CORPORATION LAW MIDTERMS | PROF. M.I.P.

ROMERO (2015 - 2016)

I. DEFINITIONS/ ATTRIBUTES OF A CORPORATION

J.E. S. Ti | 1

A corporation is an artificial being created by operation of law,

having the right of succession and the power, attributes and
properties expressly authorized by law or incident to its
existence (Sec. 2).
Corporations, partnerships and associations for private interest
or purpose to which the law grants a juridical personality,
separate and distinct from that of each shareholder, partner or
member (Art. 44.3; CC).
RA10667: Monopolies (2015)
SEC. 2. Declaration of Policy. The efficiency of market
competition as a mechanism for allocating goods and services is
a generally accepted precept. The State recognizes that past
measures undertaken to liberalize key sectors in the economy
need to be reinforced by measures that safeguard competitive
conditions. The State also recognizes that the provision of equal
opportunities to all promotes entrepreneurial spirit, encourages
private investments, facilitates technology development and
transfer and enhances resource productivity. Unencumbered
market competition also serves the interest of consumers by
allowing them to exercise their right of choice over goods and
services offered in the market.
Pursuant to the constitutional goals for the national economy to
attain a more equitable distribution of opportunities, income,
and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people;
and an expanding productivity as the key to raising the quality of
life for all, especially the underprivileged and the constitutional
mandate that the State shall regulate or prohibit monopolies
when the public interest so requires and that no combinations in
restraint of trade or unfair competition shall be allowed, the
State shall:
(a) Enhance economic efficiency and promote free and fair
competition in trade, industry and all commercial economic
activities, as well as establish a National Competition Policy to be
implemented by the Government of the Republic of the
Philippines and all of its political agencies as a whole;
(b) Prevent economic concentration which will control the
production, distribution, trade, or industry that will unduly stifle
competition, lessen, manipulate or constrict the discipline of free
markets; and
(c) Penalize all forms of anti-competitive agreements, abuse of
dominant
position
and
anti-competitive
mergers
and
acquisitions, with the objective of protecting consumer welfare
and advancing domestic and international trade and economic
development.
Dartmouth College v. Woodward
Legislature cannot just impose its will over the parties privity of
contracts must also be respected, ie. A/I, where the rights should
not be adversely affected by amendments in the law.
A. Artificial Being has legal juridical capacity to
contract/transact

Commencement of juridical personality

Juridical personality

an artificial being that may sue or be

sued

conferred by law
1) General law: CORPORATION CODE

Registration in the SEC upon issuance of the

certificate of incorporation by the SEC
2) Special law/charters: upon effectivity of the law, or
as provided by the law/charter, which expressly states a
specific time/date of effectivity

CORPORATION, SOLE

Religious entities or corporations with

one head/member, e.g. rabbi, elder,
pope, priest, etc.

Commencement upon filing of the

articles with the SEC.

PARTNERSHIP

Commencement upon meeting of

the minds, contract:

P3000 of assets: record in

SEC

Failure to record: same

effect,
unless
otherwise
stipulated by parties in
accordance with Arts. 1772,
1768, 1767; CC.
UNREGISTERED ASSOCIATIONS

Art. 3; Constitution

Has JP (Rule 14.8; Rules of Court)

No registration, no JP (Art. 1775, CC)

Doctrine of limited liability with

exceptions
CORPORATION, by estoppel

Has JP
SOLE PROPRIETORSHIP

No separate and distinct JP with

proprietor

Commencement registration in DTI

for business permits, payment of
taxes
Mangila v. CA
(GR 125027; 8/12/ 02)

CASE AGAINST PROPRIETOR, DOING BUSINESS IN THE NAME OF:

Filing of complaint in Pasay is not the proper venue. It must be in
the residence of the petitioner or respondent. No law authorizing
sole proprietorships to file a suit in court. A sole proprietorship
does not possess a juridical personality separate and distinct
from the personality of the owner of the enterprise. The law
merely recognizes the existence of a sole proprietorship as a
form of business organization conducted for profit by a single
individual and requires its proprietor or owner to secure licenses
and permits, register its business name, and pay taxes to the
national government. The law does not vest a separate legal
personality on the sole proprietorship or empower it to file or
defend an action in court.
Excellent Quality Apparel v. Win Multiple Rich Builders
578 SCRA 272 (2009)
CHANGE OF PLAINTIFF: The original petition was instituted by
Win, which is a SEC-registered corporation. It filed a collection of
sum of money suit, which involved a construction contract
entered into by petitioner, Mr. Ying. The counsel of Win wanted
to change the name of the plaintiff in the suit to Multi-Rich. The
change cannot be countenanced. The plaintiff in the collection
suit is a corporation. The name cannot be changed to that of a
sole proprietorship. Again, a sole proprietorship is not vested
with juridical personality to file or defend an action. Latter has
no cause of action even when entities are just the same party.
a) Rights of a juridical person

Possess properties, incur criminal and civil liabilities

(Art. 46, CC)

Art. 3, Constitution
o
Life
o
Liberty N/A
o
Property
o
Unreasonable searches and seizures
o
To sue and be sued
Bache & Co. (Phils.), Inc. v. Ruiz
(37 SCRA 823; 1971)
Corporations have their respective personalities, separate and
distinct from the personality of herein petitioners, regardless of
the amount of shares of stock or the interest of each of them in
said corporations, whatever, the offices they hold therein may
be. Its property cannot be taken without compensation.

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

Bataan Shipyard v. PCGG

(150 SCRA 181; 1987)
Partnerships could not be presumed to have waived their
individual rights against self-incrimination. A partnership is an
extension of the persons of partners therein.
Good Shepherd Foundation, Inc.
(A.M. No. 09-6-9 SC; 8/19/09)
Exemption from legal and filing fees under the Free Access
Clause does not extend to juridical personality.
b) Criminal Liability (PD115)
General Rule:

mens rea

If the penalty is in fine, the corporation may be held

liable if the penal statute shall expressly state so.

J.E. S. Ti | 2

d) Moral damages
General Rule:
ABS-CBN Corp. V. CA
(361 Phil. 499; 1999)
Moral damages cannot be granted in favor of a corporation. It is
designed to compensate for actual injury suffered. For recovery
of corporation, a clear and convincing prood of malice or bad
faith amounting to unjust enrichment shall be proven (Art. 1921; CC)
Exception to the General Rule:
Jardine Davies v. CA
(GR 128066; 6/19/2000)
This Court ruled to award moral damages to the corporation
whose reputation has been damaged and besmirched, and to
compensate for actual injury suffered, and not to enrich said
corporation.

