LAW ON BUSINESS ORGS – MIDTERM It is created by operation of law.

This is
so because the formal requirement of the
General Attributes of Corporation State’s consent through compliance with
Kinds of Business Organizations the requirements imposed by law is
necessary for its creation such that the
There are four known forms of business mere agreement of the persons
establishment under Philippine set up: composing it or intending to organize it
Sole Proprietorship does not warrant the grant of its
Partnership independent existence as a juridical
Joint Venture entity.
Corporation It has the right of succession. This
particularly means that unlike in a
Sole Proprietorship partnership, the death, incapacity of civil
interdiction of one or more of its
The sole or individual proprietorship, as the
stockholders does not result in its
phrase suggests, is a one-man form of business
dissolution.
entity and is defined as one conducted for profit
It has the powers, attributes and
by a lone or single individual who owns all the
properties expressly authorized by law or
assets, personally owes and answers all the
incident to its existence
liabilities or suffers all the losses and enjoys all
the profits to the exclusion of others.
Advantages of Corporate type of Business
Partnership
1. Capacity to act as a single unit
A contract of partnership two or more persons
2. Limited shareholder’s liability
bind themselves to contribute money, property, or
3. Continuity of existence
industry to a common fund with the intention of
4. Feasibility of greater undertaking
dividing the profits among themselves.
5. Transferability of shares
Joint Venture 6. Centralized Management
7. Standardized method of organization,
A joint venture partakes the nature of a management and finance
partnership contract and it it’s created for the
purpose of prosecuting a particular business Disadvantages of Corporate type of Business
transaction.
1. Formal proceedings, such as board of
Corporation meetings are required
2. Business transactions of a corporation is
It is an artificial being, created by operation of limited to the State to its incorporation
law, having the right of succession and the and may not act as such corporation in
powers, attributes and properties expressly other jurisdiction unless it has obtained a
authorized by law or incident to its existence. license or authority from the foreign state
• Attributes 3. Shareholders’ limited liability tends to
It is an artificial being in that it has a limit the credit available to the
personality, juridical at that separate and corporation as a separate legal entity
distinct form the persons composing it. 4. Uniting incompatible and conflicting
interest
5. Practically no say in the conduct affairs
 6. In large scale enterprise, stockholders’
voting rights may become merely
fictitious and theoretical
7. Double Taxation
8. Subject to governmental regulation
supervision and control of
9. Securities and Exchange Commission
(SEC)

Distinctions between a Corporation and a

Partnership
A. Public, Private, Government Owned and No. 78412, September 26, 1989; Cruz v. Dalisay,
Controlled Corporations 152 SCRA 482).

Section 4. Corporations created by Special law or -Piercing the veil

Charters
1) Defeat of public convenience as when the
-Phil. Society for the Prevention of Cruelty to corporate fiction is used as a vehicle for the
Animals v. COA evasion of an existing obligation;

If the corporation is created by the State as the 2) Fraud cases or when the corporate entity is
latter's own agency or instrumentality to help it in used to justify a wrong, protect fraud, or defend a
carrying out its governmental functions, then that crime; or
corporation is considered public; otherwise, it is
private. 3) Alter ego cases

- Funa v. Manila Economic & Cultural Office D. Right to Moral Damages

(MECO)
- Filipinas Broadcasting Network, Inc. v. Ago
In classifying MECO which was incorporated Medical & Educational Center-Bicol Christian
under the Corporation Code and is not College of Medicine
government owned, the Supreme Court noted that
it “is uniquely sit uated as compared with other “A juridical person is generally not entitled to
private corporations. From its over-reaching moral damages because, unlike a natural person,
corporate objectives, its special duty and it cannot experience physical suffering or such
authority to exercise certain consular functions, sentiments as wounded feelings, serious anxiety,
up to the oversight by the executive department mental anguish or moral shock.”
over its operations — all the while maintaining its
legal status as a non-governmental entity — the E. Liability for Negligence
MECO is, for all intents and purposes, sui
generis.” Not only did PSI breach its duties to oversee or
supervise all persons who practice medicine
B. Nature of Corporations within its walls, it also failed to take an active step
in fixing the negligence committed. This renders
i. artificial being created by operation of PSI, not only vicariously liable for the negligence
law of Dr. Ampil under Article 2180 of the Civil
ii. having the right of succession Code, but also directly liable for its own
iii. with powers, attributes and properties negligence under Article 2176.”
expressly authorized by law or incident
to its existence F. Liability for Crimes

