WHAT IS A CORPORATION
A corporation is an artificial being created by
operation of law, having a right of succession and
the powers, attributes and properties expressly
authorized by law or incident to its existence.
ATTRIBUTES OF A CORPORATION
ALS-PAPI
It is an ARTIFICIAL BEING
Created by operation of LAW
It enjoys the right of SUCCESSION
It has the POWERS, ATTRIBUTES and
PROPERTIES expressly authorized by law
or INCIDENT to it existence
RULES FOR CREATION OF A CORPORATION
GR: A legislative grant or authority is necessary for
the creation of a corporation
XPN: For corporations by prescription, such
authority is not necessary (De Leon, 2010).
A corporation by prescription is one which has
exercised powers for an indefinite period without
interference on the part of the sovereign power and
which by fiction of law, is given the status of
corporation.
THE CREATION OF A CORPORATION IS BY
OPERATION OF LAW:
No corporation can exist without the consent or
grant of the sovereign, and the power to create
corporations is one of the attributes of sovereignty.
Corporations cannot come into existence by mere
agreement of the parties.
The Philippine Jurisprudence adopted the
Concession or Fiat Theory, which states that a
corporation is conceived as an artificial person
owing existence through creation by a foreign
power. Further, has without any existence until it
has received the imprimatur of the state according
to law through the SEC (Tayag vs Benguet
Consolidated, Inc.)
THE POWER TO INSTITUTE EXPROPRIATION
PROCEEDINGS IS NOT GRANTED TO ALL
CORPORATIONS
Only quasi-public corporations or those affected
with public interest are given the power to institute
condemnation proceedings against owner of
private property.
To grant the right of eminent domain to purely
private entities exercising functions, which are not
public in nature, would be using the right to take
property for private use.
RIGHT TO SUCCESSION
A corporation has a capacity of continuous
existence irrespective of the death, withdrawal,
insolvency, or incapacity of the individual
stockholders or members and regardless of the
transfer to their interest or shares of stock.
A corporation may exist up to the period stated in
the articles of incorporation as long as not
exceeding 50 years from the date of incorporation,
unless sooner dissolved or unless said period is
extended (Sec 11, CC).
RULE ON WHETHER A DEFECTIVE
INCORPORATION RESULT INTO
PARTNERSHIP
The answer depends on whether or not there is a
clear intent to participate in the management of the
business affairs on the part of the investor.
Parties who intends to participate or has actually
participated in the business affairs of the proposed
corporation would be considered as partners under
de facto partnership.
On the other hand, parties who took no part
notwithstanding their subscriptions do not become
partners with other subscribers (Pioneer Insurance
vs. CA).
QUESTION:
Q: University Publishing Company (UPC), through
its president, entered into a contract with Albert to
publish the commentaries on the Revised Penal
Code. UPC published the commentaries but it did
not remit the amount due to Albert. This prompted
Albert to file a collection suit. RTC decided against
UPC. When the sheriff were about to implement
the writ of execution against the company, he
discovered the UPC is not a registered corporation.
Consequently, the president of UPC was
substituted in the writ of execution. The president
invoked the separate legal personality of the
corporation as his defense.
1. Is UPC a de facto corporation?
 2. Can the defense that the UPC is a
corporation by estoppel be invoked by the
president?
3. Who is liable for the debts of corporation?
ANSWER:
1. No. UPC cannot be considered a de facto
corporation because it was not registered
with the SEC.
2. No. One who has induced another act
upon his willful misrepresentation that a
corporation was duly organized and
existing under the law, cannot thereafter
set up against his victim the principle of
corporation by estoppel.
3. The president, who negotiated with Albert
is liable. A person acting or purporting to
act on behalf of a corporation which has no
valid existence assumes such privileges and
obligations and becomes personally liable
for contracts entered into or for other acts
performed as such agent.
RULES GOVERNING A CORPORATION BY
ESTOPPEL
1. 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.
