Define a Corporation - Double taxation

A corporation is an artificial being created by

operation of law, having the right of succession and Classification of Corporations
the powers, attributes and properties expressly In relation to the State:
authorized by law or incident to its existence - Private corporations
- Public corporations or LGUs
4 Corporate Attributes from Sec. 2: - Quasi-public corporations
- Artificial Being - GOCCs
- A creature of law - Chartered GOCCs
- With a strong juridical personality - Non-chartered GOCCs
- A creature of limited powers As to place of incorporation:
- Domestic Corporation
Tri-Level Existence in the Corporate Setting: - Foreign Corporation
- Assets-Only level
- Business Enterprise Level As to purpose of incorporation:
- Juridical Entity Level - Religious corporation
- Educational corporation
Tri-Level Relationships in the Corporate Setting: - Non-stock & non-profit corporations:
- Juridical Entity charitable, scientific, or vocational
o State-corporation relationship corporations
- Intra-corporate level - Business (for profit) corporations
o Corporation and its agents
o Corporation and its shareholders or As to number of members:
members - Aggregate corporation
o Shareholders and the corporate - Corporation sole
directors, trustees and officers As to legal status:
o Among the shareholders or members - De jure corporation
- Extra-Corporate Level - De facto corporation
o Corporation and its employees (Labor - Corporation by estoppel
Laws) As to existence of shares:
o Corporation and those who it - Stock corporation
contracts with (Contract Laws) - Non-stock corporation
o Corporation and the public affected
by its enterprise (Law on Torts or To be considered a beneficial owner of a stock:
Quasi-Delicts) Must have:
- Investment Power
Theories on the Formation of Corporations - Voting power
- Theory of Concession
- Theory of Enterprise Entity Piercing Doctrine is solely an Equitable Remedy.
Consequences:
Advantages of a Corporation - It is a remedy of last resort
- Strong and solemn juridical personality - Can be availed of only to prevent fraud or to
- Centralized management achieve an equitable end
- Limited liability to stockholders (and non- - Not applicable to theorize or to
liability to officers) advance/create new rights or interest
- Free transferability of Units of Ownership - Piercing must be based on clear evidence
- Piercing is a power belonging to the courts
Disadvantages of a Corporation: and cannot be assumed improvidently by a
- Agency Cost: Abuse of management; breach sheriff
of trust - Piercing has only res judicata effect
- Abuse of limited liability feature
- High cost of maintenance of the corporate Classification of piercing cases:
medium - Fraud piercing
 - Alter ego piercing
- Defeat of public convenience (equity piercing)
A stock corporation has the power to acquire its
own shares for legitimate purposes, provided it
has URE in the following instance:
- To eliminate fractional shares arising out of
the stock dividends
- To collect or compromise an indebtedness to
the corporation, arising out of unpaid
subscription, in a delinquency sale, and to
purchase delinquent shares sold during said
sale
- To pay dissenting or withdrawing
stockholders entitled to payment for their
shares
NOTE: Redeemable shares = does not need URE to
buy back
Instances wherein a stock corporation can retain
more than 100% of its paid-up capital stock:
- Definite corporate expansion projects or
programs approve by the BOD
- When the corporation is prohibited by loan
covenant requiring the consent of the creditor
before it can declare dividends
- Special circumstances requiring special reserve
for probable contingencies
Requisites to invoke illegal corporate name:
- Complainant corporation acquired prior right
over the use of such corporate name
- The proposed name is either:
o Identical
o Deceptively or confusingly similar
o Patently deceptive, confusing, or
contrary to existing laws
Grounds for the rejection or disapproval of the
AOI by the SEC:
- The AOI or any amendment is not
substantially in accordance with the form
prescribed
- The purpose/s of the corporation are
unconstitutional, illegal, immoral or contrary
to government rules and regulations
- The Treasurer’s affidavit concerning the
amount of capital stock subscribed and/or
paid is false
- The percentage ownership of the capital stock
to be owned by citizens of the Philippines has
not been complied with as required by the
existing laws or the Constitution
Classification of Corporate Powers:
- Express
- Implied
- Incidental
Instances of Appraisal Right:
- In case any amendment to the AOI has the
effect of changing or restricting the rights of
any stockholder or class of shares, or of
authorizing preferences in any respect
superior to those of outstanding shares of any
class, or of extending or shortening the term
of the corporate existence
