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CORPORATION LAW THEORIES OF FORMATION OF CORPORATION

Sociedad Anominas 1. THEORY OF CONCESSION


– a commercial partnership, a sort of corporation, - It is a principle in the creation of corporations, under
“where upon execution of public instrument in which its which a corporation is an artificial creature without any
articles of agreement appear, and the contribution of existence until it has received the imprimatur (issuance
funds and personal property, becomes a juridical person, of certificate of incorporation) of the State acting
an artificial being, invisible, intangible and existing only according to law, through SEC. The life of the Corporation
in contemplation of law – with power to hold, buy and is a concession made by the State.
sell property, to sue or be sued – a corporation not a
general partnership nor limited partnership. - fiction cannot be created unless there is an enterprise
- inscribing of articles of agreement not necessary to or group of individuals upon whom it may be conferred
make it a juridical person. Hence, it shows it and in spite of the underlying contract among person
partook of the form of Commercial Corporation. wanting to form the corporation; the grant is only by
virtue of a primary franchise given by the State and it is
- before enactment of the Philippine Corporation Law within the power of the state to grant or deny such grant.
those existing at the time of the passage has the option
to either continue business doing as such *Tayag vs Benguet: is a creature without any existence
entity(Anominas) or transform and be organized under until it has received the imprimatur of the State
and by virtue of the provisions of the Corporation Law. If according to the Law.”
as such opted the later the entity shall transfer all
corporate interest to the new corporation. Hence it *Ang Pue & Co. vs Sec. of Commerce: to organized a
should be made within reasonable time. Those did not corporation that could claim a juridical personality of its
opt to reform shall be governed by laws that were in own and transact business is a not a matter of absolute
force prior of the passage of Corporation Law. right but a privilege which may be enjoyed under such
term as the State may deem necessary to impose.”
*Phil Products vs Primaterial Society since such
corporation was deemed an anonimas SC held that they *Torres vs CA: all corporations, big or small, must abide
foreign corporation need not to obtain license to do by the provisions of the Corporation Code.”
business in PH.
2. THEORY OF ENTERPRISE ENTITY
The Corporation Law 04/01/1906 - The corporation is not merely an artificial being, but
- no corporation shall be authorized to conduct the more of an aggregation of persons doing business, or an
business of buying and selling public lands, and to hold underlying business unit.
or own real estate EXCEPT such incidental in carrying out - corporation fiction cannot be created unless there is an
the business which it was created. enterprise or group upon whom it would be conferred.
- no agricultural corporation shall be interested to other Once granted and acquires juridical personality,
agricultural corporation becomes a creature of State, but actually becomes a
- no non-agricultural corporation shall own in excess 15% creature of its own volition and maintains either singly or
of the outstanding capital stock of any agricultural collectively among its constituents their inherent right
corporation. under the law.
- a mining corporation may acquire or hold not more that - when entity comes into being, it has certain rights
40% of the voting capital of another mining corporation almost independent of the whims of its creator.
or more than 30% voting capital of each of not more than -a corporation is after all an association of individuals
three mining corporations. under an assumed name and with a distinct legal entity.

The Corporation Code of the Philippines BP 68 05/01/80 *Bache & Co vs Ruiz: corporation is entitled to an
- was enacted to establish a new concept of business immunity against unreasonable search and seizure.”
corporation so that they are not merely entities for
private gain but effective partners of the National *PH Stock Exchange vs CA: corporation is but an
Government in spreading capitalism. association of individuals allowed to transact under an
assumed corporate name and with a distinct
“Sec. 2. Corporation defined. - A corporation is an personality.”
artificial being created by operation of law, having the
right of succession and the powers, attributes and - there can be no corporate existence without persons
properties expressly authorized by law or incident to its compose of it; no association without associates.
existence.”
- no corporation can be organized unless formed by any
- it is separate and distinct from the members or number of natural persons not less than 5 but not more
stockholders that compose it. than 15, all of legal age and majority whom are residents
of the PH. Applies in De Facto Corporation and
Corporation by Estoppel.
TRI LEVEL RELATIONSHIP ATTRIBUTES OF CORPORATION

There are 3 levels of Corporate Relationships 1. Artificial Being


- creation of corporation the same attributes of an
1. Corporation as a juridical entity or fiction which individual having full capacity to enter int o contractual
relations.
views the relationship between the State and the
corporation
*Vasquez vs Borja: a corporation is an artificial being
invested by law with a personality of its own, separate
2. corporate settings provide contractual and distinct from its stockholders and from that of its
relationship on: officers who manage and run its affairs.”

