CORPORATION

LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

CLASSIFICATIONS OF CORPORATIONS

I. In Relation to the State:

of a portion of the state. Private corporations are those formed for

some private purpose, benefit, aim, or end, as distinguished from
public corporations, which have for their purpose the general good
and welfare. Private corporations are divided into stock corporations
and nonstock corporations. Corporations which have a capital stock
divided into shares and are authorized to distribute to the holders of
such shares dividends or allotments of the surplus profits on the basis
of the shares held are stock corporations. All other private
corporations are nonstock corporations.

Public corporations are those created for political purposes

connected with the public good in the administration of the civil
government.

B Quasi-public Corporation.

There is a group of corporations that seem to be a cross

between private corporations and public corporations, and they
are classified as quasi-public corporations.

Water districts organized under Presidential Decree No. 198,

although considered as quasi-public corporations and
authorized to exercise the powers, rights and privileges given to
private corporations under existing laws, are entirely distinct
from corporations organized under the Corporation Code, and
not within the jurisdiction of the SEC. Marilao Water
Consumers Asso. v. IAC, 201 SCRA 437 (1991).

A. Public Corporation (Section 3, Act No. 1459).

ACT No. 1459
Section 3. Corporations may be public or private.
Public corporations are those formed or organized for the government

These usually cover school districts, water districts, and

the like.1

C. Private Corporation (Section 3, Act 1459).

Private corporations may be classified according to their

purposes:
o The business corporation, or the profit-seeking
o
o

corporations
Religious corporations,
Eleemosynary corporations or those organized for
charitable, scientific or vocational corporations

D. Distinction between Public and Private Corporations

PUBLIC CORPORATION

PRIVATE CORPORATION

Government usually holds the

controlling interest

Government MAY hold

controlling interest

Created by its charter

Created under the general

corporation law

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.

(2013 ed.). Manila, Philippines: Rex Book Store.

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

Created for a public purpose

controlled corporations, is may still be considered as

such, or under the 1987 Administrative Code as an
instrumentality of the Government, and it employees
are subject to the Civil Service Law. Boy Scouts of the
Philippines v. NLRC, 196 SCRA 176 (1991).

Created for profit-generation

Exists primarily for the government of a

portion of the state
Subject to control and supervision by
the State or its agency.

special law or formed as subsidiaries under the general

corporation law are governed by the Civil Service Law and not
by the Labor Code, has been supplanted by the 1987
Constitution. The present doctrine in determining whether a

Governments majority shares does not make an entity a public

corporation. National Coal Co., v. Collector of Internal Revenue,
46 Phil. 583 (1924).

BUT: being a GOCC makes it liable for laws and provisions

applicable to the Government or its entities and subject to the

GOCC is subject to the Civil Service Law is the manner of its

creation, such that government corporations created by special
charter are subject the Civil Service Law, while those
incorporated under the general corporation law are governed
by the Labor Code. PNOC-Energy Dev. Corp. v. NLRC, 201 SCRA
487 (1991); Davao City Water District v. Civil Service
Commission, 201 SCRA 593 (1991).

control of the Government. Cervantes v. Auditor General, 91

Phil. 359 (1952).
o Although Boy Scouts of the Philippines does not receive
any monetary or financial subsidy from the
Government, and its funds and assets are not
considered government in nature and not subject to
audit by the COA, the fact that it received a special

charter from the government, that its governing board

are appointed by the Government, and that its purpose
are of public character, for they pertain to the
educational, civic and social development of the youth
which constitute a very substantial and important part
of the nation, it is not a public corporation in the same
sense that municipal corporation or local governments
are public corporation since its does not govern a
portion of the state, but it also does not have
proprietary functions in the same sense that the
functions or activities of government-owned or

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

The doctrine that employees of GOCCs, whether created by

Section 31 of Corporation Code (Liability of Directors

and Officers) is applicable to corporations which have
been organized by special charters since Section 4 of
Corporation Code renders the provisions supplementary
applicable to all corporations, including those with
special or individual charters, such as cooperatives
organized under P.D. 269, so long as those provisions
are not inconsistent with such charters. Benguet
Electric Cooperative, Inc. v. NLRC, 209 SCRA 55 (1992).

