Section 3. Classes of corporations.

- Corporations formed or organized under this Code

may be stock or non-stock corporations. Corporations 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 are stock corporations.
All other corporations are non-stock corporations. (3a)
Section 4. Corporations created by special laws or charters. - Corporations created by
special laws or charters shall be governed primarily by the provisions of the special law
or charter creating them or applicable to them, supplemented by the provisions of this
Code, insofar as they are applicable. (n)
CHAPTER 3: CLASSIFICATION OF CORPORATION
A. CLASSES OF CORPORATIONS UNDER THE CORPORATION CODE
.
REQUISITES TO BE CLASSIFIED STOCK CORPORATIONS: 1. They have a capital stock
dividend into shares; and 2. That they are authorized to distribute dividends or allotments as
surplus profits to its stockholders on the basis of the shares held by each of them.
SIGNIFICANT DISTINCTION: Although a non-stock corporation exists for purposes other than
for profit, it does not follow that they cannot make profits as an incident to their operations. But a
significant distinction is that profits obtained by a non-stock corporation cannot be distributed as
dividends but are used merely for the furtherance of their purpose or purposes.
COLLECTOR OF INTERNAL REVENUE VS. CLUB FILIPINO, INC. DE CEBU (5 SCRA 312; May
31, 1968) – Herein respondent Club operates a clubhouse, a bowling alley, a golf course and a
bar restaurant where it sells wines, liquors, soft-drinks, meals and short orders to its members
and their guests. The bar and restaurant was a necessary incident to the operation of the Club
and its golf course is operated mainly with funds derived from membership fees and dues.
Whatever profits it had were used to defray its overhead expenses and to improve its golf course.
In 1951, as a result of capital surplus arising from the revaluation of its real properties, the Club
declared stock dividends. In 1952, the BIR assessed percentage taxes on the gross receipt of the
Club’s bar and restaurant pursuant to Sec. 182 of the Tax Code: “unless otherwise provided,
every person engaging in a business on which the percentage tax is imposed shall pay in full a
fixed annual tax of P10 for each calendar year or a fraction thereof” and under Sec. 191: “keepers
of restaurant, refreshment parlors and other eating places shall pay a tax of 3% of their gross
receipts”
ISSUE: WON the Club is liable for the assessment?
HELD: No. It has been held that the liability for fixed and percentage taxes does not ipso facto
attach by mere reason of the operation of a bar and restaurant. For the liability to attach, the
operator thereof must be engaged in the business as a bar keeper and restauranteur. Business ,
in the ordinary sense, is restricted to activities or affairs where profit is the purpose or livelihood
is the motive, and the term business when used without qualification, should be construed in its
plain and ordinary meaning; restricted to activities for profit or livelihood.
The fact that the Club derived profits from the operation of its bar and restaurant does not
necessarily convert it into a profit making enterprise. The bar and restaurant are necessary
adjunct of the Club to foster its purpose and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating sports for the healthful recreation
and entertainment of the stockholders and members. That a club makes profit does not make it a
profit-making club.
ISSUE2: Is the Club a stock corporation?
HELD: No. The fact that the capital 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 its articles and by-laws.
Moreover, for a stock corporation to exists, two requisites must be complied with: (1) a capital
stock divided into shares; and (2) an authority to distribute to the holders of such shares, dividends
or allotments of surplus profits on the basis of the shares held. In the case at bar, nowhere it its
AOI or by-laws could be found an authority for the distribution of its dividends or surplus profits.
Strictly speaking, it cannot therefore, be considered as stock corporation, within the contemplation
of the Corporation Code.
B. CORPORATIONS CREATED BY SPECIAL LAW OR CHARTER
Sec. 4.
C o r p o r a t i o n s c r e a t e d b y s p e c i a l l a w s o r c h a r t e r s . - Corporations created
by special laws or charters shall be governed primarily by the provisions of the special law or
charter creating them or applicable to them, supplemented by the provisions of this Code, insofar
as they are applicable.
Among these corporations created by special law are the Philippine National Oil Company, the
National Development Company, the Philippine Export and Foreign Loan Guarantee Corporation
and the GSIS. All these are government owned or controlled, operating under a special law or
charter such that registration with the SEC is not required for them to acquire legal and juridical
personality. They owe their own existence as such not by virtue of their compliance with the
requirements of registration under the Corporation Code but by virtue of the law specially creating
them.
