Corporation - a corporation is an artificial being
created by operation of law, having the right of
succession and the powers, attributes and
properties expressly authorized by law incidental
to its existence. (Sec.2)
Corporation as artificial being
- The Corporation Code has embodied the
accepted concept of a corporation as an
“artificial” being.
- A Corporation is given by law with rights,
powers and liabilities usually accorded a
natural person.
Other attributes of corporation
- Aside from a corporation being considered as
an artificial being it has other attributes like it
is created by operation of law.
Created by operation of law
- A corporation comes into being by authorities
of the state.
- A primary franchise is distinguished from a
secondary franchise which is given to the
corporation such as the right to expropriate
private property for use as railroad, public
highways, gas, electric services, etc.
Right of succession
- A private corporation may continue
regardless of the death, insolvency, incapacity
of any of its directors, officers or employees,
and regardless of transfer of shares from one
stockholder to another.
Power, attributes and properties
- A corporation, being a mere creature of law,
has such powers only as are expressly or
impliedly conferred upon it by the Charter or
act of incorporation.
Corporate nationality
- It is a recognized doctrine of corporate law
that a private corporation is a national, citizen,
resident, or inhabitant of the country or state,
by or under the laws of which it was created or
organized.
• Incorporation rule
• Control test
3 Identical features of partnership and
corporation
1. Partnerships and corporations are
organizations composed of an aggregate of
individuals;
2. Partnerships and corporations have juridical
personalities distinct from that of their
respective component members;
3. Partnerships and corporations can act only
through their respective agents.
8 Distinctions between Partnership and a
Corporation:
1. A partnership is created by agreement among
the partners, but corporation cannot be created
without the consent of the state;
2. A partnership may be organized by only two
persons while a corporation requires at least five
incorporators;
3. In the absence of stipulation to the contrary, a
partner is considered an agent of the partnership
while in a corporation, the power to bind the
corporation, unless delegated, rest in the board of
directors;
4. In a partnership, general partners are liable to
third person even with their separate property; in
corporation, the shareholders are liable only to the
extent of the shares subscribed by them; 5. A
partnership does not have the power of succession,
so that the death of the general partner causes
dissolution of the partnership while the death of a
stockholder does not affect the existence of a
corporation;
6. A partner’s interest in the partnership cannot be
transferred to another without the consent of the
partner because of the personal character of the
relationship (delectus personae); but in a
corporation, a stockholder may transfer his share
even without the consent of the stockholders
because the characteristic of delectus personae is
foreign in a corporation;
7. A partnership may be formed for an indefinite
period of time; a corporation’s life is limited by
law to 50 years, extendible to not more than 50
years for each extension;
8. A partnership is governed by Civil Code while
corporation is governed by Corporation Code
.
Advantages of a corporate form of business
organization:
1. The capacity to hold property, to contract, to
sue and be sued as a legal unit or distinct entity; 2.
Exemption of shareholders from individual
liability;
3. Continuity of existence in spite of death or
change of members;
4. Transferability of shares;
5. Centralized management under a board of
directors;
6. Standardized method of organization,
management and finance for the protection of
shareholders and creditors under statutory
regulations.
Disadvantages of a corporate form of business
organization:
1. The limited liability of the stockholders serves
to limit the credit available to the corporation;
2. The transferability of shares permits the uniting
incompatible and conflicting interest in one
enterprise;
3. The minority stockholders are usually
subservient to the wishes of majority;
4. In big corporations, the stockholders voting
right have become largely theoretical because of
widespread ownership, luke warmness and
disinterest in management, inertia, and
inaccessible meeting places;
5. In large corporations, management control has
been separated from ownership;
6. By and large corporations are subject to
governmental restrictions, controls, and report
requirements not imposed on other forms of
business organization;
