LEGAL – H2

Legal Aspects in Tourism and Hospitality

CHAPTER 2
Tourism and Hospitality as a Trade

FORMS OF BUSINESS ORGANIZATION

1. Sole Proprietorship - it is a form of business ownership wherein the owner is in command of his whole
business and stands to lose as much as he puts in; even more to the extent of all his personal holdings.
2. Partnership - two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.

FORMS OF PARTNERSHIP
1. General Partnership – it is the basic form of partnership in which all other partners manage the
business and are personally liable for its debts,
2. Limited Partnership – in this form of partnership, certain limited partners relinquish their ability
to manage the business in exchange for limited liability for the partnership’s debts.
3. Limited Liability Partnership – in this form of partnership, all partners have some degree of
limited liability

TYPES OF PARTNERS
1. General Partners – they have an obligation of strict liability to third parties injured by the
partnership.
2. Limited Partners – the liability of limited partners is limited to their investment in the
partnership.
3. Silent Partnership – partners who usually provide capital to the business.

NATURE OF PARTNERSHIP - partnership is fiduciary in character. It means that all partners must
have trust and confidence in one another

DELECTUS PERSONAE - In partnership, a person has the right to choose the person or persons he
wants to become his partner/s.

ESSENTIAL ELEMENTS OF PARTNERSHIP

1. Valid and voluntary contract to become partners. The persons forming the partnership must be
capacitated to enter into a contractual relationship
2. Contributions of money, property or industry to the common fund to be used exclusively for the
common interest to benefit the partnership.
3. It must be an association for profit, with the intention of dividing the profits among themselves.
4. The partners must be mutual agents of each other. As an agent of his co-partners, a partner can
enter into a contract and bind the partnership, provided he is acting within the scope of his
authority and for the best interest of the partnership.
5. Lawful purpose.
6. Articles of partnership must not be kept secret.
7. Juridical personality, separate and distinct from the individual personality of each partner. This is
acquired by the partnership once it is legally established.

ACT 1772
Every contract of partnership, having a capital of Php 3,000 or more in money or property, shall
appear in public instrument, w/c must be recorded in the office of SEC.

3. Corporation - is an artificial being created by operation of law, having the right of succession and
powers, attributes and properties expressly authorized by law or incident to its existence.

Attributes of a Corporation
➢ It is an artificial being.
➢ It is created by operation of law.
➢ It has the power of succession.
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➢ It has the power, attributes and properties expressly authorized by law or incident
thereto.

BATAS PAMBANSA BILANG 68 CORPORATION CODE OF THE PHILIPPINES Signed on May 1, 1980

Advantages of a Corporate Form of Business

1. Strong legal personality -The corporation has a legal capacity to act and contract as a distinct
unit in its own name. It has continuity of existence.
2. Limited liability to investors - an investor’s liability is limited to the amount of the
investment. This feature flows from the legal theory that a corporate entity is separate and
distinct from its stockholders.
3. Free Transferability of units of investment - shares of stocks can be transferred w/o the
consent of other stockholders, assuring a ready mechanism to dispose of investments when the
member’s personal or financial situation may require it.
4. Centralized management- Corporation management is centralized in the Board of Directors.
Shareholders are not agents of the corporation, nor can they bind the corporation.

Advantages of a Corporation Over Unregistered Associations

✓ It enjoys perpetual succession under its corporate name and artificial form
✓ It has the capacity to take and grant a property, and contract obligations.
✓ It can sue and be sued in its corporate name as a juridical person.
✓ It has the capacity to receive and enjoy common grants of privileges and immunities.
✓ Its stockholders or members generally have no personal liability beyond the value of
their shares.

Disadvantages of Corporate Form

o Complicated and costly formation and maintenance
o Lack of personal element
o Abuse of corporate management
o Limited liability hits innocent victims
o Double taxation

Distinction Between Corporation and Sole Proprietorship

In a corporation, the control belongs to the Board of Directors. There’s also a limited
liability on the part of shareholders.

On the contrary, the owner in a Sole Proprietorship is in command of the whole

business and stands to lose as much as he puts in and even more to the extent of all his
personal holdings.

Distinction between Corporation and Partnership as to Legal Capacity

A Corporation has a stronger legal personality, enabling it to continue despite the death,
insolvency or withdrawal of any of its stockholders or members.

In a Partnership, the withdrawal, death or insolvency of any of the partners would

automatically bring about the dissolution of the partnership.