- between corporations and its agents or *Int’l Express Travel & Tour Services vs CA: it adopted
representative to act such as directors and its the theory of concession that the basic postulate that
officers governed by Law on Agency before a corporation may acquire juridical personality,
- corporation and its shareholders or members the State must give its consent either in a form of a
- between and among members in common venture special law or a general binding act.”
-between corporation and third parties which is
2. Creature of the Law
governed by Contractual Law; Labor law on tis
- existence of corporation dependent on the consent or
employees and officers grant of State.

3. corporation becomes in its operation a business - corporation cannot come into being my mere consent
economic unit, a business enterprise (going of the parties; there must be a law granting it, and once
concern) granted, it forms the primary franchise of the
corporation.
CORPORATION AS A CREATURE OF THE LAW
- there must be underlying contract between and among
1. Constitutional Provision individuals forming it which grant of State may be
-Congress cannot, except by general law, provide for the conferred.
formation, organization or regulation of private
corporation. Same allows GOCC’s since created by 3. Right of Succession
special charters in the interest of common good. -corporation has the capacity of continuous existence
- private corporation created by special law is nullity and despite the death or replacement of its shareholders or
such special law is void for being a violation of the members for it has personality separate and distinct
Constitution. from those who compose it.

2. Civil Code Provisions 4. Creature of Limited Powers, Attributes and Properties


-Article 44 of the CC: corporations, partnerships and (Doctrine of Limited Powers)
associations for private interest to which it was granted
is a juridical personality separate and distinct from that - every corporation to be a creature of limited powers.
of each shareholder, partner or member.
*Monfort Hermanos Agricultural vs Monfort III: a
-Article 45 of the CC: public corporations are governed by corporation has no power except those expressly
laws creating or organizing them while private conferred on it by the Corporation Code and that those
corporations are regulated by laws of general application are implied by or are incidental to its existence. Powers
on the subject. are exercised by the BOD and its duly authorized officers
and agents. Power to sue ar be sued is lodged with the
3. Franchises of Corporation BOD that exercises corporate powers. Signing of
- a private corporation registered under SEC is issued a document can be performed only by natural persons
Certificate of Incorporation attaching therewith the duly authorized.
approved articles on incorporation and by-laws, which
thereby constitutes its charter. ADVANTEGEOUS FEATURES OF CORPO MEDIUM

-primary franchise = conferment of juridical personality 1. Strong Juridical Personality


under its corporate name; secondary franchise = engage
in business enterprise. -has the capacity to act or contract as a distinct person in
its own name, and has continuing existence.

- has a separate and distinct personality from the


members composing it unaffected by death, incapacity,
withdrawal or insolvency of any of its stockholders or
members.
-only specially designated RTC branches in each regional CORPORATION VS OTHER BUSINESS MEDIA
district (Special Commercial Courts) whose presiding
judges are well-versed in corporate and commercial 1. Sole Proprietorship
development are granted exclusive jurisdiction to hear
and decide corporate cases under Sec 5 of PD 902-A, -separate juridical personality, personally liable to all
involving corporate fraudulent schemes, intra-corporate debts up to extend of all his personal holdings, unlimited
dispute, election and termination of directors, trustees liability, both prerogatives and management in his
and officers and corporate suspension of payment and control.
rehabilitation proceedings.
2. Joint Accounts (accidental partnership)
2. Centralized Management
-right of action against such person not against the other
- centralized in the BOD to whom granted corporate person, latter does not have right of action against the
powers. Shareholders are not agents, nor can’t they bind third party who contracted the former.
the corporation. Stockholders are bound by
management decisions and transactions of the BOD 3. Business Trust
whether they like it or not.
-created under the terms of a Deed of Trust, no separate
3. Limited Liability to Investors juridical entity. BOD as trustee with full powers to
manage corporate enterprise as the beneficial title is
-limitation of investors liability to the amount of vested to the stockholders
investment.
4. Partnership
- statutorily granted privilege of a corporate veil.
- no right of succession, in case of death, incapacity,
- versus partnership: assets of partnership after being all withdrawal or insolvency such constitutes dissolution of
exhausted, creditors can still go after the individual partnership, liable personally for partnerships debts not
partners properties; in corporation it assured limited in so far of their investment but also as to their other
liability up to the extent of their shares. properties. Every partner is an agent of the partnership
and can bind it; person who bought shares on
*Halley vs Printwell: recognizes the right of the creditor partnership does not assume position but has only the
of the corporation to sue all stockholders to reach their right to demand accounting or distribution of profits.
unpaid subscription which at that time appeared to be
the only visible assets of the company.” (Piercing the DOES DEFECTIVE CORPORATION PROCESS RESULT TO
Veil Doctrine) PARTNERSHIP?