7. Corporate sphere of activity is limited in the
transaction of its business to the state of
organization;
8. The corporate form involves “double taxation”
on corporation income.
Sec.3. Classes of corporations –
- Corporations formed or organized under this
Code may be stock or non-stock corporations.
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 basic of shares held are
Stock Corporation. All other corporations are
Non-stock Corporation.
Other kinds of corporations:
1. Quasi-corporation – Some entities are not
absolutely corporations but are considered as if
they were.
2. Quasi-public corporations – is one engaged in
rendering basic services of such public importance
as to entitle them t certain privileges like eminent
domain or use of public property. 3.
Government-owned or controlled corporations
– are those organized by the government or
corporations of which the government is a
majority stockholder.
4. Domestic and foreign corporations –
- Domestic corporation is one incorporated under
Philippine laws.
- Foreign corporation is one formed, organized,
or existing under any laws other than those of the
Philippines.
5. Corporation aggregate and corporation sole
- Corporation aggregate is one composed of
more than one member or corporator.
- Corporation sole consists of one member or
corporator and his successors.
6. Religious corporations, sole or aggregate – -
Religious corporations are organized either as a
corporation sole or a corporation aggregate.
7. Ecclesiastical and lay corporations –
- Ecclesiastical corporation is one organized for
religious purposes.
- Lay corporation is one organized for a purpose
other than religious.
8. Eleemosynary and civil corporations
- Eleemosynary corporation is one organized
for charitable purposes.
- Civil corporations are those than ecclesiastical
and eleemosynary, whether public or private.
9. Close and open corporations
- Close corporation is one wherein all the
outstanding stock is owned by the persons who are
active in management and conduct on the
business.
- Open corporation is one in which all the
members or corporations have a vote in the
election of the directors and other officers.
10. Multi-national corporation – is one having
been created or organized in one state conduct its
business or activities across national boundaries
and but subject to the legal sanctions of the
countries in which they operate.
11. Non-profit corporations – are those
organized without contemplation of gains, profits,
or dividends to their members on invested capital.
12. De Jure Corporation – is one created in strict
or substantial conformity with the statutory
requirements for incorporation.
Sec. 4. Corporation created by special laws or
charter – Corporations created by special laws or
charters shall be governed primarily by the
provisions of the special law or charter creating
them or applicable to them, supplemented by the
provisions of this Code, insofar as they are
applicable.
Sec. 5. Corporation and incorporations,
stockholders, and members
- Corporators are those who compose a creation,
whether as stockholders or members.
- Incorporators are those stockholders or
members mentioned in articles of incorporation as
originally forming and composing the corporation
and who are signatories thereof.
Components of a Corporation:
1. Corporators – are those who composed a
corporation, whether as stockholders of members.
2. Incorporators – are those stockholders or
member mentioned in articles of incorporation as
originally forming and composing the corporation
and who are signatories thereof.
3. Stockholders or shareholders – are those
corporators in a stock corporation.
4. Members – are those corporators in a non-
stock corporation.
5. Incorporator and corporator distinguished.
- Incorporators refer to those natural people
whose names appear in the articles of
incorporation as originally forming and
composing the corporation and who are
signatories thereof.
- Corporators refers to all persons whose
compose the corporation at any given time
and need not be signatories to the article of
the corporation.
6. Capacity of incorporators
- Incorporators of a corporation is in legal
effect a contract between the organizers and
the state.
7. Promotion - is the act of procuring the finances
and the making of all preparations necessary to
launch a corporation.
8. Activities of promoter – the promoter in the
fullest sense, perform various services in
launching an enterprise and may employ experts,
lawyers, bankers, solicitors and other persons to
aid him.
9. Promoter’s contracts – A corporation is,
thereof, not bound by any agreement made by a
promoter on its behalf, unless until the corporation
approves the agreement.
Sec 6. Classification of Shares
- Stock or Share of Stock – A stock or share of