C. Corporate Fiction Application of Corporate Criminal Liability can

be found in Secs. 165, 166, 167, 170 and 171.
-Separate juridical personality Under Sec. 179 (g), the SEC may hold
corporations in direct and indirect contempt.
“A corporation has a personality distinct and
separate from its individual stockholders or The principle applies whether or not the crime
members. Being an officer or stockholder of a requires the consciousness of wrongdoing.
corporation does not make one's property also of
the corporation, and vice-versa, for they are
separate entities (Traders Royal Bank v. CA, G.R.
De Jure, De Facto and Corporations by 1.) Creation – there are three steps that may be
Estoppel. identified:

• SEC. 18. Registration Incorporation and Promotional stage

Commencement of Corporate Existence. Process of Incorporation
• SEC. 19. De facto corporations Dissolution and Winding up

- Seventh Day Adventist Conference Church of 2.) Reorganization or Quasi-reorganization

Southern Phil. Inc. v. Northeastern Mindanao
Mission of Seventh Day Adventist, Inc., 3.) Dissolution or winding up

There are stringent requirements before one can Process of Incorporation

qualify as a de facto corporation:
1. Drafting of the Articles of Incorporation
(a) The existence of a valid law under which it 2. Preparation and submission of additional
may be incorporated; and supporting documents
3. Filing with the SEC
(b) An attempt in good faith to incorporate; and 4. Subsequent issuance of the Certificate of
Incorporation
(c) Assumption of corporate powers.
Contents of the Articles of Incorporation
Corporation by Estoppel
1. Name of the corporation
• Lozano v. De los Santos, G.R. No. 125221, 2. Specific purpose or purposes
[June 19, 1997], 340 PHIL 563-570) 3. Place where principal office of the
• Sec. 20. Corporation by Estoppel corporation is to be located
4. Term of which the corporation is to exist
Classes and Types of Corporations 5. Names, Nationalities and Residences e
the of the corporation
Classes of Corporations 6. Number of Directors or Trustees, which
shall not be less than five (5) years nor
• SEC. 3. Classes of Corporations more than fifteen (15) years
• SEC. 86. Definition 7. Names, Nationalities and Residences of
the persons who shall act as directors or
Types of Corporation: trustees until the first regular directors
8. Stock Corporation is the amount of its
• The regular corporation as defined in Sec. 3 authorized capital stock in lawful money
of the Revised Code. of the Philippines, the number of shares
• The Closed Corporation into which it is divided, and in case the
• The Special Corporations shares are par value shares, the par value
• Corporations vested with public interest of each, the names, nationalities and
and/or governed by special laws identified in residences of the original subscribers,
Sec. 22 of the Revised Code. and the amount subscribed and paid by
each on his subscription, and if some or
all of the shares give without par value,
𝔽𝕠𝕣𝕞𝕒𝕥𝕚𝕠𝕟 𝕒𝕟𝕕 𝕆𝕣𝕘𝕒𝕟𝕚𝕫𝕒𝕥𝕚𝕠𝕟 𝕠𝕗 such fact must be stated
ℂ𝕠𝕣𝕡𝕠𝕣𝕒𝕥𝕚𝕠𝕟 9. Non-stock corporation, the amount of its
capital, the names, nationalities and
Three stages in the life of a corporation residences of the contributors and the
amount contributed by each
 10. Other manners are not consistent with Power to Adopt By-laws
law and which the incorporators may
deem necessary and convenient Requires a corporation formed or organized
under it to so adopt its by-laws, not contrary to
The Prefatory Paragraph law, morals, public policy, within one (1) month
from receipt of official notice of the issuance of
Specify the nature of the corporation being certificate of incorporation or registration.
organized in order to prevent difficulties of
administration and supervision. Power to Issue or Sell Stocks and to Admit
Members
The Corporate Name
The power of a corporation to issue or sell its
Name of the Corporation is essential to its stocks is an inherent right of any stock
existence since it is through it that it can act and corporation created pursuant to the Code except
perform all legal acts. only as it may be regulated by law or by the
articles of incorporation.
Corporate Power & Authorities
Power to Acquire or Alienate Real or Personal
Corporation merely exists by virtue of a grant by Property
the State and may, therefore, only exercise such
powers, authority or functions that the State Corporation is expressly empowered by law to
allows it to do. acquire or alienate real and/or personal
properties, a limitation is imposed to the effect
Power to Sued and be Sued that it must be so acquired, help or conveyed “as
the transaction of the lawful business of the
Express power to sue and be sued in its corporate corporation may reasonably and necessarily
name. require.”

