CHAPTER 3 NATURE, ATTRIBUTES AND  Looks at corporation simply as a creature of the State and
CLASSIFICATIONS OF CORPORATIONS of limited powers and capabilities, completely within the
ANALYZING THE STATUTORY DEFINITION OF THE
CORPORATION
Sec 2. 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.
A corporation is an artificial being created by operation of law.
 It possesses the right of succession and such powers,
attributes, and properties expressly authorized by law or
incident to its existence.
 It has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to
which it may be related. [PNB V ANDRADA]
PRESENT STATUTORY DEFINITION: Narrow and
antiquated view of the corporate vehicle
 Looks at only 1 aspect – relationship of corporation and
State
 Views corporation merely as a creature of law when
actually juridical personality is only 1 aspect of corporate
existence
THEORIES ON THE FORMATION OF A CORPORATION
1. Theory of Concession
TAYAG V BENGUET CONSOLIDATED – a corporation is an
artificial being, created by operation of law, and it owes its life
to the state, its birth being purely dependent on its will
 ITC, it is unlawful for the officers of a domestic corporation
to refuse to comply with the order of the probate court to
issue replacement certificate of stocks in place of those
in the possession of a foreign administrator, on the
assertion that such replacement would violate the
provisions of their by-laws, which allowed such
replacement when it is shown that the certificates of stock
were lost or destroyed
 A corporation as known to PH jurisprudence is a creature
without any existence until it has received the imprimatur
of the state acting according to law.
 It is logically inconceivable that it will have rights and
privileges of a higher priority than that of its creator.
ANG PUE & CO V SECRETARY OF COMMERCE – To
organize a corporation that could claim a juridical personality
of its own and transact business as such, is not a matter of
absolute right but a privilege which may be enjoyed only under
such terms as the State may deem necessary to impose
TORRES V CA – invalidated the act of the principal
stockholder of a family corporation in cancelling stock
certificates and issuing new ones and not coursing the same
through the Corporate Secretary.
 DOCTRINE: Since a corporation is a creature of the
State, it has no choice but to follow the laws
 All corporations, big or small, must abide by the
provisions of the Corporate Code. Being a simple
family corporation is not an exemption. Such corporations
cannot have rules and practices other than those
established by law.
THEORY OF CONCESSION
Although fiction cannot be created unless there is an
enterprise or group of individuals upon whom it may be
conferred, and in spite of the underlying contract among the
persons wanting to form the corporation, the grant is only by
virtue of a primary franchise given by the State; and it is within
the power of the State whether to grant it or to deny such grant
control of the State
 Applies within the juridical entity level, and the issues to
be resolved arise between the State and its
instrumentalities and the corporation
2. Theory of Enterprise Entity
ENTERPRISE THEORY
The corporate entity is viewed as taking its significance
primarily form the reality of the underlying enterprise, formed
or in formation
 The State’s approval of the corporate form sets up a
prima facie case that the assets, liabilities and operation
of the corporation are those of the enterprise
 Where corporate entity is defective or otherwise
challenged, its existence, extent and consequences may
be determined by the actual existence and operations of
the underlying enterprise, which by these very qualities
and operations acquires a “being” of its own recognized
by law
 There can be no corporate existence without persons
to compose it; there can be no association without
associates [ARNOLD V WILLETS]
The enterprise theory is meant to cover the situations
where the courts have either:
(1) Erected corporate personality which the State had not
granted
(2) Disregarded corporate personality where the State had
granted it
Both for the purpose of giving legal effect to factual
relationships set up between an economic entity and an
outsider
The corporation is emerging as an enterprise bounded by
economics, rather than as an artificial juridical personality
bounded by forms of words in a charter, minute books, and
books of account
 Theory draws its vitality form the fact that it is not legal
fiction alone that creates a corporate entity
 Any State-grant must presuppose the existence of
consent or common venture among those who will
form the corporation
 It would be against public policy for the State to prohibit
the pursuit of a legal business enterprise
 Once legal fiction is granted, and the entity acquires
juridical personality, it does not mean that the group as
distinguished from the juridical entity, becomes a creature
of the State but actually becomes a creature of its own
volition and maintains either singly or collectively among
its constituents their inherent rights under the law, which
may tend to project to their business dealings done
through the corporate entity
Once a corporate entity comes into being it has certain
rights almost independent of the whims of its creator
 Even though the corporation is a creature of the State, the
underlying relationship is still composed of moral
individuals who are not creatures of the State
BACHE & CO V RUIZ – A corporation is entitled to immunity
against unreasonable searches and seizures
 A corporation is but an association of individuals under an
assumed name and with a distinct legal entity
 In organizing itself as a collective body it waives no
constitutional immunities appropriate for such body
 Its property cannot be taken without compensation. It can
only be proceeded against by due process of law, and is
protected against unlawful discrimination
PHILIPPINE STOCK EXCHANGE V CA – Although SEC has
been entrusted the responsibility of enforcing all laws affecting
corporations and other forms of associations not otherwise
vested in some other government office, it did not have
absolute control on the management prerogatives of the
Board of Directors of the Philippine Stock Exchange
 This is because PSE is a corporation authorized by its
corporate franchise to engage in its proposed and duly
approved business. One of the PSE’s main concerns is
still the generation of profit for its stockholders.
