CORPORATION LAW
STOCK CORPORATION‐ one which have
(B.P. Blg. 68, effective May 1, 1980)
CORPORATION DEFINED
 A corporation is an artificial being
created by operation of law having the
right of succession, and the powers,
attributes and properties expressly
authorized by law and incident to its
existence.
4 BASIC ATTRIBUTES OF A 2. As to the number of persons who compose
CORPORATION
1. It is an artificial being
2. It is created by operation of law
3. It enjoys the right of succession
4. It has the powers, attributes and properties
expressly authorized by law or incident to its
existence
Q: What are the theories on the
formation of a corporation?
1.Concession theory or fiat theory –
Means that a corporation was conceived as an
artificial person owing existence through
creation by a foreign power. It has without
any existence until it has received the
imprimatur of the state acting according
to law, through the SEC.
Note: Philippine jurisprudence adopted this
theory as the underlying basis for the existence
and powers of corporate entities.
2. Theory of corporate enterprise or
economic unit – The corporation is not
merely an artificial being, but more of an
aggregation of persons doing business, or an
underlying business unit. (However, this
doctrine is being used in support of other
doctrines)
3. Genossenschaft theory – Treats a
corporation as “the reality of the group as a
social and legal entity, independent of State
recognition and concession”.
Q: What are the two kinds of franchise?
1. Corporate or primary/general franchise
 grant given to exist as a corporation;
2. Special or secondary franchise
 certain rights and privileges conferred
upon existing as a corporation (e.g. right
to use the streets of a municipality to lay
pipes of tracks, erect poles, or string
wires).
B. CLASSIFICATION OF
CORPORATIONS
Q: What are the classifications of
corporation?
1. As to Corporation Code:
a.
capital stock divided into shares and are
authorized to distribute to the holders of such
shares dividends or allotments or the surplus
profits on the basis of the shares held.
b. NON‐ STOCK CORPORATION‐ is one
which do not issue shares and are created not
for profit but for public good and welfare and
where no part of its income is distributable as
dividends to its members, trustees, or officers.
them:
a. Corporation aggregate‐ corporation
consisting of more than one member or
corporator;
b. Corporation Sole‐ religious corporation
which consists of one member or corporator
only and his successor.
3. As to whether they are for religious purpose
or not:
a. Ecclesiastical corporation‐ one
organized for religious purpose
b. Lay corporation‐ one organized for a
purpose other than for religion.
4. As to whether they are for charitable purpose
or not:
a. Eleemosynary‐ one established for
religious purposes
b. Civil‐ one established for business or profit
5. As to state or country under or by whose
laws they have been created:
a. Domestic‐ one incorporated under the laws
of the Philippines
b. Foreign‐ 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.
6. As to their legal right to corporate existence:
a. De jure‐ one existing both in fact and in law
b. De facto‐ one existing in fact but not in law
7. As to whether they are open to the public or
not:
a. Close‐ one which is limited to selected
persons or members of the family.
b. Open‐ one which is open to any person who
may which to become a stockholder or member
thereto
8. As to their relation to another corporation
a. Parent or Holding‐ one which is related to
another corporation that it has the power
either, directly or indirectly to, elect the
majority of the director of such other
corporation
b. Subsidiary‐ one which is so related to
another corporation that the majority of its
directors can be elected either, directly or
indirectly, by such other corporation
9. As to whether they are corporations in a true
sense or only in a limited sense:
a. True‐ one which exists by statutory
authority
b. Quasi‐ one which exist without formal
legislative grant.
i. Corporation by prescription‐ one which
has exercised corporate powers for an
indefinite period without interference on the
part of the sovereign power and which by
fiction of law, is given the status of a
corporation;
ii. Corporation by estoppel‐ one which in
reality is not a corporation, either de jure or de
facto, because it is so defectively formed, but is
considered a corporation in relation to those
only who, by reason of theirs acts or
admissions, are precluded from asserting that
it is not a corporation.
10. As to whether they are for public
(government) or private purpose:
a. Public‐ one formed or organized for the
government or a portion of the State
b. Private- one formed for some private
purpose, benefit or end
Q: What are the requisites of a de facto
corporation?
1. Organized under a valid law.
2. Attempt in good faith to form a corporation
according to the requirements of the law.
Note: The Supreme Court requires that
Articles of Incorporation have already been
filed with the SEC and the corresponding
certificate of incorporation is obtained.
3. Use of corporate powers.
Note: The corporation must have performed
the acts which are peculiar to a corporation like
entering into a subscription agreement,
adopting by‐laws, and electing directors.
Q: How is the status of a de facto corporation
attacked?
A: The existence of a de facto corporation 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. (Sec.
20)
Note: However, as long as it exists, a de facto
corporation enjoys all attributes of a
corporation until the State questions its
existence.
In comparison with a corporation by estoppel
where the stockholders are liable as general
partners, stockholders in a de facto corporation
are liable as a de jure corporation. Hence, up to
the extent of their share holdings.
Q: Distinguish de facto corporation from
corporation by estoppel.
A: DE FACTO CORPORATION
CORPORATION BY ESTOPPEL
There is existence in law
There is no existence in law
The dealings among the parties on a corporate
basis is not required
The dealings among the parties on a corporate
basis is required
When requisites are lacking, it can be
