DEFINITION

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.
ADVANTAGES OF A CORPORATION AS A FORM OF BUSINESS
It has capacity to act as a single unit. As to liability, the liability is
limited to shareholders liability since stockholders are not
personally liable for the debts of the corporation. The rights and
obligations of a corporation are not affected by the death,
incapacity or replacement of the members. It makes great
undertaking feasible. The vesting of powers if the management
and appointing officers and agents in board of directors gives to a
corporation the benefit of centralized management. Shares can be
transferred by the owner without the consent of the other
stockholders. The method of organization, management and
finance are all standardized, as such, shareholders and creditors
rights are protected.
DISADVANTAGES
The business transaction of a corporation is limited to the State of
its incorporation and may not act as such corporation in their
jurisdiction unless it has obtained a license or authority from the
foreign state. The shareholders limited liability tends to limit the
credit available to the corporation as a separate legal entity.
Double taxation maybe imposed on corporate income. To have a
valid and binding corporate act, formal proceedings, such as board
of meetings are required. The minority shareholders have
practically no say in the conduct of corporate affairs. By the very
nature of shares of stock which are personal properties,
transferable at will by the owners thereof, transfers of share may
result to uniting incompatible and conflicting interests. In large
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scale enterprises, stockholders voting rights may become merely

fictitious and theoretical because if disinterest in management,
wide-scale ownership and inaccessible place of meeting.
Corporations are subject to governmental regulations, supervision
and control including submission of reportorial requirements not
otherwise imposed in other form.
DISTINCTION BETWEEN A CORPORATION AND A
PARTNESHIP
As to law that governs, corporation is governed by corporation
code whereas in partnership is civil code. As to creation,
corporation is created by operation of law whereas in partnership
is by mere agreement. As to formation, corporation must be
formed by at least 5 incorporators whereas in partnership, it may
be formed by two or more natural persons. As to the purpose,
corporation is created for the purpose of profit or non-profit
whereas in partnership, it is created for profit. As to exposure or
liability, stockholders are not liable beyond contribution, whereas
in partnership, general partners are liable. As to period of life,
corporation may operate up to 50 years subject to extension
whereas in partnership, depends on the agreement. As to birth,
corporation commences upon issuance of certificate of
incorporation whereas in partnership, upon meeting of the minds
of the partners. Corporation is managed by board of directors or
board of trustees whereas in partnership, by partners. As to
dissolution, in corporation, consent of state is necessary whereas
in partnership, even without the consent of state.
LBC VS. CA
A corporation, being an artificial person, existing only in
contemplation of law, is not entitled to moral damages.
Filipinas Broadcasting vs. Ago Medical
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 It was ruled that the corporations claim for damages in that

case falls under item 7 of Article 2219 of the Civil Code. This
provision authorizes the recovery of moral damages in cases
of libel, slander or any form of defamation. Article 2219 (7)
does not qualify whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as corporation can
validly complain for liber or any either form of defamation and
claim for moral damages.
Cystal vs. BPI
The rationale for the rule is that the law could not have meant
to impose a penalty on the right to litigate. Otherwise, moral
damages must every time be awarded in favor of the
prevailing defendant against an unsuccessful plaintiff. BPI
may have been inconvenienced by the suit, but we do not see
how it could have possibly suffered besmirched reputation on
account of the single suit alone.
CLASSIFICATION OF CORPORATION
A. Stock and Non-Stock
Two requisite in order to be classified as stock corporations:
1. That they have a capital stock divided into shares;
2. That they authorized to distribute dividend or allotments
as surplus profit to its stockholders on the basis of the
shares held by each of them.
Non-stock corporation where no part of their income is
distributable as dividends to its members, trustees or
officers subject to the provisions on dissolution.
CIR vs. Club Filipino
The plain and ordinary meaning of business is restricted
to activities or affairs where profit is the purpose or
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livelihood is the motive, and the term business when used

