Corporation
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It is an artificial being 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. (Sec 2, BP 68)
Components of a Corporation
a.
Incorporators
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Those mentioned in the articles of incorporation as originally forming
and composing the corporation, having signed the articles and acknowledged the
same before a notary public.
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They have no powers beyond those vested in them by the statute.
1.
They must be natural persons;
2.
At least five (5) but not more than fifteen (15)
3.
They must be of legal age
4.
Majority must be residents of the Philippines
5.
Each must own or subscribe to at least one share.
b.
Corporators
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All the stockholders and members of a corporation including the
incorporators who are still stockholders.
c.
Stockholders and members
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Stockholders are persons who hold or own shares in a stock corporation
while members are those who compose the non-stock corporation.
d.
Directors and trustees
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The Board of Directors is the governing body in a stock corporation.
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The Board of Trustees is the governing body in a non-stock corporation.
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They exercise the powers of the corporation.
e.
Corporate officers
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They are the officers who are identified as such in the Corporation
Code, the Articles of Incorporation or the By-laws of the corporation.
f.
Promoter
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A self constituted organizer who finds an enterprise or venture and
helps to attract investors, forms a corporation and launches it in business,
all with a view to promotion profits.
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Liability of promoter
GR: The promoter binds himself personally
and assumes the responsibility of looking to the proposed corporation for
reimbursement.
XPN:
1.
Express or implied agreement to the contrary
2.
Novation, not merely adoption or ratification of the contract.
Doctrine of piercing the veil of corporate entity
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A corporation is a legal entity distinct from persons composing it.
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It is a theory introduced for the purposes of convenience and to serve
the ends of justice.
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When can be disregarded:
a.
When it is used as a shield to perpetuate fraud, to defeat public
convenience, justify wrong or defend crime.
b.
When used to shield blatant violation of the prohibition against forum
shopping.
Different kinds of Corporation
Stock Corporation
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Corporations which have capital stock divided into shares and are
authorized to distribute to the holders of such shares dividends or allotments
of the surplus profits on the basis of shares held.
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Organized or profit
Non-Stock Corporation
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All other corporations are non-stock corporations.
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One where no part of the income is distributable as dividends to its
members, trustees, or officers, subject to the provisions of the Code on
dissolution.
Public Corporation
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One formed or organized for the government of a portion of the state.
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Its purpose is for the general good and welfare.
Private Corporation
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One formed for some public purpose, benefit, aim or end.
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It may be stock or non-stock, government-owned or controlled or
quasi-public.
Close Corporation
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One whose articles of incorporation provide that:
1.
All the corporation’s issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a specified number o
persons, not exceeding twenty (20);
2.
All the issued stock of all classes shall be subject to one or more
specified restrictions on transfer permitted by this Title; and
3.
The corporation shall not list in any stock exchange or make any public
offering of any of its stock of any class.
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Notwithstanding the foregoing, a corporation shall not be deemed a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights
is owned or controlled by another corporation which is not a close corporation
within the meaning of this Code.
Educational Corporation
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One organized for educational purposes.
Religious Corporations
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One organized for religious purposes
Corporation sole
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It is one formed for the purpose of administering and managing, as
trustee, the affairs, property and temporalities of any religious denomination,
sect, or church, by the chief archbishop, bishop, priest, rabbi, or other
presiding elder of such religious denomination, sect or church.
Corporation aggregate
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It is a religious corporation incorporated by more than one person.
Eleemosynary Corporation
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One organized for a charitable purpose.
Domestic Corporation
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On formed, organized, or existing under the laws of the Philippines.
Foreign Corporation
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One formed, organized or existing under any laws other than those of
the Philippines and whose law allows Filipino citizens and corporations to do
business in its own country and state.
Corporation created by special laws or charter
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Corporations which are governed primarily by the provisions of the
special law or charter creating them.
Subsidiary Corporation
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One in which control, usually in form of ownership of majority of its
shares, is in another corporation.
Parent Corporation
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Its control lies in its power, directly or indirectly, to elect the
subsidiary’s directors thus controlling its management policies.
Corporation De Jure
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A corporation organized in accordance with the requirements of the law.
De Facto Corporation
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The due incorporation of any corporation claiming in good faith to be a
corporation under this Code, and its right to exercise corporate powers, shall
not be inquired into collaterally in any private suit to which such corporation
may be a party. Such inquiry may be made by the Solicitor General in a quo
warranto proceeding. (Sec 20)
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A corporation where there exists a flaw in its incorporation.
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Requisites:
1.
Organized under a valid law.
2.
Bona fide compliance with formalities of law.