4. Free Transferability of Units of Investment NO. Although both relationship are fundamentally
- GR: shares of stocks can be transferred without the contractual, if the parties intended to create an
consent of the stockholders. association in the form of corporation then a partnership
cannot be created since such is not within their intent.
5. Advantages Over Unregistered Association Secondly, by the feature of limited liability, centralized
- corporation enjoys perpetual succession under its management and transferability are strong factors of a
corporate name and in artificial form; it has capacity to corporate setting for parties intention to be bound in the
take and grant property and contract obligations; it can corporate relationship and cannot be presumed that if
sue or be used under its corporate name as a juridical these features are not met the parties alternative wish to
person; capacity to receive and enjoy common grants of cover a partnership instead.
privilege and immunities; stockholders and members
have no personal liability beyond the value of their 5. Joint Ventures
shared. -same as partnership

-article 1775 of the NCC: association and societies whose 6. Cooperatives


articles are kept among its members and where any - every member has equal voting rights on a one-
member may contract in his own name with third member-one-vote
persons shall have no juridical personality and shall be
governed by provisions relating to co-ownership.

DISADVANTEGEOUS FEATURE OF CORPO MEDIUM

1. Complicated and Costly Formation and Maintenance


2. Lack of Personal Element and Abuse of Corpo Mngt
3. Limited Liability Hits Innocent Victims
4. Double Taxation
ENTITLEMENT OF CONSTITUTIONAL RIGHTS DOCTRINE OF CORPORATE SOCIAL RESPONSIBILITY

1. Due Process and Equal Protection * Professional Services vs CA: corporation which
operate enterprise vested with public interest, such as
2. Unreasonable Search and Seizures that of operating a hospital, assumes certain legal
- properties of members cannot be taken without relationship with members of the public whom the
compensation. invite to use the facilities and thereby becomes
- officers of the corporation from which document, responsible for the negligent acts of even contractor,
papers and things were seized, regardless of the amount such as doctors, who treat them in their facilities.”
and interest and whatever offices they hold have no
cause of action since the corporation has personality
separate and distinct from those other officers. CRIMINAL LIABILITY OF CORPORATION

3. No Right Against Self Incrimination - reason why corporation cannot be proceeded as


defendants or accused in criminal act is that no existing
*Bache vs Co: Court denied such right since the privilege law to support such process;
is a personal one, applying only to natural person.” - Theory of corporate criminal: the public policy that
ultimately a crime committed in the name of a
- a corporation may be compelled to submit to the corporation is actually committed by the individuals who
visitorial powers of the State even if the result in act for and in behalf of such corporation.
disclosure to criminal acts of the corporation.
-difficulty or impossibility to impose penal sanction of
* Bataan Shipyard vs PCGG: an individual may refuse to imprisonment.
answer incriminating question unless protected by
immunity statute, it does not follow that a corporation, - crime mala in se cannot be imputed to corporation,
vested with privilege and franchises may refuse to show being an artificial being without a mind, since criminal
its hand when charged with an abuse if such privelge intent is one of the essential requisite of a crime is
missing.
*Wilson v U.S: corporation is presumed to be
incorporated for the benefit of the public. Legislature *People vs Tan Boon Kook: a corporation can act only
have the reserve right to investigate its contracts and though its agent and officers and where business itself
find out if they exceeded the powers conferred to it. “ involves a violation of law, the correct rule is that all
who participated is liable.”
LIABILITY FOR TORTS
- not the corporation but only those who participated in
- liabilities of corporation for torts committed by its agent the violative acts can be held liable.
must generally follow the rules in Law on Agency
- corporation must be held liable to all contracts and - exc. Unfair competition where BOD are held liable for
default entered to its by its agent within the scope of its the corporation act.
authority or even those outside by ratification of the
corporation through its BOD. Acting officer is solidary *People vs Chowdury: criminal liability is ascribed to the
liable for the damages resulting from his negligence as a corporate officers and not he corporate principals.”
joint tort-feasor.
STRANGE PRONOUNCEMENT IN SIA CASE
- negligence of servant = negligence of corporation
- only when a tort act arises from an express direction or - SC provided conditionality on when a corporate officer
pursuant to the exercise of powers or one that arises can be held criminally liable for acts in behalf of the
incidental to the business or transaction would the corporation.
damages resulting therefrom be ascribable to the
corporation. - when an officer does an act for and in behalf of the
- corporate assets cannot escape enforcement of claims corporation, his intent would not be ascribed to him in
for damages in torts. his personal capacity, but he should be ascribed to the
- tort liability of corporation is without prejudice to a corporation as it pertains to the transaction.
derivative suit being filed by the stockholders to recover
from the responsible board member and officer the *Sia vs People; corporate officer can only be held
damages suffered by the corporation. personally liable for the crime committed by or in behalf
of a corporation only in cases when the corporation was
directly required by the law to do an act in a given
manner and it makes the person who fails to perform
the act in the prescribed manner expressly liable
criminally, in other cases cannot be held liable since
there is refusal to disregard the separate entity of the
corporation.
NON ENTITLEMENT OF MORAL DAMAGES 2. OWNERSHIP OF PRIVATE LAND
- the purpose of 60% requirement is to ensure that
- corporation as an artificial being cannot experience corporations or associations allowed to acquire
physical sufferings, mental anguish, fright, serious agricultural land or to exploit natural resources shall be
anxiety, wounded feelings, moral shock or social controlled by Filipinos. That in the absence of capital
humiliation there would be no basis to grant recovery for stock membership should be composed of Filipino
moral damages citizens.

