Corporation law

Corpo code was amended

New law took effect Feb last year

Before there was BP 68, for 30 years

Now it is RA 11232

Sole proprietorship an unincorporated business with only one owner

- One man show

- Making business decisions is easier
- No need to consult anybody unless you want to
- There is one problem however. The problem the answering for liabilities. If your sales go down, nagkautang ka,
who pays for those liabilities? The answer is you alone are liable.
- Personal assets
- Personal savings
- If your operating under a sole prop. Profits are enjoyed by u alone. But the moment you incur debts, you are
answerable for your own obligations

Patnership

- More starting capital

- Profitability, hopefully is much higher
- In terms of consultation, if the business has problems, the partners can brainstorm in thinking of solutions to
business problems
- When it comes to liabilities, primary source is the partnership’s assets
- Question, WHAT IS A LIMITED PARTNER??
- Limited partners are disqualified in participating management decisions

Corporation

- Prior to RA 11232, When u form corporation, there must be 5 incorporators.

- The moment there is a certificate of incorporation, you have created a new person in form of a corporation
- The person in dis case is not a natural person but an artificial person
- Advantages of corp?
1. More people
2. More participants in brainstorming
3. More capital
4. THE MAJOR ADVANTAGE is that the corporation shields you from personal liability, as a general rule
- Doctrine of Limited Liability – When it comes to liabilities, liability has to be paid by corporate assets. If assets of
corpo is not enough, stock holders will only be made liable to the the extent of what they put in the corporation.
- Corporations as general rule, shield its stock holders from unlimited liability.
 How do we determine nationality of corporation?

- Basic rule is
1. Place of incorporation test: Wherever the corporation is registered, that is the nationality of the corporation
regardless if the majority of stock holders are foreigners.
2. Control test: (Do not go into the control test unless the business is engaged in partly nationalized activity or
nationalized activity) Under this test, as long as the foreign stockholders do not exceed 40 percent and 60 is
filipinos, the law will look at you as a Filipino corporation 100%.
3. Grandfather rule: (If business is not nationalized or partly nationalized, don’t bother with the Grandfather
rule) This rule is a supplement to the control test. Nationality is attributed to the percentage of equity in the
corporation used in nationalized or partly nationalized area. As further defined by Dean Cesar Villanueva,
the Grandfather Rule is “the method by which the percentage of Filipino equity in a corporation engaged in
nationalized and/or partly nationalized areas of activities, provided for under the Constitution and other
nationalization laws, is computed, in cases where corporate shareholders are present, by attributing the
nationality of the second or even subsequent tier of ownership to determine the nationality of the corporate
shareholder.”
1. Said rule is applied specifically in cases where the corporation has corporate stockholders with alien
stockholdings, otherwise, if the rule is not applied, the presence of such corporate stockholders could
2. diminish the effective control of Filipinos.

Doctrine of separate juridical personality

- corporation is separate from its members. Separate from its corporate officers
- Corporation is separate and distinct. The law has given it a separate and distinct personality apart from its
members or employees
- Primary legal implication is that the limited liability rule comes into play.
- It is called AN ARTIFICIAL PERSON

Doctrine of piercing the veil

- While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in
case of two corporations, merge them into one, when its corporate legal entity is used as a cloak for fraud or
illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or when it
is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another corporation.
- No hard and fast rule when it comes to piercing, it is a case to case basis
- What is the objective in piercing? The only purpose is to make those directly responsible personally liable for the
damages caused by the abuse. Therefore the moment there has been compensation, the corporation once again
may enjoy separate personality. Its integrity is restored once the case is resolved

What are the grounds for piercing?

1. Fraud piercing – Corporation was used to commit fraud

2. Alter- ego piercing – The officer who happens to own the company, uses the company as a mere
extension of his personality only for the purpose is limiting his liability
3. Equity piercing – when the corporate fiction is used to defeat public convenience, when it is used as a
vehicle to avoid an existing obligation
One person corporation

- New creation under revised corpo code

- Section 115-132
- Single stock holder acts as president
- OPC has separate personality
- Section 130 – Liability of single stockholder

Stock vs non-stock

When do we form stock corporation?

- Purpose is profit
- Objective is profit. To maximize the value of shares of stockholders
- Put money In a stock corporation because you want to get money
- Profit is called dividends
- What is a capital stock? It is the unit of ownership in a corporation
- Board of directors is the governing body

Non stock

- No profit
- But the law
- Is a non stock corp prohibited from earning profits? NO it can earn profits. The difference is that the profits
cannot be distributed to the members
- The governing body in a nonstock is the board of trustees
-