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Provide definitions and notes to your corresponding page

Business Organization 2 assignments. Please use the Book of Villanueva and De
Leon and the Villanueva Commercial Law Reviewer as
1. Alano, Dave Abby
2. Ambrocio, Eunice
3. Baucan, Kareen -----------------------------------------------------------------------
4. Boligor, Terry SYLLABUS
5. Cagampang, Vina
6. Canedo, Gretchen
7. Laurente, Kaye


1. Grading System:
a. 3 exams--- 20% each
i. First Exam: Corpo Code
ii. Second Exam: Securities Regulation
iii. Third Exam: Special Laws
b. Attendance--- 5%
c. Quizzes, Projects ---15%
i. Quiz at least once a week
ii. At most 5 questions, questions will be
taken from previous bar questions to
prepare for the bar
iii. Use yellow paper
d. Recitation 20%

General Instruction:
1. Kindly encode the syllabus according to the following
Page 1 and 2- Eunice- DONE
Page 3 and 4- Vina- DONE
Page 5 and 6- Dave
Page 7 and 8- Kareen B.
Page 9 and 10- Kaye L.
Page 11 and 12- Terry
Page 13 and 14- Gretchen

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v. The Members of the Tramo Wakas 3. Theories of Corporate Existence and Power or
I. THE CORPORATION CODE Neighborhood Assn. Inc., 442 SCRA 438 Theories of Formation of Corporation
A. Corporation (2004).] a. Theory of Concession

1. Definition (Sec. 2) “TRI-LEVEL EXISTENCE” OF THE CORPORATION: The Concession or fiat theory states that a corporation is
A corporation is an artificial being created (a) “ASSETS-ONLY” Level: “The corporation is an aggregation conceived as an artificial person owing existence through creation
by operation of law, invested by law upon of Assets and resources” by a foreign power. Further, a corporation has without any
coming into existence with a personality (b) “BUSINESS ENTERPRISE” Level: “The corporation’s existence until it has received the imprimatur of the State acting
separate and distinct from the persons primary purpose is to pursue business.” according to law, through the SEC. (Tayag v. Benguet
composing it, and from any other legal entity to (c) “JURIDICAL ENTITY” Level: “The corporation is a medium Consolidated, Inc., GR No. L-23145, November 29, 1968)
which it may be related. [PNB v. Andrada of pursuing a business enterprise.”
Electric & Engineering Co., 381 SCRA 244 A [corporation’s] claim of a juridical personality of its own and
(2002).] transact business as such, is not a matter of absolute right, but a
“TRI-LEVEL RELATIONSHIPS” IN THE CORPORATE privilege which may be enjoyed only under such terms as the
2. Attributes of a Corporation SETTING: State may deem necessary to impose. of. [Ang Pue & Co. v. Sec.
i. An Artificial Being - “It has juridical capacity (a) “JURIDICAL ENTITY LEVEL,” which treats of the aspects of of Commerce & Industry, 5 SCRA 645 (1962)].
to contract and enter into legal relationships.” the State-corporation relationship.
(b) “INTRA-CORPORATE LEVEL,” which considers that the “It is a basic postulate that before a corporation may acquire
ii. Created by Operation of Law - “It is created corporate setting is a contractual relationship juridical personality, the State must give its consent either in the
by operation of law and not by mere on four (4) levels: form of a special law or a general enabling act,” and the
agreement.” ● Between the corporation and its agents/representatives procedure and conditions provided under the law for the
to act in the real world, i.e., directors and officers, which acquisition of such juridical personality must be complied with.
iii. With Right of Succession [ with strong is governed also by the Law on Agency
juridical personality] ● Between the corporation and its shareholders or Although the statutory grant to an association of the powers to
members purchase, sell, lease and encumber property can only be
iv. Having only such Powers, Attributes and ● Between the shareholders and the corporate directors, construed the grant of a juridical personality to such an
Properties expressly authorized by law or trustees and officers association nevertheless, the failure to comply with the statutory
incident to its existence - “It has only such ● Between and among the shareholders in a common procedure and conditions does not warrant a finding that such
powers, attributes and properties as are venture association acquired a juridical personality, even when it adopts
expressly authorized by law or incident to its (c) “EXTRA-CORPORATE LEVEL,” which views the relationship constitution and bylaws. [Int’l Express Travel & Tour Services, Inc.
existence.” between the corporation and third parties or “outsiders”, v. CA, 343 SCRA 674 (2000).]
essentially governed by Contract Law and Labor Law.
Additional notes: ● Between the corporation and its employees, governed by All corporations, big or small, must abide by the provisions of the
A corporation has no powers except for those Labor Laws Corporation Code; even a simple family corporation cannot claim
which are expressly conferred on it by the ● Between the corporation and those it contracts with, an exemption nor can it have rules and practices other than those
Corporation Code, and those found in its governed by Contract Laws established by law. [Torres v. Court of Appeals, 278 SCRA 793
charter, and are implied by or are incidental to ● Between the corporation and the public it affects with its (1997).]
its existence. It exercises its powers through its enterprise, governed essentially by Torts or Quasi-Delict b. Theory of Business Enterprise or
Board of Directors and/or its duly authorized Laws Enterprise Entity [BERLE, 47
officers and agents. [Pascual and Santos, Inc. COLUMBIA LAW REV. 343 (1947)]

