CORPORATION LAW – NOTES

Constitutional Basis -Formation and Organization of Corporations (Sec. 16, Art. XII, PC)

- 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.

Corporation, defined

- 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
2. Created by operation of law
3. Has right of succession – Corporations are deemed to exist in perpetuity unless the
incorporators chose a definite term for corporate existence.

4. Has only the powers, attributes and properties authorized by law or incident to its existence.

Theory of General vs. Special Capacity in relation to Corporate Powers (Both applies to
Corporations)
o Only attached to a corporation the moment it has been organized under the law.

Theory of General Capacity Theory of Special Capacity

A corporation is said to hold such powers A corporation cannot exercise powers

(and rights) as are not prohibited or except those expressly / impliedly given.
withheld from it by general law.
Applies to certain corporations regulated
Examples: by special law. (i.e., Banking corporations)
1. Right to adopt its own name
2. Right to sue and be sued
3. Right to Succession

Concept of Corporate Personhood / Corporate Fiction / Separate Juridical Personality

- A corporation has a personality separate and distinct from the persons composing it. (Civil Code,
Arts. 44-47;

Rights that may be exercised by Corporations

1. Right to Recover damages

Classification of Corporations

1. Private vs. Public Corporation

Private – Formed by private persons alone, by or with the State pursuant to a special charter or
through a general enabling act such as the Corporation Code
 NB: All private corporations can only be formed by a governing law (RCCP). No private
corporation can be organized through a special law passed by the Congress –
UNCONSTITUTIONAL – contrary to Sec. 16, Art. 12,

 Still, Congress can create by law , GOCCs and may be organized as stock or non-stock.

Standards to distinguish private corporation from a GOCC / Public entities

Points of Distinction Private Corporations GOCCs Public entities

As to manner of creation Created by RCCP Created by a special law

Majority Rule

At least 51% of the Capital Stock or Membership belongs to the

Republic , It must be considered a GOCC.

Source of Funds From private sources Source of funding may either

be from the General
Control of corporate funds is Appropriations Act (GAA) or
vested to the Board of Directors other sources of public funds.

As they are sourced from

public funds, it is subject to
the exercise and jurisdiction
of the Commission on Audit

Management Board of Directors whose Governing body would be the

members are elected by the one prescribed by the law.
shareholders. (unelected, appointed by the
President)

Purpose For stock corporations – profit Organized / created by law to

perform some public
For non-stock – the purpose to function.
which it was organized.

Public Corporations – Formed or organized for the government of a portion of the state (e.g.,
barangay, municipality, city and province create for political purposes connected with the public
good in the administration of the civil government.

Points of Distinction Private Public

As to Controlling interest Government may hold Government holds the
controlling interest controlling interest

As to manner of creation Created under the Created by its legislative

Corporation Code, charter

Note: GOCCs may also be

created by Special Charter
 As to purpose Generally created for profit 1. For Public purpose
generation 2. Exists primarily for the
government of a portion
of the state
3. Subject to control and
supervision by the State
or its agency

2. Stock vs. Non-Stock Corporations

Stock Corporations – Are those 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. (Sec. 3, RCCP)
o Organized to engage in some legitimate private profit-making enterprise.
o May either be open or closed Corporations or one-person corporation

Non-Stock Corporations / Associations - Where no part of its income is distributable as dividends

to members, trustees, or officers.
o Any profit obtained as an incident to its operations shall, whenever necessary or proper,
be used for the furtherance of the purpose for which the corporation was organized.
(Secs. 86 – 87, RCCP)

o For charity, literary purposes, chambers of commerce, religious purposes etc.

o Ordinary Non-stock Corporations (Educational, Religious) –

3. Open vs. Close Corporations

Open / Publicly Listed Closed

Shares of stocks available for Stock corporations with the following

subscription or acquisition by restrictions
anyone. (Through the stock 1. Maximum number of
exchange) shareholders is twenty (20)

2. One must be qualified to be a

stockholder in a closed
corporation in accordance
with the corporation’s by-
laws.

Prohibited from selling their shares

publicly.

4. One-Person (Stock) Corporations

o There is only one stockholder regardless of the number of shares.

o Governed by the RCCP

5. Domestic vs. Foreign Corporations (As to place of Incorporation)

 Domestic – One incorporated under the laws of the Philippines

Foreign – One formed, organized, or existing under any laws other than those of the Philippines,
and whose laws allow citizens and corporations to do business in its own country. (Sec. 125,
RCCP)

Incorporation Test - Place of Incorporation decides whether a corporation is domestic or foreign.

Control test – Citizenship of the principal stockholders would fix and dictate the citizenship of
the corporation itself
o Necessary only when the corporation is engaged in businesses regulated by way of
citizenship. (i.e., exploration, development and utilization of natural resources – can
only be granted to corporations with minimum 60% Filipino ownership)

6. Corporations created by Special Charter (Sec. 4, RCCP)

Special Charter Corporations – Those crated by special laws or charter and shall be governed by
such law or charter as supplemented by the Corporation Code insofar as they are applicable.

7. Educational Corporations (Secs. 105 et. seq.)

Educational Corporations
o Governed by Special laws and the general provisions of the RCCP
o Two classes:

Points of Distinction Non-stock Stock Corporations

Board of Trustees Shall not be less than five Number and term of directors
(5) nor more than fifteen shall be governed by the
(15) provisions on stock
corporations
Provided that the number
of trustees shall be in Term of a director is only for a
multiples of five maximum of one (1) year
Term of Directors Term of office of 1/5 of
their members shall
expire every year.

Trustees elected to fill

vacancies occurring
before expiration shall
hold office only for the
unexpired period

Trustees elected
thereafter shall fill
vacancies caused by
expiration of term shall
hold office for five (5)
years)

8. Religious and Sole aggregate Corporations (Secs. 107 et. seq.)

Two Classifications:
 Points of Distinction Corporation Sole Religious Societies

Composition may be formed by the chief Organized through at least

archbishop, bishop, priest,
minister, rabbi, or other
presiding elder of such
religious denomination, sect
or church, for the purpose of
administering and managing,
as trustee, the affairs,
property and temporalities of
any religious denomination,
sect or church.
two-thirds (2/3) of it
membership for the purposes
of administration of its
temporalities or for the
management of its affairs,
properties, and estate.

9. Sui Generis Corporations – is neither a public nor private corporation. It has features both of a
public and private corporation.
o Philippine National Red Cross
o Manila Economic and Cultural Office

Stages in the Formation / Organization of a Corporation

I. Promotion – Preparatory activities before incorporation

o There is no corporation to speak of, but the law recognizes certain legitimate
contractual relations.

o After dissolution of a corporation – liquidation and winding up.

 Corporation is already dissolved but certain contracts and activities are to be
done to completely terminate its juridical personality.

II. Incorporation
III. Organization