without qualification, should be construed in its plain and
ordinary meaning; restricted to activities for profit or
livelihood. Bar does not necessarily convert it into profit
making enterprise. That a club makes some profit does
not make it a profit-making club.
B. Corporation created by special laws
Corporations created by special laws or charters shall be
governed primarily by the provisions of this Code, in so
far they are applicable.
PNOC-EDC vs. NLRC
Under the present state of the law, the test in
determining whether a GOCC is subject to the Civil
Service Law is the manner of creation, such that
Government Corporations created by special charter
are subject to its provisions while those incorporated
under General Corporation Law are not within its
coverage.
Specially, the PNOC-EDC having been incorporated
under the General Corporation Law was held to be
government owned or controlled corporation whose
employees are subject to the provisions of the Labor
Code.
C.Public and Private
Public corporations formed or organized for the
government or a portion of the State or anyof its political
subdivisions and which have for their purpose the general
good and welfare.
Private Corporations formed for some private purpose,
benefit, aim or end. They are created for the immediate
benefit and advantage of the individuals or members
composing it and their franchise may be considered as
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privileges conferred by the State to be exercised and

enjoyed by them in the form of corporation.
The true distinction, therefore, between public
corporation and private ones is that the former are
organized for governmental purpose while the latter is
not.
National Coal vs. CIR
The mere fact that the government happens to be a
majority stockholder does not make it a public
corporation. As a private corporation, it has no
greater rights, powers and privileges than any other
corporation which might be organized for the same
purpose under the Corporation.
RCBC vs. Hon. De Castro
From the foregoing, it is clear that PVTA has been
endowed with a personality distinct and separate
from the government which owns and controls it.
Accordingly, this Court has heretofore declared that
the funds of the PVTA can be garnished since "funds
of public corporation which can sue and be sued
were not exempt from garnishment"
D. Ecclesiastical and lay
Spiritual purposes (Ecclesiastical)
Charity (Lay)
E.Aggregate and Sole
F. Close and Open Corporation
Close corporation Are those whose shares of stock are
held by limited number of persons like the family or other
closely knit group. Under this form of corporation, there
are no public investors and the shareholders are active in
the conduct of the corporate affair.
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 Open corporation formed to openly accept outsiders/

G. Domestic and Foreign Corporation
Domestic Corporation are those that are organized or
created under Philippine Laws.
Foreign Corporation those 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.
a. Nationality of Corporations
i.
Control Test shares belonging to corporations or
partnership at least 60% of the capital of which is
owned by Filipino citizens shall be considered as
Philippine nationality.
ii. Grandfather Rule If the percentage of Filipino
ownership in the corporation or partnership is less
than 60%, only numbers of shares corresponding
to such percentage shall be counted as with
Philippine nationality.
iii. Place of Incorporation Test
National Nickel Mining and Development vs. Redmont
There are two acknowledged tests in determining the
nationality of a corporation: the control test and the
grandfather rule. Paragraph 7 of DOJ Opinion No.
020, Series of 2005, adopts the 1967 SEC Rules
which implemented the requirement of the
Constitution and other laws pertaining to the
controlling interests in enterprises engaged in the
exploitation of natural resources owned by Filipino
citizens. The first part of paragraph 7, DOJ Opinion
No. 020, stating shares belonging to corporations or
partnerships at least 60% of the capital of which is
owned by Filipino citizens shall be considered as of
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Philippine nationality, pertains to the control test or