A corporation is created by operation of law under the

Corporation Code while a government corporation is normally

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

created by special law referred to often as a charter. Bliss Dev.
Corp. Employees Union v. Calleja, 237 SCRA 271 (1994).
o The test to determine whether a corporation is
government owned or controlled, or private in nature is
simple. Is it created by its own charter for the exercise
of a public function, or by incorporation under the
general corporation law? Those with special charters
are government corporations subject to its provisions,
and its employees are under the jurisdiction of the Civil
Service Commission, and are compulsory members of
the GSIS. Camparedondo v. NLRC, 312 SCRA 47 (1999)

civil service laws and anti-graft laws. Feliciano v. COA,

419 SCRA 363 (2004).

separate from that of the government, and the intervention in a

transaction of the Office of the President through the Executive
Secretary does not change the independent existence of a
government entity as it deals with another government entity.
PUP v. Court of Appeals, 368 SCRA 691 (2001).
While public benefit and public welfare may be
attributable to the operation of the Bases Conversion
and Development Authority (BCDA), yet it is certain that
the functions it performs are basically proprietary in
naturethe promotion of economic and social
development of Central Luzon, particularly, and the
countrys goal for enhancement. Therefore, the rule
that prescription does not run against the State will not
apply to BCDA, it being said that when title of the
Republic has been divested, its grantees, although
artificial bodies of its own creation, are in the same

When the law vests in a government instrumentality corporate

powers, the instrumentality does not become necessarily a
corporation. A government-owned or controlled corporation
must be organized as a stock or non-stock corporation. The
MIAA is not a government-owned or controlled corporation
because it is not constituted of capital divided into shares of
stock, and neither is it a nonstock corporation because it has no
members. MIAA is a government instrumentality vested with
corporate powers to perform efficiently its government

Beyond cavil, a GOCC has a personality of its own, distinct and

category as ordinary persons. Shipside Inc. v. Court of

Appeals, 352 SCRA 334 (2001).
Water districts can validly exists as corporate entities
under PD 198, and provided they are government-
owned or controlled, and their board of directors and
other personnel are government employees subject to

functions. Manila International Airport Authority v. Court of

Appeals, 495 SCRA 591 (2006).

Although PNRC has its special charter, the Chairman of PNRC is

not appointed by the President or any member of the Executive
Branch. Although Camporendodo v. NLRC had ruled that PNRC
is GOCC because it is constituted under a special charter, it
failed to consider the definition of a GOCC as provided under
Section 2(13) of the Administrative Code of 1987, which
requires that a GOCC to be such must be owned by the
government, and in the case of a stock corporation, at least a
majority of its capital stock must be owned by the government.
Liban v. Gordon, 593 SCRA 68 (2009).

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

II. As to Place of Incorporation:

A. Domestic Corporation

A domestic corporation is one incorporated under laws of the

Philippines.

B. Foreign Corporation (Section 123)

conditions and restrictions it deems fit to impose. 1

III. As to Purpose of Incorporation:

A. Municipal Corporation

are organized for the purpose of serving the communal welfare

of the inhabitants of a town or a city.
o Municipal corporations are incorporated to continue
the existence and the legal status of the town or city
without regard to the coming and going people who
inhabit it.

The objectives of the statutory provisions prescribing conditions

them by subjecting them to the courts of the state.

Municipal corporations, with respect to its governmental

functions, i.e., political subdivisions created by the legislature
for the convenient administration of the government, or some
aspect of the government, of the inhabitants of a defined
district, remain entirely subject to the legislative control. They

Code and a certificate of authority from the appropriate government

agency. (n)

under which foreign corporations are permitted to do business

in a state other than that of their creation:
(a) To place them on an equality with domestic
corporations;
(b) To subject them to inspection so that their condition
may be known; and
(c) To protect the residents of the state doing business with

Public corporations therefore are essentially municipal

corporation, or those formed and organized by the State for
government, such as the barangay, municipality, city and the
province. In essence, a public corporation, being a mini-state,
possesses all three great powers of government: police power,
power of eminent domain, and power of taxation.2

Section 123. Definition and rights of foreign corporations.