- old law where moral damages includes besmirched CORPORATION SOLE usually associated with the clergy
reputation which a corporation may suffer. designed to facilitate the exercise of the functions if
ownership of the church which was regarded as property
- Exception: owner. Even when nationality is ascribed in the
corporation sole, the nationality of the constituents of
*Filipinas Broadcasting Network vs Ago Medical and the diocese not the nationality of the incumbent parish
Educational Center: in cases of libel, slander or any must be taken into consideration.
other form of defamation and does not qualify whether
plaintiff is a natural or juridical person. Therefore a 3. PUBLIC UTILITIES
juridical person such as a corporation may validly - only domestic corporation ( which means organized
complain for libel or any other form of defamation and under the laws of the Philippines) with at least 60%
claim for moral damages.” capital stock is owned by Filipino

*Meralco v T.E.A.M Electronic Corp.: when the -unlike to exploitation of natural resources, thus
corporation has a reputation that is debased resulting franchise and operation of public utilities includes the
to it s humiliation in the business realm then awarded place of incorporation test.
moral damages.”
*People vs Quasha: what the Constitution prohibits is
- while court may allow grant of moral damages it is not the granting of a franchise or other forms of
automatically granted. There must be proof of the authorization for the operation of public utility to a
existence of factual basis of the damage corporation already in existence but without the
requisite proportion of Filipino capital.”
NATIONALITY OF CORPORATION
4. MASS MEDIA
PLACE OF INCORPORATION TEST
- a corporation is a national of the country under the laws - shall be limited to citizens of the PH, or to corporations,
of which it has been organized and registered. cooperatives or association, wholly owned and managed
by such citizens.
FOREIGN CORPORATION - does not include commercial telecommunications
- one formed and organized or existing under any laws which are considered as public utilities
other than those of the PH and whose laws allow Filipino
citizens and corporations to do business in its own 5. ADVERTISING INDUSTRY
country or state.
- only Filipino citizens or corporation or association at
CONTROL TEST least 70% of the capital of which is owned by such citizen
- nationality of the corporation is determined to the shall be allowed in the advertising company.
nationality of the majority of the stockholders on whom
equity control is vested. 6. WAR TIME TEST

*Filipinas Compania de Seguros vs Christern: in times of


EXC: Foreign Investment Act of 1991 that a corporation war the nationality of a private corporation is
organized abroad and registered as doing business in the determined by the citizenship of its controlling
PH under the Corporation Code 100% of the capital stock stockholders. Court considered it as enemy based since
outstanding and entitled to the vote is wholly Filipino. majority stockholders are German subjects

1. EXPLOITATION OF NATURAL RESOURCES 7. INVESTMENT TEST


- may by domestic corporation or by foreign corporation
provided that at least 60% of the capital stock is owned a. GRANDFATHER RULES as a Subtest of the Control Test
by Filipinos. To ensure that exploitation is deemed to be
of public and national interest. - it is applied by looking at the proportionate holdings of
those underlying shareholders of the target corporation
and determining whether the nationality of the majority
shareholders would comply with the minimum Filipino
equity mandated under the Constitution or by
nationalization laws. It determines actual Filipino
ownership and control in the corporation.
b. THE DOJ-SEC RULE corporations organized under corporation code and not
within the jurisdiction of SEC.”
- DOJ-SEC Rule applies only when the 60-40 Filipino-
foreign equity ownership is in doubt - GOCC’s is a corporation organized as a stock or non-
stock corporation vested with functions relating to public
- the rule applies only for purposes of resolving needs whether governmental or proprietary in nature,
nationality of the investment in the target company. and owned by the Government directly through its
instrumentalities either wholly or where applicable as in
- Shares belonging to corporation or partnership at least the case of stock corporation to the extent of at least
60% of the capital stock which is owned by Filipino is 51% of its capital stock.
considered as of Philippine Nationality, but if less than
60% only those shares corresponding to such percentage As to Place of Incorporation
is as of Philippine Nationality.
1. Domestic Corporations
And so may more test at hindi na yun lalabas ksi ito ln -one incorporated under laws of the PH
gang importante. Puro opinion na ung iba at almost - Sec 123: a foreign corporation is one formed, organized
reiterated to the 2 test. Haynako buhay or existing under any laws other than those of the PH and
whose laws allow Filipino citizen and corporations to do
business in its own country or state. It shall have the right
CORPORATIONS DISQUALIFIED FROM OWNING to do business after obtaining a license to transact
ALIENABLE LANDS OF THE PUBLIC DOMAIN business in accordance with thus Code and a certificate
of authority from the appropriate agency.
- alienable lands shall be limited to agricultural lands.
Private corporations or associations may not hold such 2. Foreign Corporations
alienable land except by lease for a period not exceeding - may be licensed by the SEC to do business in the PH only
25 years renewable for not more than 25 years and not under principle of reciprocity, after securing a certificate
to exceed 1000 hectares. of authority from the BOI under E.O 226 and after
complying with the conditions for issuance of the license
- citizens of the Philippines may not lease not more than application form.
500 hectares or acquire not more than 12 hectares by
purchase or homestead or grant. As to Legal Status