the liberal rule. On the other hand, the second part of
the DOJ Opinion which provides, if the percentage of
the Filipino ownership in the corporation or
partnership is less than 60%, only the number of
shares corresponding to such percentage shall be
counted as Philippine nationality, pertains to the
stricter, more stringent grandfather rule.
Based on the said SEC Rule and DOJ Opinion, the
Grandfather Rule or the second part of the SEC Rule
applies only when the 60-40 Filipino-foreign equity
ownership is in doubt (i.e., in cases where the joint
venture corporation with Filipino and foreign
stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or
the 59% less Filipino). Stated differently, where the
60-40 Filipino- foreign equity ownership is not in
doubt, the Grandfather Rule will not apply.
H. Parent/Holding, Subsidiaries and Affiliates
There is a parent or holding company when one
corporation controls another corporation, or when one
corporation control several other corporations know as its
subsidiaries.
I. Quasi-public
Defined as a private corporations which have accepted
from the State the grant of a franchise or contract
involving the performance of public duties.
J. Quasi Corporation
They posses some corporate functions and attributes but
they are primarily political subdivisions.
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K. De Jure Corporation
A corporation formed iin accordance with all applicable
laws and organized as a corporation for liability purposes
L. De Facto Corporation
An incompletely formed corporation whose existence
operates as a defense to personal liability of the
directors, officers, and shareholders who, in good faith,
thought they were operating the business as a duly
formed corporation.
M. Corporation by Estoppel
A business that is deemed, by operation of law, to be a
corporation because a third party dealt with the business
as if it were a corporation, thus preventing the third party
from holding a shareholder or officer of the corporation
individually liable.
De Jure vs. De Facto Corporation
De Jure is created in accordance with the law, de facto,
there is colorable compliance with law. In De Jure, there is
no defect in the incorporation while in de facto, there is a
defect in the manner of incorporation. De jure have
strictly or substantially complied with the requirements of
incorporation while in de facto, there is an attempt in
good faith to incorporate based on the requirements of
law.
Liability of Corporation by Estoppel
All persons who assume to act as corporation knowing it
to be without authority to do shall be liable as general
partners for all debts, liabilities and damages incurred or
arising as a result thereof.
FORMATION AND ORGANIZATION
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A.
Process of Incorporation
There are 3 stages in the life of a corporation. These are
creation, reorganization or quasi-reorganization and
dissolution and winding up. For purposes of its creation, there
are three steps that may be identified. It includes the
promotional stage, the process of incorporation and
organization and commencement of business.
As a general rule, a promoter, although he may assume to act
for and on behalf of projected corporation and not for himself,
will be held personally liable on the contract made him for the
benefit of the corporation he intends to organize. He may
elect three probable options to be free from any liability.
(1) He may make a continuing offer on behalf of the
corporation, which, if accepted after incorporation, will
become a contract. In this case, the promoter does not
assume any personal liability, whether or not the
corporation will accept the offer; (2) The promoter may
make a contract at the time binding himself, with the
understanding that if the corporation, once formed, accepts
or adopts the contract he will be relieved of responsibility;
(3) The promoter may bind himself personally and assume
the responsibility of looking to the proposed corporation,
when formed, for reimbursement.
B.
Contents of the AOI
a.Prefatory Paragraph
b.Corporate name
Sec. 18 No corporate name may be allowed by the SEC if
the proposed name is identical or deceptively or
confusingly similar to that of any existing corporation or to
any other name already protected by law or is patently
deceptive, confusing or contrary to law. When a change in
the corporate name is approved, the Commission shall
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issue an amended certificate of incorporation under the

amended name.
Red line transportation co. vs. Rural transit co.
The law gives a corporation no express or implied
authority to assume another name that is
unappropriated; still less that of another corporation,
which is expressly set apart from it and protected by law.
If any corporation could assume at pleasure as
unregistered trade name, the name of another
corporation, this practice would result in confusion of
administration and supervision.
Universal Mills vs. Universal Textile Mills
The corporate name in question are not identical but they
are undisputedly so similar that even the test of
reasonable care and observation as the public are
generally capable of using and may be expected to
exercise as invoked by appellant.
Lyceum of the Philippines vs. CA
True enough the corporate names of private respondents
all carry the work Lyceum but confusion or deception
are effectively precluded by the appending geographic
names to the word Lyceum. Thus, we do not believe that
the Lyceum of Aparri can be mistaken by the general
public for the Lyceum of the Philippines.
The doctrine of secondary meaning originated in the field
of trademark law. Its application has, however, been
extended to corporate names since the right to use a
corporate name to the exclusion of others is based upon
the same principle which underlies the right to use a
particular trademark or tradename.
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Philips Exports vs. CA