2. When any such ostensible corporation is
sued on any transaction entered by it as a
corporation or on any tort committed by it
as such, it shall not be allowed to use as a
defense its lack of corporate personality.
3. 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 (Sec 21,
CC).
A RELIGIOUS GROUP IS NOT REQUIRED TO
BE REGISTERED AS A CORPORATION
The corporation Code does not require any
religious groups to be registered as a corporation
but if it wants to acquire legal personality, its
members should incorporate under the Code.
ORGANIZATION OF A CORPORATION SOLE
A corporation sole is organized by mere filing of
verified articles of incorporation by the head of any
religious denomination, sect or church with the
SEC without the need of an issuance of certificate of
incorporation. Once filed, a separate juridical
character is acquired which is separate and distinct
from his natural character.
Note: A corporation sole is not required to file by-
laws, it is governed by the rules, regulations and
discipline of its religious denomination, sect or
church.
NATIONALITY OF A CORPORATION SOLE
A corporation sole does not have any nationality
but for purposes of applying nationalization laws,
nationality is determined not by the nationality of
its presiding elder but by the nationality of its
members, constituting the sect in the Philippines.
Thus, the Roman Catholic Church can acquire
lands in the Philippines even if it is headed by the
Pope (Roman Catholic Apostolic Church v Land
Registration Commission).
ACQUISITION OF PROPERTY BY A
CORPORATION SOLE
A corporation sole may acquire property even
without court intervention by purchase, donation
and other lawful means.
QUESTION:
A special audit team from COA audited the
accounts of Leyte Metropolitan Water District
(LMWD). Subsequently, LMWD received a request
for payment of auditing fees from COA.
As general manager of LMWD, Engr. Feliciano sent
a reply informing COA that the water district could
not pay the auditing fees. Feliciano cited as basis of
his action PD 198 as well as RA 6758. Thereafter,
Feliciano asked COA for refund of all auditing fees
LMWD previously paid to COA.
The COA chairman denied LMWDs request.
Feliciano maintains that LWDs are not GOCCs with
original charters. He argues that LWDs are private
corporations, and thus, LWDs are not subject to
COAs jurisdiction.
Is the Local Water District created under PD 198, as
amended a government-owned or controlled
corporation subject to the audit of COA?
ANSWER:
Yes. LWDs are GOCCs subject to the audit and
jurisdiction of COA. An LWD is a GOCC with an
original charter. The constitution recognized two
classes of corporations. The first refers to private
corporations created under a general law. The
second refers to GOCCs created by special charters.
Congress cannot enact a law creating a private
corporation with a special charter. Such legislation
would be unconstitutional. Private corporations
may exist only under general law. The Constitution
authorizes the Congress to create GOCCs through
special charters. Since private corporations cannot
have special charters, it follows that the congress
can create corporations with special charters only if
such corporations are government-owned or
controlled.
Obviously, LWDs are not private corporations
because they are not created under the Corporation
Code (Engr. Ranulfo C. Feliciano vs COA).
IS MIAA A GOCC OR INSTRUMENTALITY
MIAA is not organized as a stock or non-stock
corporation. MIAA is not a stock corporation
because it has no capital stock divided into shares.
MIAA has no stockholders or voting shares.
Under its Charter, MIAA does not have capital
stock that is divided into shares. MIAA has capital
but it is not divided into shares of stock. MIAA has
no stockholders or voting shares. Hence, MIAA is
not a stock corporation. MIAA is also not a non-
stock corporation because it has no members.
What is the legal status of MIAA within the
National Government? MIAA is a government
instrumentality vested with corporate powers to
perform efficiently its governmental functions.
MIAA is like any other government
instrumentality, the only difference is that it is
vested with corporate powers.
MIAA vs CA
IS THE MIAA SUBJECT TO REAL PROPERTY
TAX
No. MIAA is not a GOCC but an instrumentality
of the National Government, (b) the real properties
of MIAA are owned by the Republic of the
Philippines and thus exempt from real estate tax.