1. De Jure Corporations
CLASSIFICATION OF CORPORATION - if there is a full or substantial compliance with the
requirements of an existing laws permitting organization
In relation to State of such corporation as by proper articles of incorporation
duly executed and filed.
1. Public and Private - its due incorporation cannot be attacked even in a quo
warranto proceeding by the State. If such it must show
- public corporation are those formed and organized for that it is a de jure corporation
the government of a portion of the State while private
corporations are formed for private purpose and benefit, 2. De Facto Corporations
aim or end. - if there is bonafide attempt to incorporate. Where
there is a defect on the corporation.
- public corporation is created by its charter whereas
private corporation is created under a general 3. Corporation by Estoppel
incorporation law (Corporation Code), however, many - group of person may assume to do business as a
private corporation are granted charters by the corporation without having gone far enough to achieve a
legislature because they constitute GOCC but still not de facto corporation.
considered public corporation.
4. Corporation by Prescription
- 3 types of Private Corporation; those organized under - Roman Catholic Church with acknowledged juridical
corporation code for private ends; as GOCC’s to achieve personality inasmuch as it is an institution which
certain purposes of the Government; GOCC’s organized antedated long before (1000 years).
with their own charters.
As to Existence of Shares of Stocks
2. Quasi-Public Corporation
- usually school district, water district 1. Stock Corporations
- corporations which have a capital stock divided into
*Marilao Water Consumers Association vs IAC: water shares and are authorized to distribute to the holders’
districts organized under PD 198 although considered as dividends. The power to declare dividends is when even
quasi-public corporations and authorized to exercise all not authorized to do so but it is a stock corporation they
the powers, rights and privilege to private corporation can distribute dividends to the shareholders.
under the existing laws, are entirely distinct from
2 Requisite for Stock Corporation being not valid. Court ruled the corporate fiction will not
- a capital stock divided into shares be disregarded because the corporate entity was not
- an authority to distribute dividends. used to perpetuate fraud especially Tuason was aware
of the position of Mr. Araneta in the corporation.
2. Non-Stock Corporations
- is one where no part of its income is distributable as - to disregard the corporate personality is made only
dividends to its members, trustees or officers, subject to after the wrongdoings is first clear and convincingly
the provisions of dissolution. established.