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Agrix upon proof of their claims against the Sons, Inc. v. Register of Deeds of Manila, 6
A corporation is but an association of individuals, allowed to abolished corporation. NDC v. Philippine SCRA 373 (1962).
transact under an assumed corporate name, and with a distinct Veterans Bank, 192 SCRA 257 (1990).
legal personality. In organizing itself as a collective body, it waives Execution pending appeal may be allowed
no constitutional immunities and perquisites appropriate to such a PNRC which was constituted under a special when “the prevailing party is already of
body. PSE v. Court of Appeals, 281 SCRA 232 (1997). law, is not a GOCC because it is not by its advanced age and in danger of extinction,” but
charter owned by the Government, although it is not in this case a corporation. “[A] juridical
Corporations are composed of natural persons and their separate intended to do public functions, it is owned by entity’s existence cannot be likened to a natural
corporate personality is not a shield for the commission of the private sector. person—its precarious financial condition is not
injustice and inequity, such as to avoid the execution of the by itself a compelling circumstance warranting
property of a sister company. [Tan Boon Bee & Co. v. Jarencio, Consequently, the PNRC Charter, insofar as it immediate execution and does not outweigh the
163 SCRA 205 (1988).] creates the PNRC as a private corporation and long standing general policy of enforcing only
grants it corporate powers, is void for being final and executory judgment.” Manacop v.
The corporation is not merely an artificial being, but more of an unconstitutional. The other provisions of the Equitable PCIBank, 468 SCRA 256 (2005).
aggregation of persons doing business, or an underlying business PNRC Charter remain valid as they can be
unit considered as a recognition by the State that b. Limited Liability to
the unincorporated PNRC is the local National Stockholders/Investors and Non-Liability to
4. Private Corporations cannot be Created by Society of the International Red Cross and Red Officers
Specific Legislative Act [Power to Create a Crescent Movement, and thus entitled to the
Corporation Is Legislative in Character (Sec. 16, benefits, exemptions and privileges set forth in One of the advantages of the corporation is the
Article XII, 1987 Constitution] the PNRC Charter. Liban v. Gordon, 593 SCRA limitation of an investor’s liability to the amount
68 (2009). of investment, which flows from the legal theory
Congress cannot enact a law creating a that a corporate entity is separate and distinct
private corporation with a special charter, 5. Four Basic Advantages of Corporate from its stockholders. San Juan Structural and
and it follows that Congress can create Organizations Steel Fabricators, Inc. v. CA, 296 SCRA 631
corporations with special charters only if such a. Strong Juridical Personality (Sec. 2; Arts. (1998).
are government-owned-or-controlled 44(3), 45, 46, and 1775, Civil Code)
corporations (GOCCs). Feliciano v. It is hornbook law that corporate personality is a
Commission on Audit, 419 SCRA 363 (2004); “While not in fact and in reality a person, the law shield against personal liability of its officers—a
Veterans Federation of the Philippines v. treats the corporation as though it were a corporate officer and his spouse cannot be
Reyes, 483 SCRA 526 (2006). person by process of fiction or by regarding it as made personally liable under a trust receipt
an artificial person distinct and separate from its where he entered into and signed the contract
P.D. 1717 creating New Agrix, Inc. violated the individual stockholders.” Remo, Jr. v. IAC, 172 clearly in his official capacity. Consolidated
constitutional prohibition on the formation of a SCRA 405 (1989). Bank and Trust Corp. v. Court of Appeals, 356
private corporation by special legislative act SCRA 671 (2001).
which is not a GOCC, since NDC was merely Transfer of corporate assets to the stockholders
required to extend a loan to the new is an act of conveyance and not in the nature of Obligations incurred by the corporation acting
corporation, and the new stocks of the a partition among co-owners. Stockholders are through its directors and officers, are its sole
corporation were to be issued to the old not co-owners of corporate assets and liabilities. Malayang Samahan ng mga
investors and stockholders of the insolvent properties. Stockholders of F. Guanzon and

