PARTI CORPORATIONS INTRODUCTION To BUSINESS ORGANIZATIONS “Every system of law that has attained a certain degree of maturity seems compelled by the everlasting complexity of human affairs to create persons who are not men, or rather to recognize that such persons have come and are coming into existence, and to regulate their rights and duties.” There is now a proliferation of business organizations with their own form and substance, advantages and disadvantages, and pertinent rules. If a person wants to engage in business, he must resolve the threshold problem of choosing the form of business organization that he will use in his undertaking. His lawyer will be confronted with a situation where he will present alternative business forms and recommend what vehicle best suits his client. This introduction presents the basic types of business organizations. It is believed that by presenting the basic laws and jurisprudence on the different types of business organizations, one can arrive at a better understanding of the statutory rules and Jurisprudence on the corporate form. 1. Types of Business Organizations. The basic types of business organizations that are available in the country are the following: (1) Sole Proprietorship, (2) Partnerships, (3) Joint counts or Cuentas en Participacion, (4) Business Trusts, (5) Joint Venture, (6) Cooperative, (7) Syndicate, and (8) Corporations. ‘Pollock and Maitland, The History of English Law Before the Time of Edward I, 2nd Ed., 1952, p. 486. Scanned with CamScannerCOMMENTARIES AND JURISPRUDENCE ON ‘THE REVISED CORPORATION CODE ‘OF THE PHILIPPINES a. When the Philippines was still under Spain, the Code of Commerce governed business organizations. The Code of Commerce provided for different business organizations including: (1) sociedad en comandita (limited partnership), (2) sociedad regular colectivg (general partnership), (8) sociedad anonima, and (4) sociedad de cuentas en participacion (joint accounts). The Code of Commerce provisions on sociedad en comandita and sociedad regular colectiva were repealed by the New Civil Code while the provisions on sociedad anonima were earlier repealed by Section 191 of the Old Corporation Law or Act No. 1459. Only the provisions on sociedad de cuentas en participacion or joint accounts remain in our statute books. b. The business organization under the Spanish regime that is an approximation and has an affinity with, but is not exactly the same as a corporation, is sociedad anonima.* For instance, the limited liability rule was, to a certain extent, applicable to sociedad anonima. As mentioned earlier, the Corporation Law abrogated the rules allowing the creation of sociedad anonima. Those that were already in existence at the time of the enactment of the Corporation Law were allowed to formally organize into corporations or to continue as such. The purpose of the Philippine Commission’ in repealing this part of the Code of Commerce was to compel commercial entities thereafter organized to incorporate under the Corporation Law, unless they should prefer to adopt some form of partnership.‘ ‘The Corporation Law likewise contains a provision to the effect that existing sociedades anonimas, which elected to continue their business as such, instead of reforming and reorganizing under ‘the Corporation Law, should continue to be governed by the laws that ‘were in force prior to the passage of Act No. 1459 “in relation to their organization and method of transacting business and to the rights of ‘members thereof as between themselves, but their relations to the public and public officials shall be governed by the provisions” of the Corporation Law.‘ In other words, the sociedad anonimas, whi opted to continue as such, were already governed by the Corporation THlardon v. Benguet Consolidated Mining Co, G.R. No, 1-3739}, March 18 1993, 58 Phil. 145. the law-making body in the Philippines at that time. ‘Herden v, Benguet Consolidated Mining Co, supra Bid. PART1— conporATiONS a Introduction w Business Organizations Law as to their relationship with the State. For instance, a sociedad ‘anonima was no longer allowed to extend its term because extension of term was not allowed under the Corporation Law.* 2. Sole Proprietorship. This is a form of business organization with only one proprietary owner; a single individual ‘conducts business under his own name or under a business name. It hhas boon said that the specialists of primitive society were the first sole proprietors. A sole proprietorship is the oldest, simplest, and most prevalent form of business enterprise.’ With the increasing complexity of everyday life came more specialists. As the business of these specialists/proprietors became more complex so did the form of the business enterpri a. A sole proprietorship may be the only choice for certain income-generating undertakings because there are activities that fare not open to a corporate form. For instance, generally, the practice of profession cannot be undertaken using the corporate vehicle. Thus, lawyers, and doctors, cannot form a corporation for the purpose of practicing their respective professions,’ b. A sole proprietorship is neither a creature of statute nor of contract; hence, itinvolves none of the complexity or expense required of business associations such as corporations and partnerships. ‘The reportorial requirements imposed on corporations and registered Partnerships do not apply to a sole proprietorship. ¢. In effect, a single proprietorship is an unorganized business owned by a person. ‘The sole proprietor manages and exercises complete control over the conduct of his business. Only his or his agent's acts may bind the business. He is the only one to Ss Bog Gonadal Mining Ca Pada ON 23, March 28,98 Pi Tis Su BC Opn, e200 retsing tothe Mande eee dann Aaocion wishes aoead cae in af Gomme ty Svinte sec es Ean Aare teal nese eerie ming bs stun Quy peels War Mu Red Belo Te Na 1s ny 1 “Harold Gill Reuschlein and William Gregory, Handbook on the Law enya oni 1008p hr led ee ee ae "ine Anais a een $5 exer the extn vith rep ta architects and other professions. ” sees “ohn on Ge 28 Scanned with Camscanner4 ‘COMMENTARIES AND JURISPRUDENCE ON ‘THE REVISED CORPORATION CODE OF THE PHILIPPINES share in the profits. The individual proprietor is the only one who ig personally liable for business debts.” 4. A sole proprietorship has no legal personality separate from its proprietor or owner of the enterprise." The owner hag unlimited personal liability for all the debts and obligations of the business, and it is against him or her that a judgment against the enterprise is to be enforced." Under the same principle, a sole proprietorship has no legal personality to file or defend an action in court separate from the proprietor. The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit by a single individual and requires its proprietor owner to secure licenses and permits, register its business name, and pay taxes to the national government. The law does not vest a separate personality on the sole proprietorship or empower it to fle or defend an action in court apart from the proprietor.'* e. Normally, the only available methods of obtaining funds for a single proprietorship are personal contributions of the proprietor and loans from financial institutions or private sources. Nevertheless, the proprietor’s ability to borrow money is limited by the potential of the business, his credit standing and the extent of his properties that may serve as collateral."* fA sole proprietorship is totally dependent upon the life of the proprietor.’* Upon the proprietor’s death or disability, business operations may cease. He will have to rely on his heirs or other interested persons in order to ensure that his business will continue after his death. However, if the goodwill of the business is. inextricably linked to the proprietor, the business will wither and perish upon his death. "Baeallent Quality Apparel, Ine. v. Win Multi Rich Builders, Ine, ewer Reucshlein and Gregory p 238; John E. Moye, The Law of Business Organizations 4th Bd, p17, hereinafter referred to as “Moye, p17” ALPS Transportation v. Rodriguez, G.R. No, 186732, June 18,2013 "Pid ; Fernandes v. Anion, G.R. No, 198967, April 24, 2007. Mendes v. People, GR. No, 179062, June 11, 2014; Eject, ef al: v. MEE Vargas Construction, ete, C.R. No, 172585, April 10, 2008; Maglev. Court Appeals, GR. No 125027, August 12, 2002, 485 Phil, 870, 886 (2002; Juasin€ Hardware v. Hon. Mendoza, ea, 201 Phil 369 (1982). Moye, p. 17 °*Reueshlein and Gregory. 24 PART I — conPORATIONS 5 Intudution to Business Organizations &. The registration of the trade name in the name of one Person - a woman ~ does not necessarily lead to the conclusion that the tradename as a property is hers alone, particularly when the woman is married. By law, all properties acquired during the marriage, whether the acquisition appears to have been made, contracted or registered in the name of one or both spouses, is resumed to be conjugal unless the contrary is established.” hh. ‘There are instances, however, where the law treats sole proprietorships as organizations that are separate from natural persons. For example, under Republic Act No. 10142 otherwise known as the Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the term debtor refers to a sole proprietorship duly registered with the Department of Trade and Industry (DTH, a partnership duly registered with the Securities and Exchange Commi: 1 corporation duly organized and existing under Philippi or an individual debtor who has become insolvent.* The definition indicates that an individual debtor is treated separately from a sole proprietorship. Thus, only an individual debtor can file a petition for suspension of payments while a séle proprietorship is not given such right. However, only a sole proprietorship can file a petition for rehabilitation while an individual debtor cannot file such petition. 