Chapter 1: Corporations • Used under 4 exceptional cases:
1) Fraud Cases
I. Definition and Attributes of a Corporation 2) Alter Ego Cases: corporation is a mere instrumentality or alter ego
of stockholders.
II.
Corporation Definition: an (1) artificial being, (2) created by operation of law, (3) Instrumentality test: all 3 should be performed for proof of the Alter
having the right of succession, (4) and the powers, attributes, and properties expressly Ego Case:
authorized by law or incident to its existence. ✓ Instrumentality/Control Test
1. Artificial being ✓ Fraud Test
2. Created by Operation of Law ✓ Harm Test
3. Right of Succession 3) Defeat Public Convenience Cases: tax evasion or defense of a crime
4. Powers, attributes, and properties expressly authorized by law using corporate fiction.
4) Equity Cases: labor cases
1. Artificial being:
i. Has a separate juridical personality from the persons composing it. ii. Implications of the separate personality Doctrine:
a. Doctrine of Separate Personality: a. Cannot be criminally liable:
• Can sue and be sued. • Cannot be imprisoned.
• Can possess properties • Liable for fines for corporate crimes.
• Cannot be used against personal obligations of the stockholders. • Responsible officers approving of the crime are criminally liable.
• The Doctrine cannot be questioned for: b. Generally, not entitled to moral damages as it cannot experience physical
➢ Mere ownership by a single stockholder and mental suffering or sentiments.
➢ Existence of interlocking directors • Except: corporation has a debased or damaged reputation.
➢ Fact of business being related • Liable for civil action for damages on libel and defamation.
• Stockholders cannot sue to recover corporate property: • For cases like: (1) void corporation being liable for (2) moral damages
➢ Except: filed through a derivative suit, when corporation refuses to (3) to a third party, cannot use void existence as defense as it is valid by
sue. estoppel.
b. Limited liability Doctrine: c. Not entitled to the Constitutional right against self-incrimination.
• Stockholders are only liable up to the extent of their personal capacities • Valid only for natural persons.
and capital contributions.
• Stockholders may become personally liable when: 2. Created by Operation of Law:
➢ Have unpaid contributions i. Corporate existence must be acquired through formalities required by law.
➢ Agree to assume personal liability a. Private Corporations:
➢ Piercing of Corporate Veil • Must be created by the authority of the State through Republic Act 11232
➢ Special laws imposes liability. or the Corporation Code of the Philippines.
c. Trust Fund Doctrine: • Filing of article of incorporation to SEC and Issuance of Certificate of
• Assets of corporation are trust funds or reserved for payments of Registration.
liabilities to creditors. b. Public Corporations:
• Creditors are prioritized over stockholders. Order of priority: • Created through Special Laws by the Congress.
1) Fully secured creditors c. Concession Theory:
2) Partially secured • Corporation owes its existence to the law and state.
3) Unsecured with priority • It only possessed properties, attributes, rights, and powers from the law
4) Unsecured without priority or incident to its existence.
d. Doctrine of Piercing the Veil:
d. Fiat Theory:
• Exception to corporation fiction
• Existence due to command of law and by its will. “Lord giveth, and
• Does not recognize the Doctrine of Separate Personality taketh away”
, e. Government Paternity Theory: j. For domestic corporations: give donations in aid of any political party
• State is the parent of the corporation. or candidate as partisan. No foreign corporations are allowed of such
f. Franchise Theory: power.
• Incorporation is not a right but a privilege.
➢ Primary Franchise: franchised to exist through grant of the RCCP; ii. Implied powers:
except for with special charters. • Inferred form or reasonably necessary for the exercise of powers
➢ Secondary Franchise: special authority to engage in a specialized • Flows from nature of the underlying business.
business. a. To issue checks or promissory notes or bill of exchange or mercantile
g. Commencement of Corporate Existence: documents.
• Should be at the time of issuance of Certificate of Incorporation or b. For mining company: establish a local post office.
Registration. c. For cement factory company: operate power plant.
• Exception: d. For advertising company: sell, supply, or manage advertising
➢ Corporations by Estoppel materials.
➢ Corporations by Special Laws
➢ Sole Corporations – from filing of verified articles. iii. Incidental or inherent powers:
• Attaches to a corporation at the time of its creation, regardless of express
3. Right of Succession: powers
i. Corporate continues to exist despite the death of the founders. • Flow from the nature of the corporation as a juridical person.