Exception to the General Rule:

Ching v. Sec. of Justice
(Feb. 6, 2006)
CONVICTION FOR AMLA BY THE INDIVIDUAL: Petitioner illegally
borrowed money to be used for the corporation. Individual
liability shall apply against the petitioner. If a corporation,
partnership, association, or other juridical entity commits a
violation or offense, the penalty provided for in the Decree shall
be imposed upon the directors, officers, employees, or other
officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the criminal offense.

Crystal, et. al v. BPI

(GR 172428, Nov. 2008)
While the Court may, by exception, grant moral damages to
corporations, it is not automatically granted. Proof of existence
of actual injury must be proven.
Mambulao Lumber v. PNB
130 Phil. 366 (1968)
BASIS OF MORAL DAMAGES: Physical, mental, or moral
sufferings. If corporations reputation shall be besmirched, this
can also be a basis for moral damages.

Tupaz lV v. CA
475 SCRA 398 (2005)

Pp. v. Manero, Jr.

GR 86883-85, (1993)

CANNOT LEVY ON PERSONAL PRIVATE PROPERTIES OF AN

AGENT: Tupaz, a corporate agent, did not undertake to
personally guarantee the payment of the corporations
indebtedness. His personal properties cannot be levied in favor
of the corporations creditors. They shall only do so when
expressly stipulated.

No moral damages can be claimed by the congregation because

it is only when a juridical person, having a good reputation,
experiences social humiliation. Heirs also cannot claim because
they failed to show basis evincing moral damages to be
justifiably awarded to them.

c) Civil Liability (Torts)

General Rule:

Exception to the Exception to the General Rule:

Filipinas Broadcasting Network v. AMEC-BCCM
(GR 141994, Jan. 17, 2005)

PNB v. CA
83 SCRA 238 (1978)

A corporation is civilly liable in the same manner as natural

persons for torts or whenever an officer or agent commits a
tortious act.
Exception to the General Rule:
Secosa v. Heirs of Francisco
433 SCRA 273 (2004)
President is not solidarily liable for the quasi-delict where there
is no ground to justify piercing of the corporate veil, unless there
was the proof of fraud. The Principle of presumption of
negligence shall apply to the corporation, but not against the
President, directors, officers, or its employees.
Prof. Services, Inc. v. CA
611 SCRA 282 (2010)
Doctrine of Corporate Negligence or Corporate Responsibility:

Reasonable care of safe and adequate facilities and

equipment;

Selection and retention of competent physicians;

Overseeing or supervision within its walls;

Rules and policies implemented that ensure quality

care.

A juridical person may complain for libel or defamation and claim

for moral damages (Art. 2219.7;CC). However, corporation
cannot claim moral damages on the ground that it was
besmirched when complaints were aired. To rule otherwise shall
defeat the right of every person to express their grievances
when unjustly enriched.
B. Created by Operation of Law
The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common
good and the interest of the common good and subject to the
test of economic viability (Art. XII, Sec. 16, Constitution).

Ratio: No more special charters that may be subject to

abuse by incorporators of private corporations.
PRIVATE
CORP
State
control
only when
exercising
police
power
Incorporat

PUBLIC
CORP
Subject
to
government
visitation
and control
Incorporatio
n
without
consent of

GOCC
A governmentowned
controlled
corporation or
instrumentality
that conducts
both
commercial

G.
Instrumentality
May or may not
be vested with
juridical
personality,
powers,
autonomy.

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

e
by
consent of
members

Law
on
Private
Corporatio
n applies

locality
Barangays,
municipaliti
es, political
subd.
Special
laws/charter
s; and Local
Government
Code

and
non
commercial
activities
GSIS,
LRTA,
PAGCOR,
Landbank, DBP.
Special
law
and
general
law (Corpo)
Proof
of
economic
viability/visibilit
y (subject to
annual review)

SUI GENERIS
Created by special charters.
Art. XII Sec. 16 of the
Constitution prohibits private
corporation by sui generis,
except government-owned or
controlled corporations, in the
interest of common good, and
the creation meets the test of
economic viability.

MIAA (no JP)

PDIC
Provided by law.

BY PRESCRIPTION
Roman Catholic Church (entire
being)

since
time
immemorial
v. Corporation Sole, which are
conferred by law.

Mla. Intl Airport v. CA

G.R. 155650; 7/20/2006
GOCC v. GOVT INSTRUMENTALITY: MIAA has no capital stocks
divided into shares, stockholders/members, nor voting shares. It
is merely a public utility organized to operate an international
and domestic airport for public use. GOCC must be organized as
a stock or non-stock corporation, while a government
instrumentality, which may be vested with corporate powers to
perform its governmental functions, is neither a stock nor nonstock corporation. Since it is a governmental instrumentality, it
is exempted from taxes, fees or charges, except over the lands
and buildings that are privately owned.
Boy Scouts of the Phil. v. Commission on Audit
G.R. 177131; June 7, 2011
Evidently, the BSP, which was created by a special law to serve a
public purpose in pursuit of a constitutional mandate, comes
within the class of "public corporations" defined by paragraph 2,
Article 44 of the Civil Code.
C. Right of Succession Rationale: Corporation exists even if its
members subsequently change. In partnerships, the same
dissolves together with the dissolution of its members. In sole
proprietorship, there is no succession because it has no juridical
personality.
D. Powers
INCIDENTAL POWERS TO THE GENERAL POWER

given to the corporation by the mere fact that it is a

corporation
Sec. 36. Corporate powers and capacity. - Every corporation
incorporated under this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time
stated in the articles of incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with
the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public
policy, and to amend or repeal the same in accordance with
this Code;
6. In case of stock corporations, to issue or sell stocks to
subscribers and to sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this

