26. Eleemosynary corporation?

Eleemosynary corporation – one established for or devoted to charitable purposes or those supported by
charity

27. Civil corporation?

Civil corporation – one established for business or profit.

28. Ecclesiastical corporation?

Ecclesiastical corporation – one organized for religious purposes;

29. Corporation aggregate?

Aggregate corporation – a corporation consisting of more than one person or member; or

30. De jure corporation?

De jure corporation – corporation created in strict or substantial conformity with the mandatory statutory
requirements for incorporation and the right of which to exist as a corporation cannot be successfully
attacked or questioned by any party even in a direct proceeding for that purpose by the state;

31. Characteristics of a de facto corporation?

DE FACTO CORPORATION
De facto corporation – organized with a colorable compliance with the requirements of a valid law and its
existence cannot be inquired collaterally but such inquiry may be made by the Solicitor General in a quo
warranto proceeding (Sec. 20).
The only difference between a de facto corporation and a de jure corporation is that a de jure corporation
can successfully resist a suit brought by the State challenging its existence; a de facto corporation cannot
sustain its right to exist as against the State.

REQUISITES OF DE FACTO CORPORATION

1. Valid law under which a corporation with powers assumed might be incorporated
2. Bona fide attempt to organize a corporation under such law
3. Actual user or exercise in good faith of corporate powers conferred upon it by law;
4. SEC issuance of certificate of incorporation (Hall v. Piccio, 86 Phil 603 [1950])

CHARACTERISTICS OF A DE FACTO CORPORATION

1. It has not complied with all requirements for incorporation but there has been a colorable
incorporation;
2. Its existence may only be questioned only by the State in a direct proceedings, and not by
collateral attack;
3. It has a capacity to sue and be sued;
4. Its liabilities of officers and directors are the same as that of a de jure corporation;

32. Foreign corporation? Sec 123

Foreign corporations - one formed, organized or existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or
state (Sec. 123, BP 68).

33. Domestic corporation with respect to nationalized industries- articles 12 and 16 of the constitution

34. Gamboa v Teves

“The term "capital" in Section 11, Article XII of the 1987 Constitution refers only to shares of stock entitled
to vote in the election of directors, and thus in the present case only to common shares, and not to the
total outstanding capital stock (common and non-voting preferred shares).

Since a specific class of shares may have rights and privileges or restrictions different from the rest of the
shares in a corporation, the 60-40 ownership requirement in favor of Filipino citizens in Section 11, Article
XII of the Constitution must apply not only to shares with voting rights but also to shares without voting
rights. Preferred shares, denied the right to vote in the election of directors, are anyway still entitled to
vote on the eight specific corporate matters mentioned above under Section 6 of the Corporation Code.
Thus, if a corporation, engaged in a partially nationalized industry, issues a mixture of common and
preferred non-voting shares, at least 60 percent of the common shares and at least 60 percent of the
preferred nonvoting shares must be owned by Filipinos. Of course, if a corporation issues only a single
class of shares, at least 60 percent of such shares must necessarily be owned by Filipinos.
In short, the 60-40 ownership requirement in favor of Filipino citizens must apply separately to each class
of shares, whether common, preferred non-voting, preferred voting or any other class of shares. This
uniform application of the 60-40 ownership requirement in favor of Filipino citizens clearly breathes life to
the constitutional command that the ownership and operation of public utilities shall be reserved
exclusively to corporations at least 60 percent of whose capital is Filipino-owned. Applying uniformly the
60-40 ownership requirement in favor of Filipino citizens to each class of shares, regardless of differences
in voting rights, privileges and restrictions, guarantees effective Filipino control of public utilities, as
mandated by the Constitution.”

35. Requisites for a stockholder's right to inspect financial statement of corp

REQUIREMENTS FOR THE EXERCISE OF THE RIGHT OF INSPECTION (Sec. 74)
1. It must be exercised at reasonable hours on business days and in the place where the corporation
keeps all its records (i.e., principal office).
2. The stockholder has not improperly used any information he secured through any previous
examination.
3. Demand is made in good faith or for a legitimate purpose. If the corporation or its officers contest
such purpose or contend that there is evil motive behind the inspection, the burden of proof is with
the corporation or such officer to show the same.

Test to determine whether the purpose is legitimate – A legitimate purpose is one which is germane to the
interests of the stockholder as such and not contrary to the interests of the corporation (Gokongwei v.
SEC, 1979)

36. Remedy when board does not want to sue? Derivative suit
A derivative action is a suit by a shareholder to enforce a corporate cause of action. Under the Corporation
Code, where a corporation is an injured party, its power to sue is lodged with its board of directors or
trustees. But an individual stockholder may be permitted to institute a derivative suit on behalf of the
corporation in order to protect or vindicate corporate rights whenever the officials of the corporation refuse
to sue, or are the ones to be sued, or hold control of the corporation. In such actions, the corporation is the
real party-in-interest while the suing stockholder, on behalf of the corporation, is only a nominal party
(Filipinas Port Services, Inc. v. Go, G.R. No. 161886, March 16, 2007, 518 SCRA 453, 471).

