KAIRA MARIE B. CARLOS
RANADA
Part I
REVISED CORPORATION CODE
I. INTRODUCTION
1. General
2. Kinds of Business Organization
SOLE PROPRIETORSHIP
MANGILA VS CA
A sole proprietorship does not possess a juridical
personality separate and distinct from the
personality of the owner of the enterprise. The law
merely recognizes the existence of a sole
proprietorship as a form of business organization
conducted for profit by a single individual and
requires its proprietor or owner to secure licenses
and permits, register its business name, and pay
taxes to the national government. The law does not
vest a separate legal personality on the sole
proprietorship or empower it to file or defend an
action in court.
Doctrine: Unlike a corporation, a sole proprietorship
does not possess a juridical personality separate and
distinct from the personality of the owner of the
enterprise.
PARTNERSHIP
MENDIOLA vs CA
A partnership, the members become co-owners of
what is contributed to the firm capital and of all
property that may be acquired thereby and through
the efforts of the members.
The court held that on the basis of the evidence, an
employer-employee relationship is present in the
case at bar. The elements to determine the existence
of an employment relationship are: (a) the selection
and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the
employer's power to control the employee's conduct.
The most important element is the employer's
control of the employee's conduct, not only as to the
result of the work to be done, but also as to the means
and methods to accomplish it.
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AUSL CORPORATION LAW- ATTY. J.
JM TUASON VS BOLANOS
Though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint
venture with another where the nature of that
venture is in line with the business authorized by its
charter.
it may nevertheless enter into a joint venture with
another where the nature of that venture is in line
with the business authorized by its charter. In the
present case, there is no showing that indicated the
venture in which the Appellee is represented by
Gregorio Araneta, Inc as its managing partner is not
in line with the corporate business of either of them.
JOINT VENTURE
AURBACK VS SANITARY WARES
MANUFACTURING CORPORATION
The rule is that whether the parties to a particular
contract have thereby established among themselves
a joint venture or some other relation depends upon
their actual intention which is determined in
accordance with the rules governing the
interpretation and construction of contracts.
The legal concept of a joint venture is of common law
origin. It has no precise legal definition but it has
been generally understood to mean an organization
formed for some temporary purpose. It is in fact
hardly distinguishable from the partnership, since
their elements are similar community of interest in
the business, sharing of profits and losses, and a
mutual right of control. The main distinction cited by
most opinions in common law jurisdictions is that
the partnership contemplates a general business with
some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and
is thus of a temporary nature. A joint venture is a
form of partnership and should thus be governed by
the law of partnerships. The Supreme Court has
however recognized a distinction between these two
business forms, and has held that although a
corporation cannot enter into a partnership contract,
it may however engage in a joint venture with others.
Partnership contemplates a general business with
some degree of continuity, while the joint venture is
 KAIRA MARIE B. CARLOS
formed for the execution of a single transaction, and
is thus of a temporary nature. A joint venture is a
form of partnership and should thus be governed by
the law of partnerships.
Partnership vs Joint Venture
A joint venture is an agreement between two parties
to enter into a commercial undertaking. It may fall
under a partnership with a limited purpose. Under
Philippine law, a joint venture is a form of
partnership and should thus be governed by the laws
of partnership. [Aurbach v. Sanitary Wares
Manufacturing Corp, G.R. No. 75875]
Historical Background
Definition – A corporation is an artificial being
(juridical person) created by operation of law, having
the right of succession and the powers, attributes and
properties expressly authorized by law or incident to
its existence.
Corporation as an artificial being
LBC Express vs. CA (236 SCRA 602)
GENERAL RULE: A juridical person like a
corporation is not allowed to recover Moral damages
based on Art. 2217 of the Civil Code because it only
