VOLCANOTES 2020 | BUSINESS ORGANIZATION II

Part 1 beyond his capital or

Corporation Law of the Philippines investment in the
business, that is, even his
I. INTRODUCTION personal properties not
1. General – The economic capability of a used in his business may
country depends on its natural and financial be subjected to
resources. attachment or foreclosure
by his creditors.
Business management then comes into play
with ever important roles of assuring a B. PARTNERSHIP – [ see Art, 1767, Civil
smooth flow of economic transition or Code ] “by a contract of partnership
activity. two or more persons bind themselves
to contribute money, property, or
2. Kinds of Business Organization – There are industry to a common fund with the
4 known forms of business establishment intention of dividing the profits among
under the Philippine set up: themselves”
1. Sole Proprietorship
2. Partnership Mendiola v CA
3. Joint Venture FACTS: Mendiola entered into a side agreement with Pacfor USA who
4. Corporation will set up a representative office in the PH. They named the office
ü Of the four, corporation plays the most Pacfor PH in which the petitioner (Mendiola) is President.
important role in economic
development – because it permits the In the agreement, petitioner’s base salary and the company’s
overhead expenditures shall be borne by Pacfor PH and shall be
combination of resources of investors,
funded by Pacfor PH or Mendiola.
to raise the much-needed capital for
large scale business or enterprise. The side agreement was later on amended through a Revised
Operating and Profit Sharing Agreement.
A. SOLE PROPRIETORSHIP – it is a one-
man form of business entity. Years later, petitioner Mendiola wrote Pacfor’s VP for Asia seeking
ª Is defined as one conducted for confirmation of his 50% equity for Pacfor PH to which Pacfor’s
profit by a lone or single individual President replied that petitioner is NOT a part owner, his office being
who owns all assets, personally just a representative office.
owes and answers to all liabilities
ISSUE: W/N a partnership or co-ownership exist between the parties.
or suffers all the losses and enjoys
all the profit to the exclusion of RULING: No. There is NO partnership exist bet. the parties.
others.
ª ADVANTAGES: The proprietor According to Art. 1767 of the civil code, in partnership, the member
makes his own decision and can contributes money, property which forms a community of goods, a
therefor act without delay or other common fund in which each party has a proprietary interest.
formalities such as board meetings.
 He likewise, owns all the This essential element, the community of interest, or co-ownership
of, or joint interest in partnership is absent in the relations between
profits without having to
petitioner Mendiola and Pacfor.
share the same.
ª DISADVANTAGE: [ Capital is limited
but the personal liability is
unlimited. ] Owner’s unlimited
personal liability for all debts and
obligations of the enterprise.
 Unlike in a corporation
where in an investor is
liable only up to the
extent of his subscription
or his promised
contribution, a sole
proprietorship can be held
liable or answerable
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

o JV – does NOT entail a

continuing relationship
among the parties.
JM Tuason & Co., Inc. v Bolanos
 This distinction is
FACTS: Petitioner brought an action to recover possession of
registered land situated in Barrio Tatalon, QC. NOT ENTIRELY
correct under PH
In the complaint, the plaintiff is represented by its managing partner, jurisprudence
Gregorio Araneta, Inc. another corporation. because under the
Civil Code, a
After trial, the court rendered judgment for plaintiff, declaring the partnership may also
defendant to be without any right to the land in question and be particular or
ordering him to restore possession thereof to plaintiff and to pay the universal.
latter monthly rent.
 In effect, JV is a
ISSUE: W/N a corporation may enter into a joint venture with form of
another corporation. partnership and
should be
RULING: YES. The rule is that though a corporation ha NO power to governed by the
enter into a partnership, it may nevertheless enter into a joint law partnership.
venture with another where the nature of that venture is in line with
the business authorizes by its charter. ª GR: Corporations cannot enter
into a contract of partnership.
There is NO indication that the venture is NOT in line with the
XPNs: Corporations may be
corporate business of either of them.
allowed by the SEC to enter
into a contract of partnership
if the following conditions are
met:
1. The articles of
incorporation
expressly authorized

JOINT VENTURE PARTNERSHIP

As to personality Does NOT have a DOES.
personality distinct
and separate form
the persons
composing it
As to object Undertaking of a General business of
particular or single particular kind,
transaction ALTHOUGH there
may be a
partnership for a
single transaction.
As to w/n Corp. MAY enter Corp. NOT eligible
corporations can into JV. to be a partner in a
enter into partnership.
C. JOINT VENTURE – partakes the nature
*This is because
of a partnership contract and is
in entering into
created for the purpose of prosecuting
partnership, the
a particular business transaction.
identity of the
ª It is a one-time grouping of
corp. is lost or
two or more persons (natural
merged with that
or juridical), in a specified
of another and the
undertaking.
discretion of the
ª DISTINCTIONS
officials is placed in
(JV v Partnership)
other hands other
than those
permitted by the
law at its creation.
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

the corporation into advent of the sociedad

contracts of anonimas which are similar to
partnership; the American corporations.
2. The agreement or
articles of partnership It was akin to the idea of the
must provide that ALL English joint stock companies
the partners will with features resembling both
manage the the partnership and
partnership; and corporation of today.
3. The articles of
partnership must
stipulate that ALL the
partners are and shall
be jointly and
severally liable for all
obligations of the
partnership.