Power of Succession Power to Make Reasonable Donations

It persist to exist despite the death, incapacity, A business corporation is regarded as being
civil interdiction or withdrawal of the carried on primarily for the profit of its
stockholders or members thereof. stockholders. The law authorizes a corporation to
make donations.
Power to Adopt and Use a Common Seal
1. The donation must be “reasonable”.
The right of a corporation to have a common seal 2. It must be for public welfare, or for
has been recognized and spoken of from the hospital, charitable, scientific, cultural or
earliest times as of its inherent or incidental similar purpose.
privilege 3. It shall not be in aid of political party or
candidate, or for purposes of partisan
Power to Amend Articles of Incorporation political activity.
The amendment, however, consist of extending Power to Establish Pension, Retirement and
or shortening the corporate, or by increasing or Other Plans
decreasing the authorized capital stock, the
requirements under Section 37 and 38, A corporation may furnish medical care and other
respectively, must be complied with. aid to its officials and employees as is necessary
to enable the corporation to fittingly carry out its
purposes and business.
Power to Exercise such other Powers Essential There are three (3) methods or ways of increasing
or Necessary to Carry out its Purpose (Implied the capital stocks:
Powers)
1. Increasing the par value of the existing
Powers “incident” are those that attach to the number of shares without increasing the
corporation from the date of its incorporation number of shares
which may likewise be said to be “inherent” to 2. Increasing the number of existing shares
corporate existence. These powers, which are without increasing the par value thereof
thus impliedly conferred, are; 3. Increasing the number of existing shares
and at the same time increasing the par
1. The privilege of having the right of value of the shares
succession
2. The capacity to sue and be sued There are three (3) methods or ways of decreasing
3. The capacity to purchase, hold and the capital stocks:
convey real and personal property in its
corporate name 1. To reduce or wipe out existing deficit
4. The authority to adopt a corporate seal where no creditors would thereby be
5. The authority to adopt and amend by- affected.
laws 2. When the capital is more than what is
necessary to procreate the business or
Implied Powers of a Corporation reduction of capital surplus.
3. To write down the value of its fixed
1. Acts in the usual course of business assets to reflect their present actual value
2. Acts to protect debts owing to the in case where there is a decline in the
corporation value of the fixed assets of the
3. Embarking in a different business corporations.
4. Acts in part or wholly to protect or aid
employees
5. Acts to increase business

Power to Extend a Corporation or Shorten

Corporate Team

Requirements and Procedure for extending or

shortening corporate team:

1. Approval by the majority vote of the

board of directors or trustees
2. Ratification by the stockholders
representing at least 2/3 of the
outstanding capital stock or 2/3 of the
members in case of Non-stock
Corporation
3. The ratification must be at a meeting duly
called for that purpose

Power to Increase or Decrease Capital Stock;

Incur, Create or Increase Bonded
Indebtedness