What about the collection of terminal fees and other
charges? (Mactan Cebu v Judge Marcos)
The fact that MIAA collects terminal fees and
other charges from the public does not remove the
character of the Airport Lands and Building as
properties for public use.
The Airport Lands and Buildings of MIAA are
devoted to public use and thus are properties of
public dominion. As properties of public dominion,
the Airport Lands and buildings are outside the
commerce of man.
IS THE GSIS A GOCC, THEREFORE SUBJECT
TO REAL PROPERTY TAX?
No. GSIS is not a GOCC but an instrumentality
of the National Government. GSIS capital is not
divided into unit shares. Also, GSIS has no
members to speak of.
The real property under the GSISs name are
likewise owned by the Republic. The GSIS is a mere
trustee of the subject properties which have either
been ceded to it by the Government or acquired for
the enhancement of the system.
This particular property arrangement is clearly
shown by the fact that the disposal or conveyance
of said subject properties are either done by or
through the authority of the President of the
Philippines.
TESTS IN DETERMINING THE NATIONALITY
OF CORPORATIONS
1. Place of Incorporation test
2. Control test
3. Grandfather rule the Nationality is
attributed to the percentage of equity in the
corporation used in nationalized or partly
nationalized area. This test is an exception
to the Control Test and was applied by the
SEC in several cases.
4. Domiciliary test determined by the
principal place of business of the
corporation.
PLACE OF INCORPORATION TEST
In using the place of incorporation test, the
nationality of the corporation is determined by the
state of incorporation, regardless of the nationality
of the stockholders.
XPN: A corporation organized/incorporated
abroad and registered as doing business in the
Philippines under the Corporation Code, of
which 100% of the capital stock outstanding and
entitled vote is wholly owned by Filipinos, may
be considered a Philippine National under the
Foreign Investment act of 1991.
This is the only exception to the place of
incorporation test.
CONTROL TEST
In determining the nationality of the corporation,
the control test uses the nationality of the
controlling stockholders or members of the
corporation.
This test was adopted by the Foreign Investment
Act of 1991 as a general guideline in determining
the nationality of corporations engaged in a
nationalized activity.
REQUISITES FOR CONTROL TEST (CFC)
1. Control, not mere majority or complete
stock control but Complete domination, not
only of finances but of policy and business
practice in respect to the transaction
attacked such that the corporate entity as to
this transaction had at that time no separate
mind, will or existence of its own.
2. Such control must have been used by the
defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or
other positive or legal duty, or dishonest or
unjust act in contravention of plaintiffs legal
right; and
3. The control and the breach of duty must
proximately cause the injury or unjust loss
complained of.
WHO ARE CONSIDERED AS PHILIPPINE
NATIONALS
Under RA 7042, the following are considered as
Philippine Nationals:
1. Corporations organized under Philippine
Laws of which 60% of the capital stock
outstanding and entitled to vote is owned
and held by Filipino citizens.
Note: RA 7042 provides that where a corporation
and its non-Filipino stockholders own stocks in a
SEC-registered enterprise, at least 60% of the
capital stock outstanding and entitled to vote of
both corporations and at least 60% of the members
of the board of directors of both corporations must
be Filipino citizens (Double 60% Rule)
2. Corporations organized abroad and
registered as doing business in the
Philippines under the Corporation Code of
which 100% of the capital stock entitled to
vote belong to Filipinos.
QUESTION: WHAT IS THE NATIONALITY OF
THE CORPORATION ORGANIZED AND
INCORPORATED UNDER THE LAWS OF A
FOREIGN COUNTRY, BUT OWNED 100% BY
FILIPINOS? (1198 BAR QUESTION)
ANSWER: Under the control test of corporate
nationality, a corporation organized and
incorporated under the laws of a foreign country,
but owned 100% by Filipinos is classified as a
Philippine National.