 As to its corporate and management decisions, the
state will generally not interfere with the same.
TRI-LEVEL EXISTENCE IN THE CORPORATE SETTING
LEVELS OF CORPORATE EXISTENCE
(1) The corporation as a juridical entity or a juridical fiction,
which views the relationship between the State and the
corporation
(2) The corporate setting provides for contractual
relationships on 4 sublevels
(a) Between the corporation and its agents or
representatives to act in the real world, such as its
directors and its officers, governed suppletorily by
the Law on Agency
(b) Between the corporation and its shareholders or
members
(c) Between and among the shareholders in a common
venture
(d) Between the corporation and third parties or
“outsiders” which is essentially governed by Contract
Law, and Labor Law when it comes to relationship
with officers and employees
(3) The corporation becomes in its operation a business
economic unit, a business enterprise (or in Accounting a
“going concern”)
Corporations are composed of natural persons and the
legal fiction of a separate corporate personality is not a
shield for the commission of injustice and inequity
ARNOLD V WILLITS – SC applied the piercing doctrine
conceding the underlying association of individuals in a
corporate setting
 The proposition that a corporation has an existence
separate and distinct from its membership has its
limitations. It must be noted that this separate existence
is for particular purposes. It must also be remembered
that there can be no corporate existence without persons
to compose it; there can be no association without
associates
CORPORATION AS A CREATURE OF THE LAW
1. Constitutional Provisions
The power to create corporations is one of the attributes
of sovereignty
 The exercise of the power is legislative in character, and
that Legislature may, subject to the restrictions of the
Constitution, create a particular corporation by direct act,
or make provisions, by general law, for the organization
of corporations by natural persons upon compliance with
the prescribed conditions
Sec 16 Art XII 1987 CONSTI – Congress cannot, except by
general law, provide for the formation, organization or
regulation of private corporations
 Allows GOCCs to be created or established by special
charters in the interests of the common good and subject
to the test of economic viability
 A private corporation created pursuant to a special
law is a nullity and such special law is void for being
in violation of the Constitution [NDC V PHIL
VETERANS BANK]
In the PH jurisdiction, the Corporation Code is the general law
under which private corporations are organized pursuant to
the mandates of the Constitution
2. Civil Code Provisions
Art 44 Civil Code – Other than the State and its political
subdivisions, and other corporations, institutions and entities
for public interest or purpose, the law recognizes corporations,
partnerships and associations for private interest or purpose
to which are granted “a juridical personality, separate and
distinct form that of each shareholder, partner or member”
Art 45 Civil Code – the juridical persons organized as public
corporations are governed by the laws creating or recognizing
them, while private corporations are regulated by laws of
general application on the subject (i.e. Corporation Code)
3. Franchises of Corporations
J.R.S. BUSINESS CORP V IMPERIAL – Difference between
the primary franchise and secondary francise of a corporation
(a) Corporate or general franchises – franchise to exist as
a corporation
(b) Special or secondary franchises – certain rights and
privileges conferred upon existing corporations, such as
the right to use the streets of a municipality to lay pipes or
tracks, erect poles etc
 PRIMARY FRANCHISE (right to exist as such): Vested
in the individuals who compose the corporation and not in
the corporation itself and cannot be conveyed in the
absence of a legislative authority to do so
 SECONDARY FRANCHISE: Vested in the corporation
and may ordinarily be conveyed or mortgaged under a
general power granted to a corporation to dispose of its
property except such special or secondary franchises as
are charged with a public use
A private corporation registered with SEC is issued a
Certificate of Incorporation attaching the approved articles of
incorporation and by-laws which constitutes its charter
 A corporation’s charter usually constitutes its primary
franchise by virtue of its conferment upon the corporation
of a juridical personality under its corporate name; and
also a secondary franchise to engage in the business
enterprise provided in the purpose clause of its approved
articles of incorporation
ATTRIBUTES OF THE CORPORATION
1. Artificial Being
It is the fiction of law which creates the “person” of the
corporation, with the same attributes of an individual with full
capacity to enter into contractual relations.
VAZQUEZ V BORJA – A corporation is an artificial being
invested by law with a personality of its own, separate and
distinct from that of its stockholders and from that of its officers
who manage and run its affairs.