J.E. S. Ti | 3
Code; and to admit members to the corporation if it be a
non-stock corporation;
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such real
and personal property, including securities and bonds of
other corporations, as the transaction of the lawful business
of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with other
corporations as provided in this Code;
9. To make reasonable donations, including those for the
public welfare or for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, That no corporation,
domestic or foreign, shall give donations in aid of any
political party or candidate or for purposes of partisan
political activity;
10. To establish pension, retirement, and other plans for the
benefit of its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or
necessary to carry out its purpose or purposes as stated in
the articles of incorporation.
SPECIFIC POWERS
Sec. 37. Power to extend or shorten corporate term. - A
private corporation may extend or shorten its term as stated in
the articles of incorporation when approved by a majority vote of
the board of directors or trustees and ratified at a meeting by
the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or by at least two-thirds (2/3) of the
members in case of non-stock corporations. Written notice of the
proposed action and of the time and place of the meeting shall
be addressed to each stockholder or member at his place of
residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That in case of
extension of corporate term, any dissenting stockholder may
exercise his appraisal right under the conditions provided in this
code. (n)
Sec. 38. Power to increase or decrease capital stock;
incur, create or increase bonded indebtedness. - No
corporation shall increase or decrease its capital stock or incur,
create or increase any bonded indebtedness unless approved by
a majority vote of the board of directors and, at a stockholder's
meeting duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or diminution
of the capital stock, or the incurring, creating or increasing of
any bonded indebtedness. Written notice of the proposed
increase or diminution of the capital stock or of the incurring,
creating, or increasing of any bonded indebtedness and of the
time and place of the stockholder's meeting at which the
proposed increase or diminution of the capital stock or the
incurring or increasing of any bonded indebtedness is to be
considered, must be addressed to each stockholder at his place
of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage
prepaid, or served personally.
A certificate in duplicate must be signed by a majority of the
directors of the corporation and countersigned by the chairman
and the secretary of the stockholders' meeting, setting forth:
P
(1) That the requirements of this section have been
complied with;
P
(2) The amount of the increase or diminution of the
capital stock;
P
(3) If an increase of the capital stock, the amount of
capital stock or number of shares of no-par stock
thereof actually subscribed, the names, nationalities
and residences of the persons subscribing, the amount
of capital stock or number of no-par stock subscribed
by each, and the amount paid by each on his
subscription in cash or property, or the amount of
capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the
purpose of making effective stock dividend therefor
authorized;

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

P

(4) Any bonded indebtedness to be incurred, created or

increased;
P
(5) The actual indebtedness of the corporation on the
day of the meeting;
P
(6) The amount of stock represented at the meeting;
and
P
(7) The vote authorizing the increase or diminution of
the capital stock, or the incurring, creating or increasing
of any bonded indebtedness.
Any increase or decrease in the capital stock or the incurring,
creating or increasing of any bonded indebtedness shall require
prior approval of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office
of the corporation and the other shall be filed with the Securities
and Exchange Commission and attached to the original articles
of incorporation. From and after approval by the Securities and
Exchange Commission and the issuance by the Commission of
its certificate of filing, the capital stock shall stand increased or
decreased and the incurring, creating or increasing of any
bonded indebtedness authorized, as the certificate of filing may
declare: Provided, That the Securities and Exchange Commission
shall not accept for filing any certificate of increase of capital
stock unless accompanied by the sworn statement of the
treasurer of the corporation lawfully holding office at the time of
the filing of the certificate, showing that at least twenty-five
(25%) percent of such increased capital stock has been
subscribed and that at least twenty-five (25%) percent of the
amount subscribed has been paid either in actual cash to the
corporation or that there has been transferred to the corporation
property the valuation of which is equal to twenty-five (25%)
percent of the subscription: Provided, further, That no decrease
of the capital stock shall be approved by the Commission if its
effect shall prejudice the rights of corporate creditors.
Non-stock corporations may incur or create bonded
indebtedness, or increase the same, with the approval by a
majority vote of the board of trustees and of at least two-thirds
(2/3) of the members in a meeting duly called for the purpose.
Bonds issued by a corporation shall be registered with the
Securities and Exchange Commission, which shall have the
authority to determine the sufficiency of the terms thereof. (17a)
Sec. 39. Power to deny pre-emptive right. - All stockholders
of a stock corporation shall enjoy pre-emptive right to subscribe
to all issues or disposition of shares of any class, in proportion to
their respective shareholdings, unless such right is denied by the
articles of incorporation or an amendment thereto: Provided,
That such pre-emptive right shall not extend to shares to be
issued in compliance with laws requiring stock offerings or
minimum stock ownership by the public; or to shares to be
issued in good faith with the approval of the stockholders
representing two-thirds (2/3) of the outstanding capital stock, in
exchange for property needed for corporate purposes or in
payment of a previously contracted debt.
Sec. 40. Sale or other disposition of assets. - Subject to the
provisions of existing laws on illegal combinations and
monopolies, a corporation may, by a majority vote of its board of
directors or trustees, sell, lease, exchange, mortgage, pledge or
otherwise dispose of all or substantially all of its property and
assets, including its goodwill, upon such terms and conditions
and for such consideration, which may be money, stocks, bonds
or other instruments for the payment of money or other property
or consideration, as its board of directors or trustees may deem
expedient, when authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital
stock, or in case of non-stock corporation, by the vote of at least
to two-thirds (2/3) of the members, in a stockholder's or
member's meeting duly called for the purpose. Written notice of
the proposed action and of the time and place of the meeting
shall be addressed to each stockholder or member at his place
of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the conditions
provided in this Code.
A sale or other disposition shall be deemed to cover
substantially all the corporate property and assets if thereby the

J.E. S. Ti | 4
corporation would be rendered incapable of continuing the
business or accomplishing the purpose for which it was
incorporated.
After such authorization or approval by the stockholders or
members, the board of directors or trustees may, nevertheless,
in its discretion, abandon such sale, lease, exchange, mortgage,
pledge or other disposition of property and assets, subject to the
rights of third parties under any contract relating thereto,
without further action or approval by the stockholders or
members.
Nothing in this section is intended to restrict the power of any
corporation, without the authorization by the stockholders or
members, to sell, lease, exchange, mortgage, pledge or
otherwise dispose of any of its property and assets if the same is
necessary in the usual and regular course of business of said
corporation or if the proceeds of the sale or other disposition of
such property and assets be appropriated for the conduct of its
remaining business.
In non-stock corporations where there are no members with
voting rights, the vote of at least a majority of the trustees in
office will be sufficient authorization for the corporation to enter
into any transaction authorized by this section.
Sec. 41. Power to acquire own shares. - A stock corporation
shall have the power to purchase or acquire its own shares for a
legitimate corporate purpose or purposes, including but not
limited to the following cases: Provided, That the corporation has
unrestricted retained earnings in its books to cover the shares to
be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
P 2. To collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and to
purchase delinquent shares sold during said sale; and
P 3. To pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.
Sec. 42. Power to invest corporate funds in another
corporation or business or for any other purpose. - Subject
to the provisions of this Code, a private corporation may invest
its funds in any other corporation or business or for any purpose
other than the primary purpose for which it was organized when
approved by a majority of the board of directors or trustees and
ratified by the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, or by at least two thirds (2/3) of
the members in the case of non-stock corporations, at a
stockholder's or member's meeting duly called for the purpose.
Written notice of the proposed investment and the time and
place of the meeting shall be addressed to each stockholder or
member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office
with postage prepaid, or served personally: Provided, That any
dissenting stockholder shall have appraisal right as provided in
this Code: Provided, however, That where the investment by the
corporation is reasonably necessary to accomplish its primary
purpose as stated in the articles of incorporation, the approval of
the stockholders or members shall not be necessary.
Sec. 43. Power to declare dividends. - The board of directors
of a stock corporation may declare dividends out of the
unrestricted retained earnings which shall be payable in cash, in
property, or in stock to all stockholders on the basis of
outstanding stock held by them: Provided, That any cash
dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and expenses,
while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid: Provided,
further, That no stock dividend shall be issued without the
approval of stockholders representing not less than two-thirds
(2/3) of the outstanding capital stock at a regular or special
meeting duly called for the purpose.
Stock corporations are prohibited from retaining surplus profits
in excess of one hundred (100%) percent of their paid-in capital
stock, except: (1) when justified by definite corporate expansion
projects or programs approved by the board of directors; or (2)
when the corporation is prohibited under any loan agreement
with any financial institution or creditor, whether local or foreign,
from declaring dividends without its/his consent, and such
consent has not yet been secured; or (3) when it can be clearly