2.01. Business Name. A single proprietor may do business under a business name, However, doing business under another name does not create an entity distinet from the person operating the business, The individual who does business as a sole proprietor under one or several names remains personally liable for his/her obligations," a. A "Business Name” refers to any name that is different from the true name of an individual which is used or signed in connection with her/his business on any written or printed receipts including receipts for business taxes, duties and fees and withdrawal or delivery receipts; any written or printed evidence of any agreement ‘or business transaction; and any billboard conspicuously exhibited in plain view in or at the place of her/his business or elsewhere, announcing her/his business. Navarro v. Hon. Esabide, GR. No, 19788, November 27, 2008, Section 3, FRA. ‘spuval . Midwest Auto City, Ine, 425 SCRA F Supp, 1981 (D.Nob. 197. Section 44, DTI Department Order No. 10-01, Series of 2010, as amended by Department Order No. 10-03, Series of 2010 and Department Order No, 1008, Series of 2010. Scanned with Camscanner{UDENCE ON conan SouronaoN COOP ‘OF THE PHILIPPINES en a proprietor uses another name other than histher seer mmo eee 2 eer Bid Hee mess nmme, frm name or style with te Bureau of Trade Regulation and Consumer Protection of (6 Department of Trade ae ustry pursuant to Section 1 of Act No. 2883 otherwise known ante “Business Name Law.” The law provides SECTION 1. It shall be unlawful for any person to use orsign, on any written or printed receipt Including eee tor tax on business, or on any written oF roost contact not verified by a Notary Public, or on Brimmitan or printed evidence of any agreement of aay rs transactions, any name used in connection unis business other than his true name, or Keep wn pteuously exhibited in plain view in or atthe place conepihis business is concluded, ithe is engaged in @ aecrvene, any sigh announcing a firm name or business asia cle, without first registering such other name, rae sy fim name, or business name, or style, in the Bureau of Commerce (now Department of Trade and Inaietry) together with his true name and that of any ther person having joint or common interest with him in such contract, agreement, business transaction, or business. (As amended by Act No. 4147.) SECTION 2. The Director of Commerce (now Secretary of Trade and Industry) shall collect a registration fee of ten pesos for each name registered, renewable every five years, such renewal to be made during the first three months following the expiration of the five-year period from the date of original registration. ‘The fee for each renewal registration shall also be ten pesos if renewed within the said three months, otherwise a surcharge of fifty percent shall be added in case of delinquency. It shall be the duty of the Director of Commerce (now Secretary of Trade and Industry) to satisfy himself, before effecting any original or renewal registration, concerning the identity and citizenship of the person ‘or persons for whose registration is to be made under this Ac \ct. Hereafter, renewal registration shall be made in tocmrance iie mrovsons oth (As mend by Rep. Act No, 863,) fe = mare STON 2, The Director of to Buraau of Com. re and Industry (now Secretary of Trade and Industry) shal fom tie to time make such rules and regulations as he may deem necessary for the efficient ‘execution of the provisions of this Act. SECTION 4, Any person violating the provisions of Section One ofthis Act shal be deemed gully of @ misdemeanor, and upon conviction thereof shall be fined not less than fifty pesos and not more than two hundred pesos, or imprisoned not less than twenty days and not more than three months, or both, in the discretion ofthe court. SECTION 5. This Act shall take effect upon its approval. cA proprietor who docs not register hishher business nas requied under Act No. BEB i sje to the allow prohibitions: ee : (2) Helshe eannot use or sign the business name in connection with hishher business on any written or printed receipts or any evidence of agreement or other documents; and (2) Helshe cannot exhibit the business name or sign thereof in plain view. 4. Rule IV of Department Administrative Order No. 18-07, Series of 2018 dated August 13, 2018 issued by the Department of Trade and Industry (DTD (Revised Rules and Regulations Implementing Act No. 8883) states that a Business Name (BN) should be comprised (in no particular order) of the “Dominant Portion’ which isa word or group of words or a combination of letters fand numerals and the “Descriptor” which is a word or group of ‘words deseribing the nature of the business based on the Philippine ‘Scanned with CamScannerCOMMENTARIES AND JURI "THE REVISED CORPO OPTHErHt er Standard Industrial Classification (PSIC)2" Section 9 of ¢h Rule IV provides that the following words/eroup of worts eh be registered as BN: shall noe (1) Those that connote activities or nor "unlawful, immoral, seandalous or contrary to propriety: _ @ Those names, words, terms or expressions 4 designate or distinguish, or suggestive of quality, of wet © of goods, articles, merchandise, products or services; “” “es () Those that are registored as trad trademarks, or business names by any government i® authorized to register names or trademarkey "=" ®8eney (4) Those that are inimical to th it state 1@ Security of the (©) Those that are composed purely of generi worl Purely of generic word or (©) Those that by law or regulation are rest cannot be appropriated; —— (2) Those that are officially used by the government in its non-proprietary functions; (®) Those names or abbreviations of any nation, inter. governmental or international organization unless authorized by competent authority of that nation, inter-government or international organization; (®) Those ordered or declared by administrative agencies/bodies or regular court not to be registered; (10) Those names of other persons; and (11) Those names which are deceptive, misleading or which misrepresent the nature of the business. e. Paragraph 4 of SEC Memorandum Circular No. 13, Series of 2019 dated June 21, 2019 entitled “Amended Guidelines and Procedures on the Use of Corporate and Partnership Names” "Section 2, Rule IV of Department Administrative Order (A.0.) No. 18-07, Series of 2018 dated August 13, 2018. (Note that under Rule V of the seme A.O. the registration is geographical and is subject to territorial scope) . Section 3 (3.1 to 3.11), Rule IV of Department A.O. No. 18-07, Series of 201 dated August 13, 2018, PART I— CORPORATIONS. Introetion to Binen Organizations rit eens hs corm 1 ahaa hat DA Conte of Basis Name must be submitted to the Bureau of Internal Revenue (BIR) The use of the DTI-issued Certificate of Business Name the registered owner for Registration by any person other than 1 Simtaver purposes prohibited." The Certificates valid fora period Sivoyenrs from the daeot the issuance of hereot™ The registration stay be renewed within 90 calendar days aftr its expiration (alled ‘ogular fling) The revistration shall be automatially cancelled fhe repitront file o file an applieation for renewal within the ext 90calendar day grace period fom the time of expiration of the period for regular filing.” 2.02, Merchant. The Code of Commerce provides for rules on merchants. Although the concept of merchant is now rendered obsolete by provisions of other laws that provide for different qualifications and requirements for engaging in commerce, it is important to note that such term is still referred to in the Code of Commerce provisions that are still in force." For instance, the Code of Commerce provisions on Joint Accounts that are still in force use the term merchant. a. The pertinent provisions of the Code of Commerce on ‘Merchants are Articles 1 to 4, 8, 13, and 15 of the Code of Commerce. ‘The New Civil Code and other pertinent laws have already repealed Articles 6, 7, 9, 10, 11, and 12 of the Code. Article 5 of the Code BIR Form 1901, Section 6, Rule VII of Department Administrative Order No. 18-07, Series of2018 ection 8, Rule VII of Department Administrative Order No. 18-07, Series of2018, Sections 2, Rule VII of Departiment Administrative Order No. 18-07, Series of 2018, Section 8, Rule Vil and Section 1.8.1, Rule IX of Department Administrative Onder No. 18-07, Sores of 2018. Jose R. Sundiang and Timoteo B. Aquino, Reviewer on Commercial Lat, 2019 Ba, horeinafter referred to as “Sundiang and Aquino” Scanned with CamscannerOe ee nana iti, " cOMnHIE REVISED CORPORATION CODE ‘OF THE PHILIPPINES of Commerce with respect to the capacity of minors and Article g san Pak—conronsmoss s that provides for rules on married women are also modified by the nto Busnes Organtntons provisions of the Family Code. The provisions that are still n foreg {Art 13. The following may not engage in commerce sate id flows: fnsrtld office oF have any direct administrative oF ‘rt. 1. For purposes of this Code, merchants are: compantenttervention In commercial or industrial 1. Those who, having legal capacity to engage 1. Those sentenced to the penalty of civil interdiction, while they have not served their sentence ‘or have not been amnestied or pardoned, 2. tose declared bankrupt, while they have not obtained their discharge or have not been authorized, by in commerce, habitually devote themselves to 2 The commercial or industrial companies Which may be created in accordance with [this Code] existing legislation. -_ virtue of an agreement accepted at a general meeting of. Art. 2. Acts of commerce, whether those who creditors and approved by judicial authority, to continue execute them be merchants or not, and whether eet {ho establishment, the authority being specified