covers moral damages which include physical and
mental injuries.
- A corporation has no feelings, no emotions, and no
senses; therefore, it cannot experience physical
suffering and mental anguish.
Filipinas Broadcasting vs. Ago Medical Center
(GR No. 141954, January 17, 2005) –
EXCEPTION: A juridical person like a corporation is
allowed to recover Moral damages based Art. 2219(7)
of the Civil Code because it covers moral damages on
cases involving libel, slander or any other form of
defamation.
- A corporation can validly complain for libel or any
other form of defamation to recover moral damages
because Art. 353 of the Revised Penal Code define
libel as public and malicious imputations tending to
cause dishonor, discredit, or contempt of a natural or
juridical person.
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AUSL CORPORATION LAW- ATTY. J. RANADA
ONG vs CA
Liability of directors, officers, employees, or other
officials or persons for violations committed by a
corporation.
This is because the Corporation cannot by itself
transact business or sign document, it being an
artificial person. It has to accomplish these through
its agents. A corporation has a personality separate
and distinct from those acting on its behalf. In the
fulfillment of its purpose, the corporation by
necessity has to employ persons to act on its behalf.”
“Being a mere artificial person, the law recognizes
the impossibility of imposing the penalty of
imprisonment on the corporation itself. For this
reason, it is the officers or employees or other
persons whom the law holds responsible
Advantages of the corporate form of business
The advantages of incorporation are so well
understood that it seems almost superfluous to
enumerate them, (see Sec. 2.) Nevertheless, it may be
useful to mention here only its chief advantages as
stated by a well-known authority.
First, through the process of incorporation, any
number of persons may unite in a single enterprise
without using their own names, without difficulty or
inconvenience, and with the valuable right to
contract, to sue and be sued, to hold or convey
property in the corporate name, and to act as a legal
unit.
Second, an individual stockholder may invest in the
corporate enterprise as much or as little as he sees fit,
without risking more, and, in the absence of statutes
to the contrary, this is the limit of his liability, since
stockholders are not personally liable for the debts of
the corporation. They can transfer their shares
without the consent of the other stockholders.
Third, the rights and obligations of a corporation are
not affected by the death or change of the individual
members, but the corporate business continues
uninterrupted and unaffected so long as the
corporate entity continues. Its credit is strengthened
by such continuity of existence.
 KAIRA MARIE B. CARLOS
Fourth, the modern corporation makes great
undertakings feasible since it enables many
individuals to cooperate in order to furnish the large
amounts of capital necessary to finance the gigantic
enterprises of modern times, (see 1 Fletcher, p. 42.)
The resulting large-scale enterprise may be more
efficient, thus lowering the costs of production. (C.L.
James, Principles of Economics, supra, p. 46.)
Disadvantages of a business corporation.
They are as follows:
(1) The corporation is relatively complicated in
formation and management;
(2) It entails relatively high cost of formation and
operations;
(3) Its credit is weakened by the limited liability of
the stockholders;
(4) There is ordinarily lack of personal element in
view of the transferability of shares;
(5) There is a greater degree of governmental control
and supervision than in any other forms of business
organization;
(6) In large corporations, management and control
are separated from ownership;
(7) The stockholders' voting rights have become
theoretical particularly in large corporations because
of the use of proxies and widespread ownership; and
(8) The stockholders have little voice in the conduct
of the business.
DISTINCTION BETWEEN A CORPORATION
AND PARTNERSHIP
In the Philippines, the only types of business
organization provided by law are the partnership
(Arts. 1767-1806, Civil Code.) and the corporation.
No prohibition, however, exists for the other forms.
As distinguished from corporations, the other types
of business organization are unincorporated.
GOVERNMENT POWERS
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AUSL CORPORATION LAW- ATTY. J. RANADA
Corporation having the rights of succession and the
powers, attributes and properties authorized by law
and incidental to its existence