They are primarily governed by the special law creating them. But unless otherwise provided by
such law, they are not immune from suits, it is thus settled that when the government engages in
a particular business through the instrumentality of a corporation, it divests itself pro hoc vice of
its sovereign character so as to subject itself to the rules governing private corporations (PNB vs.
Pabolar 82 SCRA 595)
Officers and employees of GOCCs created by special laws are governed by the law of their
creation, usually the Civil Service Law. Their subsidiaries, organized under the provisions of the
Corporation Code are governed by the Labor Code. The test in determining whether they are
governed by the Civil Service Law is the manner of their creation.
PNOC-EDC VS. NLRC
(201 SCRA 487; Sept. 11, 1991) – Danilo Mercado, an employee of herein petitioner was
dismissed on the ground of dishonesty and violation of company rules and regulations. He filed
an illegal dismissal complaint before herein respondent NLRC who ruled on his favour, despite
the motion to dismiss of petitioner that the Civil Service Commission has jurisdiction over the
case.
ISSUE: WON NLRC has jurisdiction over the case?
HELD: Yes. Employees of GOCCs, whether created by special law or formed as subsidiaries
under the Corporation Law are governed by the Civil Service Law and not the Labor Code, under
the 1973 Constitution has been supplanted by the present Constitution.
Thus, under the present state of the law, the test in determining whether a GOCC is subject to
the Civil Service Law is the manner of its creation, such that government corporations created by
special charter are subject to its provisions while those incorporated under the General
Corporation Law are not within its coverage.
PNOC has its special charter, but its subsidiary, PNOC-EDC, having been incorporated under the
General Corporation Law was held to be a GOCC whose employees are subject to the provisions
of the Labor Code.
C. OTHER CLASSES OF CORPORATIONS
1. PUBLIC AND PRIVATE CORPORATIONS
PUBLIC CORPORATION: those formed or organized for the government of a portion of the State
or any of its political subdivisions and which have for their purpose the general good and welfare.
It is to be observed, however, that the mere fact that the undertaking in which a corporation is
engaged in is one which the State itself might enter into as part of its public work does not make
it a public one. Nor is the fact that the State has granted property or special privileges to a
corporation render it public. Likewise, the fact that some or all of the stocks in the corporation are
held by the government does not make it a public corporation.
The TRUE TEST to determine the nature of a corporation is found in the relation of the body to
the State. Strictly speaking, a public corporation is one that is created, formed or organized for
political or governmental purposes with political powers to be exercised for purposes connected
with the public good in the administration of the civil government.
The GOCCs are regarded as private corporations despite common misconceptions.
NATIONAL COAL COMPANY VS. COLLECTOR OF INTERNAL REVENUE ( 1 4 6 P hil. 5 8 3 )
– Herein plaintiff brought an action for the purpose of recovering a sum of money allegedly paid
by it under protest to the herein defendant, a specific tax on some tons of coal. It claimed
exemption from taxes under Sec. 1469 of the Administrative Code which provides that “on all coal
and coke shall be collected per metric ton, fifty centavos”. Of the 30,000 shares issued by the
corporation, the Philippine government is the owner of 29,809 or substantially all of the shares of
the company.
ISSUE: WON the plaintiff corporation is a public corporation?
HELD: No. The plaintiff is a private corporation. The mere fact that the government happens to
be a majority stockholder does not make it a public corporation. As a private corporation, it has
no greater rights, powers and privileges than any other corporation which might be organized for
the same purpose under the Corporation Law, and certainly, it was not the intention of the
Legislature to give it a preference or right or privilege over other legitimate private corporation in
the mining of coal.
PRIVATE CORPORATIONS: those formed for some private purpose, benefit, aim or end. They
are created for the immediate benefit and advantage of the individuals or members composing it
and their franchise may be considered as privileges conferred by the State to be exercised and
enjoyed by them in the form of the corporation.
2. ECCLESIASTICAL AND LAY CORPORATIONS
ECCLESIASTICAL OR RELIGIOUS CORPORATIONS: are composed exclusively of
ecclesiastics organized for spiritual purposes or for administering properties held for religious
ones. They are organized to secure public worship or perpetuating the right of a particular religion.
LAY CORPORATIONS: are those organized for purposes other than religion. They may further
be classified as: a. ELEEMOSYNARY: created for charitable and benevolent purposes such as
those organized for the purpose of maintaining hospitals and houses for the sick, aged or poor.