in this Code or not, should be governed by the dgreeriont sooner! to that expensed in the provisions contained in it, in their absence, by the usages of commerce generally observed in each place; 3. Those who on account of special laws or and in the absence of both rules, by those of the civil provisions can not trade. law. ‘Art. 15. Foreigners and companies created abroad Those acts contained in this Code and all others of may engage in commerce in the Philippines, subject to analogous character shall be deemed acts of commerce. the laws of their country with respect to thelr capacity to Contract, and tothe provisions ofthis Code as regard the ‘creation of thoir establishments in Philippine territory, Art. 3. The legal presumption of habitually engaging hi lippine incommerce shall exist from the moment the person who eee cra srharations, and the jurladietion of the intends to engage therein announces through circulars, a newspapers, handbills, posters exhibited to the public, The Provisions of the article shall be understood or in any other manner whatsoever, an establishment tobe without prejudice to whatin parculsreases oy which has for its object some commercial operation. be established by treaties or agreements with cine: powers. Art. 4. Persons who possess the following qualifications shall have legal capacity to habitually b, Article 14 of the Code of Commerce enumerates the engage in commerce: Persons who are subject to relative disqualification. Article 14 provides: 1. Having completed the age of twenty-one years. Art. 14, The following cannot engage in the ‘mercantile profession, in person or through another, nor 2 _Notbeing subject to the authority of the father hold office or have any direct administrative or financial intervention in commercial or industrial associations, foe a within the limits of the districts, provinces or towns in. wh they carga Having the free disposition of their property. Scanned with CamScannerjudges and officials of the fiscale 2, Administrative, economic or military heads of districts, provinces, or posts. 3. Those employed in the collection and ‘administration of funds of the State, appointed by the Government. Those who administer and collect under contract and their representative are excepted. 4, Stock and commercial brokers of whatever class they may be. 5, Those who, under special laws and provisions, cannot trade in specified territory. ¢. _ Legal writers still cite the above-quoted Article 14 of the Code of Commerce as one of the provisions of the said law that is still in force. However, it is believed that Article 14 is no longer in force in its entirety. In Macariola v. Asuncion,” [the Court] held that, Article 14 of the Code of Commerce is in the nature of political law sand since it was extended to this country by Spain, it was necessarily abrogated upon the change of sovereignty from Spain to the United States. Nevertheless, the Supreme Court admonished a judge in the said case who had been found to have been engaged in business to be more discreet in his private and business activities because his conduct as a member of the Judiciary must not only be characterized by propriety but must always be above suspicion. (2) The Supreme Court likewise explained in Berin v. Barte,» that Rule 5.02 of the Code of Judicial Conduct, which took effect on October 20, 1989, supplies the void left by the PAM, No. 1384, May 51, 1089, 114 SCRA 7 A.M. No. ‘MTJ-02-1443, July 31, 2002. " Pater conponations: 1" Introduction ta Husinons Organizations abrogation of Article 14 of the Spanish Code of Commerce. Rule 6.02 provides tht a judge shall refrain from financial and business dealings that impartiality, intorfore activities, or inere ind to reflect adversely on the court's h the proper performance of judicial involvement with lawyersor personslikely to come bofore the court. A judge should manage investments ‘and other financial interests as to minimize the number of eases tziving grounds for disqualification, Nevertheless, under Rule 5.03, a judge may hold and manage investments but should not servo as an officer, director, manager, advisor, or employee of any business except as director of a family business of the judge. (2) While it may be true that Macariola v. Asuncion™ ‘and Berin v. Barte* involve only the relative disqualification of Judges, it is believed that all other disqualifications in Article 14 are no longer in force because it is Article 14 itself, which is in tho nature of political law, that was abrogated. As explained in Macariola v. Asuncion,” “upon the transfer of sovereignty from Spain to the United States and later on from the United States to the Republic of the Philippines, Article 14 of this Code of Commerce must be deemed to have been abrogated because where there is change of sovereignty, the political laws of the former sovereign, whether compatible or not with those of the new sovereign, are automatically abrogated, unless they are expressly re-enacted by affirmative act of the now sovereign.” Nevertheless, in relation to judges, Berin v. Barte™ states that Rule 5.02 of the Code of Judicial Conduct supplies the void left by the abrogation of Article 14. (@)_ With respect to other government officers, the void left by the abrogation of Article 14 is filled by Republic Act ‘No. 3019, as amended, otherwise known as the “Anti-Graft and Corrupt Practices Act” and Republic Act No. 6713, otherwise known as “Conduct and Ethical Standards for Public Official and Employees." Tre "Supra, Supra See Section 3 an (9), Republic Act No, 3019 % See Section 7a) ana (t), Republic Act No, 6713. Scanned with Camscanneris Under the Constitution. The ms Under government officers from Disqualificatio 2.08. wohibits a numbe Ba Constitutio® Es ob profession, from entering into cortain ‘eerested in specified transactions, cee or being financially ‘These ce ea pn disqualifieations are as follows: {@)_ Senators and Congressmen arene nto be Senator, interested financially im any contract ai a es a eel ith Sment during his term of office, He. shall not intervene Governor before any ffce of the Government for his pecuniary benefit or where he may be called upon to act on his office.” (@ The President, Vice-President, Members of the cabinet, and their deputies or assistants are prohibited, during cro sonure, from practicing any profession, participate in any business, be financially ‘interested in any contract or franchise granted by the Government, They are also req d to avoid conflict of interest in the conduct of their office. (3) Members of the Constitutional Commissions are not allowed to engage in the practice of any profession or tative management of any business that may be affected by the functions of his office. They are also not allowed to be financially interested with any contract or franchise with the Government. (@) The President, Vice-President, Members of the Cabinet, Congress, Supreme Court and the Constitutional Commissions, Ombudsman are prohibited during their tenure from obtaining any loan, guaranty, or other form of financial accommodation for any business purpose from any government- ‘owned or controlled bank. __ (@) The practice of profession is limited to Filipino citizens, save in cases prescribed by law.t' The Eleventh Foreign Negative List (Executive Order No. 65, Series of 2018) recognizes that foreigners are now allowed by different laws to practice a number of professions. Section 14, Actcle VI, Constitution. Section 13, Article VIL, iid. Section 2, Article IX, ibid. “Section 16, Article XI, bid. “Section 14, Article XI, ibid. PART 1— CORPORATIONS. 1 Incroetion to Business Organizations PROBLEMS: 1. Q- Whoare merchants for the purposes of the Code of Commerce? ‘A: Merchants under the Code of Commerce are (1) natural persons, those who, having. legal capacity to engage in commerce: habitually devote themselves to it and (2) partnerships and corporations organized under existing laws and who are tonsideed merchants from the time they are registered with the Securities and Exchange Commission. (1967 Bar) ‘A has three care. He sells one to B; mortgages the second to Ci ‘and the third he delivors to D for sale to other persons. (1) Is 8 ‘a merchant? Reason out your answers. No, A is not a merchant. The Code of Commerce requires habituality for a natural person to be considered a merchant. ‘The same element does not appear in the problem. Disposal of the three cars that A owned does not indicate a desire to habitually engage in the business, (1967 Bar) 3. @__Lita, 26 years old, wife of Jimmy, wants to put up a betamax ental outlet with a capital of P200,000.00, using the name “Genta Beta ni Lita." a. May Lita lawfully engage in commerce fand put up a betamax outlet? Can Jimmy object? 'b. Because most of Lita’s customers were her friends fand relatives and did not pay rentals for the betamax tapes. the business failed and resulted in losses. If Jimmy opposed the business ventures, what properties shall answer for Lita’s obligations? ‘A: a. Yes, Lita may lawfully engage in commerce and put up & Betamax outlet, Article 73 of the Family Code allows either spouse to exercise any legitimate business or activity without the consent of the other. If the wife intends to engage in business, the husband may object only on valid, serious, and ‘moral grounds. b. ‘The properties of the community property shall ‘answer for obligations that accrued before the objection wa nade by Jimmy. However, obligations accruing thereafter shall Dabarne by the separate property of Lita (Art. 73, Family Code). (1988 Bar) 4, Partnership. Under the Civil Code, thereis a partnership when two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of Tividing the profits among themselves.” The partnership exists even- “aprile 1767, New Civil Cod, hereinafter refered to as "NCO." Scanned with CamscannerENTARIES AND JURISPRUDENCE ON : co EVISED CORPORATION CODE (OF THE PHILIPPINES e word “partnership” and “partners. if the partners do not use th : ~ tte Ponts of the contract are as follows: (@) Two or more persons bound themselves to contributg money, property, or industry to a common fund; and (@) They intend to divide the profits among themselves. Registration with the Securities and Exchan, Commission (SEO) is necessary where the capital ofthe partnerahee, 4s P3,000.00 or more.