Where the grounds for piercing the veil of
corporate entity are present, the corporation will
follow the nationality of the controlling members or
stockholders, since the corporation will then be
considered as one and the same.
APPLICATION OF THE GRANDFATHER RULE
IN DETERMINING THE NATIONALITY OF
THE CORPORATION
To ensure compliance with the constitutional
limitation(s) of corporations engaging in
nationalized activities, the nationality of a
corporation must be determined by ascertaining if
60% of the investing corporations outstanding
capital stock is owned by Filipino citizens, or as
interpreted, by natural or individual Filipino
Citizens.
If such investing corporation is in turn owned to
some extent by another investing corporation, the
same process must be observed (Redmond
Consolidated Mines Corporation vs McArthur
Mining Corporation).
REASON: One must not stop until the citizenships
of individual or natural stockholders of layer after
layer of investing corporations have been
established, for this is the very essence of the
Grandfather Rule.
RULES GOVERNING THE APPLICATION OF
THE GRAND FATHER RULE
1. The grandfather rule should be used in
determining the nationality of a corporation
engaged in a partly nationalized activity.
This applies in cases where the stocks of a
corporation are owned by another
corporation with foreign stockholders
exceeding 40% of the capital stock of the
corporation.
2. The grandfather rule will not apply in cases
where the 60-40 Filipino-alien equity
ownership in a particular natural resource
corporation is not in doubt. If the
stockholders corporation is 60% or more
owned by Filipinos, all the stocks held by
the stockholder corporation is deemed to be
held by Filipinos.
3. When there is doubt as to the actual extent
of Filipino equity in the investee
corporation, the SEC is not precluded from
using the Grandfather Rule.
INDUSTRIES REQUIRED TO BE 100%
FILIPINO OWNED (ZERO % FOREIGN
EQUITY) (CODE: CoFi AMMaN Co. ProMiSe-
US$2.5M)
1. Cooperatives
2. Manufacture of Firecrackers and other
pyrotechnic devices
3. Manufacture, repair, stockpiling and/or
distribution of biological, chemical and
radiological weapons and Anti-personnel
mines.
4. Mass media except recording
5. Utilization of MArine resources
6. Manufacture, repair, stockpiling and/or
distribution of Nuclear weapons
7. COckpits
8. Practice of all PROfessions
a. Law
b. Medicine and other allied
professions
c. Accountancy
9. Small-scale Mining
10. Private SEcurity agencies
11. Retail trade enterprises with paid-up capital
of less than US$ 2.5M
INDUSTRIES REQUIRED TO BE 75% FILIPINO
OWNED (UP TO 25% FOREIGN EQUITY) LoRD
F
1. Contracts for the construction and repair of
LOcally-funded public works except:
infrastructure/development covered in RA
7718; and which projects are foreign funded
or assisted and required to undergo
international competitive bidding.
2. Private Recruitment, whether for local or
overseas employment
3. Contracts for the construction of Defense-
related structures.
4. Under the Flag Law, purchase of articles for
the government, preference shall be given to
materials and supplies produced, made or
manufactured in the Philippines, and to
domestic entities. Domestic entities means
any citizen of the Philippines or commercial
company at least 75% of the capital of which
is owned by citizens of the Philippines.
INDUSTRIES REQUIRED TO BE 70% FILIPINO
OWNED (UP TO 30% FOREIGN EQUITY)
(AdPawn)
1. Advertising
2. Corporations engaged in Pawnshop
business.
INDUSTRIES REQUIRED TO BE 60% TO BE
FILIPINO OWNED (40% FOREIGN EQUITY)
1. Contracts for supply of materials, goods
and commodities to GOCC, agency or
municipal corporation.
2. Ownership of Private Lands
3. Ownership/establishment and
administration of Educational institutions.
