 Partnership – by a contract of partnership, two or more persons bind themselves to contribute money,

property, or industry in a common fund, with the intention of diving the profits.
 Characteristic – Principal, does not depend for its existence on other contracts; Preparatory, means to an end;
Profit-Oriented; Commutative, undertaking is equal with others; Consensual, perfected by mere consent; Capable
of suit; Bilateral, rights and obligations are reciprocal; Onerous, contributions made; Nominate, special designation
in law.
 Essential Feature – (1) Valid contract; (2) Parties must have legal capacity to enter; (3) Mutual contribution of MP/I
to a common fund; (4) Lawful Object; (5) Obtain profits and divide the same
 Kinds of Partners – (1) AS TO MEMBERSHIP: (a) Real Partner, contributor MP/I; (b) Partner by estoppel/quasi-
partner, not really a partner but represents himself as one. (2) AS TO LIABILITY: (a) General, extends to his separate
property (after exhaustion of property of partnership); (b) Limited, extent of his contribution. (3) AS TO NATURE OF
CONTRIBUTION: (a) Capitalist, contributes M/P; (2) Industrial, industry or labor. (4) EXPOSURE/PUBLIC
PERCEPTION: (a) Ostensible, active and known to public w/n has actual interest; (b) Silent, profits/losses but does
not take active part although known; (c) Secret, profits/losses but not publicly known; (d) Dormant, not active and
not known.
 According to object: (1) Universal Partnership – refer to all present property/profits; (2) Particular partnership –
determinate things, use/fruits, specific undertaking, exercise of vocation/profession
 Universal partnership of all present property – partners contribute all property belongs to them to a common fund,
intention of dividing the same, as well as profits which they may acquire therewith.
 Universal partnership of profits – partners may acquire by industry/work during existence. Im/movable partners
may possess at the time of celebration continue to pertain exclusively to each, only usufruct passing to the
partnership.
 Delivery of checks/drafts/PN payable to order – Not considered as contributions of money, only representatives of
money and produce the effect of payment only when cashed. No contribution until cashed.
 Rules in determining existence of partnership: (1) GR: Persons not partners to each other are not partners to 3 rd
persons; (2) XPN: Partnership by estoppel; (3) Co-ownership/co-possession of property does not itself establish
partnership, w/n they do/don’t share profits made by the use of property; (4) Sharing of gross return does not itself
establish partnership, w/n persons sharing have a joint/common right or interest from which returns are derived; (5)
Receipt of share of the profits of a business is prima facie evidence of partnership.
 No inference of partnership if receipt of profits were received in payment of: (1) Debt by installment; (2) Interest
on a loan; (3) Wages of ee/rent to landlord; (4) Annuity to a widow of deceased partner; (5) Consideration for the
sale of goodwill of business/other property by installment or otherwise.
 Effects of an unlawful partnership formed for an unlawful purpose: (1) Contract is void ab initio; (2) Partners has no
right to require division of profits; (3) Profits, instruments/tools and proceeds/contributions confiscated in favor of
the govt’.
 Formalities: GR: any form; XPN: (1) Limited partnership – execute certificate of limited partnership, recorded in
Office of SEC, general partnership if not complied; (2) Immovable/real rights are contributed regardless of value –
(a) in writing; (b) Inventoried, signed and attached to public instrument; and (c) recorded with ROD; (3) Personal
Property – (a) P3K less no form; (b) P3K or more money/property, public instrument, recorded with SEC, failure
applies only for the purpose of convenience and not for validity/enforceability.
 Duration: Fixed term/particular undertaking is continued after termination without any express agreement, rights
and duties remain as they were consistent with a partnership at will. Continuation of the business by the partners
habitually acted by therein during the term, without settlement or liquidation is prima facie evidence of
continuation of partnership.
 Partnership beings from the moment of execution of contract, unless otherwise stipulated.
 Partnership at will – no fix term. Birth and life is predicated on the mutual desire and consent of the partners. Any
one may at discretion dictate a dissolution. Bad faith cant prevent dissolution but results to liability for damages.
 Partnership by estoppel – person by words, spoken/conduct represent himself, consents to another representing
him to anyone as a partner. Requisites: (1) Represents himself/consent to another representing him to anyone as a
 partner in an existing partnership or with one or more persons not actual partners; (2) Representation made to a 3 rd
person; (3) On the faith of such representation, 3rd person has given credit to the actual/apparent partnership.
 No real partnership is created by estoppel.
 Liability of consenting partners: (1) Existing partnership exists/all partners consented to representation –
partnership by estoppel is created and rules on partnership applies; (2) Existing partnership exists/some of the
partners consented – Person who represented himself – liable and all those who consented liable pro rata; (3) No
existing partnership/all consented - Person who represented himself – liable and all those who consented liable pro
rata; (4) No existing partnership/some consented – consented liable; (5) No partnership/none consented – person
who represented is liable.