3.
User of corporate powers.
4.
SEC issuance of certificate of incorporation.
Corporation by estoppel
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All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts,
liabilities and damages incurred or arising as a result thereof.
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Where a group of persons misrepresent themselves as a corporation, they
are subsequently stopped from claiming lack of corporate life in order to avoid
liability.
Different Kind of Shares
Common shares
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The most common type of shares, which enjoy no preference but the
owners thereof are entitled to management of the corporation and to equal
pro-rata division of profits after preference. It represents a residual
ownership interest in the corporation.
Preferred Shares
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Stocks which are given preference by the issuing corporation in
dividends and the distribution of assets of the corporation in case of
liquidation or such other preferences as may be stated in the AOI which do not
violate the Corporation Code. (Sec. 6)
Par Value Shares
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These shares are with a stated value set out in the AOI.
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Par Value is minimum issue price of such share in the AOI which must be
stated in the certificate.
No-par Value Shares
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These are shares without a stated value.
Founder’s share
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These are shares, classified as such in the AOI, which are given
certain rights and privileges not enjoyed by the owners of other stocks.
Redeemable shares
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These are shares which permit the issuing corporation to redeem or
purchase its shares.
Treasury Shares
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These are shares which have been issued and fully paid for, but
subsequently re-acquired by the issuing corporation by purchase, redemption,
donation, or through some other lawful means. Such shares may again be disposed
of for a reasonable price fixed by the BOD.
Convertible shares
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A type of preferred stock that the holder can exchange for a
predetermined number of common shares at a specified time.
Non-Voting shares
GR: Non-Voting
Shares are not entitled to vote.
XPN:
1.
Amendment of the AOI
2.
Adoption and amendment of by-laws
3.
Sale, lease, exchange, other disposition of all or substantially all of
the corporate property
4.
Incurring, creating or increasing bonded indebtedness
5.
Increase or decrease of capital stock
6.
Merger or consolidation
7.
Investment of corporate funds in another corporation or business
8.
Dissolution of the corporation.
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Corporation
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Partnership
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Governing Law
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Corporation Code
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Civil Code
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Manner of creation
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By law
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By mere agreement
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Number of incorporators
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5 to 15 incorporators
XPN: Corporation sole
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2 or more persons
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Commencement of juridical
personality
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Date of issuance of the
certificate of incorporation by SEC
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Moment of execution of the
contract
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Powers
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Only powers expressly
granted by law
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Any power authorized by
partners
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Management
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Board of Directors/ Board
of Trustees
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agent
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Effect of mismanagement
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Suit must be in the name of
the corporation
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Partner can sue a
co-partner
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Right of succession
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Have the right of
succession
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No right
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Transferability of interest
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Without consent
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Consent
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Extent of liability to
third persons
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Extent of the shares
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Personally and subsidiarily
XPN: Limited
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Term of existence
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50 years
Extendible for 50 years
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Any period (stipulation)
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Forms of Stock
Authorized Capital Stock
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The amount fixed in the AOI to be subscribed and paid by the stockholders
of the corporation.
Subscribed Capital
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25% of the Authorized Capital Stock that is covered by subscription
agreements whether fully paid or not.
Paid-Up Capital
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25% of the Subscribed Capital which has been subscribed and actually
paid.
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It should not be less than P5000.
Outstanding Capital Stock
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The total shares of stock issued to subscribers or stockholders,
whether or not fully or partially paid except treasury shares so long as there
is binding subscription agreement.
Capital
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Properties and assets of the corporation that are used for its business
or operation.
Qualification of Board of Directors
1.
Every director must own at least one (1) share of the capital stock of
the corporation of which he is a director, which share shall stand in his name
on the books of corporation.
Trustees of non-stock
corporations must be members thereof.
2.
A majority of the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
3.
He must not have been convicted by final judgment of an offense
punishable by imprisonment for a period exceeding six (6) years or a violation
of the Corporation Code, committed within five (5) years before the date of his
election.
4.
He must be of legal age.
5.
He must possess other qualifications as may be prescribed in the
by-laws of the corporation.
Election of Directors or Trustees (Sec 24)
1.
Straight voting
Every stockholder may vote
such number of shares for as many persons as there are directors to be elected.
2.
Cumulative Voting for one candidate
A stockholder is allowed to
concentrate his votes and give one candidate as many votes as the number of
directors to be elected multiplied by the number of his shares shall equal.
3.
Cumulative Voting by distribution
A stockholder may cumulate
his shares by multiplying also the number of his shares by the number of directors
to be elected and distribute the same among as many candidates as he shall see
fit.