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Manggagawa sa M. Greenfield v. Ramos, 357 shares, but merely authorizes the adoption of As to Legal Status
SCRA 77 (2001). regulations as to the formalities and procedure a) Corporation De Jure
to be followed in effecting transfer. Thomson v. b) De Facto Corporation (SEC. 20)
Where the creditor of the corporation sues not CA, 298 SCRA 280 (1998). c) Corporation by Estoppel (SEC. 21)
only the company but also all stockholders to
reach their unpaid subscription which appear to Additional Notes:
Section 20. De facto corporations. – The due
be the only visible assets of the company, then Disadvantages of the Corporate Medium:
incorporation of any corporation claiming in good faith
the controlling doctrine is that “a stockholder is (1) Abuse of corporate management; breach of trust to be a corporation under this Code, and its right to
personally liable for the financial obligations of (2) Abuse of limited liability feature exercise corporate powers, shall not be inquired into
the corporation to the extent of his unpaid (3) High cost of maintenance of the corporate medium collaterally in any private suit to which such
subscription.” Halley v. Printwell, Inc. 649 SCRA (4) Double taxation corporation may be a party. Such inquiry may be
116 (2011). ● Dividends received by individuals from domestic made by the Solicitor General in a quo warranto
proceeding. (n)
corporations are subject to final 10% tax for income
c. Centralized Management earned on or after 01 January 1998. Sec. 24(B)(2), 1997 Section 21. Corporation by estoppel. – All persons
NIRC. who assume to act as a corporation knowing it to be
As can be gleaned from Sec. 23 of Corporation ● Inter-corporate dividends between domestic without authority to do so shall be liable as general
Code “It is the board of directors or trustees corporations, however, are not subject to any income partners for all debts, liabilities and damages incurred
which exercises almost all the corporate powers tax, or arising as a result thereof: Provided, however, That
in a corporation.” Firme v. Bukal Enterprises Sec. 27(D)(4), 1997 NIRC. when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any
and Dev. Corp. , 414 SCRA 190 (2003). ● There is re-imposition of the 10% “improperly
tort committed by it as such, it shall not be allowed to
accumulated earnings tax” for holding companies. Sec. use as a defense its lack of corporate personality.
The exercise of corporate powers rest in the 29, 1997 NIRC.
Board of Directors, save in those instances
where the Corporation Code requires In Relation to the State
stockholders’ approval for certain specific acts. B. Classes of Corporations d) Public Corporation (SEC. 3, ACT. No. 1459)
Great Asian Sales Center Corp. v. Court of As to Existence of Shares (Sec. 3) e) Private Corporation (SEC. 3, ACT. 1459)
Appeals, 381 SCRA 557 (2002). 1. Stock Corporation *addtl: Quasi-Public Corporations
2. Non-Stock Corporation
d. Free Transferability of Units of Ownership As to Number of Members
f) Corporation Sole (SECS. 110-115)
Section 3. Classes of corporations. – Corporations Addtl: Aggregate Corporation -
It is the inherent right of the stockholder to
formed or organized under this Code may be stock or
dispose of his shares of stock (which he owns non-stock corporations. Corporations which have
as any other property of his) anytime he so As to Place of Incorporation
capital stock divided into shares and are authorized to
desires. Remo, Jr. v. IAC, 172 SCRA 405 distribute to the holders of such shares dividends or g) Domestic Corporation
(1989); PNB v. Ritratto Group, Inc., 362 SCRA allotments of the surplus profits on the basis of the h) Foreign Corporation (SEC. 123)
216 (2001). shares held are stock corporations. All other
corporations are non-stock corporations.
Section 123. Definition and rights of foreign corporations.
Authority granted to regulate the transfer of its – For the purposes of this Code, a foreign corporation is one
stock does not empower the corporation to Other classifications: formed, organized or existing under any laws other than those
restrict the right of a stockholder to transfer his of the Philippines and whose laws allow Filipino citizens and

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The control test as the primary test trustee is a Philippine national and at least 60% of the
corporations to do business in its own country or state. It shall
have the right to transact business in the Philippines after it fund will accrue to the benefit of Philippine nationals.
shall have obtained a license to transact business in this As a rule, the control test applies. The primacy of the
country in accordance with this Code and a certificate of control test over the grandfather rule can be traced to Under Sec. 3 of the FIA ’91, a corporation organized
authority from the appropriate government agency. DOJ Opinion No. 19, s. 1989 (the “1989 DOJ Ruling”), under the laws of the Philippines of which at least 60% of
which states: the capital stock outstanding and entitled to vote is
Additional Notes: owned and held by citizens of the Philippines, is
As to the Purpose of Incorporation . . . the “Grandfather Rule”, which was evolved and considered a Philippine National. Unchuan v. Lozada,
(a) Municipal Corporation applied by the SEC in several cases, will not apply in 585 SCRA 421 (2009).
(b) Religious Corporation (Secs. 109 and 116) cases where the 60-40 Filipino-alien equity ownership in
a particular natural resource corporation is not in doubt. c. “New” SEC Control Test
Since in matters purely ecclesiastical the decisions of the proper (underscoring supplied) As a result of the Gamboa rulings (Gamboa vs. Perez),
church tribunals are conclusive upon the civil tribunals, then a SEC Memorandum Circular No. 8, s. 2013, was issued
church member who is expelled from the membership by the In other words, according to the Department of Justice, and provides that: all covered corporations shall, at all
church authorities, or a priest or minister who is by them deprived the control test generally applies, with the grandfather times, observe the constitutional or statutory ownership
of his sacred office, is without remedy in the civil courts. Long v. rule applicable only when the 60-40 Filipino-alien equity requirement in that “the required percentage of
Basa, 366 SCRA 113 (2001). ownership is in doubt. Filipino ownership shall be applied to BOTH
(a) the total number of outstanding shares of stock
On the basis of the 1989 DOJ Ruling, the SEC issued entitled to vote in the election of directors; AND
(c) Educational Corporations (Secs. 106, 107 and 108; Sec. 25,
B.P. Blg. 232) several opinions doing away with the grandfather rule. (b) the total number of outstanding shares of stock,
(d) Charitable, Scientific or Vocational Corporations For example, in a May 30, 1990 opinion, the SEC stated: whether or not entitled to vote in the election of
(e) Business Corporation directors.”
. . . the Commission En Banc, on the basis of the
C. Nationality of Corporations Opinion of the Department of Justice No. 18., S. 1989 The 1987 Constitution “provides for the Filipinization of
dated January 19, 9189 voted and decided to do away public utilities by requiring that any from of authorization
1. Primary "Place of Incorporation Test" (SEC. 123) with the strict application/computation of the so called for the operation of public utilities should be granted only
The corporation is a national of the country under “grandfather rule”. . . and instead applied the so-called to ‘citizens of the Philippines or to corporation or
whose laws it is organized or incorporated. “control test” method for determining corporate associations organized under the laws of the Philippines
nationality. (underscoring supplied)(see also SEC at least sixty per centum of whose capital is owned by
2. Ancillary Control Test Opinion dated August 6, 1991; SEC Opinion dated such citizens.’ The provision is [an express] recognition
In cases involving properties, business or industries October 14, 1991) of the sensitive and vital position of public utilities both in
reserved for Filipinos, in addition to the place of the national economy and for national security.” The
incorporation test, the nationality of a corporation is b. Foreign Investment Act Test of Philippine National evident purpose of the citizenship requirement is to
determined by the nationality of the “controlling” Sec. 3(a) & (b) of FIA (R.A. 7042), considers for purpose prevent aliens from assuming control of public utilities,
stockholders. of investment a “Philippine national” as a corporation which may be inimical to the national interest. This
organized under the laws of the Philippines of specific provision explicitly reserves to Filipino citizens
Sub-Sets of the Control Test which at least 60% of the capital stock outstanding and control of public utilities, pursuant to an overriding
a. DOJ-SEC Control Test entitled to vote is owned and held by citizens of the economic goal of the 1987 Constitution: to “conserve and
Philippines, or a trustee of funds for pension or other develop our patrimony” and to ensure a “a self-reliant
employee retirement or separation benefits, where the