 The mere fact that its personality is owing to a legal fiction
and that it necessarily has to act thru its agents, does not
make the latter personally liable on a contract duly
entered into, or for an act lawfully performed, by them for
an in its behalf.
 The legal fiction by which the personality of a corporation
is created is a practical reality and necessity. Without it
no corporate entities may exists and no corporate
business may be transacted
INTERNATIONAL EXPRESS V 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 a general enabling act and the procedure and conditions
provided under the law for acquisition of such personality must
be complied with
2. Creature of the Law
The juridical existence of a corporation is dependent on the
consent or grant of the State
 A corporation cannot come into being by mere consent of
the parties; there must be a law granting it, and once
granted, forms the primary franchise of the corporation
That every corporation is created by operation of law, ensures
that it would have a strong juridical personality
 Unlike partnership which comes into being essentially by
meeting of the minds to undertake a common venture and
is dissolved by the will of the partners or by their death,
incapacity, withdrawal or insolvency, every corporation
receives a particular commission from the State (i.e. the
SEC certificate of incorporation) and it is only the State
that can effect its final dissolution
3. Right of Succession
A corporation has the capacity for continuous existence
despite the death or replacement of its shareholders or
members, for it has a personality separate and distinct form
those who compose it
WENSHA SPA V YUNG – Elementary is the rule that a
corporation is invested by law with a personality separate and
distinct from those of the persons composing it and from that
of any other legal entity to which it may be related
4. Creature of Enumerated Powers, Attributes and
Properties
CLASSIC CONCESSION THEORY
Once a corporation has been granted juridical personality by
the State, it is allowed and can legally exercise only such
powers granted by the law for its creation, as opposed to a
natural person, who has the ability to exercise any power and
enter into any business activity and the only limitation would
be that an individual has no right to enter into an act or
transaction that is contrary to law, morals and public policy
“creature of limited powers” – [Sec 45 Corporate Code
defines as ultra vires all acts or transactions effected outside
of the express, implied or incidental powers of the corporation]
MONFORT HERMANOS V MONFORT III – A A corporation
has no power except those expressly conferred on it by the
Corporation Code and those that are implied or incidental to
its existence. In turn, a corporation exercises said powers
through its board of directors and/or its duly authorized officers
and agents. Thus, it has been observed that the power of a
corporation to sue and be sued in any court is lodged with the
board of directors that exercises its corporate powers. In turn,
physical acts of the corporation, like the signing of documents,
can be performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of the
board of directors.
ADVANTAGES OF THE CORPORATE MEDIUM
1. Strong Juridical Personality
The corporation has a legal capacity to act and to contract as
a distinct person in its own name; and it has continuity of
existence
 VS PARTNERSHIP: A corporation has a strong legal
personality having a separate and distinct personality
from the members composing it, unaffected by death,
incapacity withdrawal, or insolvency of any of its
stockholders or members
 A corporation’s credit-worthiness and the certainty of its
long-term contractual dealings are strengthened by its
character as essentially a creature of law with a continuity
of existence
A corporation’s creation, organization, management and
dissolution are standardized as they are governed by a
general incorporation law
 The commercial practice and jurisprudential law
governing corporations tend to be more established and
reliable when compared to other media of doing business
 Reconstitution of SEC as the administrative agency
granted with both administrative and quasi-judicial
powers over controversies and issues governing
corporations and corporate matters, had allowed a more
efficient system focused on the special field and
consistent stream of decisions on Corporate Law coming
form a single agency
Subsec 5.2 RA 8799 – transferred all corporate cases and
issues to the jurisdiction of the courts of law, the tradition of
allowing a specialized tribunal to handle corporate matters
and issues ahs been retained
SC Admin Memo No. 00-11-03-SC: Only specially
designated RTC branches in each region district (Special
Commercial Courts) whose presiding judges are well versed
in corporate and commercial development are granted
exclusive jurisdiction to hear and decide corporate cases
2. Centralized Management
A corporation’s management is centralized in the Board of
Directors, which is granted all corporate powers under Sec 23
Corporation Code
 Shareholders are not agents, nor can they bind the
corporations
The corporate feature of centralized management imbues
the corporate medium with stable and efficient system of
governance and dealings with third parties
 This is because management prerogatives are
centralized in its Board of Directors
 Stockholders are bound by the management decisions
and transactions of the Board of Directors of the
corporation, whether like it or not
3. Limited Liability to Investors
LIMITED LIABILITY
SAN JUAN STRUCTURAL V CA - One of the advantages of
a corporate form of business organization is the limitation of
an investors liability to the amount of the investment.
 This feature flows from the legal theory that a corporate
entity is separate and distinct from its
stockholders. HOWEVER, the statutorily granted
privilege of a corporate veil may be used only for
legitimate purposes.