- In case of sale, lease, disposition of all or
substantially all of the corporate property and
assets as provided in the Code
- In case of merger or consolidation
Instances wherein 2/3 vote of the total
outstanding stock or members of both
corporations are needed in management
contracts:
- Where a stockholder/s representing the same
interest of both the managing corporations
own or control more than 1/3 of the total
outstanding capital stock entitled to vote of
the managed corporation
- Where majority of the members of the BOD
of the managing corporation also constitute a
majority of the members of the directors of
the managed corporation
The following can sign the verification and
certification against non-forum shopping in
behalf of the corporation without a benefit of a
board resolution:
- President
- Chairperson of the BOD
- General Manager/Acting GM
- Personnel officer
- Employment Specialist
To whom service of summons must be made:
- President
- Manager
- Secretary
- Cashier
- Agent
- Director
Instances wherein the Executive Committee
cannot act upon:
 - Approval of any action for which
shareholders’ approval is also required
- The filling of vacancies in the board
- The amendment or repeal of by-laws or the
adoption of new by-laws
- The amendment or repeal of any resolution of
the board which by its express terms is not so
amendable or repealable
- A distribution of cash dividends to the
shareholders
Three-fold duty of directors:
- Obedience
- Diligence
- Loyalty
GR: A contract of the corporation with one or
more of its directors or trustees or officers is
voidable, at the option of such corporation
EX: unless the following conditions are present:
- Presence of such director or trustee in the
board meeting in which the contract was
approved was not necessary to constitute a
quorum for such meeting
- That the vote of such director or trustee was
not necessary for the approval of the contract
- That the contract is fair and reasonable under
the circumstances
- That in case of an officer, the contract has
been previously authorized by the BOD
NOTE: when first 2 conditions absent, may be
ratified by 2/3 votes of stockholders; with disclosure;
contract is fair and reasonable
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Pre-emptive right shall not extend to:
- Shares to be issued in compliance with laws
requiring stock offerings or minimum stock
ownership by the public
- Shares to be issued in good faith with the
approval of the stockholders representing 2/3
of the outstanding capital stock, in exchange
for property needed for corporate purposes
- Payment of previously contracted debt
No Pre-emptive Right in the following situations:
- When such right is denied by the articles of
incorporation
- When the shares to be issued are in
compliance with laws requiring stock offerings
or minimum stock ownership by the public
- When the shares to be issued are for property
needed for corporate purposes or in payment
of previously contracted debt (provided that it
is issued in good faith and with concurrence
of the 2/3 outstanding stock holders)
Requisites for a Valid Restriction on Transfer of
Stock:
- Reasonableness
- Time-boundedness
Examples of Valid Restrictions:
- Right of First Refusal
- Right of First Option
- Buy Back Agreement
Instances wherein non-voting shares may still
vote:
- Amendment of AOI
- Adoption and amendment of by-laws
- Sale, lease, exchange, mortgage, pledge or
other disposition of all or substantially all of
the corporate property
- Incurring, creating or increasing bonded
indebtedness
- Increase of decrease of capital stock
- Merger or consolidation of the corporation
with another corporation or other
corporations
- Investment of corporate funds in another
corporation or business in accordance with
this code
- Dissolution of the corporation
Instances when stockholders entitled to vote:
- Amendment of AOI
- Election of directors and trustees
- Investment in another business or corporation
- Increase or decrease of capital stock
- Incurring, or increasing bonded indebtedness
- Sale, disposition or encumbrance of all or
substantially all of the corporate assets
- Declaration of stock dividends
- Management contracts
- Adoption, amendment and repeal of by-laws
- Fixing of consideration of no par value shares
- Merger and consolidation
Requisites for Valid Proxy:
- The proxy shall be in writing
- Signed by the stockholder or member
- Filed before the scheduled meeting with the
corporate secretary
Express limitations on the right of inspection:
 - It should be exercised at reasonable hours on
business days
- The person demanding records and minutes
has not improperly used any information
secured through any previous examination of
records
- The demand is made in good faith or for a
legitimate purpose
- If the corporation contends that there is evil
motive behind the inspection, the burden of
proof is with the corporation or such officer
