CORPORATION LAW
CORPORATION – An artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence (BLG. 68, Section 2)
INTRODUCTION
Different forms of business organization:
1.) Individual Proprietorship – individual operates a small business and responsible
for its success and failure
2.) Partnership – see Art. 1767
3.) Joint Stock Company – Combination of partnership and corporation in that it is
formed under a contract and the members do not control the company but
choose a board of directors who are the authorized agents and managers.
4.) Cooperative Association – Wala daw kwenta to sabi ni De Leon
5.) Business Trust – formed by a contract and that the title to property and the
conduct of business is in the hands of trustees who act for a large group of
beneficiaries
6.) Corporation – See Sec. 2 of BP 68
7.) Syndicate – a temporary alliance of individuals, firm or corporations for the
purpose of financing an enterprise. After the purpose of organization has been
accomplished the syndicate is dissolved.
8.) Combinations – to secure the saving and other advantages which result from
consolidation and large scale operation
9.) Holding Company – to organize a new corporation which buys the individual
plants it wishes to bring into the combination and which thus becomes a single
owner of all the establishments.
 SEC was enabled to exercise adequate supervision over the operations and
activities of private corporations.
Scope of the Code.
The Corporation Code of the Philippines law is an act which:
(1) provides for the incorporation, organization, and regulation of private
corporations, both stock and non-stock, including educational and religious
corporations;
(2) defines their powers and provides for their dissolution;
(3) fixes the duties and liabilities of directors or trustees and other officers thereof;
(4) declares the rights and liabilities of stockholders and members;
(5) prescribes the conditions under which corporations including foreign corporations
may transact business;
(6) provides penalties for violations of the Code; and
(7) repeals all laws and parts of laws in conflict and inconsistent with the Code.
Attributes of a corporation.
An analysis of the definition in Section 2 reveals the following attributes of a
corporation: (PARC)
(1) It is an artificial being; -- a personality separate and apart from its individual
stockholders or members and from any other legal entity to which it may be
connected. It is an artificial being, invisible, intangible and existing only in
contemplation of law.’
(2) It is created by operation of law; come to an existence only when the
government or particularly the SEC allows its existence, provided the requirements
of incorporation are complied with.
(3) It has the right of succession; and -- A corporation has a capacity of continuous
existence irrespective of the death, withdrawal, insolvency, or incapacity of the
individual stockholders or members and regardless of the transfer of their interest or
shares of stock. But the corporation is by no means immortal.
(1) Under the Corporation Code, the life of the corporation is limited to the period of
time stated in the articles of incorporation not exceeding 50 years from the date of
incorporation unless sooner dissolved or unless said period is extended9 (Sec 11.)
(2) Corporations created by special laws have the right of succession for the term
provided in the laws creating them.
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(4) It has only the powers, attributes and properties expressly authorized by law or
incident to its existence. -- A corporation, being purely a creation of law, may exercise
only such powers as are granted by the law of its creation.
An express grant, however, is not necessary. All powers which may be implied from
those expressly provided by law and those which are incidental or essential to the
corporation's existence may also be exercised,
DOCTRINE OF CORPORATE ENTITY/DOCTRINE OF SEPARATE PERSONALITY
a corporation is a legal or juridical person with a personality separate and apart from
its individual stockholders or members and from any other legal entity to which it may
be connected.
CONSEQUENCE OF THIS DOCTRINE
1.) Liability for acts or contracts – obligations incurred by the corpo are its sole
liabilities.
2.) Liability when exceptional circumstances warrant -- it may validly attach
when the director/trustee or officer acted maliciously or in bad faith, or with
gross negligence (see Sees. 31, 65.), or agreed to hold himself personally and
solidarily liable with the corporation, or made, by specific provision of law,
personally liable for corporate action, or it is proven that the officer has used
the fiction of separate corporate personality to defraud a third party or for
wrongful ends.
3.) Right to bring actions -- It may incur obligations and bring civil and criminal
actions (Art. 46, Civil Code.) in its own name in the same manner as a natural
person, although it may not perform certain actions that can be done only by
natural persons
4.) Right to acquire and possess property -- It may acquire and possess property
of all kinds. The property becomes a distinct legal entity. The mere fact that
one is president of a corporation does not render the property he owns or
possesses the property of the corporation, since the president, as an
individual, and the corporation, are separate entities.
5.) Changes in individual membership -- a corporation remains unchanged and
unaffected in its identity by changes in its individual membership.
DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY/DISREGARDING THE
FICTION OF CORPORATE ENTITY/CORPORATE ALTER EGO:
 where the fiction of corporate entity is being used as a cloak or cover for
fraud or illegality, or "to defeat public convenience, justify wrong, protect
fraud, or defend crimeor for ends subversive of the policy and purpose
behind its creation, especially where the corporation is a closed family
corporation on equitable considerations, this fiction will be disregarded and
the individuals composing it or two corporations will be treated as
identical”
 for the corporate legal entity to be disregarded, the wrongdoing must be
clearly and convincingly established; it cannot be presumed
 The burden of proving otherwise is on the party seeking to have the court
pierce the veil.
 What is the consequence once the Veil is pierced, the liability will
immediately attach
Application of doctrine in three areas. — The doctrine applies only in three (3) basic
areas, namely:
1) defeat of public convenience as when the corporate fiction is used as a vehicle for
the evasion of an existing obligation;
2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud,
or defend a crime; or
3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation
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 In the absence of malice, bad faith, or a specific provision of law making a
corporate officer liable, such corporate officer cannot be made personally
liable for corporate liabilities.