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and independent national economy effectively controlled Association, Inc., penned by General Counsel Vernette Apostolic Administrator of Davao, Inc. v. LRC and the
by Filipinos.” G. Umali-Paco) Register of Deeds of Davao, 102 Phil. 596 (1957).

We rule that the term “capital” in Sec. 11, Art. XII of the Although the “control test” is still the prevailing mode of iii. Public Utilities (Sec. 11, Art. XII, Constitution)
Constitution should cover both; (a) the control test that determining whether or not a corporation is a Filipino
covers only shares of stock entitled to vote in the election corporation, within the ambit of Sec. 2, Art. II of 1987 The nationality test for public utilities applies not at the
of directors; and the beneficial interest test, that the 60%- Constitution are entitled to undertake the exploration, time of the grant of the primary franchise that makes a
40% equity in favor of Filipinos shall apply to each and development and utilization of the natural resources of corporation a juridical person, but at the grant of the
every class of shares, to common shares, to preferred the Philippines; however, when there is doubt in the secondary franchise that authorizes the corporation to
non-voting shares, to preferred voting shares, and other minds of the court, based on the attendant facts and engage in a nationalized industry. People v. Quasha, 93
classes of shares. Gamboa v. Teves, 652 SCRA 690 circumstances of the case, in the 60-40 Filipino-equity Phil. 333 (1953).
(2011), affirmed in 682 SCRA 397 (2012). ownership in the corporation, then it may apply the
“grandfather rule.” Narra Nickel Mining v. Redmont The primary franchise, that is, the right to exist as such,
d. Rule Against "Unlawful Corporate Layering Consolidated Mines, G.R. No. 195580, 21 April 2014. is vested in the individuals who compose the corporation
The grandfather rule can only extend to such limited as and not in the corporation itself and cannot be conveyed
to those who have actual control of the affairs of the Application of Control Tests: in the absence of a legislative authority to do so. The
corporation. Palting v. San Jose Petroleum Inc., 18 i. Exploitation of Natural Resources secondary franchises are vested in the corporation and
SCRA 924 (1966). (Sec. 140; Sec. 2, Art. XII, 1987 Constitution) may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its
Lately, the SEC overturned the use of the formula “60%- ii. Ownership of Land (Sec. 7, Art. XII, 1987 property, except such special or secondary franchises as
or-more-equals-100%-Filipino-ownership.” Constitution) are charged with a public use. J.R.S. Business Corp. v.
Imperial Insurance, 11 SCRA 634 (1964).
Accordingly, we opine that we must look into the The registration of the donation of land to an
citizenship of the individual stockholders, i.e., natural unincorporated religious organization, whose trustees iv. War-Time Test
persons, of that investor-corporation in order to are foreigners, would violate constitutional prohibition In war time, domestic corporations which are under the
determine if the Constitutional and statutory restrictions and the refusal would not be in violation of the freedom control of nationals of the enemy country are deemed
are complied with. If the shares of stock of the immediate of religion clause. The fact that the religious association foreign enemy corporations. Haw Pia v. China Banking
investor corporation is in turn held and controlled by “has no capital stock does not suffice to escape the Corp., 80 Phil. 604 (1948).
another corporation, then we must look into the constitutional inhibition, since it is admitted that its
citizenship of the individual stockholders of the latter members are of foreign nationality. . . and the spirit of the v. Anti-Dummy Law
corporation. In other words, if there are lawyers of Constitution demands that in the absence of capital In its Resolution, the high court clarified that “doubt” does
intervening corporations investing in a mining joint stock, the controlling membership should be composed not automatically mean the mere failure of the Filipino
venture, we must delve into the citizenship of the of Filipino citizens.” Register of Deeds of Rizal v. Ung ownership to meet the 60% threshold of the corporation’s
individual stockholders of each corporation. This is the Sui Si Temple, 97 Phil. 58 (1955) equity. “Doubt” refers to various indicia that the
strict application of the grandfather rule, which the “beneficial ownership” and “control” of the corporation do
Commission has been consistently applying prior to the BUT: A corporation sole being a creature prior to the not in fact reside in Filipino shareholders but in foreign
1990s. (SEC-OGC Opinion No. 10-31, dated 09 constitution, has no nationality. If a nationality is stakeholders.
December 2010, addressed to Mr. Leonardo A. Civil, sought to be determined, the same depends of the
Chairman of the Board of Co-O Small Scale Miners nationality of the majority of the lay members and not on To demonstrate these signs of doubt, the Court referred
the nationality of the sole corporator. Roman Catholic to the indicators of a dummy status as identified in a