to show the same
Exceptions to the Confidentiality of Records and
Results of the SEC Inspection:
- The law requires the findings to be made
public
- The findings must be presented as evidence
before a court
Instances where appraisal right may be invoked:
- When any amendment to the articles of
incorporation would have the effect of:
o Changing or restricting the rights of
any stockholder or class of shares; or
o Authorizing preferences in any
respect superior to those of
outstanding shares of any class; or
o Extending or shortening the term of
corporate existence
- Sale or disposition of all or substantially all of
the corporate property
- In cases of merger or consolidation
When right to payment (appraisal right) ceases:
- When the demand for payment is withdrawn
with the consent of the corporation
- If the proposed corporate action is abandoned
or rescinded or disapproved by the SEC
His status as a stockholder shall be restored and all
dividend distributions which would have accrued on
his shares shall be paid to him
Requisites of a Derivative Suit:
- The party bringing the suit should be a
stockholder during the time of the act or
transaction complained of
- The party has tried to exhaust intra-corporate
remedies, relief, but the latter has failed or
refused to heed his plea
- The cause of action actually devolves on the
corporation; the wrongdoing or harm having
been or being caused to the corporation and
not to the particular stockholder
- *No appraisal right is available
- *The suit is not a nuisance or harassment suit;
consider the following:
o Extent of the shareholding or interest
of the initiating stockholder or
member
o Subject matter of the suit
o Legal and factual basis of the
complaint
o Availability of appraisal rights
o Prejudice or damage to the
corporation
- *Must allege in the complaint that such is a
derivative suit
Grounds for Derivative Suit:
- Violation of laws
- Wastage and diversion of funds
2 common forms of preferred shares:
- Preferred shares as to assets
- Preferred shares as to dividends
Kinds of Considerations for stocks:
- Actual cash
- Property, tangible or intangible, actually
received by the corporation and necessary or
convenient for its use and lawful purposes at a
fair valuation equal to the par or issued value
of the stock issued
- Labor performed for or services actually
rendered to the corporation
- Amounts transferred from URE to stated
capital
- Outstanding shares exchanged for stocks in
the event of reclassification or conversion
2 instances wherein call for payments for unpaid
subscriptions is not necessary:
- The subscription contract states that payment
is to be made immediately or when it is
payable in installments as specified times
- Corporation becomes insolvent, which makes
the liability unpaid and demandable regardless
of any stipulation to the contrary in the
subscription agreement
Remedies available to a stockholder if a
corporation wrongfully refuses to issue a
certificate of stock:
- Specific performance
 - Damages
- Mandamus
- Rescind the contract of subscription
Normal mode of dealing with stocks is through
endorsement and delivery. 3 purposes:
- For sale and assignment of the shares
- Pursuant to a trust or nominee arrangement
- By way of pledge or encumbrance of shares
For a valid transfer of shares of stock, the
requirements are as follows:
- There must be delivery of the stock certificate
- Certificate must be endorsed by the owner or
his attorney-in-fact or other legally authorized
to make the transfer
- To be valid as against third persons, the
transfer must be recorded in the books of the
corporation
- **A stock certificate must be delivered AND
its delivery must be coupled with an intention
of constituting the person to whom the stock
is delivered the transferee thereof
- ** The person to whom the stock certificates
are endorsed must be a bona fide transferee
and for value
Sales and other dispositions of shares of stock
must be registered in the STB to:
- Enable the corporation to know at all times
who are the actual stockholders
- Afford the corporation an opportunity to
object or refuse its consent to such transfer
when it has claims against such shares
- To avoid fictitious or fraudulent transfers
2-fold purpose or registration:
- To enable the transferee to exercise all the
rights of a stockholder, including the right to
vote and be voted for
- To inform the corporation of any change in
the ownership so that it can ascertain the
persons entitled to the rights and subject to
the liabilities of a stockholder
Mergers and Consolidations—circumstances
wherein the purchaser-corporation is held liable
for the debts of the selling corporation:
- Purchasers expressly or impliedly agree to
assume the debts
- Where the selling corporation fraudulently
enters into the transactions to escape liability
for those debts
- Where the purchasing corporation is merely a