4. Adjustment companies
5. Culture, production, milling, processing,
trading, except retailing, of rice and corn
and acquiring, by barter, purchase or
otherwise, Rice and Corn and the by-
product thereof.
6. Exploration, development and utilization of
Natural Resources
7. Ownership of Condominium units where
the common areas in the condominium
project are co-owned by the owners of the
separate units or owned by a corporation.
8. Operation and management of public
Utilities
 9. Project Proponent and Facility Operator of a
BOT project requiring a public utilities
franchise
10. Manufacture, repair, storage and/or
distribution of products/ Ingredients
requiring PNP clearance
11. Operation of Deep sea commercial fishing
vessel
12. Corporations engaged in Coastwise
shipping
INDUSTRIES REQUIRED TO BE 40% FILIPINO
OWNED (60% FOREIGN EQUITY)
1. Financing companies regulated by the SEC
2. Investment houses regulated by the SEC
DOCTRINE OF CORPORATE JURIDICAL
PERSONALITY
The doctrine of corporate judicial personality states
that a corporation is a juridical entity with legal
personality separate and distinct from those acting
for and in its behalf and, in general, from the
people comprising it (Francisco vs Mallen Jr.)
1. Liability for acts or contracts As a general
rule, the obligation of the corporation is not
the liability of the stockholders, officers or
directors (Romeo vs IAC)
a. A corporation may not, generally, be
made to answer for acts or liabilities
of its stockholders or those of the
legal entities to which it may be
connected, and vice versa (Cease vs
CA)
ENTITLEMENT OF CORPORATIONS TO
CONSTITUTIONAL RIGHTS
Corporations are entitled to the following rights
under constitution;
1. Right to Due Process
2. Right against unreasonable searches and
seizures
However, the corporation is not entitled to the right
against self-incrimination, being a mere creature of
law. (Bataan Shipyard & Engineering vs PCGG)
RIGHT TO BRING ACTIONS A corporation
may bring civil and criminal actions in its own
name in the same manner as natural persons.
RIGHT TO ACQUIRE AND POSSESS
PROPERTY Property conveyed to or acquired by
the corporation is in law the property of the
corporation itself as a distinct legal entity and not
that of the stockholders or members
ACQUISITION OF JURISDICTION Service of
summons may be made on the president, general
manager, corporate secretary, treasurer or in-house
counsel
CHANGES IN INDIVIDUAL MEMBERSHIP
corporation remains unchanged and unaffected in
its identity by changes in its individual
membership or ownership of its stocks.
A CORPORATION MAY BE HELD LIABLE FOR
TORTS
The corporation is liable for every tort which it
expressly directs or authorizes (PNB v. CA)
REASON FOR LIABILITY IN CASES OF TORTS
A corporation is civilly liable in the same manner
as natural persons for torts, because generally
speaking, the rules governing the liability of a
principal or master for a tort committed by an
agent be a natural or artificial person
LIABILITY OF A CORPORATION IN CASES OF
CRIMES
GR: A corporation is not liable in cases of crimes.
Since a corporation is a mere creation of legal
fiction, it cannot be held liable for a crime
committed by its officers, since it does not have the
essential element of malice; in such case the
responsible officers would be criminally liable
(People v Tan Boon Kong)
XPN: If the penalty of the crime is only fine or
forfeiture of license or franchise (Ching vs Secretary
of Justice)
RECOVERY OF MORAL DAMAGES
GR: A corporation is not entitled to moral damages
because it has no feelings, no emotions, no senses
(ABS-CBN Broadcasting Corporation vs CA)
XPNs:
1. The corporation may recover moral
damages under item 7 of Article 2219of the
New Civil Code because said provision
expressly authorizes the recovery of moral
 damages in cases of libel, slander, or any
other form of defamation.
a. Article 2219 (7) does not qualify
whether the injured party is a
natural or juridical person.