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there
is need for special reserve for probable contingencies.
Sec. 44. Power to enter into management contract. - No
corporation shall conclude a management contract with another
corporation unless such contract shall have been approved by
the board of directors and by stockholders owning at least the
majority of the outstanding capital stock, or by at least a
majority of the members in the case of a non-stock corporation,
of both the managing and the managed corporation, at a
meeting duly called for the purpose: Provided, That (1) where a
stockholder or stockholders representing the same interest of
both the managing and the managed corporations own or
control more than one-third (1/3) of the total outstanding capital
stock entitled to vote of the managing corporation; or (2) where
a majority of the members of the board of directors of the
managing corporation also constitute a majority of the members
of the board of directors of the managed corporation, then the
management contract must be approved by the stockholders of
the managed corporation owning at least two-thirds (2/3) of the
total outstanding capital stock entitled to vote, or by at least
two-thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for a
period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to
any contract whereby a corporation undertakes to manage or
operate all or substantially all of the business of another
corporation, whether such contracts are called service contracts,
operating agreements or otherwise: Provided, however, That
such service contracts or operating agreements which relate to
the exploration, development, exploitation or utilization of
natural resources may be entered into for such periods as may
be provided by the pertinent laws or regulations.
Sec. 45. Ultra vires acts of corporations. - No corporation
under this Code shall possess or exercise any corporate powers
except those conferred by this Code or by its articles of
incorporation and except such as are necessary or incidental to
the exercise of the powers so conferred.

Powers granted by general law intra vires acts

o
Implied powers

Mining community establishment of post

office is not ultra vires. It is an implied power
necessary for the exercise of the express
powers granted by law.

Transport services includes implied powers

of repair services.

Alternative: General v. Specific

o
Specific brand talent for ads may be intra vires.
II. COMPARISONS/DISTINCTIONS
CORPORATION has a separate JP with shareholder.
Joint Venture foreign and local shareholder given the right of
first refusal. Foreign shareholders will be more than 40% if local
sells to foreign.
JG Summit Holdings v. CA
Shipyard property of the corporation. Ruling: Right of first refusal
is separate and distinct between the shareholder and the
corporation. The effect of this is that the corporation cannot hold
the property, but the foreign shareholders can purchase.
When a shareholder acted beyond his authority it shall not be
binding to the corporation, unless when a Board of Resolution
allows an individual to sell or dispose the property and the latter
did not rescind the sale. However, if the former acted with valid
authority, the acts shall be binding to the corporation.
lll. DOCTRINE OF CORPORATE ENTITY
Carat v. CA

J.E. S. Ti | 5
There is no fraud when mere ownership of stocks does not assail
personal liability.
Gallagher v. Germania Brewing Co.
54 N.W. 115 (1893)
To allow set-off by parties against claims of another in a
corporation would tantamount to totally ignoring the legal
doctrine that a corporation is an entity separate and distinct
from the body of its stockholders.
Magsaysay-Labrador v. CA.
(1989) 180 SCRA 266
Corporate property shall not be treated as personal properties of
stockholders. Transfer shall be recorded in the books of
corporation to affect third persons. While a share of stock
represents an aliquot interest, it does not vest the owner thereof
with any legal right or title.
San Juan Structural v. CA
(1998) 296 SCRA 631
Not a close corporation. At least 2/3 voting stock owned by
another person having no requisites. 99.99% is not a variable to
entitlement of automatic claim upon distribution, liquidation, or
dissolution.
Tramat Mercantile v. CA
(1994) 238 SCRA 14
Four instances of stockholders share solidary liability on the
corporations:
1. He assents to
a. a patently unlawful act of the corporation, or
b. There was bad faith, or gross negligence in directing its
affairs, or
c. For conflict of interest, resulting in damages to the
corporation, its stockholders or other persons, or
2. He consents to the issuance of watered stocks or who,
having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto, or
3. He agrees to hold himself personally and solidarily liable
with the corporation, or
4. He is made by a specific provision of law to personally
answer for his corporate action.
Palay, Inc. v. Clave
(1983) 124 SCRA 640
No presence of fraud or bad faith even if they mistakenly
rescinded the contract to sell extra judicially and had sold it to a
third person.
Stockholders of Guanzon v. Register of Deeds
During liquidation, conveyance of assets (taxes) to stockholders
of the corporation is required before the distribution of net
assets. Stockholders cannot immediately claim corporation
property as his own, as the same cannot avoid the liability
scheme upon dissolution.
B. Piercing the Corporate Veil:
1) Vis--vis individual: Corporation is a mere association of
individuals to which personal liability may be attached.
2) Vis--vis corporation: Two or more corporation is considered
as one. The corporation does not lose its character as a
corporation, and it continues on for legal purposes. What is
pierced only applies to the particular instance. It only loses
its character upon dissolution.
3) When to invoke?
a. To remedy an injustice, such as a violation of tax,
violation of contract, violation of laws, avoidance,
injustice of successional rights, etc.
b. Utmost caution there must be proof of existence of

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

J.E. S. Ti | 6

abovementioned grounds.
Villa Rey Transit v. Ferrer
(1968) 25 SCRA 845

C. Parent-Subsidiary Relationship:
No piercing of the corporate veil. Privity of contracts cannot bind
parent corporation to the contract where subsidiary is bound,
unless piercing of corporate veil shall apply as an exception.