continuation of the selling corporation
- Where the transaction amounts to a
consolidation or merger
Types of Acquisitions/Transfers:
- Asset-Only Level
- Business Enterprise Level
- Equity Level
Contents of the plan of merger:
- The names of the corporations proposing to
merge and consolidate—the constituent
corporations
- The terms of the merger or consolidation and
the mode of carrying the same into effect
- A statement of changes, if any, in the articles
of incorporation; and, with respect to the
consolidated corporation in case of
consolidation, all the statements required to
be set forth in the articles of incorporation for
corporations under the Corporation Code
- Other provisions with respect to the proposed
merger or consolidation as are deemed
necessary or desirable
Articles of Merger or Consolidation Contents:
- The plan of merger or the plan of
consolidation
- As to stock corporations, the number of
shares outstanding, or in the case of non-
stock corporations, the number of members
- As to each corporation, the number of shares
or members voting for and against such plan,
respectively
Effects of Merger or Consolidation:
- The constituent corporations shall become a
single corporation which, in case of merger,
shall be the surviving corporation; and in case
of consolidation, shall be the consolidated
corporation designated in the plan of
consolidation
- The separate existence of the constituent
corporation shall cease, except that of the
surviving corporation or the consolidated
corporation
- The surviving or consolidated corporation
shall posses all the rights, privileges,
immunities and powers and shall be subject to
all the duties and liabilities of a corporation
organized under this Code
 - The surviving or consolidated corporation
shall possess all the rights, privileges,
immunities and franchises of each constituent
corporations; all the property and all
receivables; and other interests are deemed
transferred
- Surviving or consolidated corporation shall be
responsible and liable for all the liabilities and
obligations of each of the constituent
corporations; and any pending claim, action or
proceeding brought by or against any of such
constituent corporations may be prosecuted
by or against the surviving or consolidated
corporation
Requisites for a valid merger:
- Approval by the SEC of the articles of merger
- Must have been duly approved by a majority
of the respective stockholders of the
constituent corporations
- Shall be effective only upon the issuance by
the SEC of a certificate of merger
- Effectivity date of the merger is crucial for
determining when the merged or absorbed
corporation ceases to exist; and when its righs,
privileges, properties as well as liabilities pass
on to the surviving corporation
Methods of voluntary dissolution:
- Where no creditors are affected by the
dissolution, by an administrative application
for dissolution filed with the SEC
- Where creditors are affected by dissolution, by
a formal petition for dissolution filed with the
SEC, with due notice and hearing to be duly
conducted
- Shortening of corporate term by the
amendment of the articles of incorporation
Grounds for Involuntary Dissolution:
- Fraud in procuring its certificate of
registration
- Serious misrepresentation as to what the
corporation can do or is doing to the great
prejudice of or damage to the general public
- Refusal to comply or defiance of any lawful
order of the Commission restraining
commission of any acts which would amount
to a grave violation of its franchise
- Continuous inoperation for a period of at
least 5 years
- Failure to file by laws within the required
period
- Failure to file required reports in appropriate
forms as determined by the Commission
within prescribed period
Requisites of a Close Corporation:
- All the corporation’s issued stock of all
classes, exclusive of treasury shares, shall be
held of record by not more than 20
- All the issued stock of all classes shall be
subject to one or more specified restrictions
on transfer
- The corporation shall not be listed in any
stock exchange or make any public offering of
any of its stock
- **Notwithstanding the foregoing, a
corporation shall not be deemed a close
corporation when at least 2/3 of its voting
stock is owned or controlled by another
corporation which is not a close corporation
The AOI of a close corporation may provide that
the business of the corporation shall be managed
by the stockholders of the corporation rather than
the BOD. So long as this provision continues in
effect:
- No meeting of stockholders need be called to
elect directors
- The stockholders of the corporation shall be
deemed to be directors for the purpose of
applying the provisions
- The stockholders of the corporation shall be
subject to all liabilities of directors
When may a close corporation refuse to register
the transfer of stock in the name of the
transferee?