The corporations right to use its corporate or trade name
is a property right, in rem, which it may assert and
protect against the world in the same manner as it may
protect its tangible property, real or personal, against
trespass.
The right to the exclusive use of a corporate name with
freedom from infringement by similarity is determined by
priority of adoption.
c. Purpose Clause
Limitation:
1. That the purpose must be lawful
2. The purpose must be specific or stated concisely
although in broad or general terms
3. If there is more than one purpose, the primary purpose as
well as the secondary must be specified
4. The purpose must be capable of being lawfully combined
d.Principal Office
Clavecilla Radio vs. Antillon
Settled is the principle in corporation law that the
residence of a corporation is the place where its principal
office is established. Since it is not disputed that CRS has
its principal office in Manila, it follows that the suit
against it may properly be filed in the city of manila.
e.Term of existence
Once the existence ceases to exist, its legal personality
expires and could not thereafter, act in its own name for the
purpose of prosecuting its business. It is to be noted,
however, that despite the termination of its existence,
whether by expiration of its own term or by forfeiture, the
corporation continues as a body corporation for the purpose
of prosecuting and defending suits for or against it and by
enabling it gradually to settle and close its affairs.
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f. Incorporators
Sec. 10 Any number of natural persons not less than 5 but
not more than 15, all of legal age and a majority of whom
are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes. Each of the
incorporators of a stock corporation must own or be a
subscriber to at least 1 share of the capital stock of the
corporation.
g.Directors/Trustees
The code required mere residency, i.e., majority of them, in
order to qualify to the office of the director, provided of
course that each of them holds at least 1 share and in their
own names, of the capital stock corporation. Such being the
case, even aliens may be elected as directors provided that
the residency requirement of the Code (majority are
Philippine residents) is met.
Sec. 27 No person convicted of final judgment of an offense
punishable by imprisonment for a period exceeding 6 years
or a violation of this Code committed within 5 years prior to
the date of his election or appointment, shall qualify as a
director, trustees or officer of any corporation.
h.Capitalization
Sec. 62 Consideration for stock Stocks shall not be issued
for a consideration less than the par or issued price thereof.
Consideration for the issuance of stock may be any or a
combination of any two or more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and
lawful purposes at a fait valuation equal to the par or
issued value of the stock issued;
3. Labor performed or services actually rendered to the
corporation;
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4. Previously incurred indebtedness by the corporation;

5. Amounts transferred from unrestricted retain earnings to
stated capital;
6. Outstanding shares foe exchange for stocks in the event
of reclassification or conversion.
Take not of Sec 6
Common stock
Preferred stock preference over the holder of common
with respect to the payment of dividends. Limitation: They
can be issued only with a stated par value; and The
preferences must be stated in the AOI and certificate of
stock.
Preference as to dividends privilege of being paid dividend
first before any other stockholders..
Participating and Non-participating preferred share if
participating, the holders are given the right to participate
with the common stockholders in dividends.
Cumulative preferred shares of stock those that entitle the
owner thereof to payment not only of current dividends but
also back dividends not previously paid whether or not,
during the past years, dividends were declared or paid.
Non-cumulative are those which grant the holders of such
shares only to the payment of current dividends but not
back dividends.
It may discretionary dividend, mandatory if earned,
earned cumulative
Preferred as to voting rights
Preferred upon liquidation
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Par value whose value are fixed in the articles of

incorporation
No par value price not stated in the certificate of stock.
Such share, once issued, are deemed fully paid.
Consideration must not be less than 5 pesos. Cannot be
issued as preferred stock.
Voting and Non-voting Shares
Founders shares 5 year period fixed by law is nonextendible
Redeemable Shares
Treasury shares While in the possession of the
corporation, however, treasury shares have no dividend
Capital requirement refer to Sec 12 n 13
i. Restrictions and preferences on transfer of shares
j. No transfer clause
No transfer of stock or interest which will reduce the
ownership of Filipino citizens to less than the required
percentage of the capital stock as provided by existing laws
shall be allowed or permitted to be recorded in the books of
incorporation and this restriction shall be indicated in all of
the stock certificates to be issued by the corporation.
k.Execution Clause
l. Acknowledgement
m. Grounds for disapproval
Refer to Sec 17