Auback v Sanitary Wares Manufacturing Corp.

FACTS: Saniwares, a domestic corporation entered into an agreement
with American Standard, Inc. in order to expand their business
internationally.

The parties agreed that the business operations in the PH shall be

carried on by an incorporated enterprise.

Unfortunately, there came a deterioration of relations between the

Filipino group of investors led by Lagdameo and American groups of
investors regarding the export operations of the company.

ISSUE: W/N the parties entered into a joint venture.

D. CORPORATION – [ see Sec. 2, RA 11232 II. DEFINITION & ATTRIBUTES

]
LBC Express v CA
ª It is an artificial being, created FACTS: Adolfo Carloto, President-manager of Rural Bank of Labason
by operation of law, having was instructed to go to Central Bank Main’s office in Manila for the
the right of succession and the rediscounting obligations of the bank.
powers, attributes and
properties expressly He purchased a round-trip plane ticket for Manila and asked his sister
authorized by law or incident to send him the rediscounting papers and a pocket money through
to its existence. LBC Office at Dipolog City.
ª HISTORICAL BACKGROUND:
Unfortunately, the documents arrived but he did not receive the
Corporations had their early
pocket money he expected. Thus, he filed a suit against LBC for moral
beginnings in England and in damages and the reimbursement of P32,000.000.
Rome. In the PH, however, the
concept much later evolved ISSUE: W/N the Rural Bank should be awarded moral damages.
from the Spanish Law with the
RULING: NO. A corporation being an artificial person and having
existence only in legal contemplation, has no feelings, no emotions,
no senses. Therefore, it cannot suffer physical suffering and mental
anguish. It can eb experienced only be one having a nervous system
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

ª In effect, it exists independently form

the stockholders, members or its
officers.
2. Created by operation of law – this is so
because the formal requirement of the
State’s consent through compliance with
Filipinas Broadcasting v Ago Medical Center
FACTS: Rima and Alegre were host of FBNI program “Expose”.
the requirements imposed by law is
Respondent Ago was the owner of the Medical and Educational necessary for its creation.
Center, subject of the radio program “Expose” ª Mere agreement of the
persons composing it or
AMEC claimed that the broadcast was defamatory and owner Ago intending to organize it does
and school AMEC claimed for damages. not warrant the grant of its
independent existence as a
ISSUE: W/N school AMEC is entitled to moral damages. juridical entity.
3. Right of succession – unlike in a
RULING: YES. AMEC is entitled to moral damages.
partnership, the death, incapacity or civil
A juridical person is generally NOT entitled to moral damages interdiction of one or more of its
because, unlike a natural person, it cannot experience physical stockholders does NOT result in its
suffering or such sentiments as wounded feelings, serious anxiety, dissolution.
mental anguish or moral shock. ª It persists to exist
independently of the
Nevertheless, AMEC’s claim for moral damages fall under Art. 2219 individuals or persons
of the Civil Code. This provision expressly authorizes the recovery of composing it.
moral damages in cases of libel, slander, or any other form of
4. It has the powers, attributes and
defamation. Art. 2219 does not qualify whether the plaintiff is a
properties expressly authorized by law
natural or juridical person.
or incident to its existence – this
Thus, a corporation can validly claim moral damages for libel. presupposes that it can exercise only
such powers and can hold only such
properties as are granted to it by the
enabling statutes unlike natural persons
who can do anything as they please.

o Advantages of Corporate Form of Business

1. Capacity to act as a single unit –
any number of persons may unite
in a single enterprise without using
their names, without difficulty or
inconvenience;
2. Limited shareholder’s liability – an
indiv. Stockholder may contribute
as much or as little as he sees fit,
RA 11232 without risking more;
An Act Providing for the Revised Corporation Code 3. Continuity of existence – rights
of the Philippines and obligations of a corporation is
NOT effected by the death,
Sec. 2. Corporation Defined – A corporation is an incapacity, or replacement of the
artificial being created by operation of law, having individual members;
the right of succession and the powers, attributes, 4. Feasibility of greater undertaking
and properties expressly authorized by law or – the modern corporation makes
incidental to its existence. great undertaking feasible – since
o 4 Attributes of a Corporation it enable individuals to cooperate
1. Artificial being – it has a personality in order to furnish the large
separate and distinct form the persons amounts of capital necessary to
composing it. finance large scale enterprises;
5. Transferability of shares – UNLESS
reasonable restricted, shares of
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