 On equitable considerations, the veil can be disregarded
when it is utilized as a shield to commit fraud, illegality or
inequity; defeat public convenience; confuse legitimate
issues; or serve as a mere alter ego or business conduit
of a person or an instrumentality, agency or adjunct of
another corporation.
The liability of investors in a corporation is limited to their
shares
 Every stockholder or member is assured limited liability.
 ALTHOUGH, through contractual stipulations, there are
many ways to go around the limited liability feature of a
corporation and to make major shareholders personally
liable form ore than their actual or promised investments
 EXAMPLE: In case of bank loans, bankers sometimes
demand additional security or may require in addition that
corporate officers make themselves solidarily liable
ADVANTAGE: Affords a more efficient means to encouraging
investments in the venture, and additional economic cost is
spent only when parties attempt to go around the limited
liability feature
4. Free Transferability of Units of Investment
GENERAL RULE: The shares of stocks can be transferred
without the consent of the other stockholders
 Assures investors of a ready mechanism to dispose of
their investments when their personal or financial
situation may require it
 Places more liquidity in the corporate setting and would
better encourage investors to channel their investments
through corporate vehicles
The system of free transferability of the units of
investments presumes a well-developed market for
shares of stocks
5. Advantages Over Unregistered Associations
A corporation established in accordance with the Corporation
Code has benefits or advantages over that of an unregistered
association
 It enjoys perpetual succession under its corporate name
and in an artificial form
 It has the capacity to take and grant property and contract
obligations
 It can sue and be sued in its corporate name as a juridical
person
 It has the capacity to receive and enjoy common grants
of privileges and immunities
 Its stockholders or members have generally no personal
liability beyond the value of their shares
Art 1755 Civil Code – associations and societies whose
articles are kept secret among the members and wherein
anyone of the members may contract in his own name with
third persons shall have no juridical personality and shall be
governed by the provisions relation to co-ownership
DISADVANTAGES OF THE CORPORATE MEDIUM
1. Complicated and Costly Formation and Maintenance
When compared to other media like the single proprietorship
or partnership, the corporation entails relatively high cost of
formation, operation and maintenance
 There is a greater degree of government control and
supervision than in other business organizations
 EXAMPLE: Corporate entities (especially banking and
insurance) are subjected to more reportorial and record-
keeping obligations under the Anti-Money Laundering
Act; likewise subjected to greater responsibilities to
expand stakeholders under regulatory rules on corporate
governance
2. Lack of Personal Element and Abuse of Corporate
Management
In large corporations, management and control are separated
from the powers and prerogatives of ownership with respect
to the corporate assets and the corporate enterprise, since
control is vested in the Board of Directors
 The stockholders’ voting rights have become theoretical
particularly in large corporations because of the use of the
proxies and widespread ownership
 In a practical sense, investors have very little voice
over the conduct of business of the corporation
Sec I(B) of original SEC Code of Corporate Governance,
SEC Memorandum Circular No. 2 (s. 2002) – in publicly held
companies, banking institutions and insurance companies, it
provides greater accountability on the part of the Board of
Directors and Management, an expanded scope of
stakeholders, and refocusing of corporate objectives and
responsibility beyond maximization of profits to a system
whereby shareholders, creditors and other stakeholders of a
corporation ensure that management enhances the value of
the corporation as it competes in an increasingly global market
place
3. Limited Liability Hits Innocent Victims
Limited liability feature has often been abused by business in
order to avoid having to provide adequate protection and
compensation for victims of the business ventures they
undertake
 Limited liability feature has tended to increase transaction
costs by the parties being forced to enter into contractual
schemes skirting the limited liability features of the
corporation when it is a party to a transaction
The abuse in the use of the limited liability feature has
been countered by the development in jurisprudence of
the doctrine of piercing the veil of corporate fiction
4. Double Taxation
The corporations has traditionally been subjected to
heavier taxation than other forms of business
organizations
 Profits of the corporation which are already subjected to
corporate income tax when declared and distributed as
dividends to stockholders are again subjected to further
income tax
 With thrust of Government to encourage local and foreign
investments in the country and to entice the use of
corporation as the vehicle for such, many of previous tax
laws that tend to make corporate vehicles expensive were
abolished
HOWEVER, with passage of Tax Reform Act 1997, there has
been imposed the following tax burdens on the means of doing
business through the medium of the corporation:
(a) Re-imposition of final tax on cash and property dividends
received by individuals from domestic corporations
(b) Imposition of minimum corporate income tax at 2% of
gross income on the 4th taxable year from
commencement of business operations, when the
minimum income tax is greater than the regular corporate
income tax
(c) Re-imposition of improperly accumulated earnings tax at
the rate of 10% of the defined improperly accumulated
taxable income
COMPARING THE CORPORATION WITH OTHER MEDIA
OF BUSINESS ENDEAVORS
1. Sole Proprietorships
SOLE PROPREITORSHIP
 EXCELLENT QUALITY APPAREL V WIN MULTIPLE-
RICH BUILDERS – The sole proprietorship is the
business enterprise not endowed with a separate juridical
personality
 Less saddled with many requirements and regulations to
which corporations are subjected to by law, rules and
regulations
 Owner is in command of his whole business and in the
event it goes bankrupt, he stands to lose as much as he
puts in and even more.
