Differences between partnership and corporation

Partnership Private Corporation

As to the manner of creation By mere agreement Issuance of a Certificate of Incorporation

by SEC

As to number of organizers 2 or more At least 1

As to powers Limited by agreement Under the law

Authority of those who compose Every partner is an agent Stockholders cannot represent without
authority

Transfer of interests Cannot be transferred without Freely transferrable without consent

consent

As to liability of those who compose Beyond their investment Limited to their investment

Right of succession No Yes

As to capacity of partner/stockholder Can be an incorporator/stockholder Can enter into partnership or joint

venture

Advantages of a corporation

 Capacity to act as a legal unit

 Limitation of or exemption from, individual liability of shareholders

 Continuity if existence

 Transferability of Shares

 Centralized Management of board of directors

 Professional Management

 Standardized method of organization, and finance

 Easy capitalization

Disadvantages of a corporation
  Prone to double taxation

 Greater government regulation and control

 Harder to organize

 Harder to maintain

 Stockholders do not participate in management

Corporation, defined:

• Section 1

• 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 or
incidental to its existence.

Attributes of a corporation

• (1) It is an artificial being;

• (2) It is created by operation of law;

• (3) It has the right of succession; and

• (4) It has the powers, attributes and properties expressly authorized by law or incident to its
existence.

Attributes: Artificial being

 Has separate juridical entity under Art. 44 of the New Civil Code

 As a juridical entity, the corporation has rights and obligations under existing laws.

 One example is “Juridical persons may acquire and possess property of all kinds, as well
as incur obligations and bring civil or criminal actions, in conformity with the laws and
regulations of their organization.” Article 46 of the New Civil Code

 A corporation has a personality separate and distinct from its members. It has a personality
separate and distinct from the persons composing it as well as from that of any other entity to
which it may he related.

 Because of the separate personality of the corporation, the properties of the corporation prop
are not the properties of its shareholders, members or officers.

 Registration with the SEC in accordance with the RCCP gives a corporation a juridical entity.

Attributes: Right of Succession

  A corporation is immortal. Perpetual succession does not always imply corporate immortality but
rather a continuity of existence irrespective of that of its components

 This enables a corporation to manage its own affairs, and to hold property without the
perplexing intricacies, the hazardous and endless necessity, of perpetual conveyances for the
purpose of transmitting it from hand to hand.

 Perpetual succession is "that continuous existence which enables a corporation to manage its
affairs, and hold property without the necessity of perpetual conveyances, for purposes of
transmitting it. By reason of this quality, this ideal and artificial person remains, in its legal entity
and personality, the same, though frequent changes may be made of its members.

Attributes: it has powers, attributes and properties

 A corporation has powers as enumerated under the RCCP.

GENERAL RULE:
Separate Juridical Entity

 Basic in corporate law is the principle that a corporation has a separate personality distinct from
its stockholders and from other corporations to which it may be connected.

EXCEPTION:
Doctrine of Piercing the Veil of Corporate Fiction

 Under the doctrine of piercing the veil of corporate entity, the corporation’s separate juridical
personality may be disregarded when there is an abuse of the corporate form.

 If applicable, the corporation is merely an aggregation of persons whose liabilities must be

treated as one with the corporation

 Three classifications:

 (1) Cases where public convenience may be defeated, as when the corporate fiction is
used as vehicle for the evasion of an existing obligation;

 (2) Fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or

 (3) 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 as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation

Defeat public convenience

Example:

 The corporate personality is used to evade obligations to employees or used as a pretext to

dismiss employees.

 The corporate personality is used to evade lawful obligations or a money judgment;.

Fraud

 There is fraud if there is deception that that would lead an ordinarily prudent person into error
after taking the circumstances into account.

 Cases:

 In Enriquez Security Services, Inc. v. Cabotaje, the Supreme Court found that a security
guard used to work for a dissolved Corporation. After the dissolution, the guard was
transferred to a new corporation. When the guard retired, the time that he worked for
the dissolved corporation was not included in the length of service that was used for the
purpose of determining his retirement pay. The Supreme Court ruled that the attempt to
make the two security agencies as two separate entities, when in reality they were one,
was a devise to defeat the law. The veil of corporate fiction was disregarded because the
same was used to perpetrate injustice or as a vehicle to evade obligations.

 In Spouses Violago v. BA Finance Corporation, the president of a family-owned

corporation was likewise made liable for the return of the purchase price of a car even if
it appears that the same is a corporate debt. The president was made liable because he
committed fraud in selling the car to the judgment creditors although the president had
previously sold the same vehicle to another person.

Alter ego

 Piercing the veil of corporate fiction is justified under the Alter Ego Doctrine if there is such unity
of interest and ownership that the separate personalities of the corporation and the individual
no longer exist.

 Case:

 In General Credit Corp. v. Alsons Development, there was commonality of directors,

officers, and stockholders; there was sharing of office; there were financing and
management arrangement between the two companies allowing a corporate officer of
the first corporation to handle the other; there was virtual domination if not control
wielded by the same officer over the finances, and business policies and practices of the
subsidiary.

 The Supreme Court therefore concluded that it behooves the corporation officer "as a
matter of law and equity, to assume the legitimate financial obligation of a cash strapped
subsidiary corporation which it virtually controlled to such a degree that the latter
became its instrument or agent."
 Cases:

 In Tomas Lao Construction u. NLRC, the High Court ruled that where it appears that the
businesses of three corporations are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third persons,
disregard the legal fiction that the three corporations are distinct entities and treat them
as identical. It was established that the three corporations were in fact substantially
owned and controlled by the members of one family; that the directors also belong to
the same family; the corporations were engaged in the same line of business; there was
only one management; the corporations use the same manpower services; and the
corporations use the same equipment