stock, being a personal property, 8. Corporations are subject to

can be transferred by the owner governmental regulations
without the consent of the other supervision and control.
stockholders;
6. Centralized management – is a o Distinctions Between a Corporation and
practical business necessity in any Partnership
large organization;
7. Standardized methods of CORPORATION PARTNERSHIP
organization, management and
finance – tehre is a standardization 1. As to creation Created by law or by Created by mere
of constitution, etc which are operation of law agreement of
provided under a well0drawn the parties.
general corporation law. The 2. As to number There must be at May be formed by
corporation statutes enter into the of members least 5 2 or more
charter and these are constantly incorporators, natural persons
being interpreted by the courts, *except the
thus provides an established corporation sole,
system of management and is incorporated
protection of shareholders and by a single
creditor’s rights. individual
3. As to powers Can only exercise Can do anything by
o Disadvantages of the Corporate Form of to be powers and agreement of
Business exercised functions the parties
1. To have a valid and binding expressly provided only
corporate act, formal proceedings granted to it by that it is NOT
such as board meetings are law and those contrary to law,
required; that are morals, good
2. The business transactions of a necessary and customs, and
corporation are limited to the State incidental to its public order.
of its incorporation. existence
ª They may not act as such 4. As to who UNLESS validly In the absence of
corporation in other may transact delegated an agreement
jurisdiction UNLESS it has the business expressly or to the contrary,
obtained a license from impliedly, a any one of the
the foreign state; corporation must partners in the
3. The shareholder’s limited liability transact its partnership
tends to limit the credit available business through may validly
to the corporation as a separate a board of bind the
legal entity; directors. partnership.
4. Transfers of shares may result to 5. As to the Corporation has the This is based in
uniting incompatible and right of right of mutual trust,
conflicting interests; succession succession, it the death,
5. The minority shareholders have continues to incapacity or
practically NO say in the conduct of exist despite the civil interdiction
corporate affairs; death, incapacity of the partner
6. In large scale enterprise, or civil would result to
stockholder’s voting rigts may interdiction of its dissolution.
become merely fictitious and the stockholders
theoretical because of disinterest or members.
in management, wide-scale 6. As to Any stockholder can A partner CANNOT
ownership and inaccessible place transferabilit ordinary transfer his
of meeting; y of stocks transfer, sell or rights or
7. “Double taxation” may be imposed assign his shares interest in the
on corporate income; and of sotck without partnership
the consent of without the
the others. consent of the
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

others. stock divided into shares and are authorized to distribute to

7. As to liability Limited only to the ALL partners, the holders of such shares, dividends or allotments of the
of members extent of their including the surplus profits on the basis of the shares held. All other
subscription or industrial corporations are nonstock corporations.
their promised partners
contribution. (except limited o 2 Requisites in order to be classified as
partners) are stock corporations:
liable pro rata. 1. That they have a capital stock divided into shares;
8. As to term of 50 years UNLESS May exist for an and
existence extended by indefinite 2. That they are authorized to distribute dividend or
amendment in period subject allotments as surplus profits to its stockholders on
accordance to only to the the basis of the shares held by each of them.
Section 11 of the causes of
Code – it shall be dissolution ª Nonstock Corporations – those where no part of
considered non- provided for by their income is distribute as dividend to its members,
existent EXCEPT Art. 1824 of the trustees or officers subject to the provisions on
for the purpose Civil Code. dissolution.
of liquidation for
another 3 years
9. As to CANNOT be CAN be dissolved
dissolution dissolved by the at the partners’
mere agreement will or at any
of the time they deem
stockholders. it fit.
The consent of
the State is
necessary.