* However, the juridical personality still exists even ifnot registered with the SEC. Mere failure to register with the ‘SEC does not invalidate a contract that has all essential requisites ofa partnership. The purpose of registration is to give notice to third parties, Failure to register the contract does not affect the liability of the partnership and of the partners to third persons." b. The basic requirements for the registration of a partnership with the SEC are as follows: (1) Name verification slip; (2) Articles of Partnership; and (3) Affidavit of a partner undertaking to change the partnership name if the name already belongs to another person or entity. (1) The partnership name shall bear the word “Company” or “Co.” and if it is a limited partnership, the word “Limited” or “Ltd.” A professional partnership name may bear the word “Company,” “Associates,” or “Partners,” or other similar descriptions.” (2) Additionally, partnerships may be required to secure an endorsement or clearance from other government agencies like the Insurance Commission, if applicable. Foreign partners must submit a bank certificate on the capital contribution of the partners, so ht Botany of uti, GR, No, 42612, Jy 29, 2005485 SCRA ‘Hct Tan og Keo serene Ta ago vot hopes, No, 12581, Ober 8, 200 “hel 14, Noo hs ery fin spre {Purp 10SEC Menoranam Cl No.8 Sere 32019 eld “Aneel Guin and Paden eG ee Pan — co Inedton Bane Oration : thie wiaess* Pat*"e?#hip may be distinguished from a corporation in by ma, AF 12 manner of creation — Partnership is ereated "y mere agreement while the existence of the corporation commences only from the issuance of a Certificate of Incorporation by the SEC or in proper cases, passage of a special law, 2) Astothe number of organizers —Two or more persons may form a partnership while in the case of a corporation, a single person may form a corporation (called a One Person Corporation under Republic Act No. 11232 or the Revised Corporation Code of the Philippines (RCCP), Note: The requirement under Batas Pambansa Blg. 68 (the Corporation Code of the Philippines) that there be at least five incorporators to form a corporation was deleted under the RCCP. (8)_Asto powers— A corporation is more restricted in its Powers because ofits limited personality while a partnership is subject only to such limitations as may be agreed upon by the partners. (A) Authority of those who compose — There is mutual agency in partnership and each general partner can represent and bind the partnership while stockholders are not agents of the corporation in the absence of express authority. (5) Transfer of interest — Corporate shares are freely transferable without the consent of other stockholders (unless there is a stipulation) while interest in the partnership cannot, be transferred without the consent of the other partners. (6) As to liability of tose who compose — The liability of \ders and members for corporate obligations is limited ir investment® while partners may be liable beyond their investment. (1) Right of Succession — Unlike in a corporation, there is no right of succession in partnership as death of a general partner dissolves the partnership. *Sundiang and Aquino, pp. 182-183. See Notes Section 2 of this work. Scanned with Camscanner[ENTARIES ANU coMME 0 1 REVISED CORPORATI THe THE PHILIPPI rity to be partner/stockhold As to capacity | ler ser 1—conronaru » par ia erratic oomph Inch Bae es rarer i, ACCP, and under Section 3 of the RCC. s ; "dn can now also enter into a partnership or jo, ._, Ioint accounts may be distinguished from partnerships as paste? joing follows: venture. Loe es () As to juridical personality. A j 4. A partnership is similar to corporation with respect ty juridical pertonalty while parteershie hae eon the following features: ‘Separate and distinct from the partners. S (2) Astobusiness name, Nocommercial namecommon'o participants can be adopted in joint accounts, A partnershi can adopt a partnership name. é a (@) Both have juridical personality distinct from their components (stockholders or partners); are groups of persons (exception: One con tant Person ©) 45 1» management. The general partners ar a mrporation); “gpiasstasba tolls managers in partoarhip mae in a joint account only the als ofhets ere deciod om uate ostensible partner manages and transact business inhi own @ Capi components; ame and under his individual lability (4) As to parties in cases. In a joint account, only the (4) There is distribution of profits in stock corporations ostensible partner — the person carrying on the joint business and in partnerships; (5) They both act only through their agents; and —can be sued by and is liable to persons transacting with the ‘ - former. In partnership, all general partners may be liable even (6) They can be organized only where there is a law up to the extent oftheir personal properties and may therefore authorizing their organization. be sued by third persons. 4. Joint Accounts (Sociedad de Cuentas en c. The Code of Commerce provisions on Joint Accounts are Participacion). A Joint Account is present when there is an Articles 239 to 243 which state as follows: arrangement whereby merchants may interest themselves in the ARTICLE 238, Merchants may interest themselves transaction of other merchants, contributing thereto the amount of In the transaction of other merchants, contributing capital they may agree upon, and participating in the favorable and thereto the amount of capital they may agree upon, and unfavorable results thereof in the proportion they may determine. participating in the favorable or unfavorable results ‘This is also commonly called as “accidental partnership.” thereof in the proportion they may determin ARTICLE 240. With regard to their formation, joint In Bourns v. D.M. Carman, et al,,# the Supreme Court accounts shall not be subjected to any formality, and defined a joint account as a partnership constituted in such a manner that “the existence of which is only known to those who had maybe privately contracted oral or in wing, and their an interest in the same, there being no mutual agreements between cance tal re ares by any ofthe sana ssoapted the partners, and without a corporate name indicating to the public y law, In accordance pI 7 in some way that there were other people besides the one who ARTICLE 241. In the transactions treated of in the gieneibly managed and conducted the business.” Such is exactly foregoing articles, no commercial name common to al the accidental partnership of cuentas en participacion defined in the participants can be adopted, nor can any further ‘Article 289 ofthe Code of Commerce. direct eredit be made use of except that of the merchant carer ae “SSundiang and Aquino, pp. 165-166. upournev DM. Carman, OR. No, 2600, December 4,196. Article 239, Code of Commerce. "'G.R. No, 2800, December 4, 1906, 7 Phil. 17, 119. Scanned with CamScannerREVISED CORPORATION CODE (OF THE PHILIPPINES nd manages the business in his own ned under his Invival Hab [ARTICLE 242. Persons transacting business with the merchant carrying on the joint business shall only have a right of action against the latter and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who made the transaction with the manager Unless said manager formally cedes his rights to them, ‘COMME! ao ‘THER! ARTICLE 243. The manager shall effect the liquidation, and after the transactions have been concluded, he shall render a proper account of its results. d._The duty to liquidate is imposed on the manager under Article 248 f the Code of Commerce. The express statutory obligation imposed upon the manager makes it an imperative obligation fos the manager to proceed without delay to the liquidation of the joint account and to account the proceeds of the liquidation to the partners." If the manager failed to comply with his statutory duty to account the proceeds to the partners, the partners are entitled to file an action to compel an accounting, and the payment of their respective shares of the capital invested, together with damages. ©. In case of the liquidation of a joint account partnership, the sale of the firm assets is necessarily uncertain and eventual because the selling price that may be obtained from the property and effects that comprise such assets is uncertain. Hence, the price received should be allotted in the same proportion as that fixed in the contract for the division of the profits and losses, for otherwise one of the partners would be benefited to the detriment and loss of his co-partners."” £ For instance, if it is duly and fully proved that the managing firm acquired realty in the name and at the expense of the Joint account partnership with the firm, it is just that, in liquidating the property of common ownership, such realty should be divided jrlichauco, eta, v.Liehauco, G.R. No. L-10040, Januat 6. Ean 0040, January 31, 191 6, 1019, Mise" & Co. v. Warner and Barnes Company Ltd, GR. No, L-5242, August PART1— conPORATIONS. a Tntroduction te Business Organizations between the partners in tho same manner as were the profits and Josses during the existence ofthe business, from the beginning ofthe Partnership to the date ofits dissolution. This dectrine is perfectly legal and in accord with justico, as no person should enrich himself wrongfully at the expense of another, 6. |, Business Trust, Its a legal relation whereby one porson, called the “trustor,” conveys a property to another for the benefit of 4 person called the “beneficiary.” The person in whom confidence is reposed as regards the property is called the “irustee,"=" a. Trusts are either express or implied. Express trusts are created by the intention ofthe trustor or of the parties. Implied trust ‘comes into being by operation of law. b, There are only few provisions on express trust under the New Civil Code. However, the New Civil Code adopts the principles of general law of trusts, insofar as they are not in conflict with the said Code, the Code of Commerce, the Rules of Court, and special laws." Generally, the rights and obligations of the parties are expressly provided for in their agreement called a Trust Agreement fc. A trust agreement can actually be entered into with 4 trust department of a commercial or universal bank. Pertinent regulations issued by the Bangko Sentral ng Pilipinas (BSP) define the term “trust business” as any activity resulting from a trustor- trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of the trustor or of others called beneficiaries. In the United States, a business trust is called the “Massachusetts Trust” because they were developed in ‘Massachusetts. It is defined as an unincorporated business association established by a declaration or deed of trust, and governed to a great extent by the general law of trust. Legal title Supra, Axtile 1440, NCC. Article 1441, NCC. articte 1442, NCC, See Advent Capital and Finance Corporation v, Alcantara, G.R. No, 189080, Sanuary 28, 2012. Section X 403(a), Manual of Regulations fr Banks; ee Aquino and Aquino, Fundamentals of Barking Law, 2019 Bd. “Hfenn and Alexander, p. 117. Scanned with CamScannersna an sURISPRUD! . CoM OOATION ¢ = ee for Tite PHILAPPINE ned manages tho Broporty fy iavien ofthe trust with eauitgye nsferable certificates who holds who are bonelii onted by £0 Investment Trust” within thy tho trustee fof members. iy repr ig with bone interosta, ual stent Estate cone ain entrust BIT) Act of 2009" hw certain eat Bae Ine However & EIT Ino real bing feature te tk corporation established fn accordnyae or Fe Gade of the Philippines and the rules ang mmission [SEC] principally for igntod by the Com comorgonerating real estate assets." "The ‘although designated as a ‘trust’ d in clarifies » although designat it dos deo th same cechnien? moaning ns trust under oxiting lag vy ut is waod.. for tho sole purpose of adopting the el tr reonaly necopted description of the company in necordaney with global best practices."" 6. doint Vonture, Joint venture is an association of persons cor companies jointly undertaking some commoreial enterprise; everally all contribute assets and share risks. Tt requires a Smnmunity interest in the performance of the subject, a right to direct and govern tho policy connected therewith, and duty, which ny bo altered by agrecmont to share both in profit and losses.* a. Rationale for Joint Ventures. Joint venture aro usod ‘sn business organization forthe following reasons: (2) doint ventures reduce the investment required of any one company and distribute the risk of undertaking fan expensive and risky venture beeause some projects are of such magnitude that they strain the financial reserves of corporations; @) Joint ventures pool “know-how,” thereby permitting the members to achiove diversification that it would have difficulty achieving alone; Supra. ‘Section (x), Republic et No 86 = No, 9856, ‘HGloabaynn, Ineo av. Gui Sona Trinny" Ie et av. Guingonn, Je, Gt. No, 113976, May 6, 194, 292 ba, sin rh men ON Che Craton 3 2 Pater 1 — COMPORATIONS Inrudetion vo Basins Organizations (@)_A member of the joint venture may gain pot logal, political or public relations advantages by organizing ‘and incorporating, whore activities are to be conducted; and (®) A. mombor may a corporate expansion. b. In Aurbach v. Sanitary Wares Manufacturing Corporation,” tho Supreme Court adopted tho view that a joint vonture is an organization formed for some temporary purpose. “It hardly distinguishable from the partnership, since their elements io similar — community of interest in the business, sharing profits fand losses, and mutual right of control.” It was further explained that: “it would seem that under Philippine law, a joint venture is ft form of a partnership and should thus be governed by the aw of partnorahips."" ¢. Itiathe substance, rather than the form ofthe agreement that eterminos ithe parties entored into a joint venture agroement. ‘The intontion of the parties that is roflocted in the agreement governs. Hence, even if the partios ealled the agreement a Power of Attornoy, the agreement may also be considered a joint venture ingrooment if the terms and conditions thereof indicate that it is joint venture agroomont.” a. Corporations ean enter into ‘Two or more corporations may entor into a joint venture through a contract or agreement ifthe nature of the venture is in line with the business authorized by their charters. ‘The contract or agreement rood not be registered with the Securitios and Exchange Commission provided that the joint vonturo will not result in the formation of a partnership or corporation." ©, It follows that Joint Ventures may result in the formation of a joint venture corporation. In such case, it must comply with applicable nationalization laws. In addition, the joint venture may id government scrutiny of joint vonture agreements.” {. Now 76876, 76061, and 76975:16, Decombeor 15, 1989, 180 SCRA 120, 146-147; Nacen Nickel Mining snd Development Corp. v. Redmont Consolidated Mines Corp G.R, No, 198580, Apel 24, 2014 "See Not 6, p- 19, citing Campos and Campos, Comments, Noter and Selected Cases, Corporation Code, 181 Fa an Tunzon v, Bolanas, 96 Pil, 906 (1954; Philox “Mining Corporation v. Burvat of Intern! Rovenae, GR. No. 148187, April 16, 208, "ephitex Mining Corporation v. Barenu of Internal Rover, ibid vised Corporation Code af the Philippines or “RCCP* for short. "MSEC Opinion date March 30, 1996, Scanned with CamscannerCOMMENTAR CORPORATION CODE: RE rs PHILIPPINES \éers power to ups of sharchol Selec, 2 rae "eement of disputes.” Tor settlement o! gear en peels oe tho joint venture corporation itself is subject tg However Fareership law. The Supreme Court explained, corporate awn nt a corporate entity as the medium to pursue ‘ ot tse, the parties to the joint venture arg the joint venture ene? principles under which the entity muse Bound by enrorne I Eple isthe imited lability doctrine, Th crete at enture corporation allows the co-venturers to take tee Mage ofthe lined liability feature ofthe corporate vehicle aeeot present in a formal partnership arrangement.” The Jrntes to the joint venture agreement cannot cite the provisions of sere on pertuership with respect to the corporation itself and its relationship with its shareholders ‘g._ It follows that violation of the provisions of the Joint Venture Agreement will not necessarily prejudice subsequent sharehelders who are not parties thereto. For example, the provisions of the Joint Venture Agreement granting preference to holders of certain shares, which are not reproduced in the Articles of Incorporation and the certificates, will nat be binding on creditors and other shareholders who are not part ofthe agreement. 7. Cooperatives. A cooperative is an autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, commis and cultural needs and aspirations by making equitable contributions tothe capital required, patronizing their products and series and aecepting a fir share of the risks and benefits of the tukctking in acordance with universally accepted cooperative m sive cortin shareholders 4. The governing law is Republi is oa vernin public Act No. 9520 otherwise rownen The Ppnine Conperative Code of 2008." Article 2 of the es that itis “the declared policy of the State to foster *Alaahay Hol : ings Corporation December 208 "Ato 3, Republic Act No. ogg, Sombeorn Logistics Limited, G.R, No. apfART1— conporaTions Eo Introjution to Business Organizations the creation and growth of cooperatives as a practical vehicle for brompting eeleliance and harnensing people power towards th attainment of economie development and social justice. The State encourages the private sector to undertake the actual formation semoenganivaton to cooperatives and endeavors to create an atmosphere that is conducive to the ‘and development o these cooperatives.” bens Setetgerne is also declared as a policy that the Government and all ts branches, subdivisions, instrumentaltos and agencies shal ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that ‘might infringe upon the autonomy or organizational integrity of cooperatives.” ©. Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relating to cooperatives with government, assistance where necessary.” 