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Department of Justice Opinion on the Anti-Dummy Law. A corporation, upon coming into existence, is invested by (2) Fraud cases or when the corporate entity is
These would be where the foreign investors provide law with a personality separate and distinct from those used to justify a wrong, protect fraud, or defend
practically all the funds and technological support for a persons composing it as well as from any other legal a crime; or
joint venture undertaken with their Filipino partners, and entity to which it may be related, with the following (3) Alter ego cases where a corporation is merely a
where such foreign investors get to manage the consequences: farce since it is a mere alter ego or business
company even while being minority stockholders. conduit of a person or where the corporation is
a. Liability for Torts and Crimes so organized and controlled and its affairs are
3. Grandfather Rule The corporation may not be made to answer for acts and so conducted as to make it merely an
The Grandfather Rule determines the actual Filipino liabilities of its stockholders or those of legal entities to instrumentality, agency, conduit or adjunct of
ownership and control in a corporation by tracing both which it may be connected or vice versa. General Credit another corporation.
the direct and indirect shareholdings in the corporation. Corp. v. Alsons Dev. and Investment Corp., 513 SCRA
225 (2007). In the absence of malice, bad faith, or a specific
According to the January 2015 Resolution of the provision of law making a corporate officer
Supreme Court in the case of Narra Nickel Mining and b. Recovery of Moral Damages liable, such corporate officer cannot be made
Development Corp. vs. Redmont Consolidated Mines A corporation, being an artificial person and having personally liable for corporate liabilities.
Corp. (G.R. No. 195580), “the Grandfather test was existence only in legal contemplation, has no feelings, (Pantianco Employees Assoc. vs. National
originally intended to look into the citizenship of the emotions nor senses; therefore, it cannot experience Labor Relations Commission, 581 SCRA 598
individuals who ultimately own and control the shares of physical suffering and mental anguish. Mental suffering [2009].)
stock of a corporation for purposes of determining can be experienced only by one having a nervous
compliance with the constitutional requirement of Filipino system and it flows from real ills, sorrows, and griefs of b. Test in Determining Applicability
ownership”. life—all of which cannot be suffered by an artificial
person. Prime White Cement Corp. v. IAC, 220 SCRA 1. Control, not mere majority or complete stock
The shareholdings should ideally be traced (i.e. 103 (1993). control, but complete domination, not only of
grandfathered) to the point where natural persons hold finances but of policy and business practice in
the shares. However, this may be impractical and a limit 2. Doctrine of Piercing the Corporate Veil respect to the transaction attacked so that
must be set when tracing through the corporate layers to the corporate entity as to this transaction had at
attribute nationality. Citing a memorandum from the The doctrine that a corporation is a legal entity or a the time no separate mind, will or existence of
Securities and Exchange Commission (SEC), the person in law, distinct from the persons composing it or its own;
Supreme Court noted the suggestion of the SEC to apply any other corporation to which it may be related, is
the Grandfather Rule on two levels of corporate relations merely a legal fiction for purposes of convenience and to 2. Such control must have been used by the
for publicly-held corporations or where shares are traded subserve the ends of justice. This fiction, therefore, defendant to commit fraud or wrong, to
in the stock exchange, and to three levels for closely cannot be extended to a point beyond its reason and perpetuate the violation of a statutory or other
held ones or those which are not traded in any stock policy. positive legal duty, or dishonest and unjust
exchange. Clearly, the limits should not go beyond the act in contravention of plaintiff's legal rights; and
level of what is reasonable. a. Grounds for Application of Doctrine
3. The aforesaid control and breach of duty
The doctrine applies in three basic areas namely: must proximately cause the injury or unjust loss
D. Corporate Juridical Personality (1) Defeat of public convenience as when the complained of. (Instrumentality Rule, Concept
1. Doctrine of Separate Juridical Personality corporate fiction is used as a vehicle for the Builders, Inc. vs. NLRC)
evasion of an existing obligation;

