Classification of Corporations
Stock and non-stock
Shares​, are the divided capital, that is
held by shareholders
Dividends/allotments ​are those which
are distributed as surplus profits on the
basis of the shares held by the holder.
Section 3 Classification of
Corporation​-Corporations formed or
organized under this Code may be stock or
non-stock corporations. ​Stock corporations
are those which are capital stock divided
into shares and are authorized to distribute
to the holders of such shares, dividends, or
allotment of the surplus profits on the basis
of the shares held. All other corporations
are ​non-stock corporations.
Stock Corporations
Requisites
1. That they have a capital stock
divided into shares; and
2. That they are authorized to distribute
dividends or allotments as surplus
profits to its stockholders on the
basis of the shares held by each of
them.
Stockholders must generally cast their votes
in the meeting; section 4 governed primarily
by the law creating them
Non-Stock Corporations
Sec.86. Definition; ​For purposes of this
Code and subject to its provisions on
dissolution, a ​non-stock corporation is
one where no part of its income is
distributed as dividends to its members,
trustees, or officers: Provided, that any
profit which a non-stock corporation may
obtain as an incidental to its operation
shall, whenever necessary or proper, be
used for the furtherance of the purpose
or purposes for which the corporation
was organized, subject to the provisions
of this Title. The provisions governing
stock corporation, when pertinent, shall
be applicable to nonstock corporations,
except as may be covered by specific
provisions of this Title.
Section 87 Purposes- Non Stock
corporations may be formed or organized
for charitable, religious, educational,
professional, cultural, fraternal, literary,
scientific, social, civc, service, or similar
purposes, like trade industry, agricultural
and like chambers, or any combination
thereof, subject to the special provisions of
this title governing particular classes of
non-stock corporation. ​(Allowed to make
profit but it must be incidental to its
operation and use to furtherance of such
purpose)
Non-Stock Corporations
Section 92 List of Members and Proxies,
Place of Meetings- ​xxx members of a
non-stock corporation may hold their regular
or special meeting at any place even
outside the place where the principal office
of the corporation is located. Provided, that
proper notice is sent to all members
indicating the time and place of the meeting;
Provided, further that the place of meeting
shall be within the Philippin territory.
Section 23 Election of Directors or
Trustees. ​Except when the exclusive right
is reserved for holders of founders shares,
Each stockholder or member shall have the
right to nominate any directors or trustees
who possess all of the qualifications and
none of the disqualifications.
All elections of directors or trustees must be
present- in person or through representative
authorized to act as proxy.
-may also vote through remote
communication or in absentia (Public
interest)
In stock corporations, stockholders entitled
to vote shall have the right to vote the
number of shares standing in their own
name of shares of stock standing in their
own names in the stock books of the
corporations at the time fixed in the bylaws
or where the bylaws are silent;
The stockholder may;
a) vote such number of shares for as many
persons as there are directors to be elected;
b) cumulate said shares and give 1
candidate as many vote as the number of
directors to be elected multiplied by the
number of the shares owned;
c) distribute them on the same principle
among as many candidates as may be seen
fit. Provided that the total number of votes
cast shall not exceed the number of shares
owned by the stockholders as shown in the
books.
No election is held or the owner of majority
of the outstanding capital stock not present
in person or representation then it will
adjourned and reschedule.
Cumulative voting is a type of voting system that
helps strengthen the ability of minority shareholders to
elect a director. This method allows shareholders to
cast all of their votes for a single nominee for the
board of directors when the company has multiple
openings on its board. ​(you are afforded the 2,000 votes
from the start and could choose to vote all 2,000 votes for
one candidate, 1,000 each to two candidates, or otherwise
divide your votes whichever way you wanted.​)
Section 88 Right to Vote- ​The right of the
members of any class or classes to vote
may be limited, broadened, or denied to the
extent specified in the articles of
incorporations or the bylaws.
- Shall be entitled to 1 vote.
- Unless otherwise provided a member my
vote by proxy
-voting through remote communication
and/or​ in absentia.
Collector vs. Club Filipino de Cebu
FACTS: Club Filipino, Inc De Cebu [Club of
brevity] is a civic corporation with an authorized
capital of P22,000.00 which was later increased
to P200,000.00. Its Article of Incorporation and
by-laws do not contain any provision relative to
dividends and their distribution although it is
covenanted that upon its dissolution, the Club's
remaining assets, after paying its debts, shall be
donated to a charitable Philippine institution in
Cebu.