CORPORATE JURIDICAL PERSONALITY 2. A Remedy of Last Resort; Cannot be Applied to


Establish a Right or COA
- a corporation is an entity separate and distinct
from its stockholders. - it will not apply even in cases of fraud, if other remedies
are available to the parties.
* Manila Gas Corp. vs CIR: tax exemption do not pertain
*Umali vs CA: court refused to apply the doctrine since
to its corporate.”
the petitioners merely seeking the nullity of the
foreclosure sale which relief may be obtained without
*Stockholders of F. Guanzon and Sons INc vs ROD: the
disregarding the corporate entity.
distribution of the corporate properties to the
stockholders was deemed not in the nature of partition
3. Party Invoking It Must Have a Victim-Standing
of co-ownership but rather a disposition by the
corporation to the stockholders.”
- can be invoked only on behalf of parties who are victims
of fraud, deceit or injustice brought about by the use or
*Magsaysay-Labrador vs CA: stockholders may
as a result of the attributes of the corporate personality.
intervene in a suit against a corporation under remedial
provisions if they have a legal interest in the matter of
4. Applies when Corporate Personality was the Efficient
litigation; but will not entitle them to intervene in a
Cause or Means; Must be shown to be necessary and
litigation of corporate property.
with factual bases
- the corporate fiction must be the very means by which
*Asset Privatization Trust vs CA: even when there is a
to defeat public convenience, justify wrong, protect
wrongful foreclosure on the assets of the corporation,
fraud or defend crime. To warrant resort there must be
the stockholders would have no standing to recover for
a proof that the corporation is being used as a cloak or
themselves moral damages.”
cover for fraud or illegality or to work injustice.
*Cruz vs Dalisay: the fact that one is a president of a
5. Doctrine is essentially a Judicial Prerogative
corporation does not render the property he owns or
possesses the property of the corporation.”
*Cruz vs Dalisay: When the sheriff could not locate
properties of corporation to enforce judgment of debt,
DOCTRINE OF PEIRCING THE VEIL
chose to pierce the veil of corporate fiction and levied
on the properties of the president who was also a
*Milwaukee Refrigerator Transit Co: when the notion of majority stockholder of the corporation. Such judicial
legal entity is used to defeat public convenience, justify remedy is not available to the sheriff since he had no
wrong, protect fraud or defend crime, the law will discretion to apply the said doctrine.
regard the corporation as an association of persons.”
Consequence of the Application of the Doctrine
*San Juan Structural and Steel Fabricators Inc vs CA:
when the fiction is used as a means of perpetrating a 1. Treat the Corporation as a mere association
fraud or an illegal act for the evasion of existing - courts will often look at the corporation as a mere
obligation it will be lifted to allow its consideration collection of individuals undertaking a business,
merely as an aggregation of individuals.” disregarding the separate juridical personality
Nature of Consequence - when 2 business enterprise are owned, disregard the
legal fiction that two corporation are distinct entities and
1. Applies only to prevent a wrong or injustice or to treat them as identical or one and the same.
achieve equitable ends.
2. May Apply to Benefit Those Within and Outside the
- is employed to prevent commission of fraud and cannot Intra-Corporate Relations
be employed to perpetuate a fraud.
3. Application only has Res Adjudicate Effect
* Araneta vs Tuason: Tuason sold lots then corporation - when a corporation’s legal personality had been
filed a suit for delivery of clean title. Tuason said such pierced in any other case, such corporation still
sale was made to the agent of the corporation therefore possessed such separate personality in any other case, or
the corporate fiction should be disregarded, the sale with respect to other issues.
CLASSIFICATION OF THE PIERCING APPLICATION CASES ALTER EGO PIERCING CASES

- when the corporate entity is used to commit fraud or to * Umali vs CA: corporate fiction is available only if it
justify a wrong or to defend a crime (Fraud Piercing sought to hold the officers and stockholders directly
Cases) liable for a corporate debt or obligation.

- when the corporate entity is used as a mere alter ego, * Arnold v Willets: where the stock of a corporation is
business conduit or instrumentality of a person or owned by only one person whereby the corporation
another entity ( Alter Ego Piercing Cases) functions only for the benefit of such individual owner,
the corporation and the individual should be deemed
- when respect for the corporate entity would defeat the same.”
public convenience or would result to injustice ( Equity
Piercing Cases) - unlike fraud cases, no pecuniary claims need to be
involved to allow courts to apply the doctrine.
Fraud Piercing cases has the element of malice, evil
motive or a wrong done while the two other cases, even 3. Tax Avoidance Case
in the absence of an evil motive, piercing would be 4 Case under-capitalization
allowed. 5. Forum Shopping
6. Transfer of Business Enterprise
7. Parents-Subsidiary Scenarios
FRAUD PIERCING CASE 8. Business Sense
9. Bases (4)
1. Corporate Fiction must be the very means to commit
fraud - even intends no evil, the use of corporation as alter ego
or as a mere instrumentality for personal agenda is in
- it must be shown by clear and convincing proof that direct violation of the principle of Corporation law.
separate juridical personality was purposefully employed
to evade a legitimate and binding commitment and - both the controlling stockholder or officer and the
perpetuate a fraud or similar wrongdoing. corporation may treat as the same