For the purposes of this Code, a foreign corporation is 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. It shall have the right to
transact business in the Philippines after it shall have obtained a
license to transact business in this country in accordance with this

The state, in extending to foreign corporations the privilege of

doing business, may impose such privilege with whatever

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.

(2013 ed.). Manila, Philippines: Rex Book Store.
2
Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.
(2013 ed.). Manila, Philippines: Rex Book Store.

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

They are not operated for profit, and the operating

expenses are levied against the members through the
process of taxation.

A municipal corporation possesses a two-fold character:

(a) Public or governmental character, in which it acts as
agent of the state and exercises, by delegation a part of
the sovereignty of the state.
In their governmental character, the municipal
corporations are possessed of and can exercise
the so-called police power of the state, by
delegation of the legislature.
They may levy taxes for certain purposes under
limitations imposed by the law making body.
(b) A private, corporate or proprietary character, in which it
acts as a private or business corporation, and stands for
the community in the administration of its local affairs
wholly beyond the sphere of public purposes for which
its governmental powers are conferred.
In their proprietary character, municipal
corporations are empowered to mortgage their
property under certain limitations.
They can sue and be sued, enter into contracts
and may be held liable for damages for torts
committed by them in the exercise of their
corporate functions as distinguished from public
and governmental functions.

B. Religious Corporation (Sections 109 and 116)

Section 109. Classes of religious corporations.

Religious corporations may be incorporated by one or more persons.
Such corporations may be classified into corporations sole and
religious societies.

Religious corporations shall be governed by this Chapter and by the
general provisions on non-stock corporations insofar as they may be
applicable. (n)

Section 116. Religious societies.
Any religious society or religious order, or any diocese, synod, or
district organization of any religious denomination, sect or church,
unless forbidden by the constitution, rules, regulations, or discipline of
the religious denomination, sect or church of which it is a part, or by
competent authority, may, upon written consent and/or by an
affirmative vote at a meeting called for the purpose of at least two-
thirds (2/3) of its membership, incorporate for the administration of
its temporalities or for the management of its affairs, properties and
estate by filing with the Securities and Exchange Commission, articles
of incorporation verified by the affidavit of the presiding elder,
secretary, or clerk or other member of such religious society or
religious order, or diocese, synod, or district organization of the
religious denomination, sect or church, setting forth the following:

1. That the religious society or religious order, or diocese, synod, or
district organization is a religious organization of a religious
denomination, sect or church;

2. That at least two-thirds (2/3) of its membership have given their

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

written consent or have voted to incorporate, at a duly convened
meeting of the body;

3. That the incorporation of the religious society or religious order, or
diocese, synod, or district organization desiring to incorporate is not
forbidden by competent authority or by the constitution, rules,
regulations or discipline of the religious denomination, sect, or church
of which it forms a part;

4. That the religious society or religious order, or diocese, synod, or
district organization desires to incorporate for the administration of its
affairs, properties and estate;

deprived of his sacred office, is without remedy in the civil

courts. Long v. Basa, 366 SCRA 113 (2001).

C. Educational Corporations (Sections 106, 107 and 108; Section 25,
B.P. Blg. 232)

Section 106. Incorporation.
Educational corporations shall be governed by special laws and by the
general provisions of this Code. (n)

Section 107. Pre-requisites to incorporation.
Except upon favorable recommendation of the Ministry of Education

5. The place where the principal office of the corporation is to be
established and located, which place must be within the Philippines;
and

6. The names, nationalities, and residences of the trustees elected by
the religious society or religious order, or the diocese, synod, or

and Culture, the Securities and Exchange Commission shall not accept
or approve the articles of incorporation and by-laws of any
educational institution. (168a)

Section 108. Board of trustees.
Trustees of educational institutions organized as non-stock
corporations shall not be less than five (5) nor more than fifteen (15):

district organization to serve for the first year or such other period as
may be prescribed by the laws of the religious society or religious
order, or of the diocese, synod, or district organization, the board of
trustees to be not less than five (5) nor more than fifteen (15). (160a)

Provided, however, That the number of trustees shall be in multiples

of five (5).

