Corporation Law

Definition
1.
2.
3.
4.

Artificial being (person)

Created by operation of law
Having the right of succession
The powers and attributes expressly conferred by law or incidental to its existence

Partnership and Corporations

Distinction
1. Manner of creation
P is created by mere agreement of the parties.
XPNs:
-

capital is more than 3k ( agreement of the parties shall be in

writing)
Real property is contributed by any partner in which case the real
property must be listed and must be in public instrument.
Limited partnership (articles of limited partnership must be filed
with SEC)

C is created by operation of law

Some corporation are not created by operation of law some are created by law
itself
o By law there is a specific law creating a corporation
Example: GOCC (specific law : their charter)
XPN: GOCC created by operation of law
o PNCC ( former cdcp, developer of nlex and slex)
*It became a GOCC because it incurred lot of
obligations toward Government Financial Institutions
(GFIs) since the CDCP could not pay the controlling
stockholder gave up their shares to the GFIs.
o

By operation of law there should be compliance with the requirements of

law and by operation of law a corp is created.
Example : privately owned corp
XPN: PNB privately owned bank (it has charter because it is a
former govt

2. Name
-

A Partnership may use any name for as long as it is not similar or

confusingly similar to an existing partnership or corporation.
o

NAME OF EVERY PARTER OR SURNAME OF ALL, SOME OR

ONE.

A Corporation must include the word corporation or

incorporated whether in full or abbreviated.

A Partnership is for profits

A Corporation may or may not be for profits

3. Purpose

4. Term
- In Partnership, partners may agree on any term.
- In Corporation can have a maximum only of 50 years
5. Number of organizers
- In Partnership min of 2. No max
- In Corporation min of 5, max of 15
6. Management
- In partnership the decisions are made by partner/s having the
controlling interest not majority of the partners
- In corporation
o GR: Board ( decisions are made by a majority of the quorum
in a meeting of the board)
Directors vote- only one vote regardless of the shares

XPNS
Corporation sole (religious corp managed by
head of sect or denomination.no board)
Close corporation ( where the incorporators or
the stockholders agreed to manage directly the
affairs of the corp)

7. Contributions
- P: money, property or industry.
- C: money and property only.
8. Right of Succession
- P: no right of succession
- C: right of succession (a corporation has an independent existence
from that of the stockholder. If the latter died the corp continues to
exist.
9. Sharing of profits
- P: accdng to agreement by the parties ( profits and losses are
shared by the partners)
- C: dividends are distributed pro rata meaning accdng to the
participation in the capitalization. Always distributed pro rata
regardless of the form of dividends ( cash, prop or new shares of
stock)
10.Extent of liabilities
- P: In general partnership, partners are obliged to contribute some
more even though they have fully paid their subscription if there
are unpaid creditors.
- C: once fully paid for subscription. He could not be obliged to
contribute some more.
11. Capital
-

P: no minimum paid up capital required

C: minimum of 5k paid up capital is required

12.Dissolution
P: by the will of any partner, no matter how insignificant his interest
might be.
Illustration:
4 partners contribute 1m each. 1 partner promised to
contribute P1. Later the P1 contributor decided to withdraw from
the partnership. The effect of his withdrawal dissolves the
Partnership.

C: resolution of the Board of Directors (majority of a quorum).

FORMING A CORPORATION
1. Question: how do you call the persons forming a corp?
Ans: Incorporator
NOTE: The incorporators at the time of incorporation are also corporators. But later on these
incorporators may leave the corp. in which case the incorporators ceased to be corporators but
remains incorporators.

DIFFERENCE BETWEEN CORPORATORS AND INCORPORATORS

-

Incorporator is one of those who organized the corporation and is

one of those who signed the articles of incorporation.

Note: Articles of incorporation are signed only once even though there has been an amendment
on such.
-

Corporators in a stock corp are known stockholders or shareholders

Corporators of a non- stock corp are known as members.

Note: Difference of stock and non - Stock Corporation

1. Stock 2 qualifications
a. Authorized capital stock divided into shares
b. Being authorized to declare dividends from surplus
2. Non- stock 1 qualification
a. Only 1 of 2 qualification of a stock corp
10m / 10 m shares par value of 10m
NOTE: Corporation code defines non-stock corp using the qualification
Forming a Corporation
Stock
1. File with the SEC the AOI and the other docs required by the SEC to be filed
simultaneously.
2. Corporate name, pre- approved by the SEC (P40 fee for reservation for 30 days).
a. Go to the SEC / online and fill out the verification slip. (Record section) To avoid
similar or confusingly similar names.
3. Principal doc AOIoo
4. Treasurers affidavit
5. Bank cert of deposit
6. Authority to inspect bank deposit
7. Undertaking to change corporate name
8. Form: Registration data sheet
Non- stock (Mutual Benefit. Example: chess, poker, tennis)
1. Name verification slip
2. AOI
3. Undertaking to change corporate name

4. Modus Operandi : brief statement of how the non-stock corp would operate
a. Example: Members shall contribute an amount that BOD to acquire equipment for
their activities.
5. By-laws
a. It could be filed simultaneously with the other docs or 30 days from the issuance of
the certificate if the By-laws is not yet ready.
FOUNDATION non stock corpo
SEC: minimum total contributions =? All organizers

Incorporation Process
Note: Incorporators (prepare all the documents (Minimum of 5. Max of 15)
-

Natural Persons
Not minor (guardian)
Legal age
Capacity to contract
Majority of the incorporators are resident of the Philippines
Not necessarily citizen of the Phil UNLESS there is a law requiring it

NOTE: AOI matters required to be agreed on

-

atleast 10 articles
Stipulate more than what is required (additional stipulations)

Articles
I.