b. CIVIL: organized not for the purpose of public charity but for the benefit, pecuniary or otherwise,
of its members.
3. AGGREGATE AND SOLE CORPORATIONS
AGGREGATE CORPORATIONS: are those composed of a number of individuals vested with
corporate powers.
CORPORATION SOLE: those consist of one person or individual only and who are made as
bodies corporate and politic in order to give them some legal capacity and advantage which, as
natural persons, they cannot have. Under the Code, a corporation sole may be formed by the
chief archbishop, bishop, priest, minister, rabbi, or other presiding elder or religious
denominations, sects or churches.
4. CLOSE AND OPEN CORPORATION
CLOSE CORPORATIONS: are those whose shares of stock are held by a limited number of
persons like the family or other closely-knit group. There are no public investors and the
shareholders are active in the conduct of the corporate affairs; recognized under Sec. 96 of the
Corporation Code.
OPEN CORPORATIONS: are those formed to openly accept outsiders as stockholders or
investors. They are authorized and empowered to list in the stock exchange and to offer their
shares to the public such that stock ownership can widely be dispersed.
5. DOMESTIC AND FOREIGN CORPORATIONS
DOMESTIC CORPORATIONS: are those organized or created under or by virtue of the Philippine
laws, either by legislative act or under the provisions of the General Corporation Law.
FOREIGN CORPORATIONS: are those formed, organized or existing under any laws other than
those of the Philippines and whose laws allow Filipino citizens and corporations to do business in
its own country or state (Sec. 123, Corporation Code).
The second part of the definition is, however, somehow misplaced since any corporation for that
matter, which is not registered under Philippine laws is a foreign corporation. Such second part
was inserted only for the purpose of qualifying a foreign corporation to secure a license and to do
business in the Philippines.
6. PARENT OR HOLDING COMPANIES AND SUBSIDIARIES AND AFFILIATES
PARENT OR HOLDING COMPANY: a corporation who controls another corporation, or several
other corporations known as its subsidiaries. Holding companies have been defined as
corporations that confine their activities to owning stock in, and supervising management of other
companies. A holding company usually owns a controlling interest (more than 50% of the voting
stock) in the companies whose stocks it holds. As may be differentiated from investment
companies which are active in the sale or purchase of shares of stock or securities, parent or
holding companies have a passive portfolio and hold the securities merely for purposes of control
and management.
SUBSIDIARY CORPORATIONS: those which another corporation owns at least a majority of the
shares, and thus have control.
A subsidiary has an independent and separate juridical personality, distinct from that of its parent
company, hence any claim or suit against the latter does not bind the former or vice versa.
AFFILIATES: are those corporations which are subject to common control and operated as part
of a system. They are sometimes called “sister companies” since the stockholdings of a
corporation is not substantial enough to control the former. Example: 15% of ABCD Company is
held by A Corp, 18% by B Corp, and another 15% by C Corp. – A, B and C are affiliates.
7. QUASI-PUBLIC CORPORATIONS
These are private corporations which have accepted from the state the grant of a franchise or
contract involving the performance of public duties. The term is sometimes applied to
corporations which are not strictly public in the sense of being organized for governmental
purposes, but whose operations contribute to the convenience or welfare of the general public,
such as telegraph and telephone companies, water and electric companies. More appropriately,
they are known as public service corporations.
8. DE JURE, DE FACTO AND CORPORATION BY ESTOPPEL
DE JURE CORPORATIONS: are juridical entities created or organized in strict or substantial
compliance with statutory requirements of incorporation and whose rights to exist as such cannot
be successfully attacked even by
the State in a quo warranto proceeding. They are, in effect, incorporated by strict adherence to
the provisions of the law of their creation.
DE FACTO CORPORATIONS: are those which exist by the virtue of an irregularity or defect in
the organization or constitution or from some omission to comply with the conditions precedent
by which corporations de jure are created, but there was colorable compliance with the
requirements of the law under which they might be lawfully incorporated for the purposes and
powers assumed, and user of the rights claimed to be conferred by law. Its existence can only be
attacked by a direct action of quo warranto proceedings.
CORPORATION BY ESTOPPEL: those which are so defectively formed as not to be either de
jure or de facto corporations but which are considered as corporations in relation only to those
who cannot deny their corporate existence due to their agreement, admission or conduct.
LADIA NOTES:
CLASSIFICATION OF CORPORATIONS
 Section 3 Stock and non-stock