• Heirs or assignees will inherit the shares of predecessors, a.k.a. a. Right of succession
corporate’s “strong juridical personality”. b. Right to a corporate name
c. Right to make by-laws for its governance
ii. Corporate obligations remain even if ownership of shares changes. d. Right to sue and be sued
• The corporation has a continuous legal personality independent of its e. Right to acquire and hold properties
shareholders.
iv. Ultra Vires Acts or Contracts:
4. Powers, attributes, and properties expressly authorized by law: • Committed outside the object or purpose of the corporation
Types of Corporate Powers: • Beyond the express, implied, and incidental powers.
i. Express powers: a. Ultra vires acts are not necessarily illegal. Illegal acts are ultra vires acts.
• authorized by the Corporation Code or special laws, and its Article of b. Status of Ultra Vires Acts by Corporation:
Incorporation. ➢ Illegal per se: null and void
a. To sue and be sued ➢ Failure to comply with voting formality: null and void but
b. Succession of its corporate name declaration may be barred by estoppel.
c. To adopt and use a corporate seal ➢ Outside the primary and secondary purposes: voidable on the part of
d. Amend its article of incorporation and by-laws other/contracting party.
e. Adopt by-laws, not contrary to law, morals or public policy c. Status of Ultra Vires Acts by Corporate Officers on behalf of the
f. For stock corporation: issue and sell stocks and treasury stocks; For Corporation:
non-stock corporations: admit members. ➢ Illegal per se: null and void
g. To acquire, hold, convey, sell, lease, pledge, mortgage, and deal with ➢ Unauthorized or exceeding authority: unenforceable but may
real/personal properties, securities, and bonds. become enforceable when:
h. To enter into merger, consolidation, partnership, joint venture, or any ▪ Express or implied ratification by the corporation
commercial agreement with natural/juridical persons. ▪ By estoppel
i. Establish pension, retirement, and other plans for the benefit of its ▪ Doctrine of apparent authority of the corporate officers.
directors, trustees, officers, and employees.
, II. Advantages and Disadvantages of Forming a Corporation • May not be questioned by other parties, only the State may attack it.
III. • Requisites for a corporation by prescription:
Advantages: ➢ Continuous exercise of corporate powers
IV.
• Continuity of existence ➢ Long period of existence
• Limited liability ➢ Public recognition or acquiescence by the State
• Strong juridical personality ➢ No formal incorporation
• Legal capacity to act as a distinct unit
• Ease in transferability of shares of stocks 2. As to purpose:
• Ease in raising funds i. Lay Corporations:
Disadvantages: • Corporations created for organized purposes other than religion
• High cost of formation a. Civil Corporation:
• Little voice of stockholders in management ➢ Private corporations for profit.
• Weakened credit rating because of limited liability b. Eleemosynary Corporation:
• Being subject to greater degree of governmental regulation ➢ Private corporations for charitable purposes.
• More taxes particularly indirect double taxation c. Educational Corporation:
➢ Board of Trustees not less than 5, but not more than 15.
➢ Number of trustees should be in multiples of 5.
III. Classes of Corporation ➢ Term of office of Board members is 5 years each, with 1/5 of number
1. As to formation and nature: shall be expiring every year.
i. Public Corporations:
• Created by special law for public purpose ii. Ecclesiastical or religious Corporations:
• Governed primarily by the provisions of such special law or charter. a. Corporation Sole:
a. Municipal Corporation ➢ Religious corporation with a single corporator.
➢ Public corporation b. Corporation aggregate or religious society:
➢ For governance of a particular local territory. ➢ Religious corporations governed by Board of Trustees.
b. Government owned and controlled Corporation (GOCCs): ➢ Formed upon written consent votes of at least 2/3 members
➢ Public corporation ➢ Article of Incorporation is verified by the affidavit of the presiding elder,
➢ Performs proprietary functions or commercial functions secretary or clerk, or any member of such religious society.
➢ May be stock or non-stock
➢ At least 51% of its capital stock is owned by the government: “Control 3. As to being subject to the attack of the state:
Test”. Direct Attack:
• very subject of the case is the legal existence or personality of the corporation.
ii. Private Corporations: Collateral Attack:
• Created by operation of law for private interest • main subject of the case is other than the legal existence or personality of the
a. Civil Corporation corporation.
➢ Private corporation for profit or business i. De jure Corporations:
➢ Not for charitable purposes • Corporations both in fact and in law.
b. Quasi-public Corporation or “Public Utility” • Not attacked by the state.
➢ Private corporation owned by private individuals
➢ Performs governmental function ii. De facto Corporations:
• Corporations in fact, not in law.
iii. Corporation by prescription: • Subject to attack via quo warrannto proceeding by Solicitor General; not in
• Created by lapse of time collateral attack.