Based on the Doctrine of Limited Capacity, a
corporation can only perform acts expressly
authorized by law and incidental to its existence.
Section 36 of the Corporation Code confers the
following powers and attributes to a corporation:
1. to sue and be sued in its corporate name;
2. of succession by its corporate name within the term
of its existence states in its articles of incorporation
and certificate of incorporation;
3. to adopt and use a corporate seal;
4. to amend its articles of incorporation in
accordance with the Corporation Code;
5. to adopt by-laws, not contrary to law, morals, or
public policy, and to amend or repeal the same in
accordance with the Corporation Code;
6. for stock corporations, to issue or sell stocks to its
subscribers in accordance with the Corporation
Code; for non-stock corporations, to admit members;
7. to trade or deal with real and personal properties
including securities and bonds of other corporations
subject to the restrictions prescribed by its articles of
incorporation, bylaws, certificate of stock, the law
and the Constitution;
8. to enter into merger or consolidation with other
corporations;
9. to make reasonable donations except in aid of any
political activity;
10. to establish retirement plans for the benefit of its
directors, trustees, officers and employees; and, 11. to
exercise powers essential or necessary to carry out its
purpose(s) as stated in its articles of incorporation.
Nationality of Corporations
The nationality of a corporation serves as a legal basis
for subjecting an enterprise or its activities to the
laws, the economic and fiscal powers, and the
various social and financial policies of the State to
which it is supposed to belong. [SEC OGC Opinion
No. 22-07]
 KAIRA MARIE B. CARLOS
Place of Incorporation Test
Under the incorporation theory, a corporation is a
national of the country under whose laws it is
organized or incorporated.
Domestic corporations – organized and governed
under and by Philippine laws.
Foreign corporations – one formed, organized or
existing under 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.
[Sec. 140]
While the incorporation test serves as the primary
test under Philippine jurisdiction, other tests such as
the Control Test and the Grandfather Rule must also
be applied in determining compliance with the
provisions of the Constitution and of other laws on
nationality requirements. [SEC OGC Opinion No. 11-
42]
CONTROL TEST VS GRANDFATHER RULE
The nationality of the private corporation is
determined by the citizenship of the controlling
stockholders.
Under the “liberal” Control Test, there is no need to
further trace the ownership of the 60% (or more)
Filipino stockholdings of the Investing Corporation
since a corporation which is at least 60% Filipino-
owned is considered as Filipino. [Narra Nickel
Mining & Development Corp. v. Redmont
Consolidated Mines Corp., G.R. No. 195580, April 21,
2014]
Absent any doubt, the Control Test shall be used in
determining the nationality of a corporation
specially in cases where foreign ownership
restrictions apply. [SEC OGC Opinion No. 16-19]
Control Test is applied in the following:
• Exploitation of natural resources - Only Filipino
citizens or corporations whose capital stock is at least
60% owned by Filipinos can qualify to exploit natural
resources. [Sec. 2, Art. XII, Const.]
• Public Utilities - No franchise, certificate or any
other form of authorization for the operation of a
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AUSL CORPORATION LAW- ATTY. J. RANADA
public utility shall be granted, except to citizens of
the Philippines or to corporations or associations
organized under the laws of the Philippines at least
60% of whose capital is owned by such citizens. [Sec.
11, Art. XII, Const.]
• Mass Media (100%) - “The ownership and
management of mass media shall be limited to
citizens of the Philippines, or to corporations,
cooperatives or associations, wholly-owned and
managed by such citizens.” [Sec. 11, Art. XVI, Const.]
• Advertising industry (70%) – “Only Filipino
citizens or corporations or associations at least
seventy per centum of the capital of which is owned
by such citizens shall be allowed to engage in the
advertising industry.” [Sec. 11, Art. XVI, Const.]
• Any industry or activity where foreign ownership
is prohibited or restricted under the Foreign
Investment Negative List
The "control test" is still the prevailing mode of
determining whether or not a corporation is a
Filipino corporation, within the ambit of Sec. 2, Art.
XII of the 1987 Constitution, entitled to undertake the
exploration, development and utilization of the