 Doctrine of limited liability does not apply.
 Work well only for carry-on simple or small business
endeavors, and do not function well in case of large
enterprises which require huge capital investments and
specialized management skills
 Represent the highest form of unlimited liability when
it comes to the sole proprietor because he has in his
person not only the prerogatives of management but
also the benefits of ownership, and the flow of
transactions and income is not limited within the
confines of the business enterprise
2. Partnerships
Art 1768 Civil Code – the partnership has a juridical
personality separate and distinct form that of each of the
partners, even in case of failure to comply with the
registrations requirement of said Code
MOST IMPORTANT DISTINCTION: LEGAL CAPACITIES
 CORPORATION: With the right of succession, it has a
stronger legal personality enabling it to continue despite
the death, incapacity, withdrawal or insolvency of any of
its stockholders or members
 PARTNERSHIP: The withdrawal, death, incapacity or
insolvency of any partners would automatically bring
about the dissolution of the partnership
PARTNERSHIP
 Partners are liable personally for partnership debts not
only to what they have invested in the partnership but
even as to their other properties
 Every partner is an agent of the partnership and by his
sole act, he can bind the partnership
 Although a partner has the power to sell or dispose of his
capital interest or proprietary interest, the buyer or
transferee does not assume transferor’s position as
partner, but merely has a right to demand form
accounting or distribution of the profits pertaining thereto
a. Does a Defective Incorporation Process Result into a
Partnership?
Q: If 5 or more persons agree to contribute money or property
to a common venture to be pursued in corporate medium, with
the intention of dividing the profits among themselves through
their agreed distribution of shares of stock, but the business
venture is pursued without a corporation being duly
incorporated and registered, would there have arisen at least
among the parties a contract of partnership?
A: NO –
(1) Both corporate and partnership relations are
fundamentally contractual relationships created by
the co-venturers who consent to come together
under said relationships
 If parties had intended to create an association
in the form of a corporation, a partnership cannot
be created in its stead since such is not within
their intent and does not constitute a part of their
consent to the contractual relationship
(2) The important differences cannot lead one to
conclusion that in the absence of a corporation, the
parties would have gone along with the partnership
ON THE OTHER HAND, there seems to be indications of a
contrary view to the above
 Sec 21 Corporate Code – when parties act and pretend
to be a corporation, when in fact none exist, the law
would impute to them a juridical personality to validate
the contract under the corporation by estoppel doctrine,
HOWEVER, it would treat the parties as partners since it
expressly makes them liable as general partners
PIONEER INSURANCE V CA – Such partnership relationship
does not exist for ordinarily persons cannot be made to
assume the relation of partners, as between themselves when
their purpose is that no partnership shall exist
 It shall be implied only when necessary to do justice
between the parties
 One who takes no part except to subscribe for stock in a
proposed corporation which is never legally formed does
not become a partner with other subscribers who engage
in business under the name of the pretended corporation,
so as to be liable as such in an action for settlement of
the partnership and contributions
 KEY ELEMENTS: INTENT AND PATICIPATION IN
BUSINESS ACTIVITIES
 DOCTRINE: When parties come together intending to
form a corporation but no corporation is formed due to
some legal causes, then:
(a) Parties who had intended to participate or actually
participated in the business affairs of the proposed
corporation would be considered as partners under a
de facto partnership, and would be liable as such in
an action for settlement of partnership obligations
(b) Parties who took no part except to subscribe to
shares of stock in the intended corporation do not
become partners with other subscribers who
engaged in business under the name of the
pretended corporation, and are not liable for action
for settlement of the alleged partnership contribution
 INVESTOR IN A PARTNERSHIP VENTURE: There is
clear intent to participate in the management of the
partnership business and for which limited liability is not
afforded by law
 INVESTOR IN A CORPORATION: Under the principal of
centralized management, there is no intent to participate
in the corporate operations and for which limited liability
is afforded by law
LIM TONG LIM V PH FISHING GEAR [OBITER] – Liabilities
of the parties adjudged under the corporation by estoppel
b. Lessons from the Limited Partnership Set-Up
Chap IV Title IX on “Partnership” Civil Code allows