COMMENCEMENT OF CORPORATE EXISTENCE

Refer to Sec. 19
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De Facto Corporation Requisite:

1. There is a valid statute under which the corporation could
have been created as a de jure corporation.
2. An attempt in good faith to form a corporation according ti
the requirement of law, which goes far enough to amount to
a colorable compliance with the law
3. A user of corporate powers, the transaction of business in
some way as if it were a corporation and
4. Good faith in claiming to be and doing business as a
corporation
Municipality of Malabang vs. Benito
An unconstitutional act is not a law; it confers no rights; it
imposes no duties; it affords no protection; it creates no
office; it is, in legal contemplation, as inoperative as
though it had never been passed. Hence, in the case at
bar, the mere fact that Balabagan was organized at the
time when the statute had not been invalidated cannot
conceivably make it a de facto corporation. There is no
other valid statute to give color of authority to its
creation.
Hall vs. PICCIO
The immunity of collateral attack in granted to
corporations claiming in good faith to be a corporation
under this Act. Such a claim is compatible with the
existence of errors and irregularities, but not with a total
or substantial disregard of the law. Unless there has been
an evident attempt to comply with the law the claim to be
a corporation Under this Act could not be made in good
faith.
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Corporation by Estoppel (Sec 21)

The principle of estoppel cannot likewise be invoked in favor
of a person who is a member of the association and therefore
must be presumed to know that it is not a corporation.
Lozano vs. De los santos
Corporation by estoppel is founded on principle of equity
and is designed to prevent injustice and unfairness. It
applies when persons assume to form a corporation and
exercise corporate functions and enter into business
relation with third persons. Where there is no third person
involved and the conflict arises only among those
assuming to form a corporation, who therefore know that
it has not been registered, there is no corporation by
estoppel.
Salvatierra vs. Garlitos
As president of the unregistered corporation, he is the
moving spirit behind the consummation of the lease
agreement by acting as its representative, his liability
cannot be limited or restricted to that imposed upon
corporate shareholder. In acting on behalf of a
corporation which he knew to be unregistered, he
assumed the risk or reaping the consequential damages.
Chiang Kai Shek vs. CA
Unless exempted for special reasons by the Secretary of
Public Instruction, any private schools or college
recognized by the government shall be incorporated
within 90 days after the date of incorporation and shall
file a copy of incorporation and by-laws to SPI.
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Asia Bank Corp vs. Standard Products

The defendant having recognized the corporate existence
of the plaintiff by making a promissory note in its favor
and making partial payments on the same is therefore
estopped to deny said plaintiffs corporate existence. It is
of course, also estopped from denying its own corporate
existence. Under the circumstances it was unnecessary
for the plaintiff to present other evidence of the corporate
existence of either of the parties. It may be noted that
there is no evidence showing circumstances taking the
case out of the rules stated.
International Express Travel vs. CA
It is a basic postulate that before a corporation may
acquire juridical personality, the State must give its
consent either in the form of a special law or general
enabling act.
Georg Grotjahn vs. Isnani
The rule is that party is estopped to challenge the
personality of a corporation after having acknowledged
the same by entering into a contract with it. And the
doctrine of estoppel to deny corporate existence and
capacity. The principle will be applied to prevent a person
contracting with a foreign corporation from later taking
advantage of its non-compliance with the statutes chiefly
in cases where such person has received the benefits of
the contract.
Only those who actively participated in holding that the
association as corporation should be held personally
liable by virtue of the express provision of Sec 21 which
provides that all persons who assume to act as a
corporation knowing it to be without authority to do so
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shall be liable as general partners for all debts, liabilities

and damages incurred or arising therefrom
ORGANIZATION AND COMMENCEMENT OF BUSINESS
See sec 22

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