natural resources of the Philippines. When in the
mind of the Court, there is doubt, based on the
attendant facts and circumstances of the case, in the
60-40 Filipino equity ownership in the corporation,
then it may apply the "grandfather rule."
GAMBOA vs TEVES
THE GAMBOA RULINGS
2011 Gamboa Ruling
The term "capital" in Sec. 11, Article XII of the 1987
Constitution refers only to shares of stock entitled to
vote in the election of directors, and thus in the
present case only to common shares, and not to the
total outstanding capital stock [common and non-
voting preferred shares].
For stocks to be deemed owned and held by
Philippine citizens or Philippine nationals, mere
legal title is not enough to meet the required Filipino
equity. Full beneficial ownership of the stocks,
coupled with appropriate voting rights is essential.
Thus, stocks, the voting rights of which have been
assigned or transferred to aliens, cannot be
 KAIRA MARIE B. CARLOS
considered held by Philippine citizens or Philippine
nationals. [Gamboa v. Teves, G.R. No. 176579 (2011)]
2012 Gamboa Ruling
In 2012, the Supreme Court reversed its ruling,
stating now that:
The term “capital” is not limited to voting shares
since the constitutional requirement of at least 60%
Filipino ownership applies not only to voting control
of the corporation, but also to the beneficial
ownership of the corporation. It is therefore
imperative that such requirement apply uniformly
and across the board to all classes of shares,
regardless of nomenclature and category,
comprising the capital of a corporation.
Preferred shares, denied the right to vote in the
election of directors, are still entitled to vote on the
eight specific corporate matters underSec. 6. of the
Corporation Code. [Note: Still Sec. 6 under the RCC]
Thus, the 60-40 ownership requirement in favor of
Filipino citizens must apply separately to each class
of shares, whether common, preferred non-voting,
preferred voting or any other class of shares.
[Gamboa v. Teves, G.R. No. 176579 (2012)]
2017 Gamboa Ruling (Roy III v Herbosa)
However, in 2017, the Supreme Court explained its
ruling in the 2012 Gamboa decision. It stated that the
resolution of the 2012 Gamboa resolution,
specifically its dispositive portion, did not modify
the 2011 Gamboa decision.
The Supreme Court clarified that the Gamboa
Decision already held, in no uncertain terms, that
what the Constitution requires is full and legal
beneficial ownership of 60% of the outstanding
capital stock, coupled with 60% of the voting rights
must rest in the hands of Filipino nationals. Thus, for
purposes of determining compliance with the
constitutional or statutory ownership, the required
percentage of Filipino ownership shall be applied to
both the (a) total number of outstanding shares of
stock entitled to vote in the election of directors; and
(b) the total number of outstanding shares of stock,
whether or not entitled to vote. [Jose M. Roy III v.
Chairperson Teresita Herbosa, G.R. No. 207246
(2017)]
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AUSL CORPORATION LAW- ATTY. J. RANADA
SEC Memorandum Circular No. 8 dated 20 May
2013
All corporations engaged in identified areas of
activities or enterprises specifically reserved, wholly
or partly, to Philippine Nationals by the
Constitution, the FIA and other existing laws, shall,
at all times, observe the constitutional or statutory
ownership requirement. For purposes of
determining compliance therewith, the required
percentage of Filipino ownership shall be applied to
both:
1. the total number of outstanding shares of stock
entitled to vote in the election of directors; AND
2. the total number of outstanding shares of stock,
whether or not entitled to vote in the election of
directors. [Sec. 1-2, SEC MC No. 8]
Note: This was the SEC Memorandum that was put
in question in the Roy III v. Herbosa case, and
subsequently upheld by the Court as constitutional.
Grandfather Rule
The Grandfather Rule is a method of determining the
nationality of a corporation, which is owned in part
by another corporation, by breaking down the equity
structure of the shareholder corporation. [de Leon]
The Grandfather Rule is applied if doubt exists as to
the locus of the “beneficial ownership” and “control”
of a corporation, even if the 60-40 Filipino to foreign
equity ratio is apparentlymet by the subject or
investee corporation. [Narra Nickel Mining &
Development Corp. v. Redmont Consolidated Mines
Corp., G.R. No. 195580, April 21, 2014]
It involves the computation of Filipino ownership of
a corporation in which another corporation, of
partly-Filipino andpartly-foreign equity, owns
