CORPORATION LAW! EH 403, ‘Ay. Espedido 2019 ~ 2020 ‘WwW 001 EL ‘What is this course all about? ‘This course is limited to studying ordinary Private corporations formalized under the Revised Corporation Code as distinguished from Public Corporations. Public Corporat Formed for a private | Formed or organized to purpose, benefit, rend | govern the a portion of the State Examples: Cites, ‘municipalities, provinces, ‘autonomous regions such as the ARMM and CAR. What about Region 7? Not a public corporation because the purpose is for geographical determination and there is no election of Regional Representatives. Its only purpose is for the clustering of the provinces forming part of that Region. How about the ARMM and CAR? ‘Those are autonomous regions that have their own ‘governors and boards. These are public corporations. ‘TYPES OF CORPORATION. (1) Public Corporation = created to govern a portion of a State (2) Priyate Corporation ~ creat for private ‘ends (@) Publicly listed ~ private corporations that are publicly listed in the Philippine Stock Exchange which means their shares can be bought and sold on the PSE. Examples: San Miguel Corporation, ‘Ayala Land Corporation| (0) QuasiPublic Corporations — private corporations performing public functions Example: VECO providing electricity (¢) Government Owned and Controlled Corporations (GOCC) - created by Congress through a special charter for which the government is the majority stockholder Examples: PAGCOR, Landbank of the Philippines AS DISTINGUISHED FROM A GOVERNMENT INSTRUMENTALITY OR AGENCY. Government instrumentality ~ not a private or a public corporation but an instrumentality of the ‘government performing performing functions of a a Particular branch of the government Examples: Department of Education performing functions under the Executive Branch, DENR CORPORATION, DEFINED, ‘A corporation is an artificial being created by ‘operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence, CORPORATION AS AN ARTIFICAL BEING Consequences: (1) Ithas a separate and distinct personality from its -members or shareholders, thus incurs separate lability (2) It enjoys rights separate from the stockholders. (3) Properties of the corporation is separate from the properties of the stockholders. RIGHTS OF A CORPORATION AS A JURIDICAL PERSON It has constitutional, civil, and economic rights but ‘does nat include politcal rights. Civil and Economic Rights (1) ight to su orbe sued (2) Rightto own and dispose of propertios (3) ight 'oentor into contracts (4) igh to non-impaitment of contracts Constitutional rights of natural persons that a corporation also enjoys (1). Right to due process and equal protection of the law Section 1, Article Ill of the Constitution, "No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the law. (2) Right against unreasonable searches and seizure (3) Right against non-impairment of contracts (4) Right against seltincrimination Note: An artificial being has separate set of rights from that of natural persons. Artificial persons enjoy certain rights that persons also enjoy BUT notall. Rights that cannot be exercised (1) Political rights (0.9. right to vote and be voted for) (2) Right to life — granted only personality in accordance to law (3) Right to liberty - a corporation is not a corporal being or it has no physical ‘existence which can be detained unlike a natural person. A corporation cannot move ‘and therefore it is impractical to send the corporation to all Page of | UNIVERSITY OF SAN CARLOSCORPORATION LAW! EH 403, ‘Ay. Espedido 2019 ~ 2020 ‘WwW 001 ‘CRIMINAL LIABILITY General Rule: A corporation cannot be held criminally liable under the Revised Penal Code Reason: Crimes under the RPC has the element of Intent which corporations are not capable of as it has no mind ofits own, As a creature of the law, because it does not have its own mind, it cannot be determined ‘what its intention is. It cannot be sent to jail because it has no corporal or physical existence. Exceptions: (1) When the crime is punishable by a special law Important: The law must specify that it imposes Penalties on the officers. To be able to punish the officers, the law should specifically provide that in case the corporation becomes liable, the officers shall be directly punishable for the commission of the act and must suffer the penalty of imprisonment. Otherwise, they cannot be held criminally liable. (2) When the penalty imposed is a fine A corporation can be made liable criminally by paying fine. Fines are not civil obligations but are penalties. (3) Anti-Money Laundering Act (AMLA) ‘The law states that a juridical being may be held liable ifthe act is committed by a corporation. Pnaltes in AMLA include: (a) Suspension (0) Revocation of license (c) Fine LIABILITY OF CORPORATIONS IN CASE OF DEBT ‘Stockholders cannot be held personally able because there liabilty is limited