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3. Matters Pertaining to Corporation as a "Person" prosecution for the damages incurred by the corporation through its human agents, and it is their conduct which
GR: A corporation, being a juridical entity, can for the criminal proceedings brought against its officer. the law must deter. The employee or agent of a
only act as such through its officers and agents. Cometa v. Court of Appeals, 301 SCRA 459 (1999). corporation engaged in unlawful business naturally aids
and abets in the carrying on of such business and will be
a. Liability for Torts or Negligence b. Stockholders As Such Cannot Be Held Liable for a prosecuted as principal if, with knowledge of the
A corporation is civilly liable for torts in the same manner Corporate Criminal Act business, its purpose and effect, he consciously
as natural persons, because the rules governing the contributes his efforts to its conduct and promotion
liability of a principal for a tort committed by an agent are The “owners” of a corporate organization are its [illegal recruitment; tax evasion], however slight his
the same whether the principal be a natural person or a stockholders and they are to be distinguished from its contribution may be. The Executive Secretary v. Court
corporation, and whether the agent be a natural or directors and officers. Stockholders, being basically of Appeals, 429 SCRA 81 (2004); People v. Tan Boon
artificial person. PNB v. Court of Appeals, 83 SCRA 237 investors in the corporation, and with the management of Kong, 54 Phil. 607 (1930).
(1978). its business generally vested in the Board of Directors,
cannot be held liable for the criminal offense committed c. Constitutional Rights
“Corporate tort” consists in the violation of a right given on behalf of the corporation, unless they personally took i. Due Process
or the omission of a duty imposed by law; a breach of a part in the same. Espiritu v. Petron Corp., 605 SCRA 245 ii. Equal Protection
legal duty. The failure of the corporate employer to (2009).
comply with the duty under the Labor Code to grant Corporation as a Person is entitled to Due Process and
separation pay to employees in case of cessation of c. It Is the Acting Officers Who Shall Be Criminally Liable Equal Protection
operations constitutes tort and its stockholder who was for the Corporate Act The due process clause is universal in its application to
actively engaged in the management or operation of the all persons, and covers private corporations within the
business should be held personally liable. Sergio F. When a criminal statute forbids the corporation itself from scope of the guaranty insofar as their properties are
Naguiat v. NLRC, 269 SCRA 564 (1997). doing an act, the prohibition extends to the Board of concerned. Smith Bell & Co. v. Natividad, 40 Phil. 136
Directors, and to each director separately and (1920)
b. Liability for Crimes (Arts. 102 and 103, Revised individually. People v. Concepcion, 44 Phil. 129
Penal Code) (1922).
iii. Protection Against Unreasonable
a. No Criminal Suit Can Lie Against a Corporation: Apart from its sweeping allegation that respondents Searches and Seizures
Corporations cannot be held criminally liable within misappropriated or converted its money placements,
Philippine jurisdiction since there is no law relating to the petitioner failed to establish the particular role or actual A corporation is protected by the constitutional guarantee
practice and procedure in criminal actions whereby a participation of each respondent in the criminal act; against unreasonable searches and seizures, but its
corporation may be brought to court to be proceeded neither was it shown that they assented to its officers have no cause of action to assail the legality of
against criminally. West Coast Life Ins. Co. v. Hurd, 27 commission. It is basic that only corporate officers shown the seizures, regardless of the amount of shares of stock
Phil. 401 (1914). to have participated in the alleged anomalous acts may of each in said corporation because the corporation has
be held criminally liable. Cruzvale, Inc. v. Eduque, 589 a personality distinct and separate from those of said
A corporation lacks the element for malice to be held SCRA 534 (2009). officers. Stonehill v. Diokno, 20 SCRA 383 (1967).
liable for a criminal act. Times, Inc. v. Reyes, 39
SCRA 303 (1971). The existence of the corporate entity does not shield A corporation is but an association of individuals under
from prosecution the corporate agent who knowingly and an assumed name and with a distinct legal entity. In
But, a corporation can be a real-party-in-interest for the intentionally causes the corporation to commit the crime. organizing itself as a collective body it waives no
purpose of bringing a civil action for malicious The corporation obviously acts, and can act, only by and constitutional immunities appropriate for such body. Its

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property cannot be taken without compensation; can only QUALIFICATIONS OF INCORPORATORS:
Sec. 10. Number and qualifications of incorporators. — Any
be proceeded against by due process of law; and is number of natural persons not less than five (5) but not more
protected against unlawful discrimination. Bache & Co. than fifteen (15), all of legal age and a majority of whom are 1. MUST BE NATURAL PERSONS (GENERAL
(Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971). residents of the Philippines, may form a private corporation for RULE)
any lawful purpose or purposes. Each of the incorporators of a ● A corporation cannot be an
d. Non-Entitlement to Moral Damages stock corporation must own or be a subscriber to at least one incorporator of another corporation.
(1) share of the capital stock of the corporation. (6a) ● Artificial persons, without brain or
“It is elementary that the right against self-incrimination body, existing only on paper through
has no application to juridical persons.” ● Incorporation of a private corporation is a mere legislative command and incapable of
Bataan Shipyard & Engineering v. PCGG, 150 SCRA privilege thought or action except through
181 (1987). ○ In our jurisdiction, the right to be and act as a natural persons, cannot create other
While an individual may lawfully refuse to answer corporation does not belong to any person as a artificial persons, and those others still,
incriminating questions unless protected by an immunity natural and civil right, but as a special privilege until the line is so extended and the
statute, it does not follow that a corporation, vested with conferred upon a group of persons by the capital stock so duplicated and
special privileges and franchises by the State, may sovereign power of the State. Until there is a reduplicated as to result in confusion
refuse to show its hand when charged with an abuse of grant of such right, therefore, whether by and fraud
such privilege. Hale v. Henkel, 201 U.S. 43 (1906). special act of the legislature or under general
law, there can be no corporation. ● EXCEPTION:
e. Corporation cannot practice a Profession i. duly established cooperatives
● Incorporators: Number and Qualifications: and corporations primarily
Corporations cannot engage in the practice of a ○ As provided in Section 10: organized to hold equities in
profession since they lack the moral and technical ■ Not less than 5, but not more than 15 rural banks may organize
competence required by the PRC. ULEP v. The Legal ● Any excess will not be rural banks and/or subscribe
Clinic, 223 SCRA 378 (1993). considered as incorporators to shares of stock of any rural
A corporation engaged in the selling of eyeglasses and ■ All must be of legal age ● if the corporation is a
which hires optometrists is not engaged in the practice of ■ A majority of them must be residents cooperative, it may
optometry. Samahan ng Optometrists v. Acebedo of the Philippines become an
International Corp., 270 SCRA 298 (1997); Alfafara v. ■ Each of them must own or be a incorporator of a
Acebedo Optical Company, 381 SCRA 293 (2002). subscriber to at least 1 share of the rural banking
capital stock of the corporation corporation
E. Incorporators and Organization 2. MUST HAVE THE CAPACITY TO ENTER
NOTE: Unless otherwise expressly provided in the INTO VALID CONTRACTS
1. Incorporators and Corporators articles of incorporation, a corporation cannot impose ● The Articles of Incorporation must be
2. Promoter other qualifications. The same rule applies as to acknowledged by the incorporators
a. Liability of Promoter stockholders. before a notary public
b. Liability of Corporation for Promoter’s Contracts ○ Why? In order to secure the
3. Number and Qualifications of Incorporators NOTE: The general practice is for the incorporators to State and the all concerned
serve as the first directors of the corporation against the possibility of any
fictitious name being