Therefore, a corporation, as a
juridical person, can validly
complain for libel or any other form
of defamation and claim for moral
damages (Filipinas Broadcasting
Network, Inc. v. AMEC-BCCM)
2. When the corporation has a reputation that
is debased, resulting in its humiliation in
the business realm (Manila Electric
Company v T.E.A.M. Electronics
Corporation)
QUESTION:
Expose is a radio documentary program hosted
by Rima and Alegre. It is aired every morning over
DRZC-AM which is owned by FBNI. One morning,
Rima and Alegre exposed various alleged
complaints from students, teachers and parents
against AMEC and its administrators.
Claiming that the broadcasts were defamatory,
AMEC and Ago, as Dean of AMECs College of
Medicine, filed a complaint for damages against
FBNI, Rima and Alegre. The trial court ruled in
favor of AMEC and Dean Ago. The CA affirmed.
Among others, FBNI claims that AMEC is not
entitled to moral damages because it is a
corporation. Is AMEC entitled to moral damages?
ANSWER:
YES. AMEC is entitled to moral damages. A
juridical person is generally not entitle to moral
damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish
or moral shock.
Nevertheless, AMECs claim for moral damages
falls under item 7 of Article 2219 of the Civil Code.
This provision expressly authorizes the recovery of
moral damages in cases of libel, slander or any
other form of defamation. Article 2219 (7) does not
qualify whether the plaintiff is a natural or juridical
person.
Therefore, a juridical person such as a corporation
can validly complain for libel or any other form of
defamation and claim of moral damages. (Filipinas
Broadcasting Network, Inc. v AMEC BCCM)
DOCTRINE OF PIERCING THE CORPORATE
VEIL
The doctrine of piercing the corporate veil is the
doctrine that allows the State to disregard the
notion of separate personality of a corporation for
justifiable reason/s.
NOTE: This is an exception to the Doctrine of
Separate Corporate Entity
REQUIREMENT TO JUSTIFY THE PIERCING
OF THE CORPORATE VEIL
In order to justify the piercing of the corporate veil,
allegation or proof of fraud or other public policy
considerations is needed (Hacienda Luisita
Incorporated vs. Presidential Agrarian Reform
Council)
DOCTRINE OF PIERCING OF THE
CORPORATE VEIL
It is a doctrine that allows the State to disregard for
certain justifiable reasons the notion that a
corporation has a personality separate and distinct
from the persons composing it.
2.It applies upon the following circumstances
a) if the fiction is used to perpetrate fraud (Fraud
Test);
b) the complete control of one corporate entity to
another which perpetuated the wrong is the
proximate cause of the injury (Control Test)
c) if a certain corporation is only an adjunct or an
extension of the personality of the corporation
(Alter ego or Instrumentality Test) and
d) if the fiction is pierced to make the stockholders
liable for the obligation of the corporation
(Objective Test)
CIRCUMSTANCES WHICH DO NOT
WARRANT THE PIERCING OF CORPORATE
VEIL
The mere fact that:
1. A corporation owns 50% of the capital stock
of another corporation, or the majority
 ownership of the stocks of a corporation is
not per se a cause for piercing the veil.
2. Two corporation have common directors or
same or single stockholder who has all or
nearly all of the capital stock of both
corporations is not in itself sufficient
ground to disregard separate corporate
entities.
3. There is a substantial identity of the
incorporators of the 2 corporations does not
necessarily imply fraud and does not
warrant piercing the corporate veil.
QUESTION:
Land Bank of the Philippines (LBP) extended a
series of credit accommodations to ECO using the
trust funds of PVTA. The proceeds of the credit
accommodations were received on behalf of ECO
by Emmanuel Onate. Upon maturity of loans, ECO
failed to pay the same. Despite demands, ECO was
unable to pay.