 Joint-venture – association of persons/company jointly undertaking some commercial enterprise. Contributes
assets/share risks. Requires community of interest in performance of subject matter, right to direct/govern policy in
connection therewith and a duty which may be altered to share both in profits/losses. Requisites: (1) Community of
interest in performance of subject matter; (2) Right to direct/govern policy in connection therewith; (3) Duty to
share profits/losses.
 Partnership v. Joint-venture: Partnership – has juridical personality; continuing business of various transactions of a
certain kind; while Joint-Venture – informal partnership no legal personality, limited to a single transaction
 General Professional Partnership – exercise of profession, individual partners deemed to engaged in the practice of
profession and not the partnership. Responsible for their own acts.
 Management of Partnership: (1) Manner of management provided: (a) Partner appointed as manager in AOP,
execute all acts of administration despite opposition, unless acted in bad faith; (b) Appointed after constitution,
power may be revoked at any time for any cause. (2) 2 or more managing partners: (a) GR: w/out specification of
respective duties and w/out stipulation one shall not act without consent of all others, each may exercise acts of
administration; (b) XPN: any one oppose: (i) decision of majority; (ii) in case of tie, decision of partner having
controlling interest (50% capital investment) provided they are also managers; (c) GR: Stipulated none shall act
without consent of others, concurrence of all for the validity, absence of disability of any managing partner cannot
be alleged; (d) XPN: imminent danger of grave/irreparable injury to the partnership. (3) Manner of management not
agreed upon: (a) all considered agents, any may bind partnership; (b) None of partner without consent of others,
make any important alteration in immovable property of the partnership even if it may be useful to the partnership;
(c) Refusal is manifestly prejudicial, court’s intervention may be sought.
 Relations created by contract of partnership: (1) Relations among partners themselves; (2) Partners with the
partnership; (3) Partnership with 3rd persons it contracts; (4) Partners with such 3rd persons.
 Obligations of partners: (1) Contribute; (2) Not to convert firm money to own use; (3) Not to engage in unfair
competition with his own firm; (4) Account/hold as trustee, unauthorized personal profits; (5) Pay damages caused
by his own fault; (6) duty to credit the firm payment by debtor who owes him and the firm; (7) Share with other
partners, credit received from an insolvent debtor.
 Rights of Partners: (1) Property rights; (2) Reimbursement for amounts advanced, indemnification for risks in
consequence of management; (3) Associate with another person his share; (4) Access and inspection of partnership
books; (5) Formal account of partnerships affairs under certain circumstances; (6) Demand true and full information
of all things affecting the partnership; (7) Ask for dissolution at the proper time.
 Property rights: (1) Specific partnership property (Nature: partner does not actually own any part of property owned
by partnership as a separate entity, although he has equal rights with his partners to possess specific partnership
property); (2) Interest in partnership; (3) Participate in the management).
 Rights/duties when partnership is continued beyond fixed term – rights and duties remain the same as they were
at such termination so far as is consistent with partnership at will.
 Incidents of co-ownership for specific partnership property: (1) Right to possess for partnership purposes. Other
purpose, consent of others needed; (2) Not assignable except in connection with the assignment of all partners in
the same property; (3) Not subject to attachment/execution except on a claim against the partnership; (4) Not
subject to legal support.
 Obligations with respect to contribution of property: (1) Contribute promised; (2) Warrant specific/determinate
property contributed in case of eviction; (3) Deliver fruits of property from time should have been delivered without
need for demand; (4) Contribution in goods, amount must be determined by proper appraisal of value at time of
contribution; (5) Preserve property with diligence of good father of a family pending delivery; (6) Indemnify for any
interest/damages caused by retention of the property or delay in its obligation to contribute a sum of money.
 3 important duties of partner with regard to contribution of property: (1) Contribute what was promised; (2)
Deliver the fruits of what should have been delivered; (3) Bound for warrant in case of eviction.
 Obligations with respect to contribution of money and money converted to personal use: (1) Contribute on the
date due the amount promised to be given; (2) Reimburse any amount taken from the partnership coffers and
converted for personal use; (3) Indemnify partnership for damages caused to it by the delay in contribution; (4) Pay
agreed or legal interest if he fails to pay in due time.
 Liabilities of an industrial partner – exempted from losses as between or among partners. Liable to 3 rd persons for
debts of the partnership.
 Obligation not to engage in other business (Industrial vs. Capitalist): Industrial partner – Cannot engage in any
business for himself, unless permitted, if he should do, capitalist may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in
either case. Capitalist partner - Cannot engage for their own account in any operation which is of the kind of
business in which the partnership is engaged, unless otherwise stipulated. (Remedy: violating this prohibition shall
bring to the common funds any profits accruing to him from his transactions and shall personally bear all the losses.)
 Failure to contribute additional capital in case of imminent loss – If no agreement to the contrary, any partner who
refuses to contribute an additional share, except industrial partner, to save the venture, shall be obliged to sell his
interest to the other partners.
 Rules on the risk of loss of the things contributed: (1) risk of specific/determinate things not fungible and
contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by
the partner who owns them; (2) fungible/cannot be kept without deteriorating, borne by the partnership; (3) to be
sold, borne by partnership; (4) thing brought and appraised in the inventory, partnership.