Not a registered stockholder, but evidence show that the latter is

the one in absolute control over the corporation. Veil is pierced.

Yutivo v. CTA
(1961) 1 SCRA 160

Marvel Bldg. v. David

(1954) 94 Phil. 376

There is no fraud. But veil was pierced because the control of

parent makes it hard to discern any separate entity between the
two.

PIERCED:

When it was duly proven that Castro is the sole owner of the
share of stock. And endorsements were in blank in the name of
other incorporators to relieve her from tax.
Cease v. CA
(1979) 93 SCRA 483
The original incorporators were aliens, friends, or third parties in
relation of one to another resulting in one close family
corporation. The doctrine of separate entity cannot uphold when
the same is used as an alter ego. Deprivation of successional
rights as against the prospective distributes when at this time it
merely holds the property in trust.
Secosa v. Heirs of Francisco
(2004) 433 SCRA 273
DOAGFOAF. Civil liability aplies.
Concept Builders v. NLRC
(1996) 257 SCRA 149
Dominion control over the affairs.
Claparols v. CIR
(1965) 65 SCRA 613
No break in the succession and continuity of the business. Assets
were merely turned over to the emerging corporation. The
purpose was to avoid liabilities from the former.
La Campana Coffee Factory v. Kaisahan
(1953) 93 Phil 160
Parent-subsidiary relationship. Tan Tong owns it.
Pamplona Plantation v. Tinghil
(2005) 450 SCRA 421
Used to avoid obligation of payment under labor laws.
Yu v. NLRC
(1995) 245 SCRA 134
Not only the retiring partners but also the new partnership itself
which continued the business of the old, dissolved, one, are
liable for the debts of the preceding partnership.
NOT PIERCED:
Indo-Phil Textile Mills v. Calica
(1992) 205 SCRA 698
Union representation.
Umali v. CA
(1990) 189 SCRA 529
Foreclosure of private individuals property.
First Phil. Intl Bank
252 SCRA 259
Forum-shopping.

lV. CLASSES OF CORPORATIONS UNDER THE CORP. CODE (Sec. 3,

87, 88)
STOCK
NON-STOCK
Two requisites (Club Filipino):
Income is non-distributable.
Capital stock into shares and Not
organized
for
profitauthority to distribute the earning,
unless
mere
same.
incidental to its operations, ie.
Profit-earning.
Club Filipino.
Board of Directors.
Board of Trustees.
What is stock share of
stocks are intangible; and
may be evinced by share
certificates.
It
is
the
inchoate
interest
of
a
stockholder/member
over
the corporation, where upon
dissolution, the net assets
shall
be
distributed
accordingly.
Shares of
Share
stock
certificate
Right
of Received
each
upon
shareholder
payment
or
deposit

Charitable,
religious,
educational,
professional,
cultural,
fraternal,
literary,
scientific, social, civic service,
or similar purposes, like trade,
industry, agricultural and like
chambers, or any combination
thereof, subject to the special
provisions of this Title.

Valley Golf Club v. Vda. De Caram

585 SCRA 218 (2009)
Non-stock has the right to terminate membership according to
Sec. 91 of Title on Non-Stock Corporations. Membership shares
are not title to stocks as proven by the non-liability of any
membership dues.
The test to determine whether or not an educational institution
is a stock or non-stock shall be subject to different application of
laws.

If the corporation is stock: Applicable law is the Title

XIII; Ch. 1 on Special Corporations. Inapplicable? Title
on Stock Corporations.

If the corporation is non-stock: Title on Non-Stock. If

inapplicable, Title on Stock Corporations shall be
suppletorily applied.
Coll. of Int. Rev. v. Club Filipino
5 SCRA 321 (1962)
2. Other classes of corporations under the Corporation Code:

CLOSE
o
Always a stock corporation. Issued stocks,
exclusive of treasury shares, shall be held of
record by not more than a specified number of
persons, not exceeding 20.
o
Issued stocks of all classes shall be subject to
one or more specified restrictions on transfer
permitted by the Code.

RIGHT OF FIRST REFUSAL (Sec. 98)

Flysher v. Botika Nolasco: restriction
of transfer cannot be more onerous
than the right of the stockholder.
RIGHT OF FIRST PREEMPTIVE RIGHT

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

REFUSAL
Stockholder
sells Corporation is the one
his
shares
in issuing the shared to
compliance with A/I. be subscribed to by
Such as when he the stockholders.
offers first to comembers,
before
outsiders,
or
as
otherwise provided.
Not vested with public interest. Prohibition to
list in any stock exchange or make any public
offering of its stocks of any class (Sec. 96).

SPECIAL
o
Educational, religious (corporation sole and
religious societies) (Title XIII)
FOREIGN (Sec. 123)
OTHERS:
o
SUBSIDIARY

Wholly owned more than 50% of the

voting stock

Majority owned through one or more

intermediaries by another corporation
(treated as parent)
o
AFFILIATE

Sister companies

Overall
control
by
a
parent
corporation
o
PARENT/HOLDING

controlling/ownership

substantially controlling shares

o
JOINT VENTURE

joined by first two corporations

o
OPEN v. CLOSE
o
LAY

Other
than
ecclesiastical.
E.g.
eleemosynaries
o
RELIGIOUS

Ecclesiastical
(spiritual
persons
established in furtherance of religious
and perpetration of rights of church)
o
ELEEMOSYNARY

Charitable purposes
o
CIVIL CORP

Benefit of its members. Profit-earning.

Governing laws:
o
General Rule: Special Titles
o
Suppletory: Titles or other principles related
thereto.

V. CREATION OF CORPORATION
1. Promotion
This includes activities done by promoter for the
founding and organizing of the business or enterprise of
the issuer. (Sec. 3.1. of Securities Regulation Code)
Promoter is a person who, acting alone or with others,
takes initiative in founding and organizing the business
or enterprise of the issuer and receives consideration
therefor. (Sec. 3.10, Ibid)
o
Agent of the incorporators and not the
corporation.
Includes discovery, investigation and assembly.
Promotion is not a formal part of the organization of the
corporation, and therefore, a corporation may be
formed and organized by the incorporators themselves
without services of promoters. Why? It occurs outside
the corporate form and is theoretically independent of
the organization of a corporation.
2. Incorporation
Sec. 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

J.E. S. Ti | 7
Securities and Exchange Commission issues a certificate of
incorporation under its official seal; and thereupon the
incorporators, stockholders/members and their successors shall
constitute a body politic and corporate under the name stated in
the articles of incorporation for the period of time mentioned
therein, unless said period is extended or the corporation is
sooner dissolved in accordance with law.
Sec. 88. Purposes. - Non-stock corporations may be formed or
organized for charitable, religious, educational, professional,
cultural, fraternal, literary, scientific, social, civic service, or
similar purposes, like trade, industry, agricultural and like
chambers, or any combination thereof, subject to the special
provisions of this Title governing particular classes of non-stock
corporations.
Formal organization
SEC Certificate calling upon a
meeting
of
its
members/shareholders for the
election of the Board of
Directors/Trustees within 30
days thereof.