Corporate Name
a. Rules:
1. Not similar/identical or confusingly similar with the name of other existing
corporation or partnership
2. Words corporation incorporation whether full words or abbreviated.
3. What may not be used?
a. Philippines or Republic ( as first word) national, state (gdcc)
b. Bank monetary board
c. Insurance, insurer if not insurance company

II.

Purpose
a. Rules:
1. Only one primary purpose
a. Not in a very short statement
b. Must be expressed in a long statement
2. Secondary purpose
a. No limit on members
b. Must be compatible on primary purpose and of one another
c. General Banking Act bank assurance, gross selling ( bank may
engage in selling policy.
d. Insurance company doing banking transactions
e. Example:
i. to acquire real property

1. develop a memorial park ( primary) and operating

memorial parlor ( secondary)
2. business equipment ( primary)
3. maximizing the facilities (secondary)
III.

Term
NOTE:
1. Maximum term of 50 years at any one time
2. Maybe extended before it expires
3. No limit to the number of extensions of the corporate term (perpetual
existence)
4. Extension: not earlier than 5 years before it expires Unless there is a
justifiable reason.

IV.

Principal place of business

a. Exact complete address

V.

Incorporators
3 matters
1. Full name
2. Nationality
3. Complete address

VI.

No. of Directors
a. 2 parts
i. First Part
1. Non-stock : 15 no limit
2. Stock: 5 -15
ii. Second Part
1. Complete name
2. Nationality
3. complete address of incorporating directors : names stated in the AOI
as the first set of BOD of Corporation

NOTE: The first 6 articles apply to both Stock and NSC

VII.

STOCK CORPORATION
a. 1 st Part
i. Amount (expressed in pesos) of authorized capital stock
ii. Number of shares r + s
iii. The value assigned to every share

(Unit of participation in the corporation) STOCK CERTIFICATE IS DIFFERENT

Stock : totality of the amount -> parts ->shares

Pesos shares of stock (corporators are free to determine)
Govt regulator: minimizing the paid up.
o Example: Univ. Bank compete with Metbank (1m) paid up of no less than 3.5 billion.

Par Value:

 Minimum that may be assigned

1 centavo lowest denomination of our currency system
Maximum amount: any amount
No. par value shares
Rule

b. 2nd part

1. P5 each
2. All subscription should be immediately paid up. ( fully paid)
3. Payment is considered capital contribution; may not be used in
payment of dividends
4. Certain corporations not allowed to issue non par value shares; bank,
insurance companies, trust corp, public utilities, and bldng and loan
assoc.
1.
2.
3.
4.

Full name of the subscribers

Nationality
No. of shares subscribed
No. of value of prescription

Subscribers: not necessarily natural persons ( ex: corpo. Partnerships)

Subsidiary corporations:
Mother corporation: organizer of the subsidiary
Now many subsidiaries: no limit

VIII.

Stock corporation
a. Full namAre of the subscribers
b. Amount individually paid
c. 25% total amount subscribe

IX.

Name of Treasurer

X.

Provision required by the law

a. Provision required by the law
b. No transfer of shares that reduces the participation of the Filipino

SEC- Issues a Certificate of Registration

New persono Can acquire property, in its own name

o No common ownership
Partnership: there is common ownership
Corporation: can enter into a contract, In its name
Action: in the name of the corpo
Sue only the corporation

(Liabilities) Corpo separate and distinct personality

XPN: Pierced corporate veil
-

Separate respective personality

Not based on law but is based on jurisprudence
Disregarding the separate personality

Pronouncement : In case of insolvency; stockholder is obliged to pay

Separate personality may be set aside; WHEN THERE IS CONVINCING EVIDENCE; WHEN
CORPORATION IS TO COMMIT A LEGAL WORNG
2 CORPORATIONS; one I s mere instrumentality of the other
Alter ego
Instrumentality rule

By laws
House rules: may be filed simultaneously
Signed by the majority of the incorporators
Within 30 days from the issuance of Certificate of Registration

Show cause notice: why COR should not be cancelled.

Stocks certificate:
Meetings: annual meeting -> regular meeting
Place: few stockholders principal office ( hold meeting)
Date: held after the financial statement is ready
o Example: 2nd Tuesday of March
Meeting of the stockholders: Regular/ special
Quorum:
Presence in person or by proxy
Stockholders representing the majority shares
Outstanding shares: issued by the corporation excluding treasury shares

Outstanding shares: issued by the corporation excluding the treasury shares

Out of the corporation
Example: 780k
250k subscribed
New issue: 300k
Proxy: Representative on behalf of the stockholder or member
Contract of agency
Proxy: written authority not necessarily in public instrument
Corporate Secretary: checks the signature by checking it. Proxy must be presented at least 5
days for validation
Special meetings: held upon call of the President of Corporation
Written Notice: state the matter to be taken up
No other matter could be taken up in the special meeting w/o concurrence of all present
Stock Corp: Voting
Proxy vs Voting Trust Agreement
P is allowed on Stock and Non Stock (may be in private instrument) while VTA is allowed only on
stock corp
P may be in private instrument while VTA must be in public instrument
P is filed with the corporate sec while VTA is filed in the SEC
A stockholder does deliver his stock cert to the proxy while in VTA Stockholder deliver the voting
trust cert
A P take instructions on how to vote while VTA vote for the stockholder
P for one meeting?
P period shall not go beyond5 years and can be renewed while VTAs term is 5 years

NOTE: proxy may be revoked implied or express while VTA may not be revoked because it is
pursuant to a contract.