 Distribution of profits/losses: (1) Profits according to agreement, if none, according to amount of contribution; (2)
Losses according to agreement; (3) No agreement as to losses, profit sharing agreed upon, losses distributed
according to the same proportion; (4) Losses, no agreement, proportionally according to amount of contribution; (5)
Industrial partner’s profit, just and equitable under the circumstances; (6) Industrial partner may be held liable by
third persons, he can recover whatever he has paid from the partners; for he is exempted from losses with or
without stipulation to this effect.
 GR: Stipulation which excludes one or more partners from any share in the profits or losses is void. XPN: Industrial
partner whom the law itself excludes from losses.
 Delectus personae: No one can become a partner of partnership without consent of all partners.
 Obligation of a managing partner who collects debt – GR: where a person is separately indebted to the partnership
and to the managing partner at the same time, any sum received by the latter shall be applied to the two credits in
proportion to their amounts even though he may have given receipt for his own credit only. XPN: partner received it
entirely for the partnership, whole sum shall be applied to the partnership credit.
 A partner who has received in whole or in part his share of a partnership credit, when other partners have not
collected theirs, shall be obliged, if the debtor becomes insolvent, to bring to the partnership capital what he
received even though he may have given the receipt for his share only.
 Appointing a manager may be done in the AOP (Irrevocable) or any instrument other than AOP or made orally
(revocable at will)
 Removal of managing partner appointed in AOP: (1) Just cause - vote of partners representing controlling interest;
or (2) Without just cause, or for an unjust cause - unanimity of vote (including his own).
 Liability of the partners for partnership obligations: (1) All partners, liable pro rata (equally or jointly) with all their
property and after all partnership assets have been exhausted, for contracts entered into in the name and for the
account of the partnership, under its signature or by a person authorized to act for the partnership. However, any
 partner may enter into a separate obligation to perform a partnership contract; (2) Stipulation which excludes one or
more partner from any share in the profits/losses is void, except, industrial partner excluded from losses; (3)
Partners are liable solidarily with the partnership for everything chargeable to the partnership under wrongful acts
or omission acting in the ordinary course of business and to make good the loss; (4) Upon dissolution, partners shall
contribute the amounts necessary to satisfy the partnership liabilities.
 Liability of partnership for acts of partners: (1) Apparently carrying on in the usual way of business – every partner
is an agent and may execute such acts with binding effect even if he has no authority unless the third person has
knowledge of such lack of authority; (2) Not in the ordinary course of business – do not bind the partnership unless
authorized by other partners; (3) Strict dominion/ownership – not bound, unless authorized by all or unless they
have abandoned the business; (4) In contravention of a restriction/authority – not liable to 3 rd person having actual
or presumptive knowledge of restriction, w/n for carrying the usual way of business of the partnership.
 Liabilities to 3rd persons: (1) Contractual obligations; (2) Acts of partners.
 Nature of partners obligation for partnership liabilities – Subsidiary in nature. Only liable with their property after
all partnership assets have been exhausted. Subsidiary nature of liability is a valid defense against a premature
execution of judgment directed to a partner. Obligation to third persons with respect to the partnership liability is
pro rata or joint.
 Any stipulation against liability shall be void except among the partners.
 Extent of authority of a partner to act – Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the partners have no authority to: (1) Assign the partnership
property in trust for creditors or on the assignee’s promise to pay the debts o the partnership; (2) Dispose of the
good-will of the partnership; (3) Act which would make it impossible to carry on the ordinary business; (4) Confess a
judgment; (5) Enter into a compromise concerning a partnership claim/liability; (6) Submit a claim/liability for
arbitration; and (7) Renounce a claim.
 An admission by a partner is an admission against the partnership: (1) admission concern partnership affairs; (2)
within the scope of his authority; and (3) done during existence of partnership.
 Partnership liability with regard to partner’s tort or breach of trust: (1) acting in the ordinary course of business or
with authority, loss or injury is caused to any person not being a partner, or any penalty is incurred – partnership is
liable to the same extent as the partner so acting or omitting to act; (2) Partnership is bound to make good the loss:
(a) acting within the scope of his apparent authority receives money/property of a 3 rd person misapplies it; and (b) in
the course of its business receives money/property of a 3 rd person and money/property so received is misapplied by
any partner while in custody of the partnership; (3) All partners are liable solidarily with the partnership for
everything chargeable to the partnership.
 Charging order – subjects the interest of the debtor partner in the partnership with the payment of the unsatisfied
amount of a judgment secured in favor of a separate creditor. Any amount/portion thereof which the partnership
would otherwise pay to the debtor partner should be given to the judgment creditor. *Remedy is without prejudice
to the preferred rights of partnership creditors. Claims of partnership creditors must be satisfied first before separate
creditors can be paid out of the interest charged.
 Dissolution – change in relation caused by any partner ceasing to be associated. Winding up – process of settling
business affairs after dissolution. Termination – point in time after all partnership affairs have been wound up.
