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Corp Law Outline

Corp Law Outline

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OUTLINE ON PHILIPPINE Atty. CESAR L. VILLANUEVACORPORATE LAW
1
 I. HISTORICAL BACKGROUND1. The Philippine Corporate Law:
2
Sort of Codification of American Corporate Law
When the Philippines came under American sovereignty, attention was drawn to the factthat there was no entity in Spanish law exactly corresponding to the notion "corporation" inEnglish and American law; the Philippine Commission enacted the Corporation Law (Act No.1459), to introduce the American corporation into the Philippines as the standard commercialentity 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.
 xHarden v. BengueConsolidated Mining Co.
, 58 Phil. 141 (1933).
2. The Corporation Law
 The first corporate statute, the Corporation Law, or Act No. 1459, became effective on 1April 1906. It had various piece-meal amendments during its 74 year history. It rapidly becameantiquated and not adapted to the changing times.
3. The Corporation Code
 The present Corporation Code, or
Batas Pambansa Blg
. 68, became effective on 1 May1980. It adopted various corporate doctrines enunciated by the Supreme Court under the oldCorporation Law. It clarified the obligations of corporate directors and officers, expressed instatutory language established principles and doctrines, and provided for a chapter on closecorporations.
4. Proper Treatment of 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, CorporateLaw is essentially, and continues to be, the product of commercial developments. Much of thisdevelopment 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 conceptsand mechanism of the commercial world.
II. CONCEPTS
See opening paragraphs of 
V
ILLANUEVA
,
Corporate Contract Law,
38 A
 TENEO
 L.J. 1 (No. 2, June 1994).
1. Definition
(Section 2; Articles 44(3), 45, 46, and 1775, Civil Code).
2. Tri-Level Existence of Corporation
(a) Aggregation of Assets and Resources(b) Business Enterprise or Economic Unit(c) Juridical Entity
3. Relationships Involved in Corporate Setting(a) Juridical Entity Level
, which views the State-corporations relationship
(b) Contractual Relationship Level
, which considers that the corporate setting is at once acontractual relationship on four (4) levels:- Between the corporation and its agents or representatives to act in the realworld, such as its directors and its officers, which is governed also by theLaw on Agency;- Between the corporation and its shareholders or members;- Between and among the shareholders in a common venture; and- Between the corporation and third-parties or "outsiders", which isessentially governed by Contract Law.
4. Theories on Formation of Corporation:(a)
 
Theory of Concession
(
Tayag v. Benguet Consolidated Inc.
, 26 SCRA 242 [1968])
1
Unless otherwise indicated, all references to sections pertain to The Corporation Code of the Philippines.
2
The whole body of statutory and jurisprudential rules pertaining to corporations is referred to as "Corporate Law" to differentiate itfrom the old statute known as "The Corporation Law," or Act No. 1459.
 
 To organize a corporation that could claim a juridical personality of its own andtransact business as such, is not a matter of absolute right but a privilege which may beenjoyed only under such terms as the State may deem necessary to impose (x-
cf.
 
 Ang Pue &Co. v. Sec. of Commerce and Industry 
, 5 SCRA 645 [1962]).Before a corporation may acquire juridical personality, the State must give its consenteither in the form of a special law or a general enabling act, and the procedure andconditions provided under the law for the acquisition of such juridical personality must becomplied with. The failure to comply with the statutory procedure and conditions does notwarrant a finding that such association achieved the acquisition of a separate juridicalpersonality, even when it adopts sets of constitution and by-laws. x
International ExpressTravel & Tour Services, Inc. v. Court of Appeals,
343 SCRA 674 (2000).Since all corporations, big or small, must abide by the provisions of the CorporationCode, then even a simple family corporation cannot claim an exemption nor can it have rulesand practices other than those established by law. x
Torres v. Court of Appeals
, 278 SCRA 793(1997).
(b)
 