Commencement of business
Getting permits

VI. INCORPORATION
Steps
1) Drafting and execution of Articles of Incorporation by the
incorporators and other documents required for registration of
the corporation. The person chosen as temporary treasurer
pending incorporation must also execute an affidavit certifying
compliance with subscription and paid-up requirements as to
capital stock. (Sec. 14)
Documents:
o
Articles of Incorporation
o
Treasurers Affidavit
o
Certificate of Authority from Monetary Board of
BSP
o
Name Verification Slip or a letter undertaking
to change the proposed name if similar to
another
o
Bank certificate of deposit concerning the
paid-up capital
o
Registration sheet
o
Recommendation of the govt agency*
o
Application form by the Foreign Investments
Act of 1991 (40%)*
2) Filing with the SEC of the Articles of incorporation together
with Treasurers affidavit (Sec. 15)
Note: Governed by special law Law on Articles of
Incorporation shall be recommended by the appropriate
government agency.
3) SEC determines if the name is similar or confusingly similar
to another. Without the foregoing, SEC shall preserve the
proposed name and a verification slip will be issued (Sec. 18).
4) Payment of filing and publication fees
5) Issuance of the Certificate of Incorporation by the SEC.
Fait accompli accomplished facts cannot be amended.
CORPORATORS
Those
who
compose
a
corporation,
whether
as
stockholders or as members
Appears in the
Incorporation.

Articles

of

A Director can be a corporator

or an incorporator.
Incorporator
corporator.

is

always

INCORPORATORS
Those
stockholders
or
members mentioned in the
articles of incorporation as
originally
forming
and
composing the corporation and
who are signatories thereof.
(Sec. 5).
Natural
persons
(515pax), all of legal age
and majority PH residents
may
form
a
private
corporation (capacity to
contract)
Each of the incorporators
of s stock corporation

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

must own
subscriber to
(1) share of
stock of the
(Sec. 10).

or be a
at least one
the capital
corporation

TERM
General Rule: Not to exceed 50 years from the date of
incorporation.
Exceptions:
1) Dissolution; or
2) Extension
Not to exceed 50 years in any single instance by
an amendment of A/I in accordance with this Code.
No extension can be made earlier than 5 years
prior to the original or subsequent expiry date/s
unless there are justifiable reasons as may be
determined by SEC (Sec. 11).
CAPITAL STOCK (Sec. 12)
General Rule: Not required to have a minimum authorized capital
stock.
Exceptions:
1) Specifically provided for by special law; and
2) At the time of incorporation: at least 25% of the
authorized capital stock as stated in the A/I must be
subscribed,
a. To ensure that the corporation may effectively
carry out its business financially.
3) Upon subscription: At least 25% of the total
subscription, the balance to be payable on a date or
dates fixed in the contract of subscription without need
of call, or in the absence of a fixed date or dates, upon
call for payment by the board of directors, and
4) Paid-up capital shall not be less than P5,000 (Sec. 13).
ARTICLES OF INCORPORATION
A. CORPORATIONS, GENERALLY (Sec. 14)
Shall file with the Securities and Exchange Commission articles
of incorporation in any of the official languages duly signed and
acknowledged by all of the incorporators, containing
substantially the following matters, except as otherwise
prescribed by this Code or by special law:
P
1. The name of the corporation;
P
2. The specific purpose or purposes for which the corporation
is being incorporated. Where a corporation has more than
one stated purpose, the articles of incorporation shall state
which is the primary purpose and which is/are he secondary
purpose or purposes: Provided, That a non-stock corporation
may not include a purpose which would change or contradict
its nature as such;

may have one primary purpose with a lot of

secondary purposes that may or may not be related
to the primary.
P
3. The place where the principal office of the corporation is to
be located, which must be within the Philippines;

Specific exact location is required.

4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the
incorporators;
6. The number of directors or trustees, which shall not be
less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who
shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in
accordance with this Code;
8. If it be a stock corporation, the amount of its authorized
capital stock in lawful money of the Philippines, the number
of shares into which it is divided, and in case the share are
par value shares, the par value of each, the names,
nationalities and residences of the original subscribers, and
the amount subscribed and paid by each on his subscription,
and if some or all of the shares are without par value, such
fact must be stated;

J.E. S. Ti | 8
9. If it be a non-stock corporation, the amount of its capital,
the names, nationalities and residences of the contributors
and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and
which the incorporators may deem necessary and
convenient.
Accompanied by a sworn statement of the Treasurer elected by
the subscribers showing that at least twenty-five (25%) percent
of the authorized capital stock of the corporation has been
subscribed, and at least twenty-five (25%) of the total
subscription has been fully paid to him in actual cash and/or in
property the fair valuation of which is equal to at least twentyfive (25%) percent of the said subscription, such paid-up capital
being not less than five thousand (P5,000.00) pesos.
B. IN CLOSE CORPORATIONS: (Sec. 96)
1) All the corporation's issued stock of all classes, exclusive of
treasury shares, shall be held of record by not more than a
specified number of persons, not exceeding twenty (20);
(2) all the issued stock of all classes shall be subject to one or
more specified restrictions on transfer permitted by this Title;
and
(3) The corporation shall not list in any stock exchange or
make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be
deemed a close corporation when at least two-thirds (2/3) of
its voting stock or voting rights is owned or controlled by
another corporation which is not a close corporation within the
meaning of this Code.
(4) Articles: (Sec. 97)
P
1. For a classification of shares or rights and the
qualifications for owning or holding the same and
restrictions on their transfers as may be stated therein,
subject to the provisions of the following section;
P
2. For a classification of directors into one or more
classes, each of whom may be voted for and elected
solely by a particular class of stock; and
P
3. For a greater quorum or voting requirements in
meetings of stockholders or directors than those provided
in this Code.
The articles of incorporation of a close corporation may
provide that the business of the corporation shall be
managed by the stockholders of the corporation rather
than by a board of directors. So long as this provision
continues in effect:
P
1. No meeting of stockholders need be called to elect
directors;
P
2. Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed to be
directors for the purpose of applying the provisions of
this Code; and
P
3. The stockholders of the corporation shall be subject
to all liabilities of directors.
4. May likewise provide that all officers or employees or
that specified officers or employees shall be elected or
appointed by the stockholders, instead of by the board of
directors.
WHAT MAY BE INCORPORATED AS A CLOSE CORPORATION?
Any, except mining or oil companies, stock exchanges,
banks, insurance companies, public utilities, educational
institutions and corporations declared to be vested with
public interest in accordance with the provisions of this Code.
FORM (Sec. 15) unless otherwise provided by special law.
C. AMENDMENTS (Sec. 16) unless otherwise prescribed by this
Code or by special law, and for legitimate purposes:
a majority vote of the board of directors or trustees;
and
the vote or written assent of the stockholders
representing at least two-thirds (2/3) of the outstanding
capital stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the
provisions of this Code, or the vote or written assent of