*Partnership is not terminated upon dissolution but continues until winding up is completed.
 4 year prescriptive period to demand accounting – runs only upon the dissolution of the partnership when the final
accounting is done.
 Extrajudicial dissolution: (1) Without violation of the agreement between the partners: (a) termination of definite
term/particular undertaking specified in the agreement; (b) express will of any partner, in good faith when no
definite term/particular undertaking is specified; (c) express will of all partners who have not assigned their interest
or suffered them to be charged for their separate debts, before or after termination of any term/particular
undertaking; or (d) expulsion of any partner from the business in accordance with such a power conferred by the
agreement between the partners.; (2) Contravention of the agreement between the partners, circumstances do not
permit a dissolution under any other provision of this article, express will of any partner at any time; (3) Event which
 makes it unlawful for the business to be carried on or for members to carry it on; (4) Specific thing which a partner
had promised to contribute perishes before the delivery, in any case by the loss of the thing, when the partner who
contributed it having reserved ownership thereof, only transferred the use or enjoyment of the same, but
partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired
ownership thereof. (5) Death; (6) Insolvency of partner/ship; (7) Civil interdiction; (8) Court decree
 Judicial dissolution – On application by or for a partner: (1) partner declared insane/shown unsound mind; (2)
partner becomes incapable of performing his part of the partnership contract; (3) partner has been guilty of such
conduct as tends to affect prejudicially the carrying on of the business; (4) partner willfully or persistently commits a
breach of the partnership agreement, otherwise conducts himself in matters relating to the partnership business
that it is not reasonably practicable to carry on the business in partnership with him; (5) business can only be carried
on at a loss; (6) circumstance render dissolution equitable; and (7) Application of the purchases of a partner’s
interest after termination of term/particular undertaking or any time if the partnership is a partnership at will when
the interest was assigned or when charging order was issued.
 Upon dissolution, the partners cannot carry on normal affairs and may only wind up the business or complete
transaction begun but unfinished: (1) Partners themselves are concerned, depends on w/n dissolution was by their
act, insolvency or death: (a) No - authority to carry on normal affairs immediately terminated; (b) Yes - depends on
w/n acting partner had knowledge of the dissolution, death or insolvency: (i) Yes – authority of partner who had
knowledge is terminated; (ii) No – continued; (2) With respect to persons provided in Art 1834: (a) Partnership is
bound: (i) Act appropriate for winding up affairs; (ii) Act for completing unfinished transactions; (iii) New
transactions if dissolution had not taken place provided other party is in good faith – previous creditor (extended
credit) and had no knowledge/notice of dissolution or not a previous creditor and fact of dissolution had not been
published; (b) Not bound: (i) dissolved because it was unlawful to carry on business, except act for winding up; (b)
acting partner become insolvent; (c) partner is unauthorized to wind up, except transaction with 3 rd person in good
faith; (d) act not appropriate for winding up/completing unfinished transactions; (e) new transaction which would
bind partnership if dissolution had not taken place with 3rd persons in bad faith.
 GR: Dissolution does not itself discharge the existing liability of any partner. XPN: by an agreement between himself,
partnership creditor and persons or partnership continuing the business, and such agreement may be inferred from
knowledge of the dissolution and the person/partnership continuing the business.
 Deceased partner liability – individual property shall be liable for all obligations of the partnership incurred while he
was a partner but subject to prior payment of his separate debts.
 Extrajudicial winding up: (1) By the partners who have not wrongfully dissolved the partnership; (2) Legal
representatives of the last surviving partner, provided last survivor was not insolvent
 Judicial winding up – under control and direction of the court, upon proper cause shown to the court.
 Powers of a liquidating partner: (1) Make new contracts for the purpose of winding up; (2) Raise money to pay
debts and dispose of property for that purpose; (3) Incur obligations to (a) Complete existing contract or (b) Preserve
partnership assets; (4) Incur expenses necessary in the conduct of litigation.
 Upon dissolution, succeeding partners/parties have the right to carry on the business under the old name, provided
that there is no stipulation forbidding it because name of a commercial partnership is a partnership asset
inseparable from the goodwill of the firm.
 Order of application of partnership assets for the satisfaction of liabilities: (1) Partnership creditors; (2) Owing to
partners other than for capital and profits; (3) Return of capital contributed; (4) Profits to the partners in proportion
in which profits are to be shared.
 Rights of a partner who retires/dies when business is continued: (1) have the value of the interest ascertained as of
date of dissolution; (2) Receive, as an ordinary creditor, amount equal to the value of his interest, with interest or at
his option, in lieu of interest the profits attributable to the use of his right in the property of the dissolved property.
 Person liable to render an account: (1) winding up partner; (2) surviving partner; and (3) person/partnership
continuing the business.
 Limited partnership (LP) – having as members one or more general partners and one or more limited partners.
Limited partners as such shall not be bound by the obligations of the partnership.
 Contribution of a limited partner in a limited partnership may be cash/property but not services.
