DEFINITION

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

succession and the powers, attributes, and properties expressly authorized by law or
incident to its existence. (Sec. 2, unless otherwise indicated, all sections cited herein
are from B.P. 68, or the Corporation Code)
Classes of Corporations
STOCK CORPORATION (Asked in 2001 and 2004)
Corporations which have 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 shares held (Sec. 3)
It is organized for profit.
The governing body of a stock corporation is usually the Board of Directors (except in
certain instances, e.g. close corporations).
NON-STOCK CORPORATION (Asked in 2004)
All other corporations are non-stock corporations (Sec. 3)
One where no part of the income is distributable as dividends to its members, trustees,
or officers, subject to the provisions of the Code on dissolution(Sec. 87).
Not organized for profit.
Its governing body is usually the Board of Trustees.
There are two elements for a stock corporation to exist:
(1) Capital stock divided into shares, and
(2) An authority to distribute to the holders of such shares, dividends or allotments of the
surplus profits on the basis of shares held. (Test of WON a stock corporation)
Even if there is a statement of capital stock, the corporation is still NOT a stock
corporation if dividends are NOT supposed to be declared, that is, there is no
distribution of retained earnings. (CIR v. Club Filipino de Cebu, 1962)
Note: Under Sec. 43 of the Corporation Code, a corporation is deemed to have the
power to declare dividends. Thus, so long as the corporation has capital stock and there
is no prohibition in its Articles of Incorporation or in its by-laws for it to declare dividends,
such corporation is a stock corporation.
CORPORATION DE JURE
A corporation organized in accordance with the requirements of the law.
DE FACTO CORPORATION
A corporation where there exists a flaw in its incorporation
Requisites of De Facto Corporation
(1) Organized under a valid law
(2) Bona fide compliance with formalities of law
(3) User of corporate powers
(4) SEC issuance of certificate of incorporation (Hall v. Piccio, 86 Phil 603 [1950])

CORPORATION BY ESTOPPEL
Where a group of persons misrepresent themselves as a corporation, they are
subsequently estopped from claiming lack of corporate life in order to avoid liability. 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 (Sec. 21).
The corporation is a national of the country under whose laws it is organized or
incorporated (Sec. 123).
Domestic corporations organized and governed under and by Philippine laws
Foreign Corporations organized under laws other than those of the Philippines and
can operate only in the territory of the state under whose laws it was formed. However,
they may be licensed to do business here (Campos).
GRANDFATHER RULE
Method used to determine the nationality of a corporation, in cases where corporate
shareholders are present in the situation, by which the percentage of Filipino equity in a
corporation engaged in nationalized and/or partly nationalized areas of activities, is
computed by attributing the nationality of second or even subsequent tier ownership to
determine the nationality of the corporate shareholder (Villanueva).
DOCTRINE OF PIERCING THE CORPORATE VEIL
Piercing the veil of corporate entity is merely an equitable remedy, and may be granted
only in cases when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime (Yutivo Sons v. CTA, 1961) or where the
corporation is a mere alter ego or business conduit of a person. (Koppel Phil v. Yatco)
GROUNDS FOR APPLICATION OF DOCTRINE
(1) If done to defraud the government of taxes due it.
(2) If done to evade payment of civil liability.
(3) If done by a corporation which is merely a conduit or alter ego of another
corporation.
(4) If done to evade compliance with contractual obligations.
(5) If done to evade financial obligation to its employees.
Distinct disadvantages
1. Provides limited liability to investors
A. Corporation is a fiction of law. Without a law there will be no corporation.

Corporation Code of the Philippines BP 68

Special law that congress may come up with
Creating a public corporation GOCCs
B. Artificial being
Giving a corporation separate juridical personality
Corporation will be treated separate and distinct from the people that
compose the corporation.
1. Investors stockholders/shareholders
2. Governing body board of directors (stock corp)
Board members (non-stock corp)
3. Officers and employees, agents, representatives of the corporations
GR: obligations incurred by the corporation without bad faith from its officers, directors
performing their function and power during the ordinary course of business, the liability
remains with the corporation
Investors and shareholders are liable up to the extent of the value of their shares in the
corporation.
GR: you cannot run after their personal assets. They are shielded by the corporation.
Exceptions: the state in creating the corporate entity only intends that the corporate
entity promote what is originally intended (to encourage business, for the economy)
People with different motivation in forming a corporation like fraud, hiding illegally
obtained wealth, circumventing the law, the state will not hesitate to pierce or to withhold
the fiction to protect the interest of the general public. The state will pierce the veil of
corporate fiction.
The objective being is to make natural person responsible to the damage and to held
personally liable on that specific transaction.
If that case is resolved, the veil of corporate fiction is restored.
It will be pierced for that particular purpose but not for all purposes.
Nationality of Corporations
GR: the corporation is a national of the country under whose law it is organized or
incorporated.
Domestic corporation organized and governed under the Philippine laws.
If it is organized under other than the Philippine law, it is a foreign corporation.
Limitation:
1. Exploitation of natural resources limited to Filipino corporation or with foreign
corporation whose capital stock is at least 60% Filipino owned.
2. Ownership of the land Filipino corporation or foreign corporation with at least
60% stocks owned by Filipino.

3. Business engaged in Public Utilities 60% Filipino otherwise transaction can be

challenge before the court.c