Unless otherwise provided in the articles of incorporation on the by-
laws, the board of trustees of incorporated schools, colleges, or other
institutions of learning shall, as soon as organized, so classify
themselves that the term of office of one-fifth (1/5) of their number
shall expire every year. Trustees thereafter elected to fill vacancies,

Since in matters purely ecclesiastical the decisions of the proper

church tribunals are conclusive upon the civil tribunals, then a
church member who is expelled from the membership by the
church authorities, or a priest or minister who is by them

occurring before the expiration of a particular term, shall hold office

only for the unexpired period. Trustees elected thereafter to fill

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

vacancies caused by expiration of term shall hold office for five (5)
years. A majority of the trustees shall constitute a quorum for the
transaction of business. The powers and authority of trustees shall be
defined in the by-laws.

A. Aggregate Corporation

B. Corporation Sole (Sections 110 to 115)

For institutions organized as stock corporations, the number and term

of directors shall be governed by the provisions on stock corporations.
(169a)

For the purpose of administering and managing, as trustee, the affairs,

property and temporalities of any religious denomination, sect or
church, a corporation sole may be formed by the chief archbishop,
bishop, priest, minister, rabbi or other presiding elder of such religious
denomination, sect or church. (154a)

Section 111. Articles of incorporation.

BATASANG PAMBANSA BILANG 232
Section 25. Establishment of Schools
All schools shall be established in accordance with law. The
establishment of new national schools and the conversion of existing
schools from elementary to national secondary or tertiary schools shall
be by law: Provided, That any private school proposed to be
established must incorporate as an non-stock educational corporation
in accordance with the provisions of the Corporation Code of the
Philippines. This requirement to incorporate may be waived in the
case of family-administered pre-school institutions.

Government assistance to such schools for educational programs shall
be used exclusively for that purpose.

D. Charitable, Scientific or Vocational Corporations

E. Business Corporation

IV. As to Number of Members:

Section 110. Corporation sole.

In order to become a corporation sole, the chief archbishop, bishop,

priest, minister, rabbi or presiding elder of any religious denomination,
sect or church must file with the Securities and Exchange Commission
articles of incorporation setting forth the following:

1. That he is the chief archbishop, bishop, priest, minister, rabbi or
presiding elder of his religious denomination, sect or church and that
he desires to become a corporation sole;

2. That the rules, regulations and discipline of his religious
denomination, sect or church are not inconsistent with his becoming a
corporation sole and do not forbid it;

3. That as such chief archbishop, bishop, priest, minister, rabbi or
presiding elder, he is charged with the administration of the
temporalities and the management of the affairs, estate and
properties of his religious denomination, sect or church within his

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

territorial jurisdiction, describing such territorial jurisdiction;

4. The manner in which any vacancy occurring in the office of chief
archbishop, bishop, priest, minister, rabbi of presiding elder is
required to be filled, according to the rules, regulations or discipline of

benefit of his religious denomination, sect or church, including

hospitals, schools, colleges, orphan asylums, parsonages and
cemeteries thereof. (n)

Section 113. Acquisition and alienation of property.

the religious denomination, sect or church to which he belongs; and

5. The place where the principal office of the corporation sole is to be
established and located, which place must be within the Philippines.
The articles of incorporation may include any other provision not
contrary to law for the regulation of the affairs of the corporation. (n)

Any corporation sole may purchase and hold real estate and personal
property for its church, charitable, benevolent or educational
purposes, and may receive bequests or gifts for such purposes. Such
corporation may sell or mortgage real property held by it by obtaining
an order for that purpose from the Court of First Instance of the
province where the property is situated upon proof made to the
satisfaction of the court that notice of the application for leave to sell

Section 112. Submission of the articles of incorporation.

The articles of incorporation must be verified, before filing, by affidavit
or affirmation of the chief archbishop, bishop, priest, minister, rabbi or
presiding elder, as the case may be, and accompanied by a copy of the
commission, certificate of election or letter of appointment of such
chief archbishop, bishop, priest, minister, rabbi or presiding elder, duly
certified to be correct by any notary public.

or mortgage has been given by publication or otherwise in such

manner and for such time as said court may have directed, and that it
is to the interest of the corporation that leave to sell or mortgage
should be granted. The application for leave to sell or mortgage must
be made by petition, duly verified, by the chief archbishop, bishop,
priest, minister, rabbi or presiding elder acting as corporation sole, and
may be opposed by any member of the religious denomination, sect or