The Club owns and operates "a clubhouse, a
bowling alley, a golf course, and a bar restaurant
where it sells wines and liquors, soft-drinks,
meals and short orders to its members and their
guests." The bar and restaurant was necessary
incident to the operation of the Club and its golf
course is operated mainly with funds derived
from membership fees and dues. Whatever
profits it had were used to defray its overhead
expenses and to improve its golf course. In
1951, as a result of capital surplus arising from
the reevaluation of its real properties which time
increased, the Club declared stock dividends but
no actual cash dividends were distributed to the
stockholders. In 1952, the BIR discovered that
the Club has never paid percentage taxes on the
gross receipt of its bar and restaurant and
assessed that Club of P12,068.84 as fixed and
percentage taxes inclusive of surcharges based
on Section 182 of the Tax Code which provides
that "unless otherwise provided, every person
engaging in a business on which the percentage
tax is imposed shall pay in full a fixed annual tax
of ten pesos for each calendar year of fraction
thereof x x x " Section 191 of the same Code
likewise provides that “keepers of restaurant,
refreshment parlors and other eating places
shall pay a tax of three per centum of their gross
receipts. x x "
ISSUE: ​(Whether the Club is liable to pay the
taxes assessed against it.)
HELD​: It has been held that the liability for fixed
and percentage taxes [as provided for in the Tax
Code] does not ipso facto attach by mere reason
of the operation of a bar and restaurant. For the
liability to attach, the operator thereof must be
engaged in the business as a bar keeper and
restaurateur. The plain and ordinary meaning of
business is restricted to activities or affairs
where profit is the purpose or livelihood is the
motive, and the term business when used
without qualification, should be construed in its
plain and ordinary meaning; restricted to
activities for profit or livelihood. In the case at
bar, it is concocted that the Club derived profits
from the operation of its bar and restaurant, but
such fact does not necessarily convert it into a
profit making enterprise. The bar and restaurant
are necessary 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. That a club makes
some profit does not make it a profit-making
club. As he been remarked, a club should
always strive whenever possible, to have a
surplus.
What is determinative of whether or not the club
is engaged in such business is its object or
purpose is not controlled by the corporate form
or by the commercial aspect of the business
prosecuted but may be shown by extrinsic
evidence including the by laws and the method
of operation. For the extrinsic evidence
adduced, the Tax court concluded that the club
is not engaged in the business as a bar keeper
and restaurateur. Moreover, for a stock
cooperation to exist two requisite must be
complied;
(1) A capital stock divided into shares (2) An
authority to distribute to the holders of such
shares, dividends or allotments of the surplus
profits on the basis of shares held. In this case
nowhere in its articles of incorporation or bylaws
could be found an authority for the distribution of
its dividends or surplus profits.
Corporations Created by Special Law or
Charter
Sec.4. Corporations created by Special
Laws or Charters; ​Corporations created by
special laws or charters shall be governed
primarily by the provisions of the special law
or charter creating them or applicable to
them, supplemented by the provisions of
this Code, insofar as they are applicable.
AKA (GOCC)
GOCC operate under the special law or
charter need not to register in SEC for them
to acquire a legal and Juridical
personalities. ​Their existence is not by
virtue of their compliance with the
requirements of registration under the
Corpo Code but by virtue of the law
(legislative act) specially creating them.
Suitability GN: Not immune
XPN: Provided by law
Governing law as to officers and
employees
1. Civil Service Law; if created by
special law
2. Labor Code; if organized under the
Corporation code (ex. Subsidiaries)
Test to determine the governing law on
employee is the manner of creation.
PNOC-ENERGY DEV’T CORP v. NLRC
FACTS: ​Private respondent Danilo Mercado
was employed by PNOC-EDC, ​a subsidiary of
PNOC, on August 13, 1979. He was dismissed
on June 30, 1985 by the petitioner on the
grounds of dishonesty and violation of company
rules and regulations. On September 23, 1985,
Mercado filed a complaint for Illegal dismissal,
retirement benefits, separation pay, unpaid
wages, etc., against petitioner PNOC EDC
before the National Labor Relations Commission
(NLRC). PNOC-EDC filed a motion to dismiss
on the ground that the Civil Service
Commission, not the NLRC has jurisdiction over
the case. The NLRC denied the motion to
dismiss and ruled in favor of Mercado on July 3,
1987. PNOC -EDC went to the Supreme Court
on a petition for certiorari alleging that it is a
subsidiary of PNOC which is a government
entity created by PD No. 334, as amended, and
as such it is governed by the Civil Service Law
as provided for in Sec. 1, Art XII-B of the 1987
Constitution, Sec. 56 of PD No. 807 (Civil
Service Decree) and Art. 277 of PD No. 442, as
amended. (Labor Code).