capital stock. The percentage of shares held by the
second corporation in the first is multiplied by the
latter’s own Filipino equity, and the product of these
percentages is determined to be the ultimate Filipino
ownership of the subsidiary corporation.
The Grandfather Rule must be applied to accurately
determine the actual participation, both direct and
indirect, of foreigners in a corporation engaged in a
nationalized activity or business. [SEC Opinion re:
Silahis Int’l Hotel (1987)]
 KAIRA MARIE B. CARLOS
“Doubt”
"Doubt" refers to various indicia that the "beneficial
ownership" and "control" of the corporation do not in
fact reside in Filipino shareholders, but in foreign
stakeholders. The following are indicators of doubt:
a. That the foreign investors provide practically all
the funds for the joint investment undertaken by
these Filipino businessmen and their foreign partner;
b. That the foreign investors undertake to provide
practically all the technological support for the joint
venture;
c. That the foreign investors, while being minority
stockholders, manage the company and prepare all
economic viability studies. [Narra Nickel Mining and
Dev.v Redmont)
The Grandfather Rule applies only when the 60-40
Filipino foreign equity ownership is in doubt (i.e. in
cases where the joint venture corporation with
Filipino and foreign stockholders with less than 60%
Filipino stockholdings [or 59%] invests in another
joint venture corporation, which is either 60-40%
Filipino-alien or the 59% less Filipino). [Narra Nickel
Mining and Dev. Corp v. Redmont Consolidated
Mines Corp., G.R. No. 195580 (2014)]
Successive Application of the Tests
The Control Test can be applied jointly with the
Grandfather Rule to determine the observance of
foreign ownership restriction in nationalized
economic activities. They are not incompatible
ownership-determinant methods that can only be
applied alternative to each other.
The Grandfather Rule, standing alone, should NOT
be used to determine the Filipino ownership and
control in a corporation, as it could result in an
otherwise foreign corporation rendered qualified to
perform nationalized or partly nationalized
activities.
Hence, it is only when there is doubt, based on the
Control Test, that the Grandfather Rule is applied.
i. If the subject corporation’s Filipino
equity falls below the threshold 60%, the
corporation is immediately considered
foreign-owned, in which case, the need to
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AUSL CORPORATION LAW- ATTY. J. RANADA
resort to the Grandfather Rule
disappears.
ii. If a corporation that complies with the
60-40 Filipino to foreign equity
requirement, it can be considered a
Filipino corporation, and if there is no
doubt as to who has the “beneficial
ownership” and “control” of the
corporation, there is no need for the
application of the Grandfather Rule.
iii. However, if there is doubt as to who has
the “beneficial ownership” and “control”
of the corporation (e.g. the Filipino-
Owned corporation subscribed to 60% of
the capital and the foreign corporation
subscribed to 40%, but the subscription
of the former is only nominally paid-up
and such corporation entered into a
financial assistance agreement with the
foreign owned corporation), the
application of the grandfather rule is
necessary. [Narra Nickel Mining and
Dev. Corp v. Redmont Consolidated
Mines Corp., G.R. No. 195580 (2015)]
III. CLASSIFICATION OF CORPORATIONS
1. Stock vs. Non-Stock
Collector vs. Club Filipino de Cebu (5 SCRA 312);
Sec. 3 of the Corporation Code – A stock corporation
exists when its articles of incorporation provide that:
(1) its capital stock is divided into shares; and, (2) it
is authorized to distribute dividends or surplus
profits to the holders such shares. All other
corporations are non-stock.
Difference as to Stock Holders Meeting
A stock corporation is authorized to hold its
stockholders meeting only within the city or
municipality where its principal office is located; on
the other hand, a non-stock corporation can hold its
stockholders meeting anywhere in the Philippines
provided it is expressed in their by-laws (if not
expressed, the provisions governing stock
corporation applies per Sec. 87(2) of the Corporation
Code).
 KAIRA MARIE B. CARLOS
Note: Metro Manila is considered as one single City
or Municipality per Sec. 51 of the Corporation Code.
Difference as to Manner of Voting
In a stock corporation, the manner of voting is
cumulative voting. Neither its Articles of
Incorporation nor its By-Law cannot deny from its
stockholders the right to vote cumulatively based the
number of their respective outstanding shares.