Limited liability is the main feature in a corporate setting whereas partners are liable
personally for partnership debts not only to what they have invested in the partnership
but even as to the other properties. Generally, every partner is an agent of the
partnership, and by his sole act, he can bind the partnership.

NATIONALITY OF CORPORATION
Place of incorporation test – principal doctrine on the test of the nationality of a corp. in the
Philippines.
It adheres to the belief that a corporation is a nationality test of the country under whose laws it
has been organized and registered.
 LEGAL – H2

Control test – adheres that nationality of the corporation is determined by the nationality of the
majority of the stockholders on whom the control is vested.

Classifications of Corporation in Relation to the State

a) Public corporations - are those formed or organized for the government of a portion of
the state. Example: GSIS, PAGCOR, Municipality to government function.
b) Private corporations - are those formed for some private purpose, benefit or an end.
ABS CBN Corporation, Jollibee Food Corp. San Miguel Corp.
c) Quasi-public corporation - is a cross between private corporations and public
corporations. Examples: school districts, water districts, PLDT
d) Domestic corporation - is this kind of corporation obtained personality through
incorporation under the Philippine laws.
e) Foreign corporation - is licensed by SEC to do business in the Philippines under the
principle of RECIPROCITY, after securing a certificate of authority from the Board of
Investment under EO 226 or the Omnibus Election Code and after complying with the
conditions for issuance of the license or application forms, structural organizations and
capitalization.

Classifications of Corporation as to the Place of Incorporation

The reasons for these are:
a.) to place them on equality with domestic corporations;
b.) to subject them to inspection so that their condition may be known;
c.) to protect the residence of the state doing business with them by subjecting them to the
courts of the state.

Classifications of Corporation as to Stock

1. Stock corporation - private corporations which have capital stock divided into shares and
the stockholders are entitled to their shares of dividends or allotment of the corporate
surplus profits based on their stockholdings or subscriptions.

2. Non-stock corporation - these are corporations which do not issue stocks that are
composed of members, not stockholders. They may be civic, charitable, religious or
professional organizations.

Other Kinds of Corporation

1. De Jure Corporation - those who have complied with the requirements of the law.
2. De Facto Corporation - those who failed to comply with one or two illegal requirements of
the law.
3. Corporation Sole - it is composed of one member or corporator and generally applies to
religious denominations.
4. Close Corporation - this is usually owned and managed by a family. All the outstanding
stocks are owned and managed by a family; stocks are not open for public subscription.
5. Open Corporation - all the members or corporations exercise their right to vote to elect the
directors and other officers of the corporation; the stocks are open for public subscription.
6. Eleemosynary Corporation - this corporation is established for charitable purposes.
7. Ecclesiastical Corporation - this corporation is established for religious purposes.
8. Lay Corporation - this corporation is established for any purpose other than religion.
9. Corporation Aggregate - this is composed one member or corporator.
10. Corporation by Estoppel - a kind of corporation which has five or more persons, who
assume to act as a corporation, in this case all the persons involved will be liable as general
partners.
11. Multinational corporation - a corporation which is organized in one state or country but
extends its corporate business in other territories or countries.

Powers of Corporation
The powers of corporation can either be expressed or implied.
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In expressed power, if the corporation can perform functions as stipulated in the By

Laws, Corporation Code and such other statutes stipulates pertinent to the corporation.

In implied power, the power is inherently necessary in the exercise of its corporate
function in the pursuit of its corporate existence.

Different Corporation Doctrines

a. The doctrine of piercing the veil of corporate existence.
• Corporate entity is used to commit fraud or to justify wrong, or to defend crime.
• It defeats public convenience, or a mere farce.
• When the piercing of the corporate fiction is necessary to achieve justice or equity.

b. Doctrine of Business Opportunity - this doctrine refers to the case when a

director/officer of the corporation is presented with a business venture which can be
profitably handled by the corporation.

c. Trust Fund Doctrine - when the directors of the solvent or insolvent corporation
distribute all corporate assets to the stockholders without reserving any assets for
payment of corporate debts and liabilities.

Distinctions between Corporators & Incorporators

Corporators. These are the total number of persons who compose the corporation after its
formation which include the incorporators, the stockholders and/or members.

Incorporators. These are the original founder organizers of the corporation, stock or non-stock.
They must be natural persons. A juridical person cannot be an incorporator. The law provides
that the incorporators must be at least five (5) but not more than (15).