Petitioners argued that since the decision of the
Labor Arbiter was rendered at the time when the
1973 Constitution was in force, the said decision
is null and void because under the 1973
Constitution, government owned and controlled
corporations were governed by the Civil Service
Law. Even assuming that PNOC-EDC has no
original or special charter and Sec 2(1), Art. IX-B
of the 1987 Constitution provides that "the Civil
Service embraces all branches, subdivision,
instrumentalities and agencies of the
Government, including government owned or
controlled corporations with original charters"
such circumstances cannot give validity to the
decision of the Labor Arbiter.
ISSUE: (What law governs the employees of
PNOC-EDC?)
HELD: The issue has already been laid to rest in
the case of PNOC-EDC vs. Leogrado, 175
SCRA 26 (July 5, 1989), involving the same
petitioner and the same issue where this Court
ruled that the doctrine that employees of
government owned or controlled
corporations​, whether created by special law or
formed as subsidiaries under the General
Corporation Law ​are governed by the Civil
Service Law ​and not the by the Labor Code,
has been supplanted by the present
Constitution. Thus, under the present state of
the law, the test is determining whether a
government owned or controlled corporation is
subject to the Civil Service Law is ​the manner
of its creation​, such that government
corporations created by special charter are
subject to its provisions while those incorporated
under the General Corporation Law are not
within its coverage. Specially, the PNOC-EDC
having been incorporated under the General
Corporation Law was held to be government
owned or controlled corporation whose
employees are subject to the provisions of the
Labor Code. (ibid.)
The fact of the case arose at the time when the
1973 Constitution was still in effect, does not
deprive the NLRC of its jurisdiction on the
premise that it is the 1987 Constitution that
governs because it is the Constitution in place at
the time of the decision (NASECO vs. NLRS,
GR No. 69870, 168 SCRA 122[1988]).
In the case at bar, the decision of the NLRC was
promulgated on July 3, 1987. Accordingly, this
case falls squarely under of rulings of the
aforementioned cases.
Other Classes of Corporations
1. Public and Private Corporations
The above classes are now eliminated in
order to avoid the confusion due to the
presence of majority of shares in a private
corporation led to the corporation being
classified as public. As previously
discussed, the test is the manner of
creation​.
Hence, while the government may own a
majority of the shares, the fact that a
corporation existed by virtue of the
Corporation Code makes them a private
corporation, and not as a public corporation
or GOCC .
a. Public Corporation-​Formed or
organized, for the government or a
portion of the State or any of its political
subdivisions for the purpose of general
good and welfare, or for the
accomplishment of its ​own public
purpose. (​ Political or Governmental)
The true test to determine the nature of a
corporation as public or private is found in
the relation of the body to the state.
GOCC- 1. With the original charter or
created by special law
2. Incorporated under the general law
National Coal v. CIR
FACTS: The National Coal Company was
created for the purpose of developing the coal
industry in the Philippines by Act No. 257 and
was actually engaged in the mining of coal on
reserved lands belonging to the government. It
brought an action for the purpose of recovering
a sum of money allegedly paid by it under
protest to the defendant (CIR), a specific tax on
some tons of coal. It claimed exemption from
taxes under Section 1469 of the Administrative
Code which provides that "on all coal and coke
shall be collected per metric ton, fifty centavos".
Of the 30,000.00 shares issued by the
corporation, the Philippine government is the
owner of 29,809 shares or substantially all of the
shares of the company.
ISSUE​: (Whether the plaintiff corporation is a
public corporation)
HELD: On this point, the Supreme Court ruled
that the plaintiff is a private corporation. The
mere fact that the government happens to be a
majority stockholder does not make it a public
corporation. x x As a private corporation, it has
no greater rights, powers and privileges than
any other corporation which might be organized
for the same purpose under the Corporation
Law, and certainly, it was not the intention of the
Legislature to give it a preference or right or
privilege over other legitimate private
corporation in the mining of coal.
​ . ​Private corporation- Formed for some
b
private purpose, benefit, or aim or end, that
will benefit the individuals composing it.
True test to determine private or public
corporation- ​Relation of the body
(corporation) to the State .
A public corporation has AUTHORITY to do
a governmental purpose, while a private
corporation is NOT.
2. Ecclesiastical and Lay Corporation
a. Ecclesiastical or Religious
Corporation- ​composed exclusively
of ecclesiastical organized for
spiritual purposes or for
administering properties held for
religious one.
Organized to secure public worship
perpetuating the right of a particular religion.