establishment of limited partnerships with the unique feature
of providing limited liability for the designated limited partners
when the following elements are present:
(a) Proper registration of the articles of limited co-partnership
with the SEC, indicating who are designated as limited
partners
(b) Properly designated limited partners must contribute
money or property into the venture, and cannot contribute
service
(c) No limited partner can have his name in the company
name, nor participate in the management of the
partnership venture
If any of the rules are violated, the limited partner
becomes personally liable for partnership debts and
obligations beyond his investments into the partnership
Limited partners must assume and maintain the rule of
passive investors and the moment they assume management
prerogatives, they become personally liable
 Whenever the prerogatives of management of the
business enterprise are divorced form a person who
thereby is made to assume the passive role of being a
mere beneficiary of the profits flowing from the business
enterprise, he is accorded limited liability status
3. Business Trusts
BUSINESS TRUST: Created under the terms of a deed of
trust which is easier and less expensive to constitute for it is
not bounded by any legal requirement like the corporations
 It does not have a separate juridical personality, and is
governed by contractual doctrines and the common law
principles on trust
 A trust relationship does not come about simply by
execution of deed of trust for it is a contractual
relationship that requires the 4th requisite of delivery
 Trust is created when ownership over the property
subject thereof (the corpus) is split between the trustees
who assumes legal or naked title and the beneficiary who
has beneficial title
The basic set-up of a business trust, which splits naked title
from beneficial title in the corpus, is akin to the basic set-up in
corporate enterprise
 Naked title to the corporate properties are held by the
Board of Directors pursuant to Sec 23 of Corporation
Code, whereas the beneficial title to the corporate
enterprise is vested with the group of stockholders
 Board of Directors acts as trustees with full powers to
manage the corporate enterprise as the corpus of the
legal relationship with stockholders as the beneficiary
group with certain legal powers to enforce the fiduciary
obligations of the Board
4. Joint Ventures
AURBACH V SANITARY WARES – Joint venture is a form of
partnership and should be governed by the Law on
Partnership (include the features of separate juridical
personality, mutual agency among the co-venturers, and
unlimited liability)
KILOSBAYAN INC V GUINGONA JR – Joint venture is
defined as an association of persons or companies jointly
undertaking some commercial enterprise; generally all
contribute assets and share risks.
 It requires a community of interest in the performance of
the subject matter, a right to direct and govern the policy
in connection therewith, and duty, which may be altered
by agreement to share both in profit and losses.
5. Cooperatives
COOPERATIVE: An autonomous and duly registered
association of persons, with a common bond of interest, who
have voluntarily joined together to achieve their social,
economic and cultural needs and aspirations by making
equitable contributions to the capital required, patronizing their
products and services and by accepting a fair share of the risk
and benefits of the undertaking in accordance with universally
accepted cooperative principles
 Like an ordinary corporation, has a juridical personality
separate and distinct form its members, and has limited
liability feature
 Unlike ordinary corporations, they are governed by
principles of democratic control where the members in
primary cooperative shall have equal voting rights on a 1-
member-1-vote principle
o Board of Directors manages the affairs of the
cooperative, but it is the General Assembly of full
membership that exercised all the rights and
performs all the obligations of the cooperative and
are under the supervision and control of the
cooperative Development of Authority and not SEC
 Primary objective of every cooperative is self-help – to
help improve the quality of life of its members
ENTITLEMENT OF THE CORPORATION TO
CONSTITUTIONAL GUARANTEES
A corporation enjoys constitutional rights and it enjoys the
same protection that the law grants to individuals
1. Due Process and Equal Protection Clauses
SMITH BELL & CO V NATIVIDAD – SC acknowledges that
corporate entities do have a right to claim protection under
such constitutional rights
 The guarantees of the 14th amendment and so of the first
paragraph of the Philippine bill of rights are universal in
their application to all persons within the territorial
jurisdiction, without regard to any differences of race,
color or nationality
 The word “person” includes aliens. Private corporations
are “persons” within the scope of the guaranties in so far
as their property is concerned.