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

at least two-thirds (2/3) of the members if it be a nonstock corporation

The original and amended articles together shall
contain all provisions required by law to be set out in
the articles of incorporation.
Such articles, as amended shall be indicated by
underscoring the change or changes made, and
a copy thereof duly certified under oath by the
corporate secretary and a majority of the directors or
trustees stating the fact that said amendment or
amendments have been duly approved by the required
vote of the stockholders or members, shall be
submitted to the Securities and Exchange Commission.

EFFECTIVITY: upon the approval by the Securities and Exchange

Commission or from the date of filing with the said Commission
if not acted upon within six (6) months from the date of filing for
a cause not attributable to the corporation.
Phil. Trust Co. v. Rivera
44 Phil. 469 (1923)
Trust fund doctrine was violated. When creditor is fully paid, it is
just equitable that the same cannot go after him.
Marcus v. RH Macy
74 N.E. 2d 228 (1947)
Any holder of any such shares not in favor of such action may at
any time prior to the vote authorizing such action object to such
action and demand payment for his stock, and thereupon such
stockholder or the corporation shall have the right, subject to
the conditions and provisions of section twenty-one, to have
such stock appraised and paid for as provided in said section.
Such objection and demand must be in writing and filed with the
corporation." Section 38 permits an appraisal only when an
amended certificate alters the preferential rights of the
outstanding stock of a corporation as between the different
classes of stock it does not apply to a case where such rights are
left unchanged as between themselves, but are both made
subject to a new issue of stock." Such as, if a) abolishes any
voting right of the holders of shares of any class or limits their
voting rights", it added the following provision "except as the
same may be limited by the voting rights given to new shares of
any class authorized by the certificate"
Iglesia Evangelica v. Bishop Lazaro
(G.R. 184088, July 6, 2010)
AMENDING CORP SOLE: For non-stock corporations, the power to
amend its articles of incorporation lies in its members. The code
requires two-thirds of their votes for the approval of such an
amendment. Although a non-stock corporation has a personality
that is distinct from those of its members who established it, its
articles of incorporation cannot be amended solely through the
action of its board of trustees. The amendment needs the
concurrence of at least two-thirds of its membership. The one
member, here the General Superintendent, is but a trustee,
according to Section 110 of the Corporation Code, of its
membership.
POWER TO AMEND all corporations in accordance w/ the Code
(Sec. 36.4).
EXCEPTIONS:
1. Not substantially in accordance with the form prescribed
herein;
P
2. That the purpose or purposes of the corporation are
patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;
P
3. That the Treasurer's Affidavit concerning the amount of
capital stock subscribed and/or paid if false;
P
4. That the percentage 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.

J.E. S. Ti | 9
5. No articles of incorporation or amendment to articles of
incorporation of banks, banking and quasi-banking
institutions, building and loan associations, trust companies
and other financial intermediaries, insurance companies,
public
utilities,
educational
institutions,
and
other
corporations governed by special laws shall be accepted or
approved by the Commission unless accompanied by a
favorable recommendation of the appropriate government
agency to the effect that such articles or amendment is in
accordance with law (Sec. 17).
VOTING RIGHTS: No share may be deprived of voting rights
except those classified and issued as "preferred" or
"redeemable" shares, unless otherwise provided in this Code.
Where the articles of incorporation provide for non-voting shares
in the cases allowed by this Code, the holders of such shares
shall nevertheless be entitled to vote on the following matters:
1 1. Amendments;
2 2. Adoption and amendment of by-laws;
3 3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all of the corporate
property;
4 4. Incurring, creating or increasing bonded indebtedness;
5 5. Increase or decrease of capital stock;
6 6. Merger or consolidation of the corporation;
7 7. Investment of corporate funds in another corporation or
business in accordance with this Code; and
8 8. Dissolution of the corporation.
APPRAISAL RIGHT: Right to dissent and demand payment of the
fair value of his shares in case any amendment to the articles of
incorporation has the effect of changing or restricting the rights
of any stockholder or class of shares, or of authorizing
preferences in any respect superior to those of outstanding
shares of any class, or of extending or shortening the term of
corporate existence (Sec. 81.1).

Incorporators are still bound by the amendment but can

exercise this right as a remedy, unless the same had
not attended the meeting to express his objection.
RE-WRITTEN ASSENT: Written notice of the proposed action and
of the time and place of the meeting shall be deposited to the
addressee in the post office with postage prepaid, or personally
served, to each stockholder/member at his place of residence as
shown on the books of the corporation and.
1) Extension/Shorten term: approved by a majority vote of
the board of directors or trustees and ratified at a
meeting by the stockholders representing at least twothirds (2/3) of the outstanding capital stock or by at
least two-thirds (2/3) of the members in case of nonstock corporations. Any dissenting stockholder may
exercise his appraisal right under the conditions
provided in this code (Sec. 37).
2) Increase/Decrease capital stock or incur/create/increase
bonded indebtedness: approved by a majority vote of
the board of directors and, at a stockholder's meeting
duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or
diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness.
A certificate in duplicate must be signed by a majority
of the directors of the corporation and countersigned by
the chairman and the secretary of the stockholders'
meeting, setting forth that:
P
(1) Requirements of this section have been
complied with;
P
(2) Amount of the increase or diminution of the
capital stock; (3) If an increase of the capital stock,
the amount of capital stock or number of shares of
no-par stock thereof actually subscribed, the names,
nationalities and residences of the persons
subscribing, the amount of capital stock or number
of no-par stock subscribed by each, and the amount
paid by each on his subscription in cash or property,
or the amount of capital stock or number of shares