o Government Powers in Relation To

Corporations
ª The regulation of corporations
registered under Philippine laws is
effected by the State’s exercise of tis
inherent powers. These include:
o Police power,
o Eminent domain, and
o Taxation.
ª A corporation is protected by
statutory provisions, particularly
the PH Constitution, from the
arbitrary exercise of the powers of
the government.
o Due process clause – every
person, inclusive of juridical
entities, cannot be deprived CollectorItof is Internal
a familiarRevenue
rule that v Club Filipino,
the actual Inc. deinCebu
purpose NOT controlled by the
of its rights and properties FACTS: Club Filipinoform
corporate is a civic
or by corporation with an authorized
the commercial aspect of capital
the business
without due process of law. of P22,000.00 whichbut
prosecuted wasmaylaterbeincreased
shown bytoextrinsic
P200,000.00
evidence including the by-
o Equal protection clause – [ See laws and the method of operation. Form the extrinsic evidence
Sec. 184, RCC ] Its articleadduced,
of incorporation and by-laws
the Tac Court do not
concluded thatcontain
the Club anyisprovision
NOT engaged in
relative the
to dividend
business and as a their distribution
bar keeper although it is covenanted
and restauranteur.
that upon its dissolution, the Club’s remaining assets, after paying its
III. CLASSIFICATION OF CORPORATIONS debts, shall be donated
Moreover, for atostock
a charitable PH institution
corporation to exists,intwo
Cebu.requisites must be
1. Stock vs. Non-Stock complied with: (1) a capital stock divided into shares; and (2) an
The clubauthority
owns andtooperates
distribute“a clubhouse, bowling
to the holders alley,shares,
of such golf course,
dividends or
Section 3. Classes of Corporations – Corporations formed or and a bar restaurant
allotments where itprofits
of surplus sells on
wines
the and
basisliquors, soft-drinks,
of the shares held. IN the
organized under this Code may be stock or nonstock meal andcase,shortnowhere
orders toinitstismembers
articles and their guests”.or
of incorporation Theby-laws
bar andcould be
corporations. Stock corporations are those which have capital restaurant wereannecessary
found authorityincident
for thetodistribution
the operation of the
of its Club and
dividends or surplus
its golf course
profits. isStrictly
operated mainly itwith
speaking, funds therefore,
CANNOT derived its be overhead
considered as
expensesstockand to improve thewithin
corporation, golf course.
the contemplation of the Corporation
Code.
VOLCANOTES 2020 | BUSINESS ORGANIZATION II

NO. The club is NOT liable to pay the taxes assessed against it.
The Clubs is NOT engaged in the business as a bar keeper and
restauranteur.

It has been held that the liability for fixed and percentage
taxed does NOT ipso facto attached by mere reason of the
operation of the bar and the restaurant.

In the case, it is concocted that the Club derived profits form

the operation of its bar and restaurant, but such fact does not
necessarily convert it into profit making enterprise. The bar
and restaurant are necessarily adjunct of the Club to foster its
purpose and the profits derived therefrom are necessarily
incidental to the primary object of developing and cultivating
sports for the healthful recreation and entertainment of the
stockholders and members. The fact that a club makes profit
does not make it a profit-making club.

It is claimed that the Club is a stock corporation. (It is NOT.

For a stock corporation to exist, 2 requisites must be
complied with: (1) a capital stock divided into shares and (2)
an authority to distribute to the holders of such shares,
dividends or allotments of surplus profits in the basis of the
shares held. In the case, nowhere in its articles of
incorporation or by-laws could be found an authority for the
distribution of its dividend or surplus profits Strictly speaking,
it cannot therefore by considered as a stock corporation) This
is unmeritorious. That fact that the capital of the Club is
divided into shares does not change the finding of the trial
court that it is NOT engaged in the business of operator of bar
and restaurant. What is determinative of whether or not the
Club is engaged in the business is its object or purpose or
stated in its articles of incorporation and by-laws.

It is an established rule that the purpose is NOT controlled by

the corporate form or by the commercial aspect of the
business prosecuted but may be shown by extrinsic evidence
adduced. It is concluded by the Tax Court that the Club is NOT
engaged in the business as a bar keeper and restauranteur.

2. Created by special law

Section 4. Corporations Created by Special Law or Charters –

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

ª Corporation are created by the special touch of the

State. As such, it may through legislative act, create
corporations for the interest of the common good.
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

o Among those corp. created by special law

are:
1. Philippine National Oil Company
2. National Development Company
3. Philippine Export and Foreign Loan
Guarantee Corporation
4. Government Services and Insurance
System
o These corporations, all government owned
or controlled, operate under the special law
or charter such that the registration with
the SEC is NOT required for them to acquire
a legal or juridical personality.
o Primarily, they are governed by the special
law creating them. But unless otherwise
provided by the law of their creation, they
are NOT immune from suits.
 When the gov’t engages in a
particular business through the
instrumentality of a corp., it divests
itself pro hoc vice of its sovereign
character so as to subject itself to
the rules governing private
corporations.
o While officers and employees of gov’t
owned or controlled created special laws
are governed by the law or their creation,
usually the Civil Service Law, their
subsidiaries, organized under the provisions
of the Corporation Code are governed by Hacienda Luisita, Inc. v PARC { SECTION 4, Corp. Code }
the Labor Code. – The test in determining FACTS: TADECO, owned by Jose Cojuangco, Sr. bought the 6,000
hectares land of Hacienda Luisita in Tarlac and the sugar mill within
whether they are governed by the Civil
from the original owner TABACALERA.
Service Law is the manner of their creation.
 CSL – GOCC Prior to the transfer of ownership, the PH Gov’t, thru GSIS assisted
 LC – subsidiaries of GOOC and extended loans to TADECO for the payment of the loan. One of
the conditions on the loan agreement between the, was the lots
comprising the Hacienda shall be distributed and sold to its tenants
ten years after.