4. Although cooperatives are not primarily governed by the Corporation Code, they are also treated as a corporate entity with their own acts and liabilities. A cooperative is vested with powers ‘and capacities under Article 9 of the Philippine Cooperative Code of 2008, including the power to the exclusive use of its registered name, the power to sue and be sued and the right of succession. The law also expressly provides that a duly registered cooperative shall ‘have limited liability: ©. It is the General Assembly that is the highest policy. making body of the cooperative." On the other hand, the Board of Directors of a cooperative shall be responsible for the cooperative’s strategic planning, direction-setting and policy formulation activities." TWAticle 2 Ba paragraph, supra. ‘Acie 2 Sl paragraph, id. ‘eAatiele 12, bid. ‘sinaiele 88, bid, utile 88, Scanned with CamScannerMMENTIVISED CORPORATION CODE 2 Seer ean NES the State shall endeavor to associations, To tls 206i assistance that will help make available eves in serving the needs and interests them fut renities, in complementing the efforts of of their communion (LGUs) in providing vital and local governig our citizens, and in helping implement basic servfional government policies, programs, rules local aainances for the development of the nation, iginally, homeowners’ associations were within the fagilty pores of the ‘SEC. Pursuant to Section 2 of Execute Onder No. 685, these powers were later transferred to the Home Insurance and Guaranty Corporation (HIGC). In 2000, the powers and responsibilities over homeowners’ associations were transferred by Section 26 of the "Home Guaranty Corporation Act of 2000" or Republic Act No. 8763 to the Housing and Land Use Regulators ‘Board (HLURB)." The HLURB is also vested with the quasi-judicial functions regarding homeowners’ associations in subdivisions and condominiums." For instance, it has exclusive jurisdiction over controversies between the homeowners and its members.” d. The term “homeowners” as contemplated under the special law includes: (1) An owner or purchaser of a lot in a subdivision/ village; _, @) An awardee, usufructuary, or legal occupant of a unit, house and/or lot in a government socialized or economic housing or relocation project and other urban estates; or (8), An informal settler in the process of being accredited as beneficiary or awardee of ownership rights under the CMP, LTAP, and other similar programs." doin luisa Park Association, Ine. v. Almendras, etal, G.R. No. 171768, ‘June 6, 2009, Section 20, Republic Act No. 9904, PARTI conronario Indo anes Orns a 10. | Unincorporated Associations. Unincorporated asso- Ciations or organizations of persons, that do not claim to be part of @ srberation, may also act as a group in pursuing certain activities Even if unregistered, the members of an association or organization, by agreement, may perform acts not contrary to law, morals, good customs, public order or public policy. The applicable law or rule would depend on the circurnstances. Thus, in some cases, the New Civil Code provisions on partnership or agency may apply depending. fon the express or implied agreement of the parties. In other cases, the members of these unincorporated associations or organizations may all sign an agreement as parties but may expressly provide for Joint creditors and/or debtors or solidary ereditors and/or debtors. a. The Rulesof Court recognized the existence of associations or “entity without juridical personality” by providing in Section 8 of Rule 14 thereof the rule on service of summons thereto. 11. Corporations. In 1776, Adam Smith wrote in his canonical Wealth of Nations that “companies, though they may perhaps, have been useful for the first introduction of some branches of commerce, by making, at their own expense, an experiment which the state might not think it prudent to make, have in the long-run. proved, universally, either burdensome or useless, and have either mismanaged or confined the trade.” His aversion for companies was further magnified when he observed in the same work that the same ‘companies were involved in collusion to limit competition, restraint of trade, market price enhancement, and obstruction of cireulation of employment. a, The corporate form has evolved into something that is far different from the companies of Adam Smith's time. However, itis not unusual to hear the same complaints against corporations now as it was then, Constant friction hetween some segments of society and “big business” is apparently inevitable and, whether unfounded or not, accusations that corporations are involved in collusion, obstruction, suppression and other irregularities are the inescapable results. Nevertheless, corporations continue their role as important components of the economy. Instead of doing away with corporations, the State subjects them to regulations and tries to make them develop a “social conscience.” supra St" tid: Masi Lisa Park Associaton, Tne. v. Almendras, ef ols “Section 39, ‘ tration and Super sorts Se aio Section 1(), Rule I, Part I, Rules on the Regis LIT, Seis of 2004; Sean nemnEE Associations, HLURB Board Resolution No TSEC Opinion dated December 3, 1998 ‘sos HL Bod ene BENE of Governance ef Homeowners A lo. 770, Series of 2004. Scanned with Camscanner\ND JURISPRUDENCE | 0 ONE REVISED CORPORATION CODE ‘OF THE PHILIPPINES rporations have their origin in Roman law. The repyy = Saeki Senatus Popolusque Romanus, Res publie © is aid tobe the “original” corporation." It was during the eaqy republic that corporate forms and other organizations gradi dloveloped including the religious sodalitas, the universitas, th? collegium, the governmental municipium and the societas.” 1. Core Features. Its separate personality (un the Destine of Seperate Personality") and the limited abit of its components (Limited Liability Rule)” make a corporatig, the most desirable business organization for many businessmen Corporations as investment vehicles involve the pooling of money capital from shareholders and human capital from managements Business corporations have five core characteristics, namely: (a) Legal personality; (2) Limited liability of shareholders; (@) Transferability of shares; (4) Delegeted management under a board structure, and (©) Investor ownership. a. The core characteristics respond to the exigencies of the large modern business enterprise and are therefore uniquely attractive for organizing productive activities. As will be discussed further elsewhere in this book, the core characteristics appear even ing One Person Corporation although in limited sense with respect ‘tocentralized management. There is no separate Board because the single shareholder is the sole director although there may also be ‘officers who manage the corporation. ° and John Alexander, Law of Corporations, 1983 Ed. p. Mf, here safer fered tas “Henn and Alenander p14" "Te ‘See Neves under Section 2 this work. ‘See Notes under Section of this work, PaRT 1— corporations a Introduction to Business Organizations 11.02. Advantages of Corporations. The advantages of a corporation as business organization are as follows: (The capacity to act as a legal unit; @)_ Limitation of or exemption from, individual liability of shareholder ®) Continuity of existence; (@) Transferability of shares; (©) Centralized management of board of directors; (6) Professional management; (Standardized method of organization, and finance; and (©) Easy capital generation. 11.03. Disadvantages of Corporations. The disadvantages ‘of a corporate form are as follows: ™ (1) Itis prone to “double taxation”; (2) They are subject to greater governmental regulation, ‘and control; (@) A corporation may be burdened with an inefficient management if stockholders cannot organize to oppose management; (@) Limited liability of stockholders may at times translate into limited ability to raise ereditor capital; (@) _It is harder to organize compared to other business organizations; (®) It is harder or more complicated to maintain; and ()_ The “owners” or stockholders do not participate in the day-today management. "jovi Salongs, Pilipine Law on Private Corporations, Sra Ep. 9, hersia ster refered to as Salonga, p. ©; Roger H. Hermanson and James Dan Edwards, Financial Aecounting, th Bap. 608, hereinafter referred to a5 “Hermanson and Edwarde™ ‘otfermanson and Edwards, p. 609 Scanned with CamScannerconamperam a aunirnr i: REVISED CORPO! TH te PTA IE Jaw trenta corporations ang ‘same for cera yy ran exactly uve sa an ations ema jurposen, che term Corporati ia iN oeatsona, Section 22(B) of National Jor sprovides that the term corporation tor how created oF organized, 8 (euentas en participacion) ‘tax Treatment. The I includes other busit Internal Revenue Code’ et set ti ms profeeiona p ture or consortium formed vrofessional partnerships and a joint venture oF. operations pursua ie coal, geothermal and other energy oper Be an aniey \ aneortium agreement under a service contract with the Government, 11.05, Opinions Regarding the Corporate Form, I, should be noted that early on, there were those who were reluctant to accept corporations as business vehicles. It is well to bear this in mind not only for historical purposes but also for the purpose of avoiding, if possible, the perceived pitfalls that accompany a corporation without putting an end to the corporate form: “The prevalence of the corporation in America has Jed men of this ‘generation to act, at times, as ifthe privilege of doing business in corporate form were inherent in the citizen; and has led them to accept the evils attendant upon the free and unrestricted use of the corporate mechanism ‘as if these evils were the inescapable price of civilized life, and, hence, to be borne with resignation. Throughout the greater part of our history a different view prevailed. Although the value of this instrumentality in commerce and industry was fully recognized, incorporation for business was commonly denied long after it had heen freely granted for religio ‘ducational, and charitable purposes. It was denied because of fear. Fear of ‘encroachment upon the liberties and opportunities ofthe individual. Fear of the subjection of labor to capital, Fear of monopoly. Fear that the absorption of capital by corporations, and their perpetual life, might bring evils similar {0 thowe which attended mortmain. There was a sense of some insidious ‘menace inherent in large aggregations of capital, particularly when held by corporations. So at frst the corporate privilege was granted sparingly; and only when the grant scemed necessary in order to procure for the community some specific benefit otherwise unattainable, The later enactment of general daonrearaion laws does not signify that the apprehension of corporate it nan oe ca og mt amin ret arters; and it was believed that un seneral laws embodying safeguards of universal application