2. Unreasonable Searches and Seizures
STONEHILL V DIOKNO – The officers of a corporation form
which documents, papers and things were seized have no
cause of action to assail the legality of the seizures, regardless
of the amount of shares of stock or of the interest of each of
them in the said corporation
 Legality of a seizure can be contested only by the party
whose rights have been impaired
 The objection to an unlawful search is purely personal
and cannot be availed of by third parties, such as officers
of the corporation who interpose it for their personal
interests
BACHE V RUIZ – A corporation is but an association of
individuals under an assumed name and with a distinct legal
entity
 In organizing itself as a collective body it waives no
constitutional immunities appropriate for such body
 Its property cannot be taken without compensation. It can
only be proceeded against by due process of law, and is
protected against unlawful discrimination
3. Right Against Self-Incrimination
BACHE V RUIZ – Denied that corporations have a right to
claim protection on the constitutional right against self
incrimination
 AMERICAN DOCTRINE: The privilege is a personal one,
applying only to natural individuals and a corporation may
be compelled to submit to the visitorial powers of the
State even if this results in disclosure of criminal acts of
the corporation
BATAAN SHIPYARD & ENGINEERING V PCGG – While an
individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not
follow that a corporation vested with special privileges and
franchises, may refuse to show its hand when charged with an
abuse of such privilege
LIABILITY OF CORPORATIONS FOR TORTS
The liabilities of the corporation for torts committed by its
agents must generally follow the rules provided by Law
on Agency:
(1) A corporation must be held liable for all the contracts and
default that arise form those entered into by its agent
within the scope of his authority, or even those outside
the scope of his authority, by which has been ratified by
the corporation through its Board of Directors
(2) The acting officer is solidarily liable with the corporation
for damages resulting from his negligence as a joint
tortfeasor
PNB V CA – A corporation is civilly liable in the same manner
as natural persons for torts because generally speaking, the
rules governing the liability of a principal or mater for a tort
committed by an agent or servant are the same whether the
principal or master must be a natural person or a corporation
and whether a servant or agent be a natural person or artificial
person
 A principal or master is liable for every tort which he
expressly directs or authorizes and this is just as true
of a corporation as of a natural person
 A corporation is liable whenever a tortuous act is
committed by an officer or agent under express direction
or authority from the stockholders or members acting as
a body or generally, form the directors as the governing
body
ARATEA V SUICO – Although the general rule is that directors
and officers of a corporation cannot be held personally liable
for loans that were extended clearly to the corporation, when
the officers who extracted the loan on behalf of the corporation
acted in bad faith or with gross negligence, they can be made
solidarily liable with the corporation. The acting officer is
solidarily liable with the corporation for damages resulting
form his negligence as joint tortfeasor
NAGUIAT V NLRC – The court held the corporate employer
liable for tort, including its officers who actively engaged in the
management or operation of the business
EMERGING DOCTRINE OF CORPORATE SOCIAL
RESPONSIBILITY
PROFESSIONAL SERVICES V CA – Corporation which
operate enterprise vested with public interest (i.e. operating a
hospital), assume certain legal relationship with members of
the public whom they invite to use its facilities, and thereby
become responsible for the negligent acts of even contracts
such as doctors who treat them in their facilities
 While in theory a hospital as a juridical entity cannot
practice medicine, in reality it utilizes doctors, surgeons
and medical practitioners in the conduct of its business of
facilitating medical and surgical treatment.
 Within that reality, three legal relationships
crisscross:
(1) between the hospital and the doctor practicing within
its premises;
(2) between the hospital and the patient being
treated or examined within its premises and
(3) between the patient and the doctor
 The exact nature of each relationship determines the
basis and extent of the liability of the hospital for the
negligence of the doctor
CRIMINAL LIABILITY IN THE CORPORATE SETTING
1. Policy Considerations
WEST COAST LIFE INS V HURD – Even though there were
various penal laws in the PH which corporations as such may
violate yet no provisions in the law relating to the practice and
procedure in criminal actions whereby a corporation may be
brought to court to be proceeded against criminally
 When it comes to criminal jurisdiction, our courts have no
common law jurisdiction or powers and being creatures
of statute have only those powers conferred upon them
by statute
PEOPLE V TAN BOON KONG – A corporation can act only
through its officers and agents, and where the business itself
involves a violation of the law, the correct rule is that all who
participate in it are liable
PEOPLE V CONCEPCION – When a criminal statute forbids
the corporation itself from doing an act, the prohibition extends
to the Board of Directors and to each director separately and
individually
SINGIAN V SANDIGANBAYAN – Although all corporate
powers are vested in the Board of Directors, this does not
mean that the officers of the corporation other than the board
of directors cannot be made criminally liable for their criminal
acts if it can be proven that they participated therein
ESPIRITU V PETRON CORP – The stockholders, being
investors in the corporation, with management being with the
Board of Directors, cannot be made personally liable from
crimes committed on behalf of the corporation unless they
personally participated in such acts
CRUZVALE INC V EDUQUE – Only corporate officers show
to have participated in the anomalous acts may be held
criminally liable
EXECUTIVE SECRETARY V CA – The existence of the
corporate entity does not shield from prosecution the
corporate agent who knowingly and intentionally causes the
corporation to commit a crime.
 The corporation obviously acts, and can act, only by and
through its human agents, and it is their conduct which
the law must deter.
 The employee or agent of a corporation engaged in
unlawful business naturally aids and abets in the carrying
on of such business and will be prosecuted as principal if,
with knowledge of the business, its purpose and effect,
he consciously contributes his efforts to its conduct and
promotion, however slight his contribution may be.