Theory of Enterprise Entity
(B
ERLE
,
Theory of Enterprise Entity 
, 47 C
OL
. L. R
EV
. 343 [1947])Corporations are composed of natural persons and the legal fiction of a separatecorporate personality is not a shield for the commission of injustice and inequity, such as theuse of separate personality to avoid the execution of the property of a sister company. x
TanBoon Bee & Co., Inc. v. Jarencio
, 163 SCRA 205 (1988).A corporation is but an association of individuals, allowed to transact under an assumedcorporate name, and with a distinct legal personality. In organizing itself as a collective body,it waives no constitutional immunities and perquisites appropriate to such a body.x
Philippine Stock Exchange, Inc. v. Court of Appeals,
281 SCRA 232 (1997).
5. Four Attributes of Corporation from Statutory Definition:
(a) A corporation is an artificial being(b) Created by operation of law(c) With right of succession(d) Only has powers, attributes and properties expressly authorized by law or incident toits existence
6. Advantages and Disadvantages of Corporate Form:(a) Four Basic Advantageous Characteristics of Corporate Organization:
(i) Strong Legal Personality- Entity attributable powers- Continuity of existence- Purpose The corporation was evolved to make possible the aggregation and assemblingof huge amounts of capital upon which big business depends; and has the advantageof non-dependence on the lives of those who compose it even as it enjoys certainrights and conducts activities of natural persons.
Reynoso, IV v. Court of Appeals,
G.R. No. 116124-25, 22 November 2000.(ii) Centralized Management.(iii) Limited Liability to InvestorsOne advantage of a corporate business organization is the limitation of aninvestor’s liability to the amount of the investment, which flows from the legal theorythat a corporate entity is separate and distinct from its stockholders. x
San JuanStructural and Steel Fabricators, Inc. v. Court of Appeals
, 296 SCRA 631, 645 (1998).(iv) Free Transferability of Units of Ownership for Investors
(b) Disadvantages:
(i) Abuse of corporate management(ii) Abuse of limited liability feature(iii) Cost of maintenance(iv) Double taxationDividends received by individuals from domestic corporations are subject to final10% tax (Sec. 24(B)(2), NIRC of 1997) for income earned on or after 1 January 1998.Inter-corporate dividends between domestic corporations, however, are not subject toany income tax (Sec. 27(D)(4), NIRC of 1997).
2
 
In addition, there has been a re-imposition of the “improperly accumulatedearnings tax,” under Section 29 of the NIRC of 1997 for corporations at the rate of 10% annually.
7. Compared With Other Media of Business Endeavors
- Distribution of Risk, Profit and Control
(a) Sole Proprietorships(b) Business Trusts (Article 1442, Civil Code)(c) Partnerships and Other Associations (Arts. 1768 and 1775, Civil Code)- Can a defective attempt o form a corporation result at least in the formation of apartnership?
Pioneer Insurance v. Court of Appeals,
175 SCRA 668 (1989).(d) Joint Ventures
 Joint venture
is defined as an association of persons or companies jointly undertakingsome commercial enterprise; generally all contribute assets and share risks. It requires acommunity of interest in the performance of the subject matter, a right to direct and governthe policy in connection therewith, and duty, which may be altered by agreement to shareboth in profit and losses. the acts of working together in a joint project. x
Kilosbayan, Inc. v.Guingona, Jr.
, 232 SCRA 110, 143 (1994), citing B
LACK 
S
L
AW
D
ICTIONARY
, Sixth ed., 839.(e) Cooperatives (Art. 3, R.A. No. 6938)(f)
Sociedades Anónimas
A
sociedad anónima
was considered a commercial partnership, a sort of a corporation,“where upon the execution of the public instrument in which its articles of agreement appear,and the contribution of funds and personal property, becomes a juridical person—an artificialbeing, invisible, intangible, and existing only in contemplation of law—with power to hold,buy, and sell property, and to sue and be sued—a corporation—not a general copartnershipnor a limited copartnership . . . The inscribing of its articles of agreement in the commercialregister was not necessary to make it a juridical person—a corporation. Such inscription onlyoperated to show that it partook of the
form
of a commercial corporation.” x
Mead v.McCullough
, 21 Phil. 95,106 (1911). The
sociedades anónimas
were introduced in Philippine jurisdiction on 1 December1888 with the extension to Philippine territorial application of Articles 151 to 159 of theSpanish Code of Commerce. Those articles contained the features of limited liability andcentralized management granted to a juridical entity. But they were more similar to theEnglish joint stock companies than the modern commercial corporations. x
Benguet Consolidated Mining Co. v. Pineda
, 98 Phil. 711 (1956)Our Corporation Law recognizes the difference between
sociedades anónimas
andcorporations and will not apply legal provisions pertaining to the latter to the former
 xPhil.Product Co. v. Primateria Societe Anonyme
, 15 SCRA 301 (1965).(g)
Cuentas En Participacion
A
cuentas en participacion
as a sort of an accidental partnership constituted in such amanner that its existence was only known to those who had an interest in the same, therebeing no mutual agreement between the partners, and without a corporate name indicatingto the public in some way that there were other people besides the one who ostensiblymanaged and conducted the business, governed under article 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnershipof 
cuentas en participacion
is conducted, shall have only a right of action against suchperson and not against the other persons interested, and the latter, on the other hand, shallhave no right of action against third person who contracted with the manager unless suchmanager formally transfers his right to them.
 xBourns v. Carman
,
 
7 Phil. 117 (1906).
III. NATURE AND ATTRIBUTES OF A CORPORATION1. Nature of Power to Create a Corporation
(Sec. 16, Article XII, 1987 Constitution)
2. Corporation as a Person
:
(a) Entitled to due process
 The due process clause is universal in its application to all persons without regard toany differences of race, color, or nationality. Private corporations, likewise, are "persons"within the scope of the guaranty insofar as their property is concerned." x
Smith Bell & Co. v.Natividad
, 40 Phil. 136, 144 (1920).
(b) Equal protection clause
(x
Smith Bell & Co. v. Natividad
, 40 Phil. 136 [1920]).
(c) Unreasonable Searches and Seizure
3

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