37. Define derivative suit

It is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to
the suit, and the relief which is granted is a judgment against a third person in favor of the corporation
(Chua v. CA, 2004)

It is a suit brought by one or more stockholders/members in the name and on behalf of the corporation to
redress wrongs committed against it, or protect/vindicate corporate rights whenever the officials of the
corporation refuse to sue, or the ones to be sued, or has control of the corporation. (Sundiang and
Aquino)

REQUISITES OF DERIVATIVE ACTIONS

1. That the person instituting the action be a stockholder or member at the time the acts or
transactions subject of the action occurred and the time the action was filed;
2. That the stockholder or member exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under the Articles of Incorporation,
by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires.
3. That there is no appraisal right available for the act(s) complained of; and
4. That the suit is not a nuisance or harassment suit. (Rule 8, Interim Rules of Procedure for Intra-
Corporate Controversies)
38. Dissolution- there are 4 methods
FOUR METHODS OF VOLUNTARY CORPORATE DISSOLUTION
1. Vote of the Board of Directors or trustees and the stockholders or members where no creditors
are affected (Sec. 118, BP 68);
2. Judgment of the SEC after hearing of petition for voluntary dissolution where creditors are
affected (Sec. 119, BP 68);
3. Amending the AOI to shorten the corporate term (Sec. 120, BP 68);
4. In the case of corporation sole, by submitting to the SEC a verified declaration of dissolution for
approval (Sec. 115, BP 68)

39. Can there be a dissolution without a petition being filed? Yes

DISSOLUTION BY ORDER OF SEC
A corporation may be dissolved by SEC upon filing of a verified complaint and after proper notice and
hearing on grounds provided by existing laws, rules and regulations (Sec. 121, BP 68)
The following are grounds for dissolution by SEC:
1. Violation by the corporation of any provision of the Corporation Code (Sec. 144, BP 68)
2. In case of a deadlock in a close corporation, and the SEC deems it proper to order the dissolution
of the corporation as the only practical solution to the dispute (Sec. 104, BP 68)
3. Mismanagement of a close corporation (Sec. 105, BP 68)

LEGISLATIVE DISSOLUTION
The inherent power of Congress to make laws carries with it the power to amend or repeal them.
Involuntary corporate dissolution may be effected through the amendment or repeal of the Code. (implied
from Section 145, De Leon)
The limitations on the power to dissolve corporations by legislative enactment are as follows:
1. Under the Constitution, the amendment, alteration, or repeal of the corporate franchise of a public
utility shall be made only “when the common good so requires”;
2. Under Section 145 of the Code, it is provided that: “No right or remedy in favor of or against any
corporation, its stockholders, members, directors, trustees, or officers, nor any liability incurred by
any such corporation, stockholders, members, directors, trustees, or officers, shall be removed or
impaired either by the subsequent dissolution of said corporation or by any subsequent
amendment or repeal of this Code or of any part thereof”;
3. While Congress may provide for the dissolution of a corporation, it cannot impair the obligation of
existing contracts between the corporation and third persons, or take away the vested rights of its
creditors. (De Leon)

40. Automatic dissolution? Yes

AUTOMATIC DISSOLUTION
If a corporation does not formally organize and commence the transaction of its business or the construction
of its works within two (2) years from the date of its incorporation, its corporate powers cease and the
corporation shall be deemed dissolved (Sec. 22, BP 68).

41. Is there dissolution upon expiration of term? Yes

Once the period expires, the corporation is automatically dissolved without any other proceeding and it
cannot thereafter be considered a de facto corporation.

42. When a corp is dissolved, what acts follow and what acts can it still perform? Prohibited acts? sec 122
liquidation and winding up
Under Section 122 of the Corporation Code, a corporation whose corporate existence is terminated in any
manner continues to be a body corporate for three (3) years after its dissolution for purposes of
prosecuting and defending suits by and against it and to enable it to settle and close its affairs,
culminating in the disposition and distribution of its remaining assets. It may, during the three-year term,
appoint a trustee or a receiver who may act beyond that period. The termination of the life of a corporate
entity does not by itself cause the extinction or diminution of the rights and liabilities of such entity. If the
three-year extended life has expired without a trustee or receiver having been expressly designated by
the corporation, within that period, the board of directors (or trustees) itself, may be permitted to so
continue as "trustees" by legal implication to complete the corporate liquidation. (Pepsi-Cola Products
Philippines, Inc. v. Court of Appeals, G.R. No. 145855, November 24, 2004)

43. Concurrence and preference of credits-read!!! Among stockholders, preferred stocks are paid first
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets
of the corporation in case of liquidation and in the distribution of dividends, or such other the preferences,
as may be stated in the AOI which are not violative of the provisions of the Corporation Code (Sec. 6, BP
68).