2. Alter Ego Doctrine an element in Fraud Piercing - may prevail even no monetary claims

- alter ego may be needed to prove the malicious intent - when business enterprise does not really change,
of the parties. doctrine be allow the business creditors to recover from
whom has actual control of the business enterprise.
3. Tax Evasion Cases
DEFEAT PUBLIC CONVENIENCE CASES
*CIR vs Norton and Harrison: court did not hesitate to
pierce the veil of corporate fictions to treat as void sales - it is a dumping ground where no fraud or alter ego
made by parent corporation to its subsidiary as a shield circumstances can be culled by the courts to
for tax evasion by making it appear that the original
warrant piercing
sale was made by the parent corporation to the
subsidiary corporation in order to gain tax advantage.”
PIERCING DOCTRINE AND THE DUE PROCESS “”
4. Evasion of Lawful Obligation
5. Parent-Subsidiary Scenarios
6. Application to impose liability on Corporate Officers - person not impleaded in the case cannot be bound by
the decision therein, since no individual or entity shall be
-to make corporate officers liable for contracts or affected by a proceeding which he is a stranger.
transactions entered into in behalf of the corporation.
CORPORATE CONTRACT LAW
7. Elements
- corporation has the capacity to contract through the
- there must have been fraud or an evil motive in the
process of incorporation, culminating with the approval
affected transaction
of its articles of incorporation.
- corporate entity has been used in the perpetration of
the fraud or in justification of wrong or to escape - the approved articles of incorporation constitute a
personal liability contract between the state and the corporation, and
- the main action should seek for the pecuniary claims defines the powers and capacities of said corporation.
pertaining to corporation against corporate officers or
stockholders. - powers and capacities is limited only to what is
expressly granted by law, provided in its charter and
those incidental to carry the purpose of the business.
- all powers and capacities are vested with the BOD *Hall vs Piccio: in the absence of formal issuance by the
SEC of the certificate of incorporations, any other
- articles of incorporation and by-laws embody the colorable attempt in good faith to incorporate would
contractual terms and conditions between and among not qualify the application of the doctrine.
members of the intra-corporate family.
Valid Statute : Corporation Code : First Element
- the regulation, amendment or revision of articles of
incorporation and by-laws are governed by the Colorable Compliance: must be shown; if no good faith
Corporation code. to attempt the creation of de jure corporation then there
can be no de facto corporation.
- every corporation’s juridical capacity to contract is the
product of the exercise by the state of its powers to grant User of Corporate Power: taking subscription for the
a group of individuals pursuing a common venture a issuing of shares of stocks, electing directors and officers,
separate juridical person expressly empowered to deal adopting by-laws, buying a lot and constructing building
with non intra corporate parties and enter in a valid and upon it are sufficient act if user of corporate powers to
binding contracts with them. constitute a de facto corporation.

1. The “Unenforceable Contract” Premise CORPORATION BY ESTOPPEL

- for a contract to be valid and binding there must be - seeks to enforce contract where clearly the element of
consent or meeting of the minds, subject matter of the consent is lacking because one parties thereto, a
contract, and cause of consideration. purported corporation, does not in fact exist at the time
of perfection.
PRE INCORPORATION STAGE:
- theory that an admission or representation made is
1. Promoter: a person, who is acting alone or with others conclusive and cannot be denied or disproved as against
takes initiative in founding and organizing the business the person relying thereon.
or enterprises of the issuer and receivers consideration
thereof. *Asia Banking Corp vs Standard Products Corp.: general
rule is that absence of fraud, a person who has
2. Promoter’s Contract: those type of contracts entered contracted or otherwise dealt with an association un
into in behalf of a corporation which is in the process of such a way as to recognize and in effect admit its legal
organization and incorporation and such fact is existence as a corporate body is thereby estopped to
acknowledged as an essential ingredient in the process deny its corporate existence In any action leading out of
of perfection. or involving such contract unless its existence is
attacked for causes which have arisen.”
3. Application of Law on Agency
-every promoter or representative of a corporation in the ULTRA VIRES DOCTRINE
process of incorporation binds himself to ensure that the
corporation once formed will ratify the contracts entered - deals with the corporate capacity to validly enter into
into its name; otherwise he became personally liable for contracts and transaction and involves either two
such contract in the event corporation does not so ratify principles in PH Corporate Law.
it once it comes into existence.
Cases:
-principle of ratification is essential in making every - those entered into or done beyond the powers of
promoters contract valid and binding against the corporation
corporation once it has come into legal existence. - those entered into or done by person who has no
corporate authority
- acts or contracts which are illegal per se
DE FACTO CORPORATION DOCTRINE
ARTICLES OF INCORPORATION
- that the defect or alleged inexistence of the juridical
personality of a corporation cannot be raised collaterally - when it has been approved by the SEC constitutes every
and can only pursued in a direct suit filed that seeks to duly registered corporation’s charter.
question such juridical personality i.e. quo warranto
*Gala vs Ellice Corp.: the best proof of the purposes of
Requisite: corporation is its articles of incorporation and by-laws.
- existence of a valid law under which the corporation Such must state the primary and secondary purposes of
may be incorporated the corporation while the bylaws outline the
- an attempt in good faith to incorporate, or existence if administrative organization of the corporation which
a colorable compliance with provisions on incorporation facilitates the accomplishment of said purpose.”
- assumption by the enterprise of corporate powers
REGISTRATION OF ARTICLES OF INCORPORATION OTHER DOCUMENT REQUIREMENTS

- articles of incorporation do not become binding as the - Certificate of Deposit


charter of the corporation unless they have been filed - Letter of Authority to Examine Bank Deposit
and registered with, and certified by the SEC. - Written Undertaking to Change Corporate Name