corporation by estoppel
It will be considered a corporation in any shape
or form
C. NATIONALITY OF CORPORATIONS
Q: What are the tests in determining the
nationality of corporations?
1. Incorporation test – Determined by the
state of incorporation, regardless of the
nationality of the stockholders.
2. Domiciliary test – Determined by the
principal place of business of the corporation.
3. Control test – Determined by the
nationality of the controlling stockholders or
members. This test is applied in times of war.
4. Grandfather rule – Nationality is
attributed to the percentage of equity in the
corporation used in nationalized or partly
nationalized area.
Q: What are the requisites of the control test?
1. Control, not mere majority or complete stock
control, but complete domination, not only of
finances but of policy and business practice in
respect to the transaction attacked such that
the corporate entity as to this transaction had
at that time no separate mind, will or existence
of its own
2. Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other
positive legal duty, or dishonest or unjust act in
contravention of plaintiffs legal right; and
3. The control and breach of duty must
proximately cause the injury or unjust loss
complained of.
Q: Who are considered “Philippine Nationals”
under Foreign Investment Act of 1991 (R.A. No.
7042)?
A:
1. Corporations organized under Philippine
laws of which 60% of the capital stock
outstanding and entitled to vote is owned and
held by Filipino citizens
2. Corporations organized abroad and
registered as doing business in the Philippines
under the Corporation Code of which 100% of
the capital stock entitled to vote belong to
Filipinos.
Note: However, it provides that where a
corporation and its non‐Filipino stockholders
own stocks in a SEC‐registered enterprise, at
least 60% of the capital stock outstanding and
entitled to vote of both corporations and at
least 60% of the members of the board of
directors of both corporations must be Filipino
citizens (DOUBLE 60% RULE).
Q: What is the nationality of a corporation
organized and incorporated under the laws of a
foreign country, but owned 100% by Filipinos?
 Under the control test of corporate
nationality, this foreign corporation is of
Filipino nationality. Where there are
grounds for piercing the veil of
corporate entity, that is, disregarding
the fiction, the corporation will follow
the nationality of the controlling
members or stockholders, since the
corporation will then be considered as
one and the same.
D. CORPORATE JURIDICAL PERSONALITY
Q: What is the doctrine of separate
(legal) personality?
 It is a well‐settled doctrine that a
corporation has a personality distinct
and separate from its individual
stockholders or members.
Q: What are the significances of the doctrine of
separate personality?
1. Liability for acts or contracts – the acts of the
stockholders do not bind the corporation
unless they are properly authorized. The
obligations incurred by a corporation, acting
through its authorized agents are its sole
liabilities. The obligations of the corporation
are not the obligations of its shareholders and
members and vice‐versa.
2. Right to bring actions – may bring civil and
criminal actions in its own name in the same
manner as natural persons. (Art. 46, Civil
Code)
3. Right to acquire and possess property –
property conveyed to or acquired by the
corporation is in law the property of the
corporation itself as a distinct legal entity and
not that of the stockholders or members. (Art.
44[3], Civil Code)
Note: The interest of the shareholder in the
properties of the corporation is inchoate only.
The interest of the shareholder on a particular
property becomes actual, direct and existing
only upon the liquidation of the assets of the
corporation and the same property is assigned
to the shareholder concerned.
4. Acquisition of court of jurisdiction – service
of summons may be made on the president,
general manager, corporate secretary, treasurer
or in‐house counsel. (Sec. 11, Rule 14, Rules of
Court).
5. Changes in individual membership –
corporation remains unchanged and unaffected
in its identity by changes in its individual
membership.
Q: Is a corporation liable for torts?
 Yes whenever a tortuous act is
committed by an officer or agent under
the express direction or authority of the
stockholders or members acting as a
body, or, generally, from the directors as
the governing body.
Q: Is a corporation liable for crimes?
 GR: No. Since a corporation is a mere
legal fiction, it cannot be held liable for a
crime committed by its officers, since it
does not have the essential element of
malice; in such case the responsible
officers would be criminally liable.
 Note: An officer of a corporation can be
held criminally liable for acts or
omissions done in behalf of the
corporation only where the law directly
makes the person who fails to perform
the act in the prescribed manner
expressly liable criminally
 XPN: If the penalty of the crime is only
fine or forfeiture of license or franchise.
Q: Is a corporation entitled to moral damages?
 GR: A corporation is not entitled to
moral damages because it has no
feelings, no emotions, no senses.
 XPN:1. The corporation may recover
moral damages under item 7 of Article
2219 of the New Civil Code because said
provision expressly authorizes the
recovery of moral damages in cases of
libel, slander, or any other form of
defamation. Article 2219(7) does not
qualify whether the injured party is a
natural or juridical person. Therefore, a
corporation, as a juridical person, can
validly complain for libel or any other
form of defamation and claim for moral
damages. 2. When the corporation has a
reputation that is debased, resulting in
its humiliation in the business realm
Q: What is the doctrine of piercing the
veil of corporate fiction?
 It is the doctrine that allows the State to
disregard the notion of separate
 personality of a corporation for merely an adjunct, business conduit or
justifiable reason/s. alter ego of Y Corporation.
 Note: This is an exception to the
Doctrine of Separate Corporate Entity. E. CAPITAL STRUCTURE