• The only corporation that obtains juridical personality even without franchise • May not be inquired as to validity of incorporation by a collateral party.
or Articles of Incorporation
1) Fraud Cases
I. Definition and Attributes of a Corporation 2) Alter Ego Cases: corporation is a mere instrumentality or alter ego
of stockholders.
II.
Corporation Definition: an (1) artificial being, (2) created by operation of law, (3) Instrumentality test: all 3 should be performed for proof of the Alter
having the right of succession, (4) and the powers, attributes, and properties expressly Ego Case:
authorized by law or incident to its existence. ✓ Instrumentality/Control Test
1. Artificial being ✓ Fraud Test
2. Created by Operation of Law ✓ Harm Test
3. Right of Succession 3) Defeat Public Convenience Cases: tax evasion or defense of a crime
4. Powers, attributes, and properties expressly authorized by law using corporate fiction.
4) Equity Cases: labor cases
1. Artificial being:
i. Has a separate juridical personality from the persons composing it. ii. Implications of the separate personality Doctrine:
a. Doctrine of Separate Personality: a. Cannot be criminally liable:
• Can sue and be sued. • Cannot be imprisoned.
• Can possess properties • Liable for fines for corporate crimes.
• Cannot be used against personal obligations of the stockholders. • Responsible officers approving of the crime are criminally liable.
• The Doctrine cannot be questioned for: b. Generally, not entitled to moral damages as it cannot experience physical
➢ Mere ownership by a single stockholder and mental suffering or sentiments.
➢ Existence of interlocking directors • Except: corporation has a debased or damaged reputation.
➢ Fact of business being related • Liable for civil action for damages on libel and defamation.
• Stockholders cannot sue to recover corporate property: • For cases like: (1) void corporation being liable for (2) moral damages
➢ Except: filed through a derivative suit, when corporation refuses to (3) to a third party, cannot use void existence as defense as it is valid by
sue. estoppel.
b. Limited liability Doctrine: c. Not entitled to the Constitutional right against self-incrimination.
• Stockholders are only liable up to the extent of their personal capacities • Valid only for natural persons.
and capital contributions.
• Stockholders may become personally liable when: 2. Created by Operation of Law:
➢ Have unpaid contributions i. Corporate existence must be acquired through formalities required by law.
➢ Agree to assume personal liability a. Private Corporations:
➢ Piercing of Corporate Veil • Must be created by the authority of the State through Republic Act 11232
➢ Special laws imposes liability. or the Corporation Code of the Philippines.
c. Trust Fund Doctrine: • Filing of article of incorporation to SEC and Issuance of Certificate of
• Assets of corporation are trust funds or reserved for payments of Registration.
liabilities to creditors. b. Public Corporations:
• Creditors are prioritized over stockholders. Order of priority: • Created through Special Laws by the Congress.
1) Fully secured creditors c. Concession Theory:
2) Partially secured • Corporation owes its existence to the law and state.
3) Unsecured with priority • It only possessed properties, attributes, rights, and powers from the law
4) Unsecured without priority or incident to its existence.
d. Doctrine of Piercing the Veil:
d. Fiat Theory:
• Exception to corporation fiction
• Existence due to command of law and by its will. “Lord giveth, and
• Does not recognize the Doctrine of Separate Personality taketh away”
, e. Government Paternity Theory: j. For domestic corporations: give donations in aid of any political party
• State is the parent of the corporation. or candidate as partisan. No foreign corporations are allowed of such
f. Franchise Theory: power.
• Incorporation is not a right but a privilege.
➢ Primary Franchise: franchised to exist through grant of the RCCP; ii. Implied powers:
except for with special charters. • Inferred form or reasonably necessary for the exercise of powers
➢ Secondary Franchise: special authority to engage in a specialized • Flows from nature of the underlying business.
business. a. To issue checks or promissory notes or bill of exchange or mercantile
g. Commencement of Corporate Existence: documents.
• Should be at the time of issuance of Certificate of Incorporation or b. For mining company: establish a local post office.
Registration. c. For cement factory company: operate power plant.
• Exception: d. For advertising company: sell, supply, or manage advertising
➢ Corporations by Estoppel materials.
➢ Corporations by Special Laws
➢ Sole Corporations – from filing of verified articles. iii. Incidental or inherent powers:
• Attaches to a corporation at the time of its creation, regardless of express
3. Right of Succession: powers
i. Corporate continues to exist despite the death of the founders. • Flow from the nature of the corporation as a juridical person.