 Surname of limited partner shall not appear in the partnership name unless: (1) Its also the name of a GP; or (2)
Business had been carried on under a name which his surname appeared, prior to his joining. *LP surname who
appears in the partnership name contrary to provisions of 1 st para. Is liable as GP to partnership creditors who
extend credit to the partnership w/o actual knowledge that he is not a GP.
 LP liable as GP – if he takes part in the control of the business.
 Additional LP may be admitted upon: (1) Filing an amendment to the original certificate; (2) signing and swearing to
by all partners (including new LP); (3) Filing with SEC where certificate is recorded.
 Rights of LP: (1) Require partnership books to be kept at the principal place of business; (2) Inspect and copy at a
reasonable hour partnership books or any of them; (3) Receive a share of profits/compensation by way of income;
(4) Receive return of contribution provided partnership assets are in excess of all its liabilities; (5) Demand formal
account of partnership affairs whenever circumstances render it just/reasonable; (6) Demand true and full
information of all things affecting the partnership; and (7) Ask for dissolution and winding up by decree of court.
 A person may be a LP and GP at the same time, provided same is stated in the certificate, signed and sworn to and
recorded in SEC. Rights as those of GP, as regards to contribution – considered an LP, with rights of an LP insofar as
other partners are concerned.
 Liabilities of a LP to the partnership: (1) Difference between his contribution as actually made and that stated in the
certificate as having been made; (2) unpaid contribution which he agreed in the certificate to make, in the future at
the time and on the conditions stated in the certificate; (3) Liable as trustee for the partnership for: (a) specific
property stated in the certificate as contributed by him but which he had not contributed; (b) specific property of
the partnership which had been wrongfully returned to him; (c) money wrongfully paid/conveyed to him on account
of his contribution; and (d) other property wrongfully paid/conveyed to him on account of his contribution; (4)
return of contribution lawfully received by him.
 Obligations of LP: (1) To the partnership – liable to the partnership not to the creditors of the partnership. GP cannot
waive any liability of the LP to the prejudice of such creditors; (2) Partnership creditors/Other partners – liable for
partnership obligation in instances: (a) contributed services instead of money/property; (b) allows surname to
appear in the firm name; (c) fails to have a false statement in the certificate corrected, knowing it to be false; (d)
takes part in the control of the business; (e) receives partnership property as collateral security, receives from GP or
partnership any payment, conveyance, release from liability when partnership assets are not sufficient to discharge
partnership liabilities, in fraud of partnership creditors; (f) failure to substantially comply with the legal
requirements; (3) Separate creditors – creditor of LP, in addition to other remedies allowed by law, apply to proper
court for a charging order subjecting the interest in the partnership of the debtor partner for the payment of his
obligation.
 Effect of death, retirement, insolvency, civil interdiction of GP – GR: Partnership is dissolved. XPN: Remaining GP
continue the business: (a) under a right to do so stated in the certificate; or (b) with consent of all members.
 LP may have partnership dissolve and its affairs wound up when: (1) rightfully but unsuccessfully demands the
return of his contribution; or (2) other liabilities of partnership have not been paid, or partnership property is
insufficient for their payment as required, and LP would otherwise be entitled to the return of his contribution.
 Substituted LP – person admitted to all the rights of a LP who has died or has assigned his interest in the
partnership. SLP is considered as have acquired the right to become a SLP if: (1) all members consented to the
assignee becoming a SLP or was given the right by a LP to become an SLP; (2) Certificate was amended; (3) Amended
certificate registered with SEC.
 Priority in settling accounts after dissolution in the following order: (1) Creditors, in order of priority provided by
law, except those LP on account of their contribution and to GP; (2) LP in respect to their share of profits/other
compensation by way of income on their contribution; (3) LP with respect to capital contributions; (4) GP other than
capital and profits; (5) GP in respect to profits; (6) GP respect to capital.
 Instances when a certificate of LP may be amended: (1) change in the name of partnership/amount or character of
contribution of any LP; (2) person is substituted as LP; (3) additional LP is admitted; (4) person is admitted as GP; (5)
GP retires, dies, insolvent, civil interdiction and business is continued; (6) change in character of business; (7)
 false/erroneous statement in certificate; (8) change in the time as stated in certificate for dissolution or for the
return of contribution; (9) time is fixed for dissolution, or the return of a contribution, no time having been specified
in the certificate; (10) members desire to make a change in any other statement in the certificate in order that it
shall accurately represent the agreement among them.
 Corporation – artificial being created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incidental to its existence.
 Attributes of a corporation: (1) Artificial being w/ separate and juridical personality; (2) created by operation of law;
(3) has the right of succession; and (4) has the powers, attributes, and properties expressly authorized by law or
incident to its existence.