ECO then submitted a Plan of Payment to LBP,
however, the latter rejected the same. LBP filed a
complaint for collection of sum of money against
ECO and Onate. The RTC rendered judgment
against ECO and absolved Onate from personal
liability. The CA affirmed. LBP contends that the
personalities of Onate and of ECO should be
treated as one, for the particular purpose of holding
Onate liable for the loans incurred by ECO from
Land Bank. Is Onate jointly and severally liable
with ECO for the loans incurred from LBP?
ANSWER:
NO. Onate should not be held jointly and severally
liable with ECO. A corporation, upon coming into
existence, is invested by law with a personality
separate and distinct from those persons
composing it as well as from any other legal entity
to which it may be related.
By this attribute, a stockholder may not, generally,
be made to answer for acts or liabilities of the said
corporation, and vice versa. The mere fact that
Onate owned the majority of the shares of ECO is
not a ground to conclude that Onate and ECO is
one and the same.
Mere ownership by a single stockholder of all or
nearly all of the capital stock of a corporation is not
by itself sufficient reason for disregarding the
fiction of separate corporate personalities. (Land
Bank of the Philippines vs CA)
Neither is the fact that the name ECO represents
the first three letters of Onates name sufficient
reason to pierce the veil. Even if it did, it does not
mean that the said corporation is merely a dummy
of Onate.
A corporation may assume any name provided it is
lawful. There is nothing illegal in a corporation
acquiring the name or as in this case, the initials of
one of its shareholders (Land Bank of the
Philippines vs CA)
QUESTION:
X owns 99% of the capital stock of SSS Corporation.
X also owns 99% of TTT Corporation. SSS
Corporation obtained a loan from VW Bank. On
due date, SSS Corp defaulted. TTT Corporation is
financially healthy. Which statement is most
accurate? (2012 Bar Question)
a. X being a controlling owner of SSS
Corporation can automatically be
held personally liable for the loan of
SSS Corporation.
b. TTT Corporation, owned 99% by X,
can automatically be held liable.
c. SSS Corporation and TTT
Corporation, although both are
owned by X , are two (2) distinct
corporations with separate juridical
personalities hence, the TTT
Corporation cannot automatically
held liable for the loan of SSS.
Corporation.
d. The principle of piercing the veil of
corporate can be applied in this case.
TEST IN DETERMINING APPLICABILITY OF
THE DOCTRINE OF PIERCING THE
CORPORATE VEIL
The following are the tests in determining the
applicability of the doctrine of piercing the
corporate veil: (ECAO)
1. When the corporation is used to defeat of
public convenience as when the corporate
fiction is used as a vehicle for the evasion of
an existing obligation; (Equity Cases)
 2. In fraud cases or when the corporate entity
is used to justify a wrong, protect fraud, or
defend a crime; (Control Test)
3. In Alter ego cases, where a 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 at make it
merely an instrumentality, agency, conduit,
or adjunct of another corporation (Timoteo
H. Sarona vs NLRC)
4. The Objective test where the end result in
piercing the veil of corporate fiction is to
make the stockholders liable for debts and
obligations of the Corporation not to make
the Corporation liable for the debts and
obligations of the stockholders (Umali vs
CA)
QUESTION:
Plaintiffs filed a collection action against X
Corporation. Upon execution of the courts
decision, X Corporation was found to be without
assets.
Thereafter, plaintiffs filed an action against its
present and past stockholder Y Corporation
which owned substantially all of the stocks of X
Corporation.
The two corporations have the same board of
directors and Y Corporation financed the
operations of X Corporation.
May Y Corporation be held liable for the debts of
X Corporation? Why? (2001 Bar Question)
ANSWER:
Yes. Y Corporation may be held liable for the debts
of X Corporation. The doctrine of piercing the veil
of corporation fiction applies to this case.
The two corporations have the same board of
directors and Y Corporation owned substantially
all of the stocks of X Corporation, which facts
justify the conclusion that the latter is merely an
extension of the personality of the former, and that
the former controls the policies of the latter.