Q: What are the effects of piercing the

veil?
 Courts will look at the corporation as an
aggregation of persons undertaking the
business as a group.
 Note: When the veil of corporate fiction
is pierced in proper cases, the corporate
character is not necessarily abrogated. It
continues for legitimate objectives. The
decision applies only for that particular
case.

Q: What circumstances the mere

existence of which does not necessarily
entitle piercing the veil?
1. Controlling ownership of the corporation’s
share
2. 2 corporations have common directors
3. Substantial identity of the incorporators or 2
corporations and identity of its business

Q: What are the tests in piercing the

corporate veil?
1.Fraud test (When corporate fiction used to
justify a wrong, protect fraud of defend crime)
2. Control test
3. Alter‐ego or instrumentality test (or conduit
cases)
4. Public convenience or objective test
5. Equity cases/test

Q: Plaintiffs filed a collection action against X

Corporation. Upon execution of the court's
decision, X Corporation was found to be
without assets. Thereafter, plaintiffs filed an
action against its present and past stockholder
Y Corporation which owned substantially all of
the stocks of X corporation. The two
corporations have the same board of directors
and Y Corporation financed the operations of X
corporation. May Y Corporation be held liable
for the debts of X Corporation? Why?
 Yes, Y Corporation may be held liable
for the debts of X Corporation. The
doctrine of piercing the veil of
corporation fiction applies to this case.
The two corporations have the same
board of directors and Y Corporation
owned substantially all of the stocks of X
Corporation, which facts justify the
conclusion that the latter is merely an
extension of the personality of the
former, and that the former controls the
policies of the latter. Added to this is the
fact that Y Corporation controls the
finances of X Corporation which is