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

of no-par stock allotted to each stock-holder if such
increase is for the purpose of making effective stock
dividend therefor authorized;
P
(4) Bonded indebtedness to be incurred, created or
increased;
P
(5) Actual indebtedness on the day of the meeting;
P
(6) The amount of stock represented at the meeting;
and
P
(7) The vote authorizing the matter.
Prior approval of the Securities and Exchange
Commission, upon sworn statement of treasurer. No
decrease of the capital stock shall be approved by the
Commission if its effect shall prejudice the rights of
corporate creditors.
3) Delete/remove provision required by this Title to be
contained in the articles of incorporation, or reduce a
quorum or voting requirement shall not be valid or
effective unless approved by the affirmative vote of at
least two-thirds (2/3) of the outstanding capital stock,
whether with or without voting rights, or of such greater
proportion of shares as may be specifically provided in
the articles of incorporation for amending, deleting or
removing any of the aforesaid provisions, at a meeting
duly called for the purpose.
Citizenship requirements --- Sec. 140
There is no requirement that the majority must be citizens of the
Philippines. The rule however is subject to the requirements of
pertinent nationalization laws. For, instance, if the law requires
all stockholders to be Filipino citizens, then it follows that all
incorporators must also be citizens.
No franchise, certificate, or any other form of authorization for
the operation of a public utility shall be granted except to
citizens of the Philippines or to corporations or associations
organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens, nor shall
such franchise, certificate, or authorization be exclusive in
character or for a longer period than fifty years. Neither shall
any such franchise or right be granted except under the
condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The
State shall encourage equity participation in public utilities by
the general public. The participation of foreign investors in the
governing body of any public utility enterprise shall be limited to
their proportionate share in its capital, and all the executive and
managing officers of such corporation or association must be
citizens of the Philippines.

J.E. S. Ti | 10
of which one hundred percent (100%) of the capital stock
outstanding and entitled to vote is wholly owned by Filipinos or a
trustee of funds for pension or other employee retirement or
separation benefits, where the trustee is a Philippine national
and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals: Provided, That where a
corporation and its non- Filipino stockholders own stocks in a
Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both corporations
must be owned and held by citizens of the Philippines and at
least sixty percent (60%) of the members of the Board of
Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a
"Philippine national."
o
What if a shareholder is a corporation?

40% Filipino individuals + 40% corporation + 40%

Foreign; the 40% corp is actually 60/40 then it is a
Philippine national.
Narra Nickel Mining v. Redmont
(G.R. 195580; April 21, 2014)
CONTROL TEST/LIBERAL RULE:
Purpose - Person is entitled to participate in the exploration,
development and utilization of the natural resources of the
Philippines.
GRANDFATHER RULE:
Applicability: when there is doubt over the 60/40 Filipino
equity ownership, contrary to the allegations by the
petitioners that the control test should be used as it was the test
applied under FIA.
Method: testing the corporate layering of each, whereby at face
value, it appears that corporations satisfy the Filipino equity
requirement, but in truth the ultimate controlling shareholders
are foreigners.
Computation:
CONTROL TEST/LIBERAL TEST

GRANDFATHER RULE

Gamboa v. Teves, et al
(GR 176579; June 28, 2011 and Oct. 9, 2012)

Roman Catholic Apostolic Admin. of Davao

(102 Phil. 596)

CAPITAL: which refers to the shares with voting rights, as well as

with full beneficial ownership (Art. 12, sec. 10); which implies
that the right to vote in the election of directors, coupled with
benefits, is tantamount to an effective control.

Nationality of corporation sole: a corporation sole is organized

and composed of a single individual, the head of any religious
society or church, for the administration of the temporalities of
such society of church. By "temporalities" are meant estates and
properties not used exclusively for religious worship, where the
successors in office of such religious head or chief priest
incorporated as a corporation sole shall become the corporation
sole on ascension to office, and shall be permitted to transact
business as such on filing with the Securities and Exchange
Commission a copy of his commission, certificate of election or
letter of appointment duly certified by any notary public or clerk
of court of record.

SEC Memo Circ. No. 8, s2013

(Guidelines in Fil-Foreign ownership)
CAPITAL as referred to in the previous case shall apply only to
shares of stock entitled to vote in the election of directors.
Additionally, IRR of the FIA clearly requires the existence of fill
beneficial ownership of the stocks and appropriate voting rights
in determining whether stocks are owned ad held by Philippine
nationals.
Foreign Investments Act (FIA) of 1991, as amended
Philippine national shall mean a citizen of the Philippines; of a
domestic partnership or association wholly owned by citizens of
the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent of the capital stock
outstanding and entitled to vote is owned and held by citizens of
the Philippines; or a corporation organized abroad and registered
as doing business in the Philippines under the Corporation Code

Young Auto Supply Co. v. CA

(1993) 223 SCRA 670
Residence of corporation: No residence in the same sense in
which this term is applied to a natural person. But for practical
purposes, a corporation is in a metaphysical sense a resident of
the place where its principal office is located as stated in the
articles of incorporation.
Name of corporation (SEC Memo Circ. 14, Series of 2000)

CORPORATION LAW MIDTERMS | PROF. M.I.P. ROMERO (2015 - 2016)

- Use of the clauses: incorporated, corporated, corp., inc., etc.
- Companies? No need.
- Doctrine of Secondary Meaning
De Jure Corporations
Fulfilled statutory formalities
Authorized with corporate
powers
De Facto Corporations
Based from a valid law.
Good faith to attempt to
comply.
An
act
made
on
the
corporations behalf by its
members.
P

De Facto Corporations
Based from a valid law
Good Faith
Assumes corporate powers
Corporation by estoppel
Someone who operates a
business as if it were a limited
liability entity or corporation,
irrespective of whether there
was a good faith effort by the
business to incorporate.

J.E. S. Ti | 11
Corporation by Estoppel Sec. 21 (rationale, liabilities, validity)
1.

2.

3.
4.
5.

Without authority to assume the act as a corporation

Liable as general partners for all debts, liabilities, and

damages incurred

When sued: not allowed to use as defense that it has no

corporation personality
Liability as to general partners: even beyond their
investment in the corporation

Includes personal property

Enterprise liability

Tort liability
Applicable to a third party only when he tries to escape
liability on a contract from which he was benefited
Not applicable to party trying to claim
Cannot override jurisdictional requirement because
jurisdiction is fixed by law