DETERMINATION OF WHETHER THE SUBSIDIARY IS A MERE INSTRUMENTALITY OF
THE PARENT-CORPORATION:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) (b) The parent and subsidiary corporations have common directors or officers.
(c) (c) The parent corporation finances the subsidiary.
(d) (d) The parent corporation subscribes to all the capital stock of the subsidiary
or otherwise causes its incorporation.
(e) (e) The subsidiary has grossly inadequate capital.
(f) (f) The parent corporation pays the salaries and other expenses or losses of
the subsidiary.
(g) (g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
corporation.
(h) (h) In the papers of the parent corporation or in the statements of its officers,
the subsidiary is described as a department or division of the parent
corporation, or its business or financial responsibility is referred to as the
parent corporation's own.
(i) (i) The parent corporation uses the property of the subsidiary as its own.
(j) (j) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary but take their orders from the parent-corporation.
(k) (k) The formal legal requirements of the subsidiary are not observed.
The absence of any of the three (3) elements below prevents, under said rule,
"piercing the corporate veil":
(1) Control, not mere majority or complete stock control, but complete dominion, not
only of finances but of policy and business in respect to the transaction attacked so
that the corporate entity as to this transaction had at the time no separate mind, will,
or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong,
violation of a statutory or other positive duty, or dishonest and unjust act in
contravention of plaintiff's legal rights; and (CLEAR AND CONVINCING)
(3) The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
CORPORATION AS A PARTNER
 As a general rule, corporations cannot ordinarily enter into partnership
because:
1.) It can only act thru its duly authorized officers and agents
2.) Based on grounds of public policy as the entire concept would be
inconsistent with the policy of the law that the corporation shall
manage its own affairs separately and exclusively
3.) The Corps assets are subjected to certain risks and liabilities not
contemplated by the stockholders at the time of making their
investment
 EXCEPTION:
1.) It may enter into a Joint Venture, provided that the nature of the
venture is in line with the business authorized by their charters.
2.) tt
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Section 3. Classes of corporations. - Corporations formed or organized under this
Code may be stock or non-stock corporations. Corporations which have capital stock
divided into shares and are authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the basis of the shares held are stock
corporations. All other corporations are non-stock corporations. (3a)
Section 4. Corporations created by special laws or charters. - Corporations created by
special laws or charters shall be governed primarily by the provisions of the special law
or charter creating them or applicable to them, supplemented by the provisions of this
Code, insofar as they are applicable. (n)
Section 5. Corporators and incorporators, stockholders and members. - Corporators
are those who compose a corporation, whether as stockholders or as members.
(GENERAL ‘TO)
Incorporators are those stockholders or members mentioned in the articles of
incorporation as originally forming and composing the corporation and who are
signatories thereof.
Corporators in a stock corporation are called stockholders or shareholders.
Corporators in a non-stock corporation are called members. (4a)
Section 6. Classification of shares. - The shares of stock of stock corporations may be
divided into: (1)classes or (2) series of shares, or (3)both, any of which classes or series
of shares may have such rights, privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share may be deprived of voting rights
except those classified and issued as "preferred" or "redeemable" shares, unless
otherwise provided in this Code: Provided, further, That there shall always be a class
or series of shares which have complete voting rights. Any or all of the shares or series
of shares may have a par value or have no par value as may be provided for in the
articles of incorporation: Provided, however, That banks, trust companies, insurance
companies, public utilities, and building and loan associations shall not be permitted to
issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the
distribution of dividends, or such other preferences as may be stated in the articles of
incorporation which are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value. The board of
directors, where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided, That such
terms and conditions shall be effective upon the filing of a certificate thereof with the
Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided; That shares without par value may not be
issued for a consideration less than the value of five (P5.00) pesos per share: Provided,
further, That the entire consideration received by the corporation for its no-par value
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shares shall be treated as capital and shall not be available for distribution as Section 8. Redeemable shares. - Redeemable shares may be issued by the corporation
dividends. when expressly so provided in the articles of incorporation. They may be purchased or
A corporation may, furthermore, classify its shares for the purpose of insuring taken up by the corporation upon the expiration of a fixed period, regardless of the
compliance with constitutional or legal requirements. existence of unrestricted retained earnings in the books of the corporation, and upon
Except as otherwise provided in the articles of incorporation and stated in the such other terms and conditions as may be stated in the articles of incorporation,
certificate of stock, each share shall be equal in all respects to every other share. which terms and conditions must also be stated in the certificate of stock representing
Where the articles of incorporation provide for non-voting shares in the cases allowed said shares. (n)
by this Code, the holders of such shares shall nevertheless be entitled to vote on the
following matters: Section 9. Treasury shares. - Treasury shares are shares of stock which have been
1. Amendment of the articles of incorporation; issued and fully paid for, but subsequently reacquired by the
2. Adoption and amendment of by-laws; issuing corporation by purchase, redemption, donation or through some other lawful
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all means. Such shares may again be disposed of for a
of the corporate property; reasonable price fixed by the board of directors. (n)
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other
corporations;
7. Investment of corporate funds in another corporation or business in accordance
with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to
approve a particular corporate act as provided in this Code shall be deemed to refer
only to stocks with voting rights. (5a)

Section 7. Founders' shares. - Founders' shares classified as such in the articles of

incorporation may be given certain rights and privileges not enjoyed by the owners of
other stocks, provided that where the exclusive right to vote and be voted for in the
election of directors is granted, it must be for a limited period not to exceed five (5)
years subject to the approval of the Securities and Exchange Commission. The five-
year period shall commence from the date of the aforesaid approval by the Securities
and Exchange Commission. (n)