Whenever any person to whom stock of a close
corporation has been issued or transferred has, or is
conclusively presumed under this section to have
notice of either:
- That he is a person not eligible to be a holder
of stock of the corporation
- That the transfer of the stock to him would
cause the stock of the corporation to be held
by more than the number of persons
permitted by its AOI
- That the transfer of stock is in violation of a
restriction on transfer of stock
Any action by the directors of a close corporation
without a meeting shall nevertheless be deemed
valid if:
- Before or after such action is taken, written
consent thereto is signed by all the directors
 - All the stockholders have actual or implied
knowledge of the action and make no prompt
objection thereto in writing
- The directors are accustomed to make
informal action with the express or implied
acquiescence of all the stockholders
- All the directors have express or implied
knowledge of the action in question and none
of them make prompt objection thereto in
writing
Arbitration powers of the SEC in case of a
deadlock in a close corporation:
- Cancelling or altering any provision contained
in the AOI, by-laws, or any stockholder’s
agreement
- Cancelling, altering or enjoining any resolution
or act of the corporation or its BOD,
stockholders, or officers
- Directing or prohibiting any act of the
corporation or its BOD, stockholders,
officers, or other persons party to the action
- Requiring the purchase at their fair value the
shares of any stockholder, either by the
corporation regardless of the availability of
URE in its books or by other stockholders
- Appointing a provisional director*
- Dissolving the corporation
- Granting such other relief as the
circumstances may warrant
Summary of Rulings on Doing Business:
- If a foreign corporation does business in the
Philippines without a license, it cannot sue
before Philippine courts
- If a foreign corporation is not doing business
in the Philippines, it needs no license to sue
before Philippine courts on an isolated
transaction or on a cause of action entirely
independent of any business transaction
- If a foreign corporation does business in the
Philippines without a license, a Philippine
citizen may be estopped from challenging the
foreign corporation’s corporate personality in
a suit brought before the Philippine courts
- If a foreign corporation does business in the
Philippines with the required license, it can
sue before Philippine courts on any
transaction
“Doing business” shall include:
- Soliciting orders, service contracts, opening
offices, whether called liaison offices or
branches
- Appointing representatives or distributors
domiciled in the Philippines or who in any
calendar year stay in the country for a period
totaling 180 days or more
- Participating in the management, supervision
or control of any domestic business, firm,
entity or corporation in the Philippines
- Any other act or acts that imply a continuity
of commercial dealings or arrangements, and
contemplate to that extent the performance of
acts or works, or the exercise of some of the
functions normally incident to, and in
progressive prosecution of, commercial gain
or of the purpose and object of the business
organization
“Doing business” shall NOT include:
- Mere investment as a shareholder by a foreign
entity in domestic corporations duly registered
to do business, and/or the exercise of rights
as such investor
- Having a nominee director or officer to
represent its interests in such corporation
- Appointing a representative or distributor
domiciled in the Philippines which transact
business in its own name and for its own
account
- Publication of a general advertisement
through any print or broadcast media
- Maintaining a stock of goods in the
Philippines solely for the purpose of having
the same processed by another entity in the
Philippines
- Consignment by a foreign entity of equipment
with a local company to be used in the
processing of products for export
- Collecting information in the Philippines
- Performing services auxiliary to an existing
isolated contract of sale which are not on a
continuing basis (such as installing machinery
it has manufactured, servicing the same,
training domestic workers to operate it and
similar incidental services)