Cumulative Voting is a matter of right given to
stockholders by virtue of Sec. 24 of the Corporation
Code; on the other hand, in a non-stock corporation,
the manner of voting is straight voting. Its members
are entitled to cast only one vote per candidate unless
its articles of incorporation or bylaws allow
cumulative voting.
2. Created by special law
PNOC-EDC vs. NLRC (201 SCRA 487);
Sec. 4 of the Corporation Code – A corporation
created by special law (or special charter) is governed
by the law creating it, and its employment contracts
are subject to the Civil Service Law. On the other
hand, a corporation organized under the General
Corporation Law is governed by the Corporation
Code, and its employment contracts are subject to the
provisions of the Labor Code.
3. Public vs. Private
National Coal Corp. vs. CIR (146 SCRA 583)
A public corporation is one organized under a
special law the purpose of which is to further the
general good and welfare; on the other hand, a
private corporation is one organized either under a
special law or the general corporation law the
purpose of which is for some private purpose. The
mere fact that the Government happens to be the
majority stockholder of a corporation does not make
it a public corporation. The law must express that a
corporation is not covered by the corporation law
being a public corporation.
4. Ecclesiastical & Lay - one organized for religious
purposes. Under the Code, religious corporations are
classified into corporations sole and religious
societies. one organized for a purpose other than for
religion. Lay corporations, in turn, may be either
eleemosynary or civil.
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AUSL CORPORATION LAW- ATTY. J. RANADA
5. Aggregate & Sole – A - a corporation consisting of
more than one member or corporator. S- a special
form of corporation usually associated with the
clergy. Under the Code, it is a religious which
consists of one member or corporator only and his
successors, such as a bishop. (Sec. 110.) All other
corporations must be corporation aggregate, that is,
they must be formed by "not less than five (5)"
persons.
A corporation aggregate does not become a
corporation sole by the mere fact that its shares of
stock become vested in one person because the
shares may again be transferred or sold by the holder
to others. In the meantime, however, the holder and
the corporation may be treated as the same.
6. Close & Open - one which is limited to selected
persons or members of a family. one which is open to
any person who may wish to become a stockholder
or member thereto.
7. Domestic & Foreign - one incorporated under the
laws of the Philippines; or one formed, organized, or
existing under any laws other than those of the
Philippines. It includes multinational corporations
created under the laws of another State, (see Sec.
123.) For tax purposes, a foreign corporation is
further classified into resident or non-resident.
8. Parent/Holding, Subsidiaries & Affiliates – P -
one which is so related to another corporation that it
has the power, either directly or indirectly, to elect
the majority of the directors of such other
corporation;
S - 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. It is
one in which another corporation17 owns at least a
majority of the shares and thus has control.
A - one related to another by owning or being owned
by common management or by a long term lease of
its properties or other control device. An affiliation
exists between a holding or parent company and its
subsidiary, or between two corporations owned or
controlled by a third.
MARICALUM MINING CORP VS
FLORENTINO
 KAIRA MARIE B. CARLOS
A parent or holding company is a corporation which
owns or is organized to own a substantial portion of
another company's voting shares of stock enough to
control or influence the latter's management, policies
or affairs thru election of the latter's board of
directors or otherwise. In other words, a "holding
company" is organized and is basically conducting
its business by investing substantially in the equity
securities of another company for the purposes of
controlling their policies and "holding" them in a
conglomerate or umbrella structure along with other
subsidiaries.
A holding company may be held liable for the acts of
its subsidiary only when it is adequately proven that:
a) there was control over the subsidiary; (b) such
control was used to protect a fraud (or gross
negligence amounting to bad faith) or evade an
obligation; and c) fraud was the proximate cause of
another's existing injury. Further, an employee is
duly-burdened to prove the crucial test or factor of