- Importance of knowing, determining what provisions of the code or the law may be
applicable

Section 3. Classes of corporations. - Corporations formed or organized under this

Code may be stock or non-stock corporations. Corporations 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 are stock corporations.
All other corporations are non-stock corporations. (3a)

 Non-stock- title 10

 Stock- section 51

 Stockholders must generally cast their votes in the meeting; section 4 governed primarily
by the law creating them

Section 4. Corporations created by special laws or charters. - Corporations

created by special laws or charters shall be governed primarily by the provisions of the
special law or charter creating them or applicable to them, supplemented by the provisions
of this Code, insofar as they are applicable. (n)

 Section 3

- The two requisites must always concur

1. That they have a capital stock divided into shares; and,
2. That they are authorized to distribute dividends or allotments as surplus profits to its
stockholders on the basis of the shares held by each of them.

 Section 4

- Created by a special law, they have their own character

- They are not immune from suit unless provided by the law of their creation
- Primarily governed by the law creating them
- Their subsidiaries are entirely different or independent from that of the other

 Close corporation

- There is no exemption it is absolute

 Public corporation
 - Political or governmental purposes
- Those formed or organized for the government or a portion of the State or any of its
political subdivision and which have for their purpose the general good and welfare

 Private Corporation

- Immediate benefit, aim or advantage of private individuals

- Those formed for some private purpose, benefit, aim or end
- Distinction: public for governmental purpose

 Corporation Sole

- Exemption to the rule because it is composed only of one person

- An incorporator may also be a juridical person

 Close corporation

- There is exclusivity of shares of stock

- Section 96-105
- Restrictions to transfer shares
- Only those indicated can own shares
- Article must provide that there will be no public offering

 Open corporation

- openly admit investors

- example: stock exchange

 Domestic/ Foreign

 Test

- Incorporation test
- If incorporated under the laws of the Philippines it is a domestic corporation

ME Gray vs. CA

- Parent or Holding/ subsidiaries and affiliates

- Affiliates- no majority vote
SMC 12%

HERSHEY CBP CBPl 12%

12%
Affiliate is subject to common control by the 12 % owners
 De jure

- cannot be attached by the state even in a quo warranto proceeding

  De facto

- exists by virtue of colorable compliance

- Attached directly only by the state in a quo warranto proceeding

 Corporation by estoppel

So defectively formed, but still considered corporation, but only in relation to those who cannot
deny their existence section 20 and 21