*Cumulative voting is not
available in non-stock corporations.
Disqualification of directors, trustees or officers
(Sec.27)
1.
No person convicted by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years, or
2.
A violation of this Code committed within five (5) years prior to the
date of his election or appointment, shall qualify as a director, trustee or
officer of any corporation.
Section 144. Violation of the Code.
Violations
of any of the provisions of this Code or its amendments not otherwise
specifically penalized therein shall be punishable by a fine not less than one thousand
(P1000) pesos but not more than ten thousand (P10 000) pesos or by imprisonment
for not less than thirty (30) days but not more than five (5) years, or both,
in the discretion of the court. If the violation is committed by a corporation,
the same way, after notice and hearing, be dissolved in appropriate proceedings
before the Securities and Exchange Commission: Provided, That such dissolution
shall not preclude the institution of appropriate action against the director,
trustee or officer of the corporation responsible for said violation: Provided,
further, That nothing in this section shall be construed to repeal the other
causes for dissolution of a corporation provided in this Code.
Interlocking Director
There
is an interlocking director in a corporation when one (or some or all) of the
directors in one corporation is (or are) a director in another corporation.
a.
If the interests of the interlocking director in the corporations are
both substantial (stockholdings exceed 20% of Outstanding Capital Stock).
GR: A contract between two or more
corporations having interlocking directors shall not be invalidated on that
ground alone.
XPN: If the contract is fraudulent or not
fair and reasonable.
Powers of the Corporation
General Powers (Sec 36 CCP)
1.
Sue and be sued in its corporate name;
2.
Succession;
3.
Adopt and use a corporate seal;
4.
Amend Articles of Incorporation;
5.
To adopt, amend or repeal by-laws;
6.
For stock corporations – issue stocks to subscribers and to sell
treasury stocks;
For non-stock corporations –
admit members;
7.
Purchase, receive, take, or grant, hold, convey, sell, lease, pledge,
mortgage and otherwise deal with real and personal property, pursuant to its
lawful business;
8.
Enter into merger or consolidation with other corporations;
9.
To make reasonable donations for public welfare, hospital, charitable,
cultural, scientific, civil or similar purposes. Prohibited: donations in aid
of any political party or candidate for purposes of partisan political
activity;
10.
To establish pension, retirement and other plans for the benefit of
directors, trustees, officers and employees;
11.
Other powers essential or necessary to carry out its purposes.
Specific Powers
1.
Power to extend or shorten corporate term;
2.
Increase/Decrease Corporate Stock;
3.
Incur, create bonded indebtedness;
4.
To deny pre-emptive right;
5.
Sell, dispose, lease, encumber all or substantially all of corporate
assets;
6.
Purchase or acquire own shares;
7.
To invest in another corporation, business other than the primary
purpose;
8.
To declare dividends;
9.
To enter into management contract;
10.
To amend the articles of incorporation.
Trust Fund Doctrine
It
means that the capital stock, properties and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors. Stated
simply, it states that all funds received by the corporation in payment of the
shares of stock shall be held in trust for the corporate creditors and other
stockholders of the corporation. Under such doctrine, no fund shall be used to
buy back the issued shares of stock except only in instances specifically
allowed by the Corporation Code.
Cases where the trust fund doctrine is violated
1.
When the corporation releases or condones payment of the unpaid
subscription.
2.
When there is payment of dividends without unrestricted retained
earnings.
3.
When properties are transferred in fraud of creditors.
4.
When properties are disposed or undue preference is given to some
creditors even if the corporation is insolvent.
Stockholder’s suits and remedies
1.
Individual suit
One brought to assert a right
by a stockholder peculiar to himself. Suits brought by a stockholder for the
issuance to him a stock certificate, payment of his dividend, payment to him of
the book value of his stocks, in those instances where the law allows him the
right of appraisal, are individual suit.
2.
Representative Suit
One brought by a stockholder
in his own behalf, and in behalf of other stockholders similarly situated, and
having a common cause against the corporation.
3.
Derivative Suit
A suit brought by a
stockholder, for and in behalf of the corporation and against any person, also
a stockholder, director, officer, or third person. The right can be availed of
by the stockholder after he has exhausted intra-corporate remedies, by
requesting the board to act, and the board does not act at all.
An action brought by minority
stockholders in the name of the corporation to redress wrongs committed against
it, for which the directors refuse to sue. It is a remedy designed by equity
and has been the principal defense of the minority shareholders against abuses
by the majority.
Requisites:
1.
Cause of action in favor of the corporation;
2.
Refusal of corporation to sue, and;
3.
Party filing the suit is a stockholder.