control through substantial evidence in order to
establish the existence of an employment
relationship-especially as against an unaffiliated
corporation alleged to be exercising control.
A subsidiary company's separate corporate
personality may be disregarded only when the
evidence shows that such separate personality was
being used by its parent or holding corporation to
perpetrate a fraud or evade an existing obligation.
Concomitantly, employees of a corporation have no
cause of action for labor-related claims against
another unaffiliated corporation, which does not
exercise control over them.
In this case, complainants have not successfully
proven that G Holdings fraudulently exercised its
control over Maricalum Mining to fraudulently
evade any obligation. They also fell short of proving
that G Holdings had exercised operational control
over the employees of Sipalay Hospital.
9. Public & Private - or those formed or organized
for the government of a portion of the State for the
general good and welfare; or (b) Private corporations
or those formed for some private purpose, benefit, or
end; it may be either a stock or non-stock
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AUSL CORPORATION LAW- ATTY. J. RANADA
corporation, government-owned or -controlled
corporation or quasi-public corporation.
The true test is the purpose of the corporation. If the
corporation is created by the State as its own agency
or instrumentality for political or public purpose
connected with the administration of government,
then it is a public corporation. If not, it is a private
corporation notwithstanding that it is created to
promote public good, interest, or convenience
although the whole, or substantially the whole
interest in the corporation, belongs to the State.
10. Quasi – Public - private corporations which have
accepted from the State the grant of franchise or
contract involving the performance of public duties
but which are organized for profit. They have been
defined also as corporations private in ownership
but having an appropriate franchise from the state.
They are a private corporation that perform
11. De jure vs. De facto – The reckoning point in
determining whether a corporation is De Jure or De
Facto is the moment of incorporation (that is, upon
the issuance of certificate of incorporation posing the
question: has the corporation substantially complied
with the requirements of incorporation or not?
Whichever the answer, as long as it has been
incorporated in good faith (not being a corporation
by estoppel, or one which has not intended to be duly
incorporated prior to corporate transactions) then its
corporate personality cannot be questioned and
necessarily will not be stripped of its corporate rights
and privileges unless the government does so,
through a quo warranto (requiring a person, natural
or juridical, to show, by what warrant, how come
they are holding or exercising their office or
franchise) proceeding initiated by the Solicitor
General when they failed to justify thereon the
validity of their incorporation.
FELICIANO VS COA
DOCTRINE:
Sec. 16. The Congress shall not, except by general
law, provide for the formation, organization, or
regulation of private corporations. Government-
owned or controlled corporations may be created or
established by special charters in the interest of the
common good and subject to the test of economic
viability.
 KAIRA MARIE B. CARLOS AUSL CORPORATION LAW- ATTY. J. RANADA

The Constitution and existing laws mandate COA to

audit all government agencies, including
government-owned and controlled corporations
(“GOCCs”) with original charters.

12. Corporations by Estoppel

Estoppel – a bar which precludes a person from

denying or asserting anything contrary to that which
has been established as the truth by his own deed or
representation, either express or implied. [de Leon]
A

partner by estoppel is a person who, by words

spoken or written or by conduct: (1) represents
himself as a partner or (2) consents to another
representing him to anyone as a partner –

a. In an existing partnership; or

b. With one or more persons not actual partners [par.

1, Art. 1825, NCC].

Corporation by estoppel – Where a group of persons

misrepresent themselves as a corporation, they are
subsequently estopped from claiming lack of
corporate life in order to avoid liability. Also, a third
party who had dealt with an unincorporated
association as a corporation is precluded from
denying its corporate existence on a suit brought by
the alleged corporation on the contract.

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