 Classes of Corporation: (1) As to existence of Shares of Stock: (a) Stock Corporation – has a capital stock divided
into shares and is authorized to distribute to the holders of such shares dividends/allotments of the surplus profits
based on the shares held. *AOI which only specifies the amount of authorized capital stock, without stating number
of shares by which it is divided is not valid. Silence in the AOI/by-laws on the authority of the corporation to declare
dividends does not make it non-stock corporation; (b) Nonstock Corporation – has no capital stock and/or not
authorized to distribute dividends to its members. *Organized for any purpose except for profit/political ends;
 (2) As to Organizers: (a) Public – by the State only; (b) Private – private persons alone or w/ the State;
 (3) As to Function: (a) Public – organized for the government of a portion of the State; (b) Private – usually organized
for profits;
 (4) As to Governing Law: (a) GOCC – governed by special law creating it and the provisions of the RCC suppletorily,
to the extent applicable. In case of conflict, special law prevails; (b) Private – governed by the RCC. RCC also governs
non-chartered GOCC;
 (5) As to Legal Status: (a) De Jure – fulfilled all requirements mandated by law and can successfully resist a suit by
the State to challenge its existence. A matter of law, validates the corporation as a legal entity; (b) De Facto –
organized with colorable compliance with the requirements of a valid law. Existence cannot be inquired into
collaterally. Inquiry must be by a direct attack by the State through a quo warranto proceeding. Requisites: (i) valid
law under which the corporation is organized; (ii) bona fide attempt in good faith to incorporate (Filing of AOI and
issuance of Certificate of Incorporation); and (iii) assumption of corporation powers; (c) By Estoppel – exists when 2
or more persons assume to act as a corporation knowing it to be without authority to do so. Liable as GP for all
debts, liabilities and damages incurred. Provided, when any such ostensible corporation is sued on any transaction
or torts, it shall not be allowed to use as defense its lack of corporate personality. One who assumes an obligation to
an ostensible corporation as such, cannot resist performance thereof on the ground that there was, in fact, no
corporation;
 As to Manner of Creation: (a) Created by Special Law – directly created by Congress through a special law. Must be
GOCC; (b) Created under a General Law – created under RCC, Corporation Code of the Ph or old Corporation Law;
(c) By Prescription – exercised corporate powers for an indefinite period without interference on the part of the
sovereign, e.g., Roman Catholic Church;
 (6) As to Relationship of Management and Control: (a) Holding Corporation – holds stocks in other companies for
purposes of control rather for mere investment. A separate entity – does not own the assets and does not answer
for the liabilities of the subsidiary/affiliate. May be held liable for acts of its subsidiary only when its adequately
proven that: (i) there was control over the subsidiary; (ii) control was used to protect a fraud or gross negligence
amounting to bad faith or evade an obligation; (iii) fraud was the proximate case of another’s existing injury; (b)
Subsidiary Corporation – owned and controlled by another company, called parent company; (c) Affiliates – less
than majority of its voting stock is owned by another company; (d) Parent Company - owns enough voting stock in
another company to control management/operation by influencing or electing its BOD;
 (7) As to Place of Incorporation: (a) Domestic – formed, organized or existing under Ph laws; (b) Foreign – formed,
organized, or existing under any other laws than Ph and whose laws allow Filipino citizens and corporations to do
business in its own country/State;
 (8) Other Classifications: (a) Closed Corporation – AOI provides that all of the corporation’s issued stock of all
classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons; not
 exceeding 20; (b) Special Corporations – educational and religious (Corporation sole and religious societies); (c) One-
person Corporation – all of the stocks are held in/directly by one person; (d) Aggregate Corporation – consisting of
more than one member.
 De Facto Corporation (DFC) v. Corporation by Estoppel (CE): (1) Question Corporate Existence: DFC – State; CE –
State/3rd persons who relied in good faith on its representation; (2) Subject to Direct/Collateral Attack: DFC – Direct
attack only; CE – Both; (3) Creation: DFC – has not complied with all requirements but has colorable compliance; CE
– absence of conditions precedent needed for a DFC; (4) Liabilities of Officers/Directors: DFC – only to the extent of
their subscription unless acted in bad faith; CE – all who have knowledge of its lack of authority to act as such are
liable as GP; (5) Capacity to sue/sued: DFC – Can sue/be sued; CE – Cant sue/be sued except by a 3rd party who
relied in its representation in good faith.
 Nationality of Corporations: (a) Domestic Corporation – formed, organized or existing under Ph laws; (b) Foreign
Corporation – formed, organized or existing under laws other than Ph and whose laws allow Filipino Citizens and
corporation to do business in its own country/State.
 Principal test in determining nationality: (1) Place of Incorporation – determined by state of incorporation; (b)
Control test – determined by the character or citizenship of its controlling stockholders. If the capital of the investing
Corporation is at least 60% owned by Filipino, then the entire shareholdings of the investing Corporation shall be
recorded as Filipino-owned thus making both the investing and investee – corporations Ph national; (c) Grandfather
rule – method by which percentage of Filipino equity in a corporation engaged in nationalized/party nationalized
areas of activities, is accurately computed, in cases where corporate stockholders with foreign shareholdings are
present, by attributing the nationality of the 2 nd or even subsequent tier of ownership to determine the nationality
of the corporate shareholder. To arrive at the actual Filipino owners and control, both direct and indirect
shareholdings in the corporations are determined. In the case of multi-tiered corporation, stock attribute rule must
be allowed to run continuously along the chain of ownership until it finally reaches the individual stockholders.