- in case of special types of corporation such as banks, CORPORATE NAME


public utilities, insurance companies, they will not be
certified unless said articles is accompanied by a - corporation does not allow a name identical,
favorable recommendation from appropriate agencies deceptively or confusingly similar to any other name
supervising such special type of corporation. already protected by law, or which is patently deceive,
confusing or contrary to existing laws.
1. EXAMINATION AND APPROVAL
CHANGE OF CORPORATE NAME
- upon filing of the articles of incorporation, the SEC will - change can be made provided that it follow the
examine whether the provisions thereof are in procedure laid down by law: change of name does not
accordance with the law; if the articles are not in considered dissolution.
conformity, SEC shall give incorporators reasonable time
within which to correct or modify the objectionable USE OF CORPORATE NAMES OF DISSOLVE CORPORATION
portions. - not allowed within 3 years after the approval of the
dissolution of the corporation by the SEC, unless allowed
- upon satisfaction that all legal requirements have been by the last stockholder representing at least majority of
met, SEC issues certificate of incorporation. Only then outstanding capital stock of the dissolve firm.
shall corporation have a personality separate and distinct
from its stockholders or members. But subject for
revocation when SEC finds it to be unlawful or guilty of PURPOSE CLAUSE
fraud. - must specify corporations primary and secondary
purpose, the latter need not to be related to the former.
- BANKS = satisfaction of Monetary Board before SEC’s
issuance. - it is where powers conferred to the corporation is
shown.
GROUND FOR DISAPPROVAL OF ARTICLES OF
INCORPORATION PLACE OF BUSINESS
-where its principal office is stated in the articles of the
- not if accordance with the form prescribed by law incorporation.
- purpose is patently unconstitutional, illegal, immoral
-the treasurer’s affidavit concerning amount of capital CORPORATE TERM
stock subscribed and/or paid is false - from the date of the issuance of certificate of
- percentage of ownership to be owned by PH citizen is incorporation until period mentioned in the articles of
not complied incorporation unless it is extended or sooner dissolved.
- not exceeding 50 years, extension not more than 50
CONTENTS OF ARTICLES OF INCORPORATION years provided no extension earlier than 5 years before
- name of corporation expiration of term.
- purposes clause ( primary and secondary)
- place of principal office in the PH BY-LAWS
- term of existence
- Names, nationalities and residence of incorporators - it govern the relationship between and among the
- number of directors and trustees members of a corporate family.
- Names, nationalities and residence of the persons who - being a private document cannot create a right or
shall act as directors, trustees until first regular directors be used to restrict a right
and trusteed are duly elected and qualified
- if stock corporation, amount of authorized capital stock,
:legal basis – every corporation has inherent power
number of shares, par value, or no par value shares,
to adopt by laws.
original subscribers, amounts subscribed and paid by
each
:procedure – every corporation must within one
TREAURER’S AFFIDAVIT month after receipt of official notice of the issuance
of certificate of incorporation by the SEC, adopt a
- SEC shall not accept the articles of a stock corporation code of by-laws for its government not inconsistent
unless accompanied by sworn statement by the with this Code.
Treasurer that at least 25% of the total capital stock
authorized is subscribed and at least 25% is such have -may also be adopted and filed prior to
been fully paid in cash or property. incorporation, shall be approved and signed by all
the incorporators and submitted to the SEC
together with the articles of incorporation.

- from the adoption of laws, the affirmative vote of


stockholders representing at least majority of
outstanding capital stock or at least a majority of the
member in the case of non-stock corporation

- shall be signed by the stockholders and members


voting them and shall be kept in the principal office
of the corporation.

- by-laws shall be effective only upon SEC’s issuance


of certification that the by-laws are not inconsistent
with the Corporation Code.

- SEC shall not accept for filling of by-laws or any


amendment of any bank, banking institution,
building and loan association, trust company,
insurance company, public utility, educational
institution or other special corporation unless
accompanied by certificate of appropriate agencies
to the effect of such by-laws

- failure to adopt by-laws does not automatically


operate to dissolve a corporation, but are
considered grounds for which the SEC may seek the
corporation’s dissolution.

- the SEC may revoke or suspend after proper notice


and hearing the franchise or certificate of
registration for failure to file by-laws within period
required by law.

- corporation failed to file its by-laws does not ipso


facto lose its powers as such, may be considered a
de facto corporation whose right to exercise
corporate powers may not be inquired into
collaterally in any private suit to which corporations
may be a party.

AMENDMENT TO AND REVISIONS

- BOD by a majority vote and the owners of at least


majority of the outstanding capital stock or at least
majority of members of Non-stock Corporation, at a
regular meeting duly called for the purpose, may
amend or repeal any by-laws or adopt new by-laws.

-the owner of 2/3 of the outstanding capital stock or


2/3 of the members in a non-stock corporation, may
delegate to the BOD of Trustees the power to
amend or repeal provided that any power delegated
shall be considered revoked whenever stockholders
owning or representing a majority shall so vote at a
regular or special meeting.