stock is one unit into which the capital stock
has been divided. It represents the interest or
right that the holder of the stock or
stockholder has in the corporation.
- Stock Certificate – A stock certificate
certifies that one is holder or owner of a
certain number of shares of stock in the
corporation.
Shares of stock may be divided into Classes or
series
- The shares of stock of stock corporations may
be divided into classes or series of shares , or
both , any of which classes or series may have
such rights , privilege or restrictions as may be
stated in the articles of incorporation.
Classes or series of shares of stock subject to
restrictions
1. Shares shall not be deprived of voting rights
except preferred or redeemable shares but non-
voting shares must still be entitled to vote on
matters.
2. Where non- voting shares are provided for there
must always be a class or series of shares with
complete voting rights.
3. Banks, trust companies, insurance companies,
public utilities, and building and loan associations
shall not be permitted to issue non-par value
shares of stock;
4. Preferred shares of stock may be given
preference in the distribution of assets in case of
liquidation and distribution of dividends or other
preferences may be issued only with stated par
value;
5. The terms and conditions of preferred shares or
series thereof may be fixed by the board of
directors only when authorized by the articles of
incorporation by the effectively thereof shall be
reckoned from the filing of a certificate with the
Securities and Exchange Commission.
6. Shares w/o par value may not be issued for a
consideration less than the value of P5.00 per
share.
7. Unless otherwise provided by law the rights,
privileges or restrictions on classes or series of
shares must be stated in the articles of
incorporation and in the stock certificates.
Presumed equality of Shares
- “ Each share shall be equal in all respects to
every other share”.
Classes or Series of Shares
1. Voting and Non- Voting Shares;
2. Par Value and No- Par Value Shares;
3 Common and Preferred Shares.
a.) Preferred as to asset
b.) Preferred as to dividends
1.1. Cumulative or Non Cumulative
1.2. Participating or Non Participating
4. Promotion Shares;
5. Shares of Escrow;
6. Founder’s Shares;
7. Redeemable “ Callable” Shares;
8. Treasury Shares;
9. Other shares classified to comply with
constitutional or legal requirements.
Voting and Non-Voting Shares
- In the absence, however, of a contrary provision
in the articles of incorporation, all shares shall be
considered voting shares.
- The general rule is that every member of a
non- stock corporation and every legal owner
of shares in a stock corporation have a right to
be present and vote at all corporate meetings.
Par Value and No- Par Value
- A share of stock that is given a fixed or definite
value in the articles of incorporation is known as a
par value share. Then a share of stock that has no
fixed value is called no- par value shares.
Preferred Stock as to Dividends
- One that entitles the holder to preference in the
distribution of dividends over common stock.
Kinds of Preferred Stock as to Dividends
A. Cumulative Preferred Stock- those w/c
entitle the holder to payment not only of current
dividends but also those in arrears, when
dividends are declared, to the extent stipulated,
before holders of common shares are paid.
B. Non-Cumulative Preferred Stock
- Those that entitle the holder to payment of
current dividends but not those in arrears, before
holders of common shares are paid.
C. Participating Preferred Stock
- Those that entitle the holder to participate with
the holder to participate with the holders of
common shares in the surplus profits after the
amount stipulated has been paid to the holder of
preferred shares.
D. Non- Participating Preferred Stock
- Those that entitle the holders only to the
stipulated preferred dividend.
Promotion Stock – issued to those who may
originally own the mining ground or valuable
rights connected therewith, for incorporating the
company or for services rendered in launching or
promoting the welfare of the company, such as
advancing the fees for incorporation, attorney’s
fees, surveying, advertising, etc.
Instances when Non-voting shares may vote
- The holders of such shares shall nevertheless
be entitled to vote on the ff. matters.
1.) Amendment of the articles of incorporation; 2.)
Adoption and amendment of by-laws;
3.) Sale, lease, exchange, mortgage, pledge or
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 of the corporation
with another corporation or other corporations; 7.)
Investment of corporate funds in another
corporation of business in accordance with the
Corporation Code;
8.) Dissolution of the corporation.