Purpose is to trace the nationality of the stockholder of investor corporations to ascertain the nationality of the
corporation where the investment is made.
 Meaning of doubt for purposes of applying Grandfather Rule – 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.
Includes: (1) foreign investors provide practically all the funds for the join investment undertaken by these Filipino
businessmen and their foreign partner; (2) foreign investors undertake to provide practically all the technological
support for the joint venture; (3) foreign investors, while minority stockholders, manage the company and prepare
all economic viability studies.
 Basis of 60%-40% requirement – requires that full and legal beneficial ownership of 60% of OCS, coupled with 60%
of the voting rights, must rest in the hands of Filipino Nationals.
 Beneficial ownership test – mere legal title is insufficient to meet the required Filipino equity, he should also have
full beneficial ownership of the share. If the voting rights of a share held in the name of a Filipino citizen is assigned
or transferred to an alien, that share is not to be counted in the determination of the required Filipino equity. In the
same vein, if the dividends and other fruits and accessions of the share do not accrue to a Filipino citizen then that
share is also to be excluded or not counted.
 Corporation sole has no nationality as the framers of the Constitution did not have in mind the religious corporation
sole when they provided the 60% requirement.
 Doctrine of Separate Juridical Personality – corporation is a distinct legal entity to be considered as separate and
apart from the individual stockholders/members who compose it and is not affected by the personal rights,
obligations and transactions of its stockholders/members.
 Principle of Limited Liability – a corporate officer/stockholder, is not personally held liable for corporate debts.
 Implications of a corporation’s separate personality: (1) Property of the Corporation – is its property and not that
of the stockholders, as owners, although they have equities in it; (2) Corporate Liability – obligations of a
corporation acting through its directors, officers and employees are its own liabilities; (3) Criminal Liability – incur
criminal liability if a penal statute designates an act of a corporation as a crime and prescribes a punishment
therefor. May be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes
 both fine and imprisonment as penalty, a corporation ay be prosecuted and, if found guilty, may be fined. However,
if a statute defines a crime that may be committed by a corporation but prescribed the penalty therefor to be
suffered by the officers, directors or employees of such corporation or other persons responsible for the offense,
only such individuals will suffer such penalty; (4) Tort Liability – whenever a tortious act is committed by an officer or
agent under express direction or authority of the stockholders/members acting as body, or generally, from the
directors as the governing body; (5) Right to recover Moral Damages – in cases of libel, slander, or any form of
defamation as the CC does not qualify whether the plaintiff should be natural/juridical person. Furthermore, when
the corporation has a good reputation that is debased, resulting in its humiliation in the business realm.
 Doctrine of separate Juridical personality can be disregarded when – it is used as a means to perpetrate fraud or an
illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues.
 Doctrine of Piercing the Corporate Veil – attaching personal liability to the responsible person, if the corporate
personality is used to defeat public convenience, justify wrong, protect fraud or defend crime or use to defeat the
labor laws
 Traditional Veil-Piercing Action – where a court disregard the existence of the corporate entity so a claimant can
reach the assets of a corporate insider
 Reverse Piercing Action: (1) Outside reverse piercing - occurs when a party with a claim against an individual or
corporation attempts to be repaid with assets of a corporation owned or substantially controlled by the defendant.
(2) Inside reverse piercing – controlling members will attempt to ignore the corporate fiction in order to take
advantage of a benefit available to the corporation, such as an interest in a lawsuit or protection of personal assets.
 Application of doctrine of piercing the corporate veil: (1) defeat public convenience (corporate fiction is used as
vehicle for the evasion of an existing obligation), (2) Fraud cases, justify wrong, protect fraud or defend crime; (3)
Alter ego cases – corporation is merely a farce since it is a 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.
 Rule on a subsidiary’s separate existence – if used for legitimate functions, a subsidiary’s separate existence shall be
respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in
their respective business.
 Corporation has to be impleaded when invoking the doctrine of piercing the veil of corporate fiction – Compliance
with the modes of acquiring jurisdiction over the person of defendant/respondent cannot be dispensed with in
applying the doctrine. A corporation not impleaded in a suit cannot be subject to the court’s process of piercing the
veil of its corporate fiction.
 Application of Alter Ego Theory which would warrant the piercing of the corporate veil – Three-Pronged test also
known as the Instrumentality theory: (1) Instrumentality or Control Test – not mere majority or complete stock
control, but company domination, not only of finances but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will, or
existence of its own; (2) Fraud Test – control must have been used by the defendant to commit fraud or wrong in
contravention of plaintiff’s legal rights; (3) Harm/Casual Connection Test – aforesaid control and breach of duty
must proximately cause the injury or unjust loss complained of. **Absence of any of three elements prevent the
piercing of the corporate veil.