to the extent of their investments. It is unlike Partnership where the partners can be held personally lable. Reason: In a corporation, there is a veil of corporate fiction. The main difference between the two is that, while both partnership and corporation are iuridical_persons, the veil of corporate enti applies only to corporations. ‘VEIL OF CORPORATE FICTION ‘A corporation has a separate and distinct personality from its shareholders, officers, and directors. Once ‘said. corporate fiction is created, the veil hides the stockholders such that when @ corporation incurs labilty, the stockholders are shielded from liability. In 0 far as the law is concerned, we are only dealing with the corporation. Otherwise, without the veil, would you still ike to be a stockholder? Atty. Espedido: There is no point. nother words, that veil is the protection of the stockholders. FORMATION OF A CORPORATION. When we organize or form a corporation, we will ‘establish various relationships. Relationships are necessary. Kinds of Relationship: (1) Relationship between Corporation and the ‘Shareholders Which is why it is necessary to execute the Attcles of Incorporation. It manages the relationship between the corporation and the shareholders. (2) Relationship Shareholders themselves. The articles and the law provides the regulation and monitors this relationship among (3) Relationship between the Corporation and the State A corporation is created by the State. It is the state that granted the privilege, thus, it can also be withdrawn by the state. Therefore, you must be compliant with the provisions of the law. Any violation will cause the ‘suspension or eventual revocation, Relationship between the Corporation and the Public ‘The public here includes the clients In forming a corporation, your objective is to gather friends and people in order to get funds or ask for investments Situation. You formed a corporation. However, there were no profits after a year. Can the investors ‘demand payment from you? Are you obliged to return their money? ‘Answer. No. By contributing money, they have ‘exposed themselves to risk. In business, you do not ‘guarantee profits. (On the other hand, if you borrowed money from the bank and you cannot return it, there will be interest to be paid, compounded interest, and the bank may foreclose your property. Difference between borrowing money from the bank and from your friends/investors Pans No risk presumed IES ‘Takes the isk because there is no guarantee of success or profits in business. Note: When you invest, you share opportunities. You share risks as wel Page? of | UNIVERSITY OF SAN CARLOSCORPORATION LAW! EH 403, ‘Ay. Espedido 2019 ~ 2020 ‘WwW 001 PARTNERSHIP VS CORPORATION (This is the complete breakdown but only those in bold ‘wore discussed) PARTNERSHIP Ca Summary of Differences between a Partnership and Corporation (Note: Only these were highlighted during recitation) (1)Manner of ‘Created by mere | Created by law or by ea CORPORATION Creation agreomont of the | operation oflaw Mannerof | Cfeuba. by mero | Crested by law orby partes Creation fgreoment”of the | operation oflaw No.of ‘AileasiZpemons | One Parson pares Incorporators CCoporation Commencement | Moment of | From he dala of he Od taw: at east 8] | ofvuridical "| exocuton of te | Issuance of he incoporatos Personality | conract Centeate “ot o Women at | From he date ot he Ireoporaton by he Commencement | exocuton of the | issuance of te Sec cofurgicel | contact Certtcate “ol | [anagement | Absence —of_any | Powor o_o Personally Incorporation by the ‘agreement, every | business is vested In SEC! partner isan agent | he." Board of @ Powers, Way exarelse | Exercise power only ‘ofthe partnership | Directors or Board of power authorized | express granted by Trustoes Bytheparners | faw or mmplea tom | [RIgh of Nog of] Has igh af those granted or| | Succession succession ‘succession incident tots] extent of able —pasaraly | Stokvolsens — are exstnce Llabiityto 3* | and subsidany ‘or | abe “ony the (Management [Absence “of any | Power To do] | persons partnership debi | extent of their ‘agreement, every | businessis vested In Deperons | investments. as paver is an agent | the Board of represented by the Sttheparmershp | Directors or Board of shares" subscribed Thstees bytem yevector [Parmer can sue @ | Sut aganst whe | Transferabiay —| Needs consent of | Witout ——pror Mismanagement | coparner member of he 800 | ofinterest | al patnore(oased | consent of other fo BOT must be in an gelectus | Slockholdes fhe name of be ersonarum) oporaton T)Righs of [No aga aT Has ght oF ‘Succession __} succession Succession Atty. Espedido: The life of the corporation begins in Saige cant ey fender ae] the: jssuaree of the Certificate of Incorporation issued Persons pargersnip debs | extent at trar| PY the persons | investments "as represented by the shares subscribed CONTENTS