Reason for allowing non-voting shares to vote
-They refer to basic or fundamental changes in the
corporation.
- A vote of stockholders represents 2/3 of the
outstanding capital stock or 2/3 of the members is
required to approve any of the changes mentioned
above.
Par Value and No- Par Value
-It indicates the amount which the original
subscribers are supposed to contribute to capital as
basis privileges of profit sharing w/ limited
liability.
No- Par Value Shares deemed fully paid
- Shares of capital stock issued w/o par value shall
be deemed fully paid.
- Shares w/o par value may not be issued for a
consideration less than the value of five (P5.00). -
Banks, trust companies, insurance companies,
public utilities, and building and loan associations
shall not be permitted to issue no-par value shares
of stock.
Common and Preferred Shares
- A common share of stock entitles the owner of it
to an equal pro rata division of profits, if there are
any, with no stockholder or class of stockholders
having preference or advantage in that respect
over any other stockholder or class of stockholder.
Shares in Escrow
- Subject to an escrow agreement,
- It is in effect the issuance of shares subject to
suspense condition.
Sec. 7 Founder’s Share
- Founder’s shares classified as such in the
articles of incorporation may be given certain
rights and privileges not enjoyed by the owners of
other stock, provided that where the exclusive
right to vote and be voted for in the election of
directors is granted, it must be for a limited period
not to exceed 5 years subject to approval of the
Securities and Exchange and Commission.
The 5 year period shall commence from the date
of the aforesaid approval by the Securities and
Exchange and Commission.
Founder’s Share
Generally common stock, given to the founders or
promoters of a corporation in payment of
money expended or services rendered in the
promotion of it.
Issue of Founder’s Share requires SEC
approval
“ Where the exclusive right to vote and to be
voted for in the election of directors is granted. It
must be for limited period for 5 years and may not
be extended for to do so may result in the
permanent disqualification of the other
stockholder.
Sec. 8. Redeemable Shares
- Redeemable shares may be issued by the
corporation when expressly so provided in the
articles of incorporation. They may be purchased
or taken up by the corporation upon the expiration
of a fixed period, regardless of the existence of
unrestricted, retained earnings in the books of the
corporations as may be stated in the articles of
incorporation, which terms and conditions must
also be stated in the certificate of stock
representing said shares.
Redeemable Shares
- Redeemable ( Callable) shares of stock which
are usually preferred are frequently issued subject
to redemption at the option of either the
corporation, the stockholder, or both, at a definite
price representing premium above the amount
originally paid.
Redemption of Shares is Virtually a
Repurchase of Shares
- A redemption by the corporation of its stock is,
in a sense, a repurchase of its cancellation. The
present Code allows redemption of shares even if
there are no unrestricted retained earnings on the
books of the corporation
.
Retired or redeemed shares, cannot be
reclassified
- Retired or redeemed preferred shares cannot be
reclassified into common shares considering that
upon redemption, they lose their status as
outstanding or unissued authorized capital stock.
Sinking Fund
- Sinking Fund refers to a fund set-up by the
corporation where cash is gradually set aside in
order to accumulate the amount necessary to meet
the redemption price of redeemable shares of
specified dates in the future.
Sec.9. Treasury Shares
- Treasury shares are shares of stock which have
been issued and fully paid for, but subsequently
reacquired by the issuing corporation by purchase,
redemption, and donation or through some other
lawful means. Such share may again be disposed
of for a reasonable price fixed by the board of
directors.
- Treasury shares carry no voting rights or right as
to dividends or distributions.
Treasury Shares are not outstanding shares
- Treasury shares are issued shares, but being in
the treasury they do not have the status of
outstanding shares.
Treasury Shares do not revert to unissued
shares
- Treasury shares do not revert to the unissued
shares of the corporation but are regarded as
property acquired by the corporation w/c may be
reissued or sold by the corporation at a price to be
fixed by the Board of Directors.
Incorporation and organization of private
corporations
CORPORATION CODE
INCORPORATION
- The act of creating a corporation
Issuance of certificate
- It is the certificate of incorporation that gives
juridical personality to a corporation and places it