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subscribed to the articles and 1. physical presence ● The requirement of the law regarding the minimum
to furnish proof of the in the State and number of incorporators is mandatory
genuineness of the 2. intention to remain ● A de jure corporation cannot be legally formed by less
signatures therein. than the prescribed number except in the case of a
● A married woman may be an ● The domicile of natural corporation sole
incorporator without the need of persons is the place of their ● In case of educational corporations, their incorporation
obtaining the consent of her husband habitual residence (Art. 50, "shall be governed by special laws and by the general
○ BASIS: Either spouse may Civil Code.); provisions of [the] Code."
exercise any legitimate ● It is the place where one has
profession, occupation, his true, fixed, permanent 1. Reduction of stockholders or members to less than
business or activity without home and to which he, minimum.
the consent of the other" whenever he is absent, has ● The number of stockholders (or members) after
subject to the right of the the intention of returning. the corporation is organized may become less
husband to "object only on than the minimum number required for
valid, serious and moral ● It is not required that majority of the incorporation without affecting corporate
grounds." (Art. 73, FC.) members must also be residents existence unless valid grounds exist for piercing
● A minor who is emancipated either by ● BUT, a majority of the directors/ or lifting the corporate veil
marriage or by voluntary concession of trustees of all corporations must be
the parents is not qualified to be an residents of the Philippines 2. Beneficial ownership in one individual. — The
incorporator requirement of minimum number of incorporators is one
● BASIS: Incorporators must be "all of 4. CERTAIN PERCENTAGE OF THE CAPITAL of those provisions, however, which are formal rather
legal age." (Section 10, Corporation STOCK IS REQUIRED TO BE OWNED BY than substantial and which are regularly evaded in
Code FILIPINO CITIZENS practice. Since the law permits a scheme by which all the
● Foreign shareholders may be debarred shares are owned by a single individual, the latter may
3. A MAJORITY OF THE INCORPORATORS from certain nationalized activities incorporate provided he associates with him, at least
MUST BE RESIDENTS OF THE PHILIPPINES which are exclusively reserved for nominally, the number of persons required by the law.
● A corporation composed entirely of Filipino citizens. ● The validity of the incorporation is not affected
aliens may be incorporated as long as by the fact that it is formed in the interest of a
the majority of the incorporators are 5. EACH INCORPORATORS OF A STOCK single individual, and that the other persons
residents of the Philippines EXCEPT in CORPORATION MUST OWN OR BE A under his control, without any substantial
the case of nationalized corporations SUBSCRIBER OF AT LEAST ONE (1) SHARE interest, or without individual responsibility who
● "Residents" OF THE CAPITAL STOCK OF THE may only be called "qualifying stockholders," or
○ Construed to mean domiciled CORPORATION who are popularly known as dummies or "men
residents ● Presumption: If an incorporator has a of straw."
○ As used in corporate statutes pecuniary interest in the corporation, ● Beneficial ownership is not necessary, and a
requiring one or certain he will be concerned with the person who holds the legal title to stock is
number of directors to be management of its affairs qualified to become an incorporator
residents of the State, is
equivalent to domicile, REQUIREMENT REGARDING MINIMUM NUMBER OF 3. Subsequent accumulation of shares in one
■ ELEMENTS: INCORPORATORS MANDATORY individual. — Nor is the existence of the corporation

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originally formed by the required number of incorporators
Section 37. Power to extend or shorten
affected by the subsequent accumulation of all the corporate term. — A private corporation may
shares in the hands of one individual unless, as extend or shorten its term as stated in the articles
previously said, circumstances exist to justify the piercing of incorporation when approved by a majority
of the veil of corporate entity, vote of the board of directors or trustees and
ratified at a meeting by the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds
(2/3) of the members in case of nonstock
corporations. Written notice of the proposed
action and of the time and place of the meeting
shall be addressed to each stockholder or
member at his place of residence as shown on
the books of the corporation and deposited to the
4. Corporate Name; Guidelines/Limitations on Use of addressee in the post office with postage
prepaid, or served personally: Provided, That in
Corporate Name
case of extension of corporate term, any
dissenting stockholder may exercise his
5. Corporate Term appraisal right under the conditions provided in
this Code.
Sec. 11. Corporate term. — A corporation shall exist for a
period not exceeding fifty (50) years from the date of EXTENSION OF CORPORATE TERM
incorporation unless sooner dissolved or unless said period is
extended. That corporate term as originally stated in the articles 1. Limitations:
of incorporation may be extended for periods not exceeding fifty
a. The term shall not exceed fifty years in any one
(50) years in any single instance by an amendment of the
articles of incorporation, in accordance with this Code: Instance;
Provided, That no extension can be made earlier than five (5) b. The amendment is effected" before the
years prior to the original or subsequent expiry date(s) unless expiration of the corporate term of existence, for
there are justifiable reasons for an earlier extension as may be after dissolution by expiration of the corporate
determined by the Securities and Exchange Commission. (6a) term there is no more corporate life to extend.
● The extension cannot be done during
the three-year period of liquidation
● The corporation shall exist for the term specified in the c. The extension cannot be made earlier than five
articles of incorporation' not exceeding fifty years, unless (5) years prior to the expiration date unless
sooner legally dissolved or unless its registration is there are justifiable reasons therefor as may be
revoked upon any of the grounds provided by law. determined by the SEC.
● The corporate life may be reduced or extended by 2.
amendment of the articles of incorporation by complying
● with the procedural requirements laid down in Section RESUME: Page 137 (De Leon)