ISSUE: W/N PARC have jurisdiction and power to revoke the SDP?

RULING: YES. HLI was created in order to comply with RA 6657m

which is the mother law od SDOA and SDP. Corporation Code is the
general law providing the formation, organization and regulation or
private corporations. However, RA 6657 is the special law on agrarian
reform. Between a general law and special law, the latter shall
PNCC v Inc.
Tunaprevail.
Processing, Pabion
v Phil. Kingford Inc. { SECTION 4, Corp. Code }
PNOC- Energy Dev’t Corp. v NLRC
FACTS: Ernesto
FACTS: Kanemitsu Yamaoka,Pabion and Ramiro,
a co-patentee of aclaiming to be
US patent, stockholders of
entered
FACTS: Danilo Mercado was an employee of Philippines National Oil
the PNCC filed
into a memorandum with the with
agreement SEC a5verified petition, therein
tune processors alleging that
including
Company-Energy Development Corporation, a subsidiary of PNOC, on
respondentsince 1982, there
Philippine has been
Kingford, Inc.noThe
stockholders
MOA provides meeting forofthe
the PNCC to
August 13, 1979. He was dismissed on June 30, 1985 on the ground
enforcing elect
of thethe corporation’s BOD,
above-mentioned thus enabling
patents, granting the incumbent
licenses under directors
that serious acts of dishonesty and violation of rules and regulations
to hold
the same and on to their
collecting position
royalties beyond
and for their 1-year term,
the establishment in violation of
of herein
were committed.
PNCC’sInc.
Tuna Pocessors, by-laws and the Corporation Code.
On September 23, 1985, Mercado filed a complaint of illegal
Due to a Pabio andevents,
series of Ramiro,
thetherefor, prayed the
tuna processors, SEC to
including issue an order
Kingford,
dismissal against PNOC-EDC before the NLRC. PNOC-EDC filed a
withdrew ordering the officers
from petitioner to call
TPI and and hold a meeting
correspondingly renegedof on
the the
stockholders
motion to dismiss on the ground that the CSC, not the NLRC has
for the purpose of electing new directors.
obligations.
jurisdiction over the case.
ISSUE: W/NISSUE: W/N the SECCode
the Corporation has jurisdiction to order
or Alternative PNCC
Dispute to hold a meeting.
Resolution
NLRC denied the MTD and ruled in favor of Mercado on July 3, 1987.
Act of 2004 should apply.
RULING: YES. The SEC has jurisdiction over corporations organized
PNOC-EDC questioned the jurisdiction of NLRC on the ground that
pursuant
RULING: The to theDispute
Alternative Corporation CodeAct
Resolution even if the should
of 2004 majority or controlling
apply.
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

Republic v Paranaque
FACTS: The Public Estates Authority, a government corporation
created by virtue of PD No. 1084 to provide a coordinated,
economical and efficient reclamation of lands, and the administration
and operation of lands belonging to, managed and operated by the
government with the object of maximizing their utilization and
hastening their development consistent with public interest. By
Litonjua, Jr. v Eternit Corporation
virtue of its mandate, PRA reclaimed several portions of the
FACTS: The Eternit Corporation manufactures roofing materials and
foreshore areas of Manila Bay, including those in Paranaque City.
pipe products. 90% of the shares of stocks were owned by ESAC, a
corporation registered under the laws of Belgium. Glannville was the
ISSUE: W/N petitioner is an incorporated instrumentality of the
general manager and President of EC, while Delsaux was the regional
government and thus, exempt form payment of taxes.
director for Asia of ESAC.
RULING: YES. When the law vests in a government instrumentality
In 1986, because of the political situation of the Philippines, the
corporate powers, the instrumentality does not necessarily become
management of ESAC wanted to stop its operations and to dispose
a corporation UNLESS the gov’t instrumentality is organized as a
the land in Mandaluyong City. When informed of this, the Litonjuas
stock or non-stock corporation, it remains a government
filed a complaint for specific performance and payment for damages
instrumentality exercising NOT only government but also corporate
on account of the aborted sales.
MIAA v CA
ISSUE: W/N Marquez needed a written authority form Eternit for the
FACTS: MIAA operate NAIA in Paranaque City. As such operator, it
sale can be perfected.
administers the land, improvements and equipment within the NAIA
complex in March 1996. The Office of the Gov’t Corporate Counsel
RULING: YES. An unauthorized act of an officer of the corporation is
(OGCC) issued Opinion no. 061 to the effect that the LGC withdrew
not binding unless the latter ratifies the same expressly or impliedly
the exemption form real estate tax granted to MIAA under Sec. 21 of
by its Board of Directors. Any sales of the real property of a
its charter. Thus, MIAA filed a petition with the CA seeking to restrain
corporation by a person purporting to be an agent but without
Paranaque City form imposing taxes upon them.
written authority form the corporation is null and void.