within the jurisdiction of the sec.
Section 10: number and qualifications of
incorporators
1. compose of 5-15 natural persons
2. legal age
3. majority of who are residents of the
Philippines
4. must own or be a subscriber to at least
one share of the capital stock
Section 11: A corporation shall exist for a period
not exceeding fifty (50) years
Unless: sooner dissolved said period is extended
Section 12: Minimum capital stock required of
stock corporations
- Shall not be required to have any
minimum authorized capital stock
Section 13- Amount of capital stock to be
subscribed and paid for purpose of incorporation
1. 25% authorized capital stock must be
subscribed
 2. 25% of 25% authorized stock must be
paid upon subscription
Section 13:
Example:
1000 shares
P100 par value
100,000 capital stock
x 25% of authorized capital stock
25000 x 25% 6250 must be paid
Section 15: Form of articles of incorporation
-unless otherwise prescribed by special
law, articles of incorporation of all domestic
corporations shall comply substantially with the
prescribed form.
Section 15
- The Articles of Incorporation of all
corporations organized in accordance with the
Corporation Code written in any of the official
languages (English or Filipino) signed and
acknowledged by not less than five nor more than
fifteen natural persons before a notary public.
Contents of Articles of Incorporation
1. The name of the corporation
2. Specific purpose or purposes
3. Principal office of the corporation
4. Term of existence of corporation
5. Names, nationalities, and residences of
incorporators
6. Number of directors or trustees
7. Names, nationalities and residences of directors
or trustees
8. Amount of authorized capital stock
9. Non-stock corporation
10. Inclusions of other matters (Sworn statement
of treasurer, Property as subscription payment;
SEC policy, Papers to accompany articles with
SEC)
Papers to accompany articles with SEC
1. A verification slip
2. Written undertaking to change corporate name
3. Sworn statement of assets and liabilities
4. Bank certificate of deposit
5. Written authority to verify bank deposit
6. Taxpayer account number of the incorporators
7. Registration data sheet
SECTION 16
1. Amendment of articles of incorporation
Change of corporate name
2. Extension of term of the corporation
3. Change in classes or series of shares
4. Change in rights, privileges or restrictions in
share ownership
5. Increase or decrease in the number of
directors’
6. Change in purpose or purposes and other
necessary changes
SECTION 17
- Grounds When Articles Of Incorporation Or
Amendment May Be Rejected Or
Disapproved
- AOI or any amendment is not substantially
in accordance with the form prescribed
- Purposes of the corporation are patently
unconstitutional, illegal, immoral or contrary
to the government rules and regulations
- Treasurer’s Affidavit concerning the
amount of capital stock subscribed and/or
paid is false
–Required % of ownership of the capital
stock to be owned by citizens of the
Philippines has not been complied with as
required by existing laws or the Constitution
SECTION 18
a.) Corporate name
- No corporate name may be allowed by the
SEC if the proposed name is identical or
deceptively or confusingly similar to that of
any existing corporation or to any other name
already protected by law or it’s patently
deceptive, confusing or contrary to existing
laws. When a change in the corporate name is
approved, the Commission shall issue an
amended certificate of incorporation under the
amended name.
SECTION 19
Commencement of corporate existence
- A private corporation formed or organized
under this Code commences to have corporate
 existence and juridical personality and is
deemed incorporated from the date the SEC
issues a certificate of incorporation under its
official seal;

SECTION 20

A.) De Facto corporations

- 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.

SECTION 21

- Corporation by estoppel 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:

Provided, however, That when any such ostensible

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. 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.

SECTION 22

Effects of non-use of corporate charter and

continuous in operation of a corporation

- If a corporation does not formally organize

and commence the transaction of its business
or the construction of its works within 2 years
from the date of its incorporation, its corporate
powers cease and the corporation shall be
deemed dissolved. However, if a corporation
has commenced the transaction of its business
but subsequently becomes continuously
inoperative for a period of 5 years, the same
shall be ground for suspension or revocation
of its corporate franchise or certificate of
incorporation.