• Heirs or assignees will inherit the shares of predecessors, a.k.a. a. Right of succession
corporate’s “strong juridical personality”. b. Right to a corporate name
c. Right to make by-laws for its governance
ii. Corporate obligations remain even if ownership of shares changes. d. Right to sue and be sued
• The corporation has a continuous legal personality independent of its e. Right to acquire and hold properties
shareholders.
iv. Ultra Vires Acts or Contracts:
4. Powers, attributes, and properties expressly authorized by law: • Committed outside the object or purpose of the corporation
Types of Corporate Powers: • Beyond the express, implied, and incidental powers.
i. Express powers: a. Ultra vires acts are not necessarily illegal. Illegal acts are ultra vires acts.
• authorized by the Corporation Code or special laws, and its Article of b. Status of Ultra Vires Acts by Corporation:
Incorporation. ➢ Illegal per se: null and void
a. To sue and be sued ➢ Failure to comply with voting formality: null and void but
b. Succession of its corporate name declaration may be barred by estoppel.
c. To adopt and use a corporate seal ➢ Outside the primary and secondary purposes: voidable on the part of
d. Amend its article of incorporation and by-laws other/contracting party.
e. Adopt by-laws, not contrary to law, morals or public policy c. Status of Ultra Vires Acts by Corporate Officers on behalf of the
f. For stock corporation: issue and sell stocks and treasury stocks; For Corporation:
non-stock corporations: admit members. ➢ Illegal per se: null and void
g. To acquire, hold, convey, sell, lease, pledge, mortgage, and deal with ➢ Unauthorized or exceeding authority: unenforceable but may
real/personal properties, securities, and bonds. become enforceable when:
h. To enter into merger, consolidation, partnership, joint venture, or any ▪ Express or implied ratification by the corporation
commercial agreement with natural/juridical persons. ▪ By estoppel
i. Establish pension, retirement, and other plans for the benefit of its ▪ Doctrine of apparent authority of the corporate officers.
directors, trustees, officers, and employees.
, II. Advantages and Disadvantages of Forming a Corporation • May not be questioned by other parties, only the State may attack it.
III. • Requisites for a corporation by prescription:
Advantages: ➢ Continuous exercise of corporate powers
IV.
• Continuity of existence ➢ Long period of existence
• Limited liability ➢ Public recognition or acquiescence by the State
• Strong juridical personality ➢ No formal incorporation
• Legal capacity to act as a distinct unit
• Ease in transferability of shares of stocks 2. As to purpose:
• Ease in raising funds i. Lay Corporations:
Disadvantages: • Corporations created for organized purposes other than religion
• High cost of formation a. Civil Corporation:
• Little voice of stockholders in management ➢ Private corporations for profit.
• Weakened credit rating because of limited liability b. Eleemosynary Corporation:
• Being subject to greater degree of governmental regulation ➢ Private corporations for charitable purposes.
• More taxes particularly indirect double taxation c. Educational Corporation:
➢ Board of Trustees not less than 5, but not more than 15.
➢ Number of trustees should be in multiples of 5.
III. Classes of Corporation ➢ Term of office of Board members is 5 years each, with 1/5 of number
1. As to formation and nature: shall be expiring every year.
i. Public Corporations:
• Created by special law for public purpose ii. Ecclesiastical or religious Corporations:
• Governed primarily by the provisions of such special law or charter. a. Corporation Sole:
a. Municipal Corporation ➢ Religious corporation with a single corporator.
➢ Public corporation b. Corporation aggregate or religious society:
➢ For governance of a particular local territory. ➢ Religious corporations governed by Board of Trustees.
b. Government owned and controlled Corporation (GOCCs): ➢ Formed upon written consent votes of at least 2/3 members
➢ Public corporation ➢ Article of Incorporation is verified by the affidavit of the presiding elder,
➢ Performs proprietary functions or commercial functions secretary or clerk, or any member of such religious society.
➢ May be stock or non-stock
➢ At least 51% of its capital stock is owned by the government: “Control 3. As to being subject to the attack of the state:
Test”. Direct Attack:
• very subject of the case is the legal existence or personality of the corporation.
ii. Private Corporations: Collateral Attack:
• Created by operation of law for private interest • main subject of the case is other than the legal existence or personality of the
a. Civil Corporation corporation.
➢ Private corporation for profit or business i. De jure Corporations:
➢ Not for charitable purposes • Corporations both in fact and in law.
b. Quasi-public Corporation or “Public Utility” • Not attacked by the state.
➢ Private corporation owned by private individuals
➢ Performs governmental function ii. De facto Corporations:
• Corporations in fact, not in law.
iii. Corporation by prescription: • Subject to attack via quo warrannto proceeding by Solicitor General; not in
• Created by lapse of time collateral attack.
• The only corporation that obtains juridical personality even without franchise • May not be inquired as to validity of incorporation by a collateral party.
or Articles of Incorporation