MIAA v CA

When the law vests in a government instrumentality corporate

powers, the instrumentality does not necessarily become a
corporation UNLESS the gov’t instrumentality is organized as a
stock or non-stock corporation, it remains a government
instrumentality exercising NOT only government but also corporate
powers.

Thus, MIAA exercises the governmental powers of eminent domain,

police authority and the levying of fees and charges. At the same
time, MIAA exercises “all the powers of a corporation under the
Corporation Law, insofar as these powers are NOT inconsistent with
the provisions of this EO.”

Second, real properties of MIAA are owned by the PH and also

 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

3. Public vs. Private

ª Sec. 3 of Act 1459 provided for a classification of

corporations into private and public.
o Public Corporations – those formed or
organized for the government or a portion
of the State or any of its political
subdivisions and which have for their
purpose the general good and welfare. 4. Ecclesiastical & Lay
 Created by the State as its own ECCLESIASTICAL LAY
device and agency for the For spiritual purposes or for for purpose other than
accomplishment or its own public administering properties religion.
purpose. held for religious ones.
 The mere fact that the undertaking
in which a corporation is engaged 2 Classifications: 2 Classifications:
in is one which the State itself 1. Religious societies 1.Eleemosynary – created
might enter into as part of its 2. Corporation sole for charitable and
public work does not make it a benevolent purposes
public one. such as those organized
 The fact that some or all stocks in o for the purpose of
the corporation are held by the maintaining hospital and
government does not make it a houses for the sick, aged
public corporation. or poor.
o True test to determine the nature of a 2.Civil – organized for the
corporation is found – in the relation of the benefit, pecuniary or
body to the State. otherwise, of its
 PubCorp – one that is created, members.
formed or organized for political or
governmental purposes with
political powers to be exercised for ª Ecclesiastical or religious corporation –
purposes connected with the o Organized to secure public worship or
public good in the administration perpetuating the right of a particular
of civil government. religion.
 It is an instrument of the
government, subject to
the control of the
legislature, and its
members are officers of
the governments
appointed to discharge 5. Aggregate & Sole Corporations
public duties. AGGREGATE SOLE
GR: composed of a number one person and made as
National Coal Corp. v CIR of individuals vested with bodies corporate and politic
FACTS: The National Coal Corporation was created on March 10, corporate powers. in order to give them some
1917 for the purpose of developing the coal industry in the Philippine [consisting of NOT less than legal capacity and
Islands, in harmony with the general plan of the government to 5 but NOT more then 15 advantage which, as natural
encourage the development of natural resources of the country, and incorporators] persons, they cannot have.
to provide facilities therefore.

By the said act, the company was granted the general powers of a EXCEPT the corporation
corporation and such other powers as may be necessary to enable it sole
to prosecute the business of developing coal deposits in the
Philippines of mining, extracting, transporting and selling the coal
contained in said deposits.
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II
A corporation sole may be
formed by the chief
archbishop, bishop, priest,
minister, rabbi or other
presiding elder or religious
denominations, sects or
churches.
6. Close & Open
CLOSE
shares of stock are held by
limited number of persons
like the family or other
closely-knit group.
NO public investors and the
shareholders are active in
the conduct of the
corporate affairs.
Recognized under PH
jurisprudence by virtue of
the specific provision of Sec.
95 of the CC.
7. Domestic & Foreign
DOMESTIC
Created under or by virtue
of the PH laws:
either by
legislative act or under the
provisions of the General
Corp. Law
8. Parent/Holding, Subsidiaries & Affiliates
PARENT/HOLDING SUBSIDIARIES
One corporation a corporation Those
controls another under
corporation known control
as its subsidiaries another
corporation
which is the operated as part
holding
company.
OPEN
Authorized and empowered
to list in the stock exchange
and to offer their shares to
the public such that stock
ownership can widely be
dispersed.
formed to openly accept
outsiders as stockholders or
investors.
FOREIGN
Defined under Sec. 140 as
formed or existing under
any laws other than those
of the PH
Laws allow Filipino citizen
and corporations to do
business in its own country
or state,
AFFILIATES
the corporations
pf which are subject
to common
control and
of a system.
Corporations that
confine their
activities to
owning stock in,
and supervising
management of
other companies.
ª Holding company –
o usually owns a controlling interest (more
than 50%of the voting stock) in the
companies whose stocks it holds.
 Thus, it controls the latter by the
power and authority to elect
management.
o Holding Company v Investment Company –
IC are active in the sale or purchase of
shares of stock or securities, parent or
holding companies have a passive portfolio
and hold the securities merely for purposes
of control and management.
ª Subsidiary corporations – has an independent and
separate juridical personality, distinct from that of its
parent company
o Any claim or suit against the latter does not
bind the former and vice versa.
ª Affiliates – sometimes called “sister companies”,
since the stockholdings of a corporation is NOT
substantial enough to control the former.
9. Public & Private
PUBLIC PRIVATE
those formed or organized Those formed for some
for the government or a private purpose, benefit,
portion of the State or any aim or end.
of its political subdivisions
and which have for their
purpose the general good Created for the immediate
and welfare. benefit and advantage of
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