Added to this is the fact that Y Corporation controls
the finances of X Corporation which is merely an
adjunct, business conduit or alter ego of Y
Corporation (CIR v Norton & Harrison Company).
NUMER AND THE QUALIFICATIONS OF
INCORPORATORS IN A STOCK
CORPORATION (N5L R1)
1. GR: Natural Person
a. XPN: Under the Rural Banks Act of
1992, incorporated cooperatives are
allowed to be incorporators of rural
banks.
2. GR: Incorporators must not be less than 5
but not more than 15
a. XPN: Corporation Sole
3. An incorporator must be of legal age
4. Majority of the incorporators must be
Residents of the Philippines.
5. Each must own or subscribe to at least 1
share
QUESTION: Must all incorporators and directors
be residents of the Philippines?
ANSWER: No. The Corporation Code only
provides that majority of incorporators and
directors of a corporation must be residents of the
Philippines (Sec. 10 and Sec 23, Corporation Code)
QUESTION: What is the minimum and maximum
number of incorporators required to incorporate a
stock corporation? Is this also the same minimum
and maximum number of directors required in a
stock corporation?
ANSWER: Any number of natural persons not less
than five but not more than fifteen may form a
private corporation (sec. 10 CC). Likewise, the
number of directors must not be less than five nor
more than fifteen as indicated in the AOI (Sec. 14,
CC.).
QUESTION: X is a Filipino immigrant residing in
Sacramento, California. Y is a Filipino residing in
Quezon City, Philippines. Z is a resident alien
residing in Makati City. GGG Corporation is a
domestic corporation 40% owned by foreigners
and 60% owned by Filipinos, with T as authorized
representative. CCC Corporation is a foreign
corporation registered with the Philippine
Securities and Exchange Commission. KKK
Corporation is a domestic corporation (100%)
Filipino owned. S is a Filipino, 16 years of age, arid
the daughter of Y.
1. Who can be incorporators? Who can be
subscribers?
 2. What are the differences between an
incorporator and a subscriber, if there are
any?
3. Who are qualified to become members of
the board of directors of the corporation?
4. Who are qualified to act as Treasurer of the
company?
5. Who can be appointed Corporate Secretary?
Q1:
A: X, Y, Z, and T can be incorporators. The
corporations and S cannot be incorporators since
the former are not natural persons and the latter is
not of legal age (sec 10 CC.). All of the forgoing can
become subscribers except S since she is not yet of
legal age.
TERMS OF CORPORATE EXISTENCE
GR: The period stated in the AOI which in no case
shall exceed 50 years.
XPN: Unless sooner dissolved or unless said period
is extended (Sec. 11, CC.)
NOTE: Extension may be made for periods not
exceeding 50 years in any single instance by an
amendment of the articles of incorporation,
However, extension must be made within 5 years
before the expiry date of the corporate term, unless
there are justifiable reasons for an earlier extension
as may be determined by the SEC (sec 11, CC.).

Q2: Extension must also comply with procedural

A: The difference between the two is as follows: requirements for amendment of AOI.
a) an incorporator is a signatory of the AOI while a
subscriber is not;
b) there is a limit for the number of incorporators
while there is no limit in the number of subscribers;
c) an incorporator must be a natural person while a
subscriber can be either natural or juridical person
and
d) incorporators has a residence requirement while
there is no such requirement in case of subscribers.

Q3:

A: A natural person, of legal age, and who owns at

least one share of stock registered in his name in
the books of the corporation and must have all the
qualifications and none of the disqualifications
provided for by the law and AOI or the by-laws of
corporation (sec 23, CC.)

Q4:

A: A natural person, of legal age, whether or not a

Filipino Citizen but under the SEC rules he must be
resident of the Philippines and provided that he is
not the president of the same corporation at the
same time.

A natural person, of legal age, and a Filipino

resident citizen may become a secretary of the
corporation provided that he is not the president of
the same corporation at the same time.