the scandals MONTRO for short fund favoritinn incider rr nhc tet to special inexrgoration enuld be avoided. The Mon embeded movers restrictions upon size and upon ivity, were, in part, expreaiona of the desire for to prolifernt tithstanding such objection, corporations continue 12 Profferate, In thin jurindetion, the contribution of corporations porationn cattlepment cannot be ignored. The importance of w was in fact emphasized in the Sponsorship Speech that. was made when the bill introducing the Corporation Code was considered on Second Reading by the Batasang Pambansa, v private corporations, and 1 ied from corporations owned ox controlled by the government or any subdivision or instrumentality thereof, gives wider dimensions to roe enterprne or free trade, For not only in the right of individuals to organize ealectively recogied; the collective organization is vested witha juridical personality distinct from their own. ‘Thus ‘the skill, dexterity, and judgment of a nation’s labor force need not be constricted in their application to thowe ofan individual or that which he ‘lone may assemble but to thooe of collective organization, While a code, such as the proposed code now before us, may appear ‘essentially regulatory in nature, it does not, and is not intended, to curb or stifle the use ofthe corporate entity as a business organization. Rather, the Proposed code recognizes the value, and seeks to inspire confidence in the value of the corporate vehicle in the economic life of society. ‘Therearetthose whosee ‘curse in bigness." The corporation code carries no inhorent bias against ‘bigness.’ On the contrary, the code acknowledges ‘the economic and technological necessity of bigness in modern industry. It thus seoks to assure that the corporate entity does not survive but becomes. an attractive and effective vohicle for the accumulation of capital and the production of goods. This is not tosuggest that corporations must of necess bo big. What T emphasize is that no provision in the code is designed to impede growth; rather, growth is encouraged. But use of the corporate entity by those groups who do not desire to be public thereby providing for themselves more limited access to resources is not discouraged. A whole 1now title on closed corporations has in fact been included in the Code. ‘The provisions of the code demonstrate an awareness that corporations fare not mere business organizations exclusively intended to serve the Dissenting Opinion in Louis K. Liggett Co. v. Leo, 288 US. 617, 648-567 939) Scanned with Camscannery commen Sa : as SSP THE PHILIPPINE ‘ ne vmandae the performance of specif M provides corporations wih ncournges and Prov institutions. Sl pening ae orporate Law. LAs on Corporations 22, Pam i snes oruizaons — re = ike the laws oer ith the fllowing: 2) defining the area peincally coreerytien axe fee to allocate risk, control and profit vethin wih 41) preceding the allocation ofthese elements in the absence of express agreement." 1e Revised Corporation Code of the Philippines, the cansrnion Cote find the old Corporation Law provide for the fernation and organization of corporations, define their powers, fix the duties of directors and other officers thereof, declare the rights and liabilities of shareholders and members and prescribe the conditions under which corporations may transact business."® {.__ Themsin groups ofpersons that are affected by corporate law include stockholders, directors and officers, and creditors. Corporate law secks to regulate both the relations between the sroups and within the groups. It regulates “the mechanisms by ‘which poop join, oF leave, one of these groups as well as their rights and duties once they have joined a group.” Nevertheless, since separate juridical entity is present, corporate law may not necessarily establish direct legal relations between the grou stead mediate these relationships through the other juridical ‘he corporation," a & Corporate law also allocates risks between the owners (archslder) and management (directors and officers) to ‘winiinee conic between the components, A structure for business sedonas Sed Reglar Seatln, 1979-1980 -refermed to ts “IU BP Records, pp. s W. The Pai mera Patong RITA "Mase Raoed GR Ne LASY Mae 2,1 nea volt oN : Retivities is created and devices to control or prevent conflicts between the components : : ents are provided for.* Corporate law seeks to reduce “the ongoing costs of organising business through the {orporate form, Corporate law does this by facilitating coordination tween participants in corporate enterprise, and by reducing the scope of value-redueing forms of opportunism among diferent a. _ The legislator who authored the Corporation Code explainedthatthelaw wasdesigned"talay down rulesandregultions cof the organization of corporations with a view to the protection of the public interest, but atthe same time, promote the economic and social development of the country through the development of the corporate vehicle as a means of doing business in the Philippines.” ‘The Corporation Code makes it possible for business to prosper and “this would spread the benefits of prosperity amang all the people, ‘especially the employees of the corporations and associations which ray be organized under the aegis of the Corporation Code.” The Revised Corporation Code of the Philippines Likewise serves the purposes sought to be accomplished under the Corporation Code. It was explained that: *. the Corporation Code ofthe Philippines was enacted in 1960, or 86 yonrs ago. If we are to keep up with the rest ofthe financial world, we need to codify best international corporate practices and address the archaic bottlenecks in the areas of starting a business, and protecting minority investors. We must likewise provide an environment conducive not just 10 big businesses, but make the corporate vehicle an appealing prospect for startups and entrepreneurs" 1.07. Purpose of the RCCP. The ROP was passed bby Congress mainly to introduce four (4) main reform clusters, (Q) Policies that would enhance the ease of doing ‘business in the Philippines; @) Rules that prioritize corporate and stockholder protection; (8) Provisions that instill corporate and civie responsiblity; and (8) Amendments that will strengthen the Wiglan B Ftiter, Corporations, Sth 2015 BAL p. 7. (The confit are re ferred toa agency probes. ‘Woraakman, Armour, eo The Anatony of Corporate Lax, A Comparative cond Fanctonal dgpsech 2017 BED 2 "HAH Rend TIS Deere 12, 287% oon ‘otjournal of the Seste Deesber 18,2018, pp TESTE Scanned with CamScannerpRUDENCE ON 4g anp JURISPRUDENCE CconMENTARIET, CORPORATION ‘Col 8 ‘THE RES PALIN york." These refor ratefiamew 3 patent tr Serankkin Drilon as follows: count’ jained bY ther acters ar nencing te Bose of Pl ipsa epee ret on th re a rafine the Pi Bode would streamline "9° Pe ion, the proposed measure wil, at ‘single person to form a commer petal cole ating may 9” be rough ene person corporation.” Likewise ener ure, oi beet — vevifeation aystem, with the “confusingly rfeation Suing. Hence © Shift the s gealow the full andseamless automation ver thelaw ey yOu cannot rete ssn Pr pecnuse ofa previously 2ees ae S51 Deas et a anetmant, you ca 0 9, EERLSE oe Bosal Moyet tats econ snd ost stumbling blak for many investor o incorporate isthe ep have at least ive (5) stockholders. This has Te rasoftastand nominee shareholders indispensable to ding ae ery couty. Investers name individuals as incorporator, with a retin th crpeaton just ocamply wit the legal requirement Hilla bane owners, naming the entre household as incorporators— Fes Siy eduber ie bor unusual becuse ofthe requirement that you fhoul have five incorporate. Its for this reason that we seek to introduce the concept of the “One Person Corporation in our jurisdiction. Tha Pili, ware om th feu tht ts ints sp italy eb ua an icon ttn tt pero davon forgetting to renew their corporate term, we ‘The present name sins” stander ino “Gatinguishabiity” test will 90 arrest, Foresame ‘The common requirement for a corporation ‘The proposal for a perpetual corporate term as the sents ane « perpetual corporate term as the defalt option vat oe enti set lhough none will confess to it, many lawyers do Teton nts paper minutes” The resort to paper minutes is du to the ers are required tobe present during meetings in person, "ara the Senate, D nents $0 eh am 82018 pT Soult e Houeo 2018, p17. - 21; Congressional Records, October 8 a ‘or by proxy. Likewise, din in person or through vt A required tobe present during meetings ealteleconferencing, changing nen oyanamnanints seaoweee the need to adapt to Liat ae avaiable through echlgy.Sechalies and ironed ot erndance 2, Present in meetings. Remote communication can facilitate attendance in meting, allowing he soles acl prtispte a icing and cme wih oem ec Vary sone (On the electronic ling of requirements with t pm missior ha note tat lou has aey pened up severe stele efit in Metro Marla and al ovr the conto eoaplanee wth reer requement ent str. nly S000, ot ef 800000 reper Companies, ae reared ob il opratngo dang basase With ie open oeponcfeneleenlne sts weep ecole amber wil impr Prioritizing Corporate and Stockholder Protection ‘The second reform cluster includes provisions on: (a) th eeation of ners tard the eed ral thei ip corate (9 uum regimens; and (2) expand grounds for disqualification of directors. on ‘The ereation and recognition of an emergency board would address ‘the situation where a corpration’s board of directors or trustees goes on. ‘8 perpetual holdover because it eannot muster a quorum. An emergency board can operate fora limited pried and purpote, allowing the corporation tocontinue its daily operations despite vacancies in the board. It is recognized that some stockholders may not be well versed to interpret the contents of eosporate documents. Hence, we propose