the individuals or members

composing it and their Sec. 20. Corporation by Estoppel – All persons who assume to
franchise may be act as a corporation knowing it to be without authority to do
considered as privileges so shall be liable as general partners for all debts, liabilities
conferred by the State to be and damages incurred or arising as a result thereof: Provided,
exercised and enjoyed by however, That when any such ostensible corporation is sued
them in the form of the on any transaction entered by it as a corporation or on any
corporation. tort committed by it as such, it shall not be allowed to use its
Organized for governmental NOT Organized for lack of corporate personality as a defense. Anyone who
purposes governmental purposes assumes an obligation to an ostensible corporation as such
cannot resist performance thereof on the ground that there
10. Quasi-public corporation – private corporations which was in fact no corporation.
have accepted from the State the grant of a franchise or
contract involving the performance of public duties.
ª The term is sometimes applied to
corporations which are NOT strictly public in
the sense of being organized for
governmental purposes, but whose
operations contribute to the convenience or
welfare of the general public, such as
o telegraph and telephone
companies,
o gas,
o water and
o electric companies.
ª Known as Public Service Corporations

11. De jure v De facto

DE JURE DE FACTO
Created in strict or Exist by the virtue of an
substantial compliance with irregularity or defect in the
the statutory requirements organization or constitution
of incorporation and whose or form some omission to
rights to exist as such comply with the conditions
cannot be successfully precedent by which
attached even by the State corporations de jure are
in a quo warranto created.
proceeding.
Incorporated by strict
There was colorable
adherence to the provisions compliance with the
of the law of their creationrequirements of the law
under which they might be
lawfully incorporated for
the purposes and powers
assumed, and user of the
rights claimed to be
conferred by law.
13. One Person Corporation
ª De facto Corporation – it existence can only be
attacked by a direct action of quo warranto
ü On May 2, 2019, the PH Securities and Exchange
proceedings.
Commission published SEC Memorandum Circular
No. 07, Series of 2019, Guidelines on the
12. Corporations by Estoppel – those which are so defectively
Establishment of a One Person Corporation (OPC)
formed as not to be either de jure or de facto corporations
implementing the provisions of the Revised
but which are considered as corporations in relations only to
Corporation Code (RA 11232) on OPC.
those who CANNOT deny their corporate existence due to
their agreement, admission or conduct.
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