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from a stockholder or resale of treasury i. When Other Agency Certification
6. Minimum Capital Stock and Subscription Requirements shares. Requirement
1. Insurance Companies-
● Outstanding capital stock
Insurance Commission
○ is the portion of the capital stock which is
issued and held by persons other than the
2. Banks, Building and Loan
Sec. 12. Minimum capital stock required of stock corporations.
— Stock corporations incorporated under this Code shall not be corporation itself. Association, Finance
required to have any minimum authorized capital stock except ○ Defined as "the total shares of stock issued Companies- Bangko Sentral
as otherwise specifically provided for by special law, and to subscribers or stockholders, whether or ng Pilipinas
subject to the provisions of the following section not fully or partially paid (as long as there is 3. Educational Institutions-
a binding subscription agreement), except DepEd or CHED
treasury shares." 4. Public Utilities- LTFRB, CAB,
○ Broader than "subscribed capital stock."
● Capital Stock- NTC, etc.
○ is the amount fixed in the articles of ● Paid-up capital stock
ii. Grounds of Rejection/Disapproval of
incorporation, to be subscribed and paid in ○ is that portion of the subscribed or Articles of Incorporation or
or agreed to be paid in by the stockholders outstanding capital stock that is actually Amendment thereof
of a corporation, in money, property, paid. d. Non-Amendable Items
services, or other means at the organization 8. Registration and Issuance of Certificate of Incorporation
of the corporation or afterwards and upon ● Unissued capital stock 9. Adoption of By-Laws
which it is to conduct its business such ○ is that portion of the capital stock that is not a. Nature and Functions of By-Laws
contribution being made either directly issued or subscribed. It does not vote and
through stock subscription or indirectly b. Period of Adoption of By-Laws
draws no dividends.
through the declaration of stock dividends. c. How Adopted
(De Leon) ● Legal capital d. Effectivity of By-Laws
● Authorized capital stock ○ is the amount equal to the aggregate par e. Contents of By-Laws
○ Refers to the amount of capital stock as value and/or issued value of the f. Requisites of Valid By-Laws
specified in the articles of incorporation. It is outstanding capital stock. g. Binding Effect
synonymous with capital stock where the ○ When par value shares are issued above h. Amendment of Revision
shares of the corporation have par value. par, the premium or excess is not to be i.
○ If the shares of stock have no par value, the considered as part of the legal capital.
corporation has no authorized capital stock, ○ In the case of no par value shares, the
but it has capital stock the amount of which F. Corporate Powers
entire consideration received forms part of
is not specified in the articles of legal capital and shall not be available for 1. General Powers; Theory of General Capacity
incorporation as it cannot be determined distribution as dividends, 2. Specific Powers; Theory of Specific Capacity; Express
until all the shares have been issued. In this Powers of Corporations
case, the two terms are not synonymous. a. Power to Extend or Shorten Corporate Term
7. Articles of Incorporation
a. Nature and Function of Articles i. Power to Temporary Cease Corporate
● Subscribed capital stock
b. Contents Operations
○ is the amount of the capital stock
subscribed, whether fully paid or not. It i. Purpose Clauses b. Power to Increase or Decrease Capital Stock or
connotes an original subscription contract ii. Principal Place of Business/Residence Incur, Create, Increase Bonded Indebtedness
for the acquisition by a subscriber of of the Corporation c. Power to Deny Pre-emptive Rights
unissued shares in a corporation and c. Amendment d. Power to Sell or Dispose of Corporate Assets
would, therefore, preclude the acquisition of e. Power to Acquire Own Shares
shares by reason of subsequent transfer

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i. Instances when Corporation may Buy
its Own Stocks
f. Power to Invest Corporate Funds in Another
Corporation or Business for Non-Primary
g. Power to Declare Dividends
h. Power to Enter Into Management Contracts

I. Power to sue and be sued
II. Power to Sell Land
III. Power to Obtain Bank Loans
IV. Power to Hire Employees and appoint

i. Ultra Vires Acts

i. Applicability of Ultra Vires Doctrine
ii. Consequences of Ultra Vires
iii. Court Attitude towards the Ultra Vires
iv. Types of Ultra Vires Acts
1. First Type
2. Second Type
3. Third Type
v. Doctrine of Ratification

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Page 5 and 6- Dave

Doctrine of Estoppel

Doctrine of Apparent Authority

If a corporation knowingly permits one of its officers, or
any other agent, to act within the scope of an apparent authority, it
holds him out to the public possessing the power to do those acts;
and thus, the corporation will, as against anyone who has in good
faith dealt with it through such agent, be estopped from denying
the agent’s authority. Apparent authority is derived not merely
from practice. Its existence may be ascertained through:

1. The general manner in which the corporation holds out an

officer or agent as having the power to act, or in other words, the
apparent authority to act in general, with which it clothes him; or

2. The acquiescence in his acts of a particular nature, with actual

or constructive notice thereof, within or beyond the scope of his
ordinary powers.

It is not the quantity of similar acts which establishes apparent

authority but the vesting of a corporate officer with the power to
bind the corporation. (Advance Paper Corporation v. Arma
Traders Corporation, GR No. 176897, December 11, 2013)

How the Corporation is Bound and Not Bound by Its


Bank bound by its Manager and Officer

Doctrine of Laches or “Stale Demands”

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Page 7 and 8- Kareen B.

Page 9 and 10- Kaye L.

Page 11 and 12- Terry

Page 13 and 14- Gretchen

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