(Religious societies or corporation sole)
b. Lay Corporations- ​are organized
for purposes other than religion, like
secular or business purpose
classified as;
b.1 ​Eleemosynary: ​created for charitable
and benevolent purposes such as those
organized for the purpose of maintaining
hospitals and houses for the sick, aged or
poor.
b.2 ​Civil ​: organized not for the purpose of
public charity but for the benefit, pecuniary
or otherwise, of its members.
a. Close Corporation ​are those whose
3. Aggregate and Sole Corporation
a. Aggregate Corporation​- are those
composed of a number of individuals
vested with corporate powers.
b. Corporations Sole ​- registered
under corporation code consisting of
not less than five but not more than
fifteen incorporation. Those consist
of one person or individual only and
who are made as bodies corporate
and politics in order to give them
some legal capacity and advantage
which, as natural persons they
cannot have. Under code, a
corporation sole may be formed by
the chief archbishop, bishop, priest,
minister, rabbi, or other presiding
elder or religious.
Sec.116. One Person Corporation A One
Person Corporation is a corporation with
a single stockholder: Provided that only a
natural person, trust, or an estate may
form a One Person Corporation. Banks
and quasi-banks, preneed, trust,
insurance, public and publicly-listed
companies, and non-chartered
government owned and controlled
corporations may not incorporate as One
person corporations: Provided further, that a
natural person who is licensed to exercise a
professional may not organized as a One
person Corporation for the purpose of
exercising such profession except as
otherwise provided under special law.
Who may organize an OPC? Natural
person, trust, and estate. Judicial person
cannot.
4. Close and Open Corporation
shares of stock are held by a limited
number of persons like the family or other
closely-knit group. There are no public
investors and the shareholders are active
in the conduct of the corporate affairs;
recognized under Sec. 96 of the
Corporation Code;
Xxx ​Close corporation ​may provide that
the business of the corporation shall be
managed by the ​stockholders ​of the
corporation rather than by a board directors.
So long as this provision continues in effect,
no meeting of stockholders need to be
called to elect directors: Provided that the
stockholders of the corporation shall be
deemed to be directors for the purpose of
applying the provisions of this code, unless
the context clearly requires otherwise;
provided further that the stockholders of the
corporation shall be subject to all liabilities
of directors.
The articles of incorporation may likewise
provide that all officers or employees
provide that specified officers or employees
shall be elected or appointed by the
stockholders, instead of by the board of
directors.
Sec.95. Definition and applicability of
Title; ​A close corporation, within the
meaning of this Code, is one whose
articles of incorporation provides that: a)
All the corporation’s issued stock of all
classes, exclusive of treasury shares,
shall be held of record by not more than
a specified number of persons, not
 exceeding twenty (20); b) All the issued
stock of all classes shall be subject to
one (1) or more specified restrictions on
transfer permitted by this Title; and c)
The corporation shall not list in any
stock exchange or make any public
offering of any of its stock of any class
Notwithstanding the foregoing, a
corporation shall not be deemed a close
corporation when at least two-thirds (2/3)
of its voting stock or voting rights is
owned or controlled by another
corporation which is not a close
corporation within the meaning of this
Code. ​Any corporation may be
incorporated as a close corporation,
except mining or oil companies, stock
exchanges, banks, insurance
companies, public utilities, educational
institutions and corporations declared
to be vested with public interest in
accordance with the provisions of this
Code​. The provision of this title shall
primarily govern close corporation: Provided
that other title in this Code shall apply
suppletorily except as otherwise provided
under this title.
Requisites a) ​All stocks, except treasury
shares, shall be held by specified
persons not exceeding twenty (20)
persons; b) All issued stuck must be
subject to one (1) or more restrictions on
transfer; and ​c) Shares cannot be listed
in any stock exchange or make any public
offering
b. Open corporations- are those formed to
openly accept outsiders as stockholders or
investors. They are 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.
5. Domestic and Foreign Corporation
a. Domestic Corporation- are those
organized or created under or by virtue of
the Philippine laws, either by legislative act
or under the provisions of the General
Corporation Law.
b. Foriegn Corporation- are those
formed, organized or existing under any
laws other than those of the Philippines and
whose laws allow Filipino citizens and
corporations to do business in its own
country or state (Sec. 123, Corporation
Code).
The second part of the definition is,
however, somehow misplaced since any
corporation for that matter, which is not
registered under Philippine laws is a foreign
corporation. Such second part was inserted
only for the purpose of qualifying a foreign
corporation to secure a license and to do
business in the Philippines. (reciprocity rule)
Sec.140. Definition and Rights of
Foreign Corporations For purposes of
this Code, a foreign corporation is one
formed, organized, or existing under any
laws other than those of the Philippines’
and whose laws allow Filipino citizens
and corporations to do business in its
own country or State. It shall have the
right to ​transact business in the
Philippines after obtaining a license for
that purpose with this Code and a
certificate of authority from the appropriate
government​ agency.
