares of stocks – forms securities
representing equity ownership in a corporation,
divided up into units.
DOCTRINE OF EQUALITY OF SHARES –
each share shall be treated equal in all respect
to all other shares.
XPN: provided in AOI and certificate of stocks.
CAPITAL STOCK – it consists of all classes of
shares issued to stockholders, that is, common
shares as well as preferred shares, which may
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have different rights, privileges, or restrictions
as stated in AOI.

Sec 21- Effect of Non-use of Corporate Charter and Continuous Operation

Sec 21- Effect of Non-use of Corporate Charter and Continuous Operation

1. Revisions pertaining to non-use of corporate charter.

BP No. 63 RA 11232

Period of Failure to formally

2 years → automatic 5 years→ automatic
organize & commenced
dissolution revocation of COI.
business/ effects

SEC may place the

Legal consequence for in
operation for a period of at
least 5 years after
commencement.
corporation under a
delinquent status. (wherein
the corporation has to
ground for revocation/
resume within 2 years &
suspension of the COI.
comply with all the
reportorial reqts. Otherwise,
it may lead to the
revocation of the COI.)

Failure to organize Can be categorically

continuously for 5 years for considered as an excuse as
Silent.
reasons beyond the control may be determined by the
of the corporation. SEC.

Does not provide hearing

Power/ authority of the SEC
prior to the revocation of
Sec is mandated to conduct the COI. However, revoked
hearing before placing a COI by reason of
delinquent status. uncontrollable situations
may be appealed before the
CA under Sec 179.

2. When should the corporation formally organized and commerce its business? Sec 18, par. 3 provides
that a private corporation organized under RCCP commences its corporate existence and juridical
personality from the date the Commission has issued a certificate of incorporation. Within 5 years from
the issuance of the COI.
3. When is a corporation considered to have formally organized and commenced its business? Completion
of the registration process and submission of all required permits and compulsory registrations.
4. What is the consequence if a corporation is placed in delinquent status?

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Sec 22- The Board of directors/ Trustees Qualification and Term

1. What are the revisions under the RCCP regarding Board of Directors or Trustees?

BP # 63 RA 11232

Term Director/ trustee - 1 year 1 year Director

until their successors are
elected. not exceeding 3 years -
trustees.

Majority of directors/ must be resident of the not required as long as a

trustees Philippines director is a natural person,
of legal age, and must be a
stock holder (of at least 1
share of stock).

renumbered and inclusion

of second paragraph term of
trustees.
Requirement for
corporations vested with
public interest to have
independent directors , who
will constitute of at least
205 of the Board's member.

Enumerates which
corporations should have
independent directors
corporations covered by
Section 17.2; banks, quasi-
banks, non-stock savings
and loan savings
associations; pawnshops;
corporations engaged in
money service; preneed;
trust; and insurance
companies; other
corporations engaged in
businesses vested with
public interest similar to
those in #1 and 2.

Elections of the
Independent directors.

2. What is the doctrine of centralized management?

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Under the doctrine of centralized management, the directors as individually elected members of the
Board must be totally accountable only to the corporation and the stockholders, and not to the Board as
the possessor of all corporate powers.

XPNS: acts where stockholders votes are necessary.

3. What is the business judgment rule?

Business Judgment rule – provides that court cannot undertake to control the discretion of the Bord of
Directors about administrative matters as to which they have legitimate power of action, and contracts
intra vires entered into by the board of directors are binding upon the corporation and courts will not
interfere.

XPN: The contracts are so unconscionable (extremely unjust) and oppressive as to amount to a wanton
destruction of the right of the minority.

4. What is the term of the Board of Directors? Trustees?

Term of the BOD - 1 year (protect the corporation and public) cannot be voided by the By-laws.

Term of the BOT – 3 years

Term – the time during which the officer may claim to hold office as of right and fixes the interval after
which the several incumbents shall succeed one another. Fixed by the law.

Tenure – represents the term during which the incumbent actually holds office. Holdover constitutes the
tenure.

5. What are the qualifications of directors or trustees?

Qualifications of the Directors/ Trustees

a. Must be a natural person;

b. Of legal age;
c. Must be a stockholder of record (owning at least one share in his/ her own name)- continuous
requirement;
d. Within 5 years prior to the election or appointment as such, the person was not:
d.1. convicted by final judgment: (1) of an offense punishable by imprisonment for a period
exceeding six years; (2). Violation of this Code; and (3) Violation of RA 8799 ( Securities
Regulation Code);
d.2. Found administratively liable for any offense involving fraudulent acts; and
d.3. declared liable by a foreign court or equivalent foreign regulatory authority for acts,
violations or misconduct similar to those enumerated in preceding paragraphs.
e. Other qualifications/ disqualifications that may be imposed by the SEC and the Philippine
Competition Commission in its promotion of good corporate governance or as a sanction in its
administrative proceedings.

Juridical persons my seat as board of director, represented by their authorized agents.

6. Who is an independent director?

An independent director is a person who, apart from shareholding and fees received from the
corporation, is independent of management and free from any business or other relationship which
could or could reasonably be perceived to materially interfere with the exercise of independent
judgment in carrying out the responsibilities as a director.

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7. What corporations are required to have independent directors in their Boards?
Section 22 enumerates which corporations should have independent directors:

a. Corporations covered by Section 17.2 of SRC, specifically: (a). those whose securities are
registered with the SEC; (b). corporations listed with an exchange; and (c). corporations with
assets of at least Php 50 M and having 200 or more holders of shares, each holding at least 100
shares of a class of its equity shares;
b. Bank and quasi-banks, non-stock savings and loan associations (NSSLAs), pawnshops,
corporations engaged in money service business, preneed, trust and insurance companies, and
other financial intermediaries; and
c. Other corporations engaged in businesses vested with public interest similar to those in nos. 1 &
2 as may be determined by the SEC, after considering relevant factors that are connected to the
objective and purpose of requiring the election of an independent directors, such as: (a). extent
of minority ownership; (b). type of financial products or securities issued or offered to investors;
(c). public interest involved in the nature of business operations; and (d). other analogous
factors.

Sec 23: Election of Directors/ Trustees

Stockholders or members of the corporation is vested with the right to elect member of the board of directors
or trustees.

Not allowed:

- Mere designation
- Automatic membership of board of directors

Conduct of the election

-present in person

-through representative authorized to act by

written proxy.

-if authorized by by-laws or board, vote through

remote communication or in absentia. Also,
corporations vested with public interest are allowed
to vote through remote communication or in
absentia.

Voting may done by: acclamation (viva voce) or by

show of hands, or through ballots.

One of the salient features of the RRC does not

provide restrictions on the nationality of the
members of the board, unless the certain provision
of the corporation’s by-laws and constitution
provides otherwise. Furthermore, certain regulatory
agencies may impose rules and regulations on the
strict compliance on the nationality of the members
of the Board, as mandated by the Constitution and
special laws.