ü OPC – is a corporation with a single stockholder who 1) Annual audited financial statements
can only be a natural person, trust or estate. within 120 days from the end of its
ü Incorporator of an OPC – being a natural person fiscal year as indicated in its Articles
must be of legal age. of Incorporation;
ü As an incorporator, the “trust” – does not refer to a  Provided, that if the total
trust entity, but the subject being managed by a assets or total liabilities of
trustee. the corporation are less
ü If the stockholder is a trustee, administrator, than Php 600,000.00, the
executor, guardian, conservator, custodian, or other financial statements shall be
person exercising fiduciary duties – proof of certified under oath by the
authority to act on behalf of the trust or estate must corporation’s treasurer
be submitted at the time of incorporation. 2) A report on all explanations or
ü Salient features of OPC: comments by the president on the
o Perpetual corporate existence qualification, reservation or adverse
o Use of suffix “OPC” in corporate name. remarks made by the auditor in the
o The single stockholder shall be the sole financial statements;
director and president of the OPC. 3) A disclosure of all self-dealing and
o OPC’s single stockholder – shall designate a related party transactions entered
nominee and an alternate nominee names into between the OPC and the single
in the Articles of Incorporation who shall stockholder; and
replace the single stockholder in the event 4) Other reports as the SEC may
of the latter’s death and/or incapacity. require.
o The OPC is NOT required to file its by-laws. ü Effectivity:
o The OPC is NOT required to have a o Upon publication in 2 newspapers of
minimum authorized capital stock nor it is general circulation. (This was posted in the
required a portion of such authorized capital SEC Website 02 May 2019)
stock be paid-up at the time of
incorporation, UNLESS otherwise required
by applicable laws or regulations.
o Appointment of Treasurer and Corporate
Secretary – within 15 days from issuance of
Certificate of Incorporation and notification
to the SEC within 5 days from appointment.
o Posting a surety bond by the Treasurer
computed based on the authorized capital
stock as the OPC as shown in the Guidelines.
o OPC structure – NOT allowed for:
 Banks,
 Non-bank financial institutions,
 Quasi-banks,
 Pre-need
 Trust,
 Insurance,
 Public and publicly enlisted
Corporations,
 Non-charter GOCCs) including
exercise of a profession EXCEPT as
otherwise provided by special laws.
o A foreign natural person may put up an
OPC, subject t the applicable capital
requirement and constitutional and IV. FORMATION & ORGANIZATION
statutory restrictions on foreign
participation in certain investment areas or 1. Process of Incorporation
activities.
ü Reportorial Requirements: ü There are 3 Stages in the life of a corporation:
o The OPC must submit the following: 1) Creation;
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II
2) Re-organization or Quasi-reorganization;
and
3) Dissolution and winding up.
ü For purposes of its creation, there are 3 steps:
1) The promotional stages
2) The process of incorporation; and
3) Organization and commencement
business
ü Promotion – act of advancing or encouraging and
etymologically, to move forward is to promote.
o Corporation Code: the act of getting a
corporation organized including the
procurement of subscription to its capital
stock.
o Promoter – an organizer or projector who
brings persons to unite in forming a
corporation.
ü Incorporation – the formal and procedural requisite
of drafting the Articles of Incorporation and
preparing the necessary supporting documents
they’re subsequently filing with, and finally approval
of the SEC by the issuance of Certificate of
Incorporation.
drafting the Articles of
Incorporation
preparation and submission
of additional necessary
supporting documents
filling with the SEC
Approval of the SEC
by the Issuance of Certificate of
Incorporation
ü Organization and Commencement of Business –
certain overt acts after incorporation
o EXAMPLE:
 Adoption of by-laws
 Election of corporate
 Other acts tending to show intent
of transacting its business.
ü Promotional Stage – undertaken by the organizers
or promoters who bring together persons interested
in the business venture.
o They enter into contract either in their own
of names or in the name of the proposed
corporation.
o Liability of the Corporation during this
stage – NONE. Since the corporation did not
exist yet possess a juridical personality.
 Go back to the concept of creation
of a corporation. (it is created by
law or operation of law)
 Corporation should have a full and
complete organization and
existence as an entity before it can
enter into any kind of contract or
transact business.
o The corporation may make the contracts its
own after its due incorporation and may
become bound by adopting or ratifying
them or by accepting its benefits.
 Corporation become liable and
likewise requires all the rights
pertaining in the adopted or
ratified contract.
o Promoter –
 GR: Personally liable on contracts
made by him for the benefit of a
corporation he intends to organize.
 Liability will continue even
after the contemplated
corporation is formed
UNLESS there is novation
or other agreement to
release him from liability.
 Promoter is NOT relieved
of his liability on a contract
even after the corporation
ratifies the contract and
assumes its own liability.
 When a promoter is acting for a
proposed corporation, he or she
may do either of 3 options:
1) He may make a continuing
offer on behalf of the
corporation, which, if
accepted after
incorporation, will
become a contract.
 The promoter does
not assume any
personal liability,
whether or not the
 VOLCANOTES 2020 | BUSINESS ORGANIZATION II

corporation will
accept the offer.
2) The promoter may make a
contract at the time
binding himself, with
understanding that if the
corporation, once formed,
accepts or adopts the
contract, he will be
relieved of responsibility;
or
3) The promoter may bind
himself personally and
assume the responsibility
of looking to the proposed
corporation, when
formed, for
reimbursement.

ü The Process of Incorporation – includes the drafting

of AOI, preparation and submission of additional
supporting documents, filing with the SEC, and
subsequent issuance of Certificate of Incorporation.
o Drafting of AOI –
 Requirements from documentary
to financial structure – may vary
depending on the nature of the
business which the proposed
corporation intends to undertake.
o All things must be considered prior to the
drafting of the AOI:
 Limitation and restriction on the
corporate name
 Minimum paid-up requirement
imposed by law,
 Rules and regulations of such
undertaking,
 Qualifications and disqualification
of stock ownership in nationalized
or party nationalized industries
 Additional documentary
requirements in specified lines or
activity
 Qualifications and disqualifications
of directors and
 Limitation or prohibition of having
other purpose or purposes not
peculiar to the primary purpose of
the intended corporation.