DOCTRINES IN CORPORATION LAW

Business Judgment Rule

Questions of policy and management are left solely to the honest decision of the BOD’s and the courts
are without authority to substitute its judgment as against the former. The directors are the business
manager of the corporation and as long as they act in good faith, its actuations are not subject to judicial
review. (Montelibano V. Bacolod)

Forbidden Profit Rule  

Where a director, by virtue of his office, acquires for himself a business which should belong to the
corporation, thereby obtaining profits to the prejudice of such corporation. Instrumentality Rule Where
one corporation is so organized and controlled and it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the instrumentality may be disregarded.

Corporate Entity Theory

The corporation is possessed with personality separate and distinct from the individual SH’s members
and is not affected by the personal rights, obligations or transactions of the latter.

Doctrine of Secondary Meaning

A word/phrase originally incapable of exclusively appropriation, usually generic, with reference to an

article in the market, because of geographical or otherwise deceptive, might nevertheless have been
used so long and so exclusively by one producer with reference to his article that, in that trade and to
that branch of the purchasing public, the word or phrase has become to mean that the article was his
produce.

Corporate Opportunity Doctrine

When a director, trustee/officer attempts to acquire/(s), in violation of his duty, any interest adverse to
the corporation in respect to any matter, which has been reposed to him in confidence. (cite Forbidden
Profit Rule).

Doctrine of Limited Capacity or Authority

No corporation under the corporation code shall possess or exercise any corporate powers except those
conferred by:

a) law

b) its AOI

c) those implied from express powers, and

d) those as are necessary or incidental to the exercise of the powers so conferred.

Concession theory

It is a principle in the creation of corporations, under which a corporation is an artificial creature without
any existence until it has received the imprimatur of the State acting according to law, through SEC.

The Entity theory

the legal and accounting doctrine that treats corporations as separate entities from their owners and
other stakeholders.