44. Liabilities of directors

CASES WHEN DIRECTOR/TRUSTEE LIABLE FOR DAMAGES
General Rule: Officers of a corporation are not personally liable for their official acts UNLESS shown that
they have exceeded their authority
The following are instances where directors, officers or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its stockholders or members and other persons.
(1.) Under Sec. 31 (UGI)
a. willfully and knowingly vote for or assent to patently unlawful acts of the corporation; or
b. who are guilty of gross negligence or bad faith in directing the affairs of the corporation; or
c. acquire any personal or pecuniary interest in conflict with their duty as such directors or
trustees

(2.) Other cases (WAL)

a. When he consents to the issuance of watered stocks or who having knowledge thereof,
does not file written objection with the corporate secretary
b. When he is made by specific provision by law made him personally liable
c. When he agrees to hold himself personally and solidarily liable

45. Separate personality doctrine

DOCTRINE OF SEPARATE PERSONALITY (Doctrine of Corporate Entity)
A corporation is a legal or juridical person with a personality separate and distinct from that of its individual
stockholders or members and from any other legal entity to which it may be connected

46. PIERCING THE VEIL DOCTRINE

The doctrine that a corporation is a legal entity distinct from the persons composing is a theory introduced
for purposes of convenience and to serve the ends of justice. But when the veil of corporate fiction is used
as a shield to defeat public convenience, justify wrong, protect fraud, or defend a crime, this fiction shall
be disregarded and the individuals composing it will be treated identically (Cruz vs. Dalisay, 152 SCRA
487[1987])
The doctrine requires the court to see through the protective shroud which exempts its stockholders from
liabilities that they ordinarily would be subject to, or distinguishes a corporation from a seemingly separate
one, were it not for the existing corporate fiction (Lim vs. CA, 323 SCRA 102).
In any case where the separate corporate identity is disregarded, the corporation will be treated merely as
an association of persons and the stockholders or members will be considered as the corporation, that is,
liability will attach personally or directly to the officers and stockholders (Umali vs. Court of Appeals, 189
SCRA 529 [1990]).

The following were the instances where the Supreme Court ruled that the veil of corporation fiction may
be pierced:
a. When the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime or when a corporation is the mere alter ego or business conduit of a person.
(Pamplona Plantation, Inc. v. Tinghil, et al., G.R. No. 159121, February 3, 2005 citing various
cases) To disregard the separate juridical personality of a corporation, the wrong-doing must be
clearly and convincingly, established. It cannot be presumed. ( Yu, et al vs. NLRC, et al., G.R..
Nos. 111810-11, June 16, 1995)
b. When the fiction is used as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who composed it will be lifted to allow
for its consideration merely as an aggregation of individuals.
c. To avoid a judgment credit; to avoid inclusion of corporate assets as part of the estate of a
decedent; to avoid liability arising from debt; when made use as a shield to perpetrate fraud
and/or confuse legitimate issues; or to promote unfair objectives or otherwise to shield them.
(First Philippine International Bank, et al., v. Court of Appeals, G.R. No. 115849, January 24,
1996, citing various cases)
d. When the corporate fiction is used as a shield to further an end subversive of justice; or for
purposes that could not have been intended by the law that created it; or to defeat public
convenience, justify wrong, protect fraud, or defend crime; or to perpetuate deception; or as an
alter ego, adjunct or business conduit for the sole benefit of the stockholders. ( ARB Construction
Co. Inc., et al., v. Court of Appeals, et al., G.R. No.126554, May 31, 2000)
e. Two entities cannot be deemed separate and distinct where there is a showing that one is merely
the continuation of the other, as where the second corporation merely continued the operations of
the first corporation under the same owners, the same business venture, at the same address,
and even continued to hire the same employees. (Avon Dale Garments, Inc. vs. NLRC, et al.,
G.R. No. 117932, July 20, 1995)
f. Where badges of fraud exist, where public convenience is defeated; where a wrong is sought to
be justified, the corporate fiction or the notion of legal entity should come to naught. ( Lim v. Court
of Appeals, et al., G.R. No. 124715, January 24, 2000)
g. Piercing the veil of corporate fiction is warranted, however, only in cases when the separate legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, such that
in the case of two corporations, the law will regard the corporations as merged into one. ( Velarde
v. Lopez, Inc. G. R. No. 153886, January 14, 2004 citing Tan Boon Bee & Co., Inc. v. Jarenao,
163 SCRA 205 (1988) and Yutivo Sons hardware Co. v. Court of Tax Appeals, 1 SCRA 160
(1961)