 Probative factors considered in alter ego cases that will justify application of doctrine of PCV: (1) Stock ownership
by one or common ownership of both corporations; (2) Identity of directors/officers; (3) Methods of conducting
business; (4) Manner of keeping corporate books and records.
 Indicia that a subsidiary company is merely an alter ego of its parent corporation – combination of 2 or more of the
following circumstances, taken together: (1) PC owns all or most of the capital stock of subsidiary; (2) PC&SC have
common directors/officers; (3) PC finances SC; (4) PC subscribes to all capital stock of SC or cause its incorporation;
(5) SC has grossly inadequate capital; (6) PC pays salaries/expenses/losses of SC; (7) SC has substantially no business
except with PC or no assets except those conveyed to or by the PC; (8) papers of PC or statements of its officers, SC
described as dept/division of PC, or business/financial responsibility is referred to as the PC’s own; (9) PC uses
 property of SC as its own; (10) directors/executive of SC do not act independently in the interested of the subsidiary,
but take orders from the PC; (11) formal legal requirements of SC are not observed.
 Qualification to be an incorporator: (NJ15L1) N/J entity; <15 incorporators; Legal age; owner/subscriber 1 share of
stock
 Minimum capital stock: GR: None. XPN: Corporation governed by SL which impose initial capitalization.
 Shares – units to which propriety interest in a corporation are divided. Intangible interest/right which an owner has
in the management, profit and assets of the corp.
 Kinds of shares - (CVP-TRF): (1) Common/Preferred shares – Common shares represents residual ownership
interest in the corp. Basic class of stock ordinarily and usually issued w/o extraordinary rights/privileges and entitles
shareholder to a pro rata division of profits. Preferred stocks are those that entitle the s/h to some priority on
dividends/asset distribution; (2) Voting/Non-voting – absence of provision in the AOI and consistent with the
Doctrine of Equality of shares, considered voting shares; (3) Par value/No par value – Par value those with fixed
value stated in the AOI/share certificate. No par value shares without arbitrary amount; (4) Treasury shares – issued
stock not fully paid, subsequent reacquired by the issuing corp by purchase, redemption, donation or other lawful
means; (5) Redeemable – stocks issued which corp can purchase ot take up from their holders as expressly provided
in AOI and certificates of stock representing said shares; (6) Founders – given to those who helped organize the corp.
Form of reward to the founders.
 Promoter – persons, alone or with others, take initiative in founding/organizing a business/enterprise. Liability –
Contracts entered into, in certain cases (corp ratifies the acts), bind a corporation. GR: acts of promoter are not
binding on the corp that will be organized. Nevertheless, any benefit derived should be given to the corp. Promoters
sustain a fiduciary relationship to the subs, corp, and stockholders and cannot deal unfairly with them or retain any
secret profit.
 Subscription Contract – acquisition of unissued stock in an existing corp or corp still to be formed. Perfected: as
soon as the offer to take shares made by a person to a corp is accepted by the corp, or as soon as the person to
whom the offer is made accepts an offer of shares by a corp. Parties: subscriber and corp itself.
 Pre-incorporation subs cannot be revoked for a period of 6 months. When may be revoked: (1) all other subs
consent to the revocation; or (2) corp fails to incorporate w/in same period or a longer period stipulate in the
contract of subs.
 Considerations that the law allows to be exchanged for shares in subs agreement – (CUPIL-RAG): (1) Cash; (2)
Property, tangible/intangible necessary/convenient for its use/lawful purposes at a fair valuation equal to the
par/issued value of the stock issued; (3) Labor; (4) Previously incurred indebtedness by the corp; (5) amounts
transferred from unrestricted retained earnings to stated capital; (6) outstanding shares exchanged for stocks in the
even of reclassification/conversion; (7) shares of stocks in another corp; (8) generally accepted form of
consideration.
 Conditions imposed for a consideration to be exchanged – (LPV): (1) stocks not issued less than par/issued price; (2)
not issued for PN/future services; (3) Property – valuation determined by stockholders/BOD, subject to approval of
SEC.
 Req’s for property tangible/intangible to be accepted – (VRAND): (1) Actually received; (2) Necessary/convenient
for its use/lawful purposes; (3) subject to a fair valuation equal to the par/issued value of stock; (4) valuation initially
determined by stockholders/BOD; and (5) valuation subject to approval of SEC.
 Grounds for disapproval in amendment of AOI: (1) AOI/any amendment thereto is not substantially in according
with the form prescribed therein; (2) purpose/s are patently unconstitutional, illegal, immoral or contrary to govt
rules/regulations; (3) Certification concerning amount of capital stock subs/paid is false; (4) required percentage of
Filipino ownership has not be complied with.
 Accomplished Fact Rule – provisions in AOI that cannot be amended because they are accomplished facts.
 Corporation using a name that belong to another: Corp cannot use a name that belongs to another even as a trade
name. No corporate name shall be allowed if it is not distinguishable from that already reserved/registered for the
use of another corp, or if such name is already protected.