OF THE a ———o ARTICLES OF INCORPORATION Tae consent oF] Wiha ar 1) Name ofthe Corporation Fanatenury [isomer fared | concen, omer] (2) fame he Coats ofiteest | onan cebeu® | Stoekolders (a) Primary Purpose - main business Toy remot —] Any perod atime] Perpetual Example: Operate and establish the best id" faw: 50. years funeral parlor of all ime and name it Existence r t ° and extendible or ‘Libing Things another 50 years (b) Secondary purpose — may refer to TV Finn Name | For Tite Way adopt any incidental or elated products or activites, partnership name as long as it's (3) Nature of the business fequles LTD In ts | not, the same or (4) Term = perpetual term; you could exist for as name similar ‘other long as you wish. if you want to stop, just TDISSoON | Way bea] Bese wih solve it along the way eh bene wil | Coetct ne Sue (5) Address - Purpose: In order that the SEC will fay ona know where to send notices or serve you parners summons (13) Laws ‘Civil Code Govemed by a (6) Names of the Stockholders Gove ‘general law which is (7). Names of the Incorporators Revised Note: Incorporators may now be jurcicl jon Code persons so long as they present appropriate ial charter authority. (Old law: only natural persons) (8) Capita Structure ofthe Corporation Page of4 | UNIVERSITY OF SAN CARLOSCORPORATION LAW! EH 403, ‘Ay. Espedido 2019 ~ 2020 ‘WwW 001 CAPITAL STRUCTURE ‘Three levels of caprtal structure: (1) Authorized Capital Stock (ACS) - the maximum amount that a corporation intends to invest on a business (2) Subscribed Capital Stock (SCS) ~ the number ‘of shares a stockholder intends to invest in the corporation which he commits himself to pay it is the committed investment of the stockholder Note: The law requires that at least 25% of the Authorized Capital stock must be subscribed. (3) Paid-Up Capital ~ stock actually paid for by the stockholders; it is the initial amount that the ‘stockholders are obliged to pay. This isthe initial amount that shall be used in starting the corporation, Note: You do not have to pay the subscription immediately. The law requires that at least 25% ‘of the Subscribed Capital Stock of your ‘subscriptions will be paid. ‘The balance or may be due or payable later. When will it be due? It depends on the Board. ‘The Board may indicate the date when the balance will be due or will simply announce or make a call on the balance How is it paid? ‘The paid-up capital may either be done in cash ‘or property equivalent to the amount you intend to pay. Payment through property equivalent to the amount (1) The value will be determined through an appraisal (a) The SEC will send an appraiser OR {b) You wil be required to submit an appraisal report of your property done by a duly accredited appraiser, together with the Articles of Incorporation, to the SEC, (2) The SEC personnel will verity WON the paidup capital has been deposited to the bank in addition to the certified bank deposit which shall accompany the Articles of Incorporation. (3) The treasurer's affidavit wil indicate that at least 25% of the subscribed capital has been paid, OR under the present code, there will be now a verification, (Does not necessarily by the treasurer but some other ‘officers of the corporation, indicating among ‘others that at least 25% of the subscriptions have been paid and that it was made with ‘cash or properties. APPLICATION WITH THE SEC More or less these are the contents of an Article of Incorporation. You may submit this to the SEC. (1) Verification - The SEC will go over your Article of Incorporation and verity the name. Before you ‘submit your Articles of Incporation, you have to ‘confirm or verify the name that you intend to use. Otherwise if the SEC discovers that somebody is already using the same name, SEC might deny or return to you your papers and come up with another name. To save time, they require you to give 3 alternative names. SEC is free to choose from those 3 alternative names. (2) Issuance of the Certificate of Incorporation ~ If all the requisites are in order, the SEC will issue the Cerificate of Incorporation. ‘That is the official document that will give the birth of your corporation. Once you receive this, all the stockholders will be convened and we will have the first stockholders meeting. ‘STEPS AFTER THE BIRTH OF THE CORPORATION (1) Organization meeting of the stockholders ‘Tho main agenda is the election of the Board. (2) Meeting of the Board of Directors, Election of Officers ‘Once the Board of Directors are elected, they could adjourn the stockholders meeting and the directors themselves will now hold its first Board Meeting. In that meeting, they will elect the officers based on the ballots (President, Chairman, Vice President, Secretary, Treasurer). It they may want to they will select the COO (child of the owner) Coverage for next meeting: Sections 1-5 Page of | UNIVERSITY OF SAN CARLOS