From and after the filing with the Securities and Exchange Commission
of the said articles of incorporation, verified by affidavit or affirmation,
and accompanied by the documents mentioned in the preceding
paragraph, such chief archbishop, bishop, priest, minister, rabbi or
presiding elder shall become a corporation sole and all temporalities,
estate and properties of the religious denomination, sect or church
theretofore administered or managed by him as such chief archbishop,

church represented by the corporation sole: Provided, That in cases

where the rules, regulations and discipline of the religious
denomination, sect or church, religious society or order concerned
represented by such corporation sole regulate the method of
acquiring, holding, selling and mortgaging real estate and personal
property, such rules, regulations and discipline shall control, and the
intervention of the courts shall not be necessary. (159a)

bishop, priest, minister, rabbi or presiding elder shall be held in trust

by him as a corporation sole, for the use, purpose, behalf and sole

Section 114. Filling of vacancies.

The successors in office of any chief archbishop, bishop, priest,

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

minister, rabbi or presiding elder in a corporation sole shall become
the corporation sole on their accession to office and shall be permitted
to transact business as such on the filing with the Securities and
Exchange Commission of a copy of their commission, certificate of
election, or letters of appointment, duly certified by any notary public.

4. The names and addresses of the persons who are to supervise the
winding up of the affairs of the corporation.

Upon approval of such declaration of dissolution by the Securities and
Exchange Commission, the corporation shall cease to carry on its

During any vacancy in the office of chief archbishop, bishop, priest,

minister, rabbi or presiding elder of any religious denomination, sect
or church incorporated as a corporation sole, the person or persons
authorized and empowered by the rules, regulations or discipline of
the religious denomination, sect or church represented by the
corporation sole to administer the temporalities and manage the
affairs, estate and properties of the corporation sole during the

operations except for the purpose of winding up its affairs. (n)

existed prior to the Republic. But if any nationality is to be

accorded to a corporation sole it is to be judged from the
nationality of the majority of the faithfuls thereof. Roman
Catholic Apostolic Administrator of Davao, Inc. v. LRC and the
Register of Deeds of Davao City, 102 Phil. 596 [1957]).

vacancy shall exercise all the powers and authority of the corporation
sole during such vacancy. (158a)

Section 115. Dissolution.
A corporation sole may be dissolved and its affairs settled voluntarily
by submitting to the Securities and Exchange Commission a verified
declaration of dissolution.

The declaration of dissolution shall set forth:

1. The name of the corporation;

2. The reason for dissolution and winding up;

3. The authorization for the dissolution of the corporation by the
particular religious denomination, sect or church;

A corporation sole has no nationality being an institution that

The doctrine in Republic v. Villanueva, 114 SCRA 875 (1982) and

Republic v. Iglesia ni Cristo, 127 SCRA 687 (1984), that a
corporation sole is disqualified to acquire/hold alienable lands
of the public domain, because of the constitutional prohibition
qualifying only individuals to acquire land and the provision
under the Public Land Act which applied only to Filipino citizens
or natural persons, has been expressly overturned in Director of
Land v. IAC, 146 SCRA 509 (1986).1

V. As to Legal Status:

A. De Jure Corporation

A corporation has de jure existence if there is a full or

substantial compliance with the requirements of an existing law

Overturning affirmed in Republic v. Iglesia ni Cristo, 127 SCRA 687 (1984);

Republic v. IAC, 168 SCRA 165 (1988).

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

permitting organization of such corporation as by proper
articles of incorporation duly executed and filed. Generally, its
juridical personality is not subject to attack in the courts from
any source.1

B. De Facto Corporation (Section 20)

irregularities.
o It would be a rare case where a third persons dealing
with a corporation is prejudiced by its recognition as a
separate entity despite some minor defects in its
incorporation. It would be unfair to allow a claimant
against the alleged corporation to insist on the
individual liability of innocent investors merely because
of some minor flaws in its incorporation.2

Section 20. De facto corporations.
The due incorporation of any corporation claiming in good faith to be a
corporation under this Code, and its right to exercise corporate
powers, shall not be inquired into collaterally in any private suit to
which such corporation may be a party. Such inquiry may be made by
the Solicitor General in a quo warranto proceeding.