to allow a representative or counsel to exercise the right to inspect the corporate books ton behalf of the stockholder. We are likewise introducing a more stringent and expanded set of rounds for disqualifiation of directors towards a more principled corporate decision-making. Instilling Corporate and Civic Responsibility rents tothe 36-year old Code, we want tocreate i be ellective vehicles for the accumulation ‘and delivery of services. Inthe words of the lang 68, “corporations are not mere business Incrfting the amendne corporate entities which woul of capital, production of goods, sponsor of Batas Pambensa Bil Scanned with CamScanner5 con EuRTORTON CODE , one SOF THE PHILIPPINES: craig ay cnn ean aor nr ob opin of ro in om cas ete ep eo, wot eengnt Cora ad Ci Aegeds when we authored the GOOG Smposed icin the 1th CORTES simiaals hide behind the separate personaiy viingers have litle incentive to be viglay tis ot sujet to criminal lability. organizations exe {natitations in wh on anther ape given sorporstions. St Een the copration anc therfore with ou obligations under the United Nation, Incomplincs Oeeuptn, or the UNCAG, to prevent the use of he Cansenton Aas or crmiting crimes, we hereby sock to immpone corportian 389 wt pene for raft and corruption, Asie er i ow, the corporation hay also euler revocatig ott eitration adiion, corporations vested with public interest are now requied oes rears oper ofthe board. Further, the boned af Girectors of such corporations shall elect @ compliance officer. Educational Sn ote ingurane, transportation, teleccamuntation Inatiatee iy lied compen, among others, are. examples sf caarae vated wth public terest. The SEC inthe interest of the Saban epand te st of erprations vested with pubic interest, Strengthening the Policy and Regulatory Corporate Framework ‘The fourth and last reform cluster includes provisions on (a) arbitration of commercial disputes; (6) amendments on dissolution; and (© the alignment of SEC's powers under the Corporation Code with the Securities Regulation Code. Presently, the SEC is equipped under the ‘Scourities Regulation Code with powers that are proper to an investigative and regulatory agency. It can issue subpoenas, cease and desist orders, and ‘ean cite persons in contempt. ‘The amendments we are presenting to this Chamber seek to vest the ‘same power in the SEC over ordinary corporations. ‘The proposed amendments will also provide expanded grounds fe rile Boa til, unde sn involuntary dissolution unlined process for both voluntary and Finally, @ provision on arbitration is i a on arbitration is included in the proposed isputes in a recoeniing that methods alternative to litigation ean resolve dispute in a more practical and efcent mameas : arr conto » eS a. In the House of Representati of the . resentatives, one of the sponsors of the Bill that eventually became the RCCP explained that: “The Bill t hand secks to remedy this situation by updati Ne remedy this st updating the law and mits it more attuned tothe curreat world order and bringing the counts legal framework fr corporations into the 2lst century. AmONE 1) enables corporation reitred in the Philippines to compete slobelly by coping ineratooal eororate best practices 2) encourages entrepreneurship and the formation of small businesses by authorizing the establishment of one person corporations; 8) contributes tothe ease of doing business by a) mandating the Securities and Exchange Commission (SEC) to develop and implement electrone fling and monitoring systems, and 8) permitting corporations to exist perpetually, unless ther CortScates of Incorporation specly 4) enhances the country’s competitiveness by favorably impacting ‘wo oase-of-doing-business indicators, particularly in starting a business ‘and protecting minority stockholders; 5) promotes stockholders’ rights by a) expanding the right of @ stockholder to inspeet the books of the corporation to include a stockholder’s representative who may be more knowledgeable in corporate issues; b) affording stockholders and members of the Boards to remotely participate ‘in meetings and to vote in the same; ») providing for corporate criminal liability, holding not only the individuals responsible for their violations but the corporation itself, subjecting the latter to hefty fines; ©) streamlining cooperation between various regulatory agencies and the the Senate, December 13, 2016, pp. 724-882, Tejoaral Scanned with CamScannerUDENCE ON § AND JURISPR) COMMENT ART CORPORATION CODE - THE Rep THE PHILIPPINES the SEC with additional powers, including the e it Ht eri SEC; and d) ene omnt for failing to comply with any of the SEC, to hold persons in , m9 orders or subpoenas. ce under RCCP. In addition, 1108, S008 Oe neha to the Corporation Code under the good number ote 3 strengthen good corporate governance, which ROOP ate inter the rights of stockholders, and deter corporate will also protees je well as graft and corrupt practices." The intent alnuses an bie ane principles not only on listed companies Peres rations as well.» The Good Governance principles oar oad i the RCCP are identified and discussed in the mat Section 22 of this book. Congressional Records, Explanatory Note to § October 8, 2018, pp. 17-18, and 528, Z 1 'B. No. 1011; Explanatory Note to House Bill Nos. 87 ‘Explanatory Note to SB, Nos, 1011 and 231, Scanned with CamScannerCOMMENTARIES AND JURISPRUDENCE ON ;D CORPORATION CODE, PHILIPPINE 28 Syndicate. A syndicate is a group of people who come together to work for a common aim." This unincorporated busines, aesociation is often encountered among insurance companies why mnay be underwriting a large risk or banks that are lending a huge ‘amount. Syndication is therefore the practice of dividing investment risk between several persons in order to minimize individual risk. a, thas been observed that “as banks have gotten bigger, so have their lending limits, but there may be times when a credit facility exceeds the lending limit of one bank. Banks also wish to diversify their loan portfolios and may not wish to extend credit toone borrower up to the maximum legal amount. In such cases, the lead ender may sell participating interests in the loan to other lenders or may arrange a syndicated credit facility." It was explained further that in syndicated loan, each lender isa member ofthe syndicate and a party to the loan documents. The borrower has a direct contractual, relationship with each member of the lending syndicate. Syndicated credit facilities often involve a revolving credit arrangement used by the borrower for working capital and a term loan that is used to refinance the borrower's existing debt.” b. _ Insyndicated loans, the lead bank may initially be the only lender. However, it may not have sufficient available cash to lend the whole amount needed by the borrower. Thus, after extending the loan to the borrower to partially cover the latter's needs, the lead bank may propose loan syndication to other banks with the undertaking to share the collateral that was already given by the borrower. ‘The agreement to share the collateral is perfected the ‘moment there is a meeting of minds thereon among the participating banks and the same agreement is consummated with the execution of the documents contemplated like a “mortgage trust indenture” or a ‘joint real estate mortgage." 9. Homeowners’ Associations. Homeowners’ associations may acquirejuridical personality andcorporate powers. Homeowners’ association is defined as: John OF. Clark, Dictionary of Banking and Finance Terms, 2000 Ea. p. 314. “Supra. ‘Lissa L. Broome and Jerry W. Markham, Regulation of Bank Financial Ser- vice Activities, 001 EA. p. 219. "bid. "Gateway Blectronies Corporation v. Land Bank of the Philippines, G.R. Nos 156217 and 156990, July 20, 208. arr conn er a 7 (b) “Association” association which is anoneeck Penn ered teaisered withthe Housing and Land Use Regulatory Board (HLURB), or one. previously registered wih the Home Insurance Guarantee Corporation (now Home Guaranty Corporation) or the Secures and change Commission (SEC), organized by owners OF Purchasers of lot in a subdvsinvilage or other residential real property located within the jurisdiction of the association; or awardees, usufructuaries, legal accupants andior lessees of a housing unt andlor lot in a government socialized or economic housing of ‘relocation project and other urban estates; oF underprivileged and homeless zens as defined under existing laws in the process of being accredited as usufructuaries or awardees of ownership rights under the Community Morigage Program (EMP), Land Tenure Assistance Program (LIAP) and other similar programs In relation oa socialized housing project actually being implemented by the national government or the LGU" a. Registration of a homeowner's association is with the Housing and Land Use Regulatory Board (HLURB) This authority extends to all associations, federations, confederations or umbrella organizations of the associations. The governing law is Republic ‘Act No, 9904 otherwise known as “The Magna Carta for Homeowners ‘and Homeowners Association.” The underlying State policy is stated in Section 2 of Republic Act No. 9904 that states: Section 2. Declaration of Policy. — In fulfillment of the constitutional principles directing the State to ‘encourage, promote and respect nongovernmental, ‘community-based and people's organizations in serving their legitimate collective interests in our participatory democracy, itis hereby declared the policy of the State to uphold the rights of the people to form unions, associations, or societies, and to recognize and promote the rights and the roles of homeowners as individuals and as members of the society and of homeowners’ Section 3), Republic Act No, 9808 seation 4, bid; Section 2, Republic At No. 8163 Section 2, iid. Scanned with CamScanner