6. Parent or Holding Companies and
Subsidiaries and Affiliates
a. Parents or holding company​;a corporation
who controls another corporation, or several
other corporations known as its subsidiaries.
Holding companies have been defined as
corporations that confine their activities to
owning stock in, and supervising
management of other companies. A holding
company usually owns a controlling interest
(more than 50% of the voting stock) in the
companies whose stocks it holds. As may be
differentiated from investment companies
which 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.
It is when one corporation
(parent/holding company): a) Controls
another corporation; or b) Controls several
other corporations (subsidiaries)
Parent/holding companies v. investment
Parent/holding companies ​are passive and
holds the securities merely for purpose of
control and management.
Investment companie​s are active in the sale
or purchase of shares of stock or securities
b. Subsidiary Corporations; those which
another corporation owns at least a majority
of the shares., this has control. A subsidiary
has an independent and separate juridical
personality, distinct from that of its parent
company, hence any claim or suit against the
latter does not bind the former or vice versa.
Affiliates-​are those corporations which are
subject to common control and operated as part
of a system. They are sometimes called “sister
companies” since the stockholdings of a
corporation is not substantial enough to control
the former. Example: 15% of ABCD Company is
held by A Corp, 18% by B Corp, and another
15% by C Corp. – A, B and C are affiliates​.
Ayala Corp. owns shares of stock amounting to
56% in BPI, 52% in Globe, and 58% in Ayala
Land. What are the relationships of the above
corporations? Ayala Corp is the parent/holding
company. BPI, Globe, and Ayala Land, are
considered as subsidiaries.
7. Quasi-public corporation- defined as
private corporations which have accepted from
the state the grant of a ​franchise or contract
involving the performance of public duties.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
telegraph and telephone companies, water and
electric companies. More appropriately, ​they
are known as ​public service corporations.
8. Quasi Corporation- ​public bodies or
municipal societies such as townships,
countries, school districts, roads or highway
districts which, though not vested with the
general power corporations, are organized by
statutes or immemorial usage, as persons or
aggregate corporations with precise duties
which may be enforced, and privileges which
may be maintained, by suit of law. ​They
possess some corporate functions and
attributes but they are primarily political
subdivisions- agencies in the administrations of
civil government and their corporate functions
are granted to enable them more readily to
perform their public duties.
Do they possess all general powers of
the corporation​? No, as they are only
agencies in the administration of civil
government. As such, corporate functions
are granted only as to enable them to
perform their public duties.
9. De jure Corporations-​re juridical entities
created or organized in strict or substantial
compliance with statutory requirements of
incorporation and whose rights to exist as such
cannot be successfully attacked even by the
State in a quo warranto proceeding. They are,
in effect, incorporated by strict adherence to the
provisions of the law of their creation.
Defective Corporations a) De facto
corporations; and b) Corporations by estoppel
10. De Facto Corporation ​are those which
exist by the virtue of an irregularity or defect in
the organization or constitution or from some
omission to comply with the conditions
precedent by which corporations de jure are
created, but there was colorable compliance
with the requirements 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. Its
existence can only be ​attacked by a direct
action of quo warranto proceedings made by
the solicitor general.
existence due to their agreement, admission or
conduct.
This doctrine of Corporation by estoppel;
Section 21 Corporation by estoppel; ​All
persons who assume to act as a
corporation knowing it be without authority to
do so shall be liable as general partners
for all ​debts, liabilities, and damages
incurred or arising as a result thereof:
Provided, however, that when any such
ostensible corporation is sued on any
transaction entered by it as a corporation or
any tort committed by it as such, it shall
not be allowed to use its lack of corporate
personality as a defense. Anyone who
assumes an obligation to an ostensible
corporation as such cannot resist
performance thereof on the ground that
there was in fact no corporation.
They shall be liable as general partners for
all debts, liabilities, and damages.

Section 19 De facto Corporation ​The due

incorporation of any corporation claiming in
good faith to be a corporation under this
Code, and its right to exercise corporate
powers, shall not be inquired into collaterally
in any private suit to which such corporation
may be a party. Such inquiry may be made
by the Solicitor General in a quo warranto
proceeding.

Compliance- DE JURE ​strict or substantial

(QWP- Not available) ​DE FACTO ​Colorable
(QWP- Available)

11. Corporation by Estoppel-​those which are

so defectively formed as not to be either de jure
or de facto corporations but which are
considered as corporations in relation only to
those who cannot deny their corporate