Elements of de facto corporation:
1. Valid law under which it is incorporated
2. Attempt in good faith to incorporate (must get certificate of
incorporation)
3. Assumption of corporate powers (must at least elect Board of
Directors)

A corporation has de facto existence where there is a bona fide

attempt to incorporate, colorable compliance with the statute
and user of corporate powers.

An inquiry to the de facto existence of a corporation may be

made by the Solicitor General in a quo warranto proceeding.

The doctrine grew out of the necessity to promote the security

of business transactions and to eliminate quibbling over

C. Corporation by Estoppel (Section 21)

Section 21. Corporation by estoppel.
All persons who assume to act as a corporation knowing it to be
without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof:
Provided, however, That when any such ostensible corporation is sued
on any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a defense its
lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation.

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.

(2013 ed.). Manila, Philippines: Rex Book Store.

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.

(2013 ed.). Manila, Philippines: Rex Book Store.

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

ATTY. JOSE MARIA G. HOFILEA

Although an entity may not be a corporation de jure or de facto,

a particular person or party may, by estoppel or admission, be
precluded from denying its corporate existence. A group of
persons may assume to do business as a corporation without
having gone far enough to give a de facto existence to the
entity.

Under certain circumstances and for certain purposes, either

the group or third persons contracting with the purported
corporation may be estopped to deny its corporate status.

The corporation by estoppel doctrine is founded on procedural

convenience, avoidance of inquiries into irrelevant formalities,
and fairness to all parties concerned.1

D. Corporation by Prescription

The Roman Catholic Church is a corporation by prescription,

with acknowledged juridical personality inasmuch as it is an
institution which "antedated by almost a thousand years any
other personality in Europe, and which existed when Grecian
eloquence still flourished in Antioch and when idols were still
worshipped in the temple of Mecca."2

into shares and are authorized to distribute to the holders of such

shares dividends or allotments of the surplus profits on the basis of
the shares held are stock corporations. All other corporations are non-
stock corporations.

Section 5. Corporators and incorporators, stockholders and members.
Corporators are those who compose a corporation, whether as
stockholders or as members. Incorporators are those stockholders or
members mentioned in the articles of incorporation as originally
forming and composing the corporation and who are signatories
thereof.

Corporators in a stock corporation are called stockholders or
shareholders. Corporators in a non-stock corporation are called
members.

A. Stock Corporation

If not authorized by the by-laws to distribute the dividends, but

it is a stock corporation, can a corporation distribute dividends
to its shareholders? The answer seems to be in the affirmative,
since one of the expressed powers granted to stock
corporations under Section 43 of the Corporation Code is the
power to declared dividends.

VI. As to Existence of Shares (Sections 3 and 5):

Section 3. Classes of corporations.
Corporations formed or organized under this Code may be stock or
non-stock corporations. Corporations which have capital stock divided

B. Non-Stock Corporation

Section 87. Definition.

For the purposes of this Code, a non-stock corporation is one where no
part of its income is distributable as dividends to its members,

Villanueva, C. L., & Villanueva-Tiansay, T. S. (2013). Philippine Corporate Law.

(2013 ed.). Manila, Philippines: Rex Book Store.
2
Barlin v. Ramirez, 7 Phil. 41 (1906).

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

CORPORATION LAW REVIEWER (2013-2014)

trustees, or officers, subject to the provisions of this Code on
dissolution: Provided, That any profit which a non-stock corporation
may obtain as an incident to its operations shall, whenever necessary
or proper, be used for the furtherance of the purpose or purposes for
which the corporation was organized, subject to the provisions of this
Title.

The provisions governing stock corporation, when pertinent, shall be
applicable to non- stock corporations, except as may be covered by
specific provisions of this Title. (n)

Section 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. (n)

Thus, every time there is an express authorization in either the

articles of incorporation or by-laws of a corporation to declare
dividends, it is undoubtedly a stock corporation. When there is
no express prohibition not to distribute dividends, it would
seem that the corporation is a non-stock corporation.

NOTES BY RACHELLE ANNE GUTIERREZ (UPDATED APRIL 3, 2014)

ATTY. JOSE MARIA G. HOFILEA