A crime cannot be imputed to a corporation, being a mere
artificial being without a mind, since the criminal intent as
an essential ingredient of a crime would be missing
 TIMES INC V REYES – No criminal action can lie against
an accused who is a corporation because of the lack of
the essential element of malice
2. Strange Pronouncement in Sia
SIA V PEOPLE – In the absence of an express provision of
law making the President liable for the criminal offense
committed by the corporation, the existence of a criminal
liability on his part may not be said to be beyond any doubt as
is the quantum of evidence required in criminal cases
SAMO V PEOPLE – Court convicted an individual liable for
estafa under a trust receipt transaction
ONG V CA – The Trust Receipts Law recognizes the
impossibility of imposing the penalty of imprisonment on a
corporation
 HENCE, if the entrustee is a corporation, the law makes
the officers or employees or other persons responsible for
the offense liable to suffer the penalty of imprisonment
CHING V SECRETARY OF JUSTICE – Trust Receipts Law
expressly makes the corporate entrusee personally liable for
the crime of estafa
3. Policy Divergence Between the Criminal and Civil
Aspects Arising from a Corporate Criminal Offense
While a corporate officer cannot hide behind the veil of
corporate fiction in order to evade the consequence of his
criminal act done in behalf of the corporation, the civil liability
arising therefrom is still measured form the determination of
whether there is basis to apply the doctrine of piercing the veil
of corporate fiction to make the acting corporate officer
personally liable for the debt incurred in behalf of the
corporation
CONSOLIDATED BANK V CA – It is hornbook law that
corporate personality is a shield against personal liability of its
officers – a corporate officer and his spouse cannot be made
personally liable under a trust receipt where he entered into
and signed the contract clearly in his official capacity
TUPAZ IV V CA – Corporate representatives who signed a
trust receipt in behalf of the corporation cannot be held
personally liable when there is no indication therein that they
guaranteed personally the payment of the corporation’s debts
COMETA V CA – Although a criminal case can only be filed
against the officers of a corporation and not against the
corporation itself, it does not follow that the corporation cannot
be a real-party-in-interest for the purpose of bringing a civil
action for malicious prosecution for the damages incurred by
the corporation for the criminal proceedings brought against
its officers
validly complain for libel or any other form of defamation
and claim for moral damages
MERALCO V TEAM ELECTRONICS –The exception to the
rule that a corporation is not entitled to moral damages is when
a corporation has a reputation that is debased resulting in its
humiliation in the business realm.
CRYSTAL V BPI – While the court may allow the grant of
moral damages to corporations, it is not automatically granted;
there must still be proof of the existence of the factual basis of
the damage and its causal relation to the defendant’s acts
 This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award
designated to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer
NATIONALITY OF CORPORATIONS

4. Corporate Criminal Recognized in the Anti-Money 1. Exploitation of Natural Resources

Laundering Law of 2001
Anti Money Laundering Act of 2001
Considers the corporation as an “offender” subject to criminal
prosecution and punishment
 OFFENDER: Any person who commits a money
laundering offense
 PERSON: Any natural or juridical person
 Sec 14 – penalty clause if offender is a corporation,
association, partnership or an juridical person
ENTITLEMENT TO MORAL DAMAGES
La Bugal-B’Laan Tribal Association v. Ramos 445 SCRA 1
(2004)*
Register of Deeds of Rizal v. Ung Sui Si Temple 97 Phil. 58
(1955)*
Roman Catholic Administrator of Davao, Inc. v. The LRC and
the Register of Deeds of Davao 102 Phil. 597 (1957)*
2. Owning and Operating Public Utilities
People v Quasha 93 Phil. 333 ((1953)*
Tatad v. Garcia, Jr. 243 SCRA 436 (1995)*

MAMBULAO V PNB – Since a corporation is an artificial 3. Mass Media

person, and cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral 4. Advertising Industry
shock or social humiliation, there would be no basis to grant
its recover of mutual damages 5. War-Time Test
 A corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral Filipinas Compañia de Seguros v Christem 89 Phil. 54 (1951)*
damages David Winship v. Philippine Trust Co. 90 Phil. 744 (1952)

ASSET PRIVITIZATION V CA – Under Art 2217 Civil Code, 6. Investment Test and the Grandfather Rule
moral damages include besmirched reputation which a
corporation may possibly suffer Palting v. San Jose Petroleum Inc. 18 SCRA 924 (1966)*
Unchuan v. Lozada 585 SCRA 421 (2009)*
ABSCBN V CA – Corporations are not entitled to recover any
form of moral damages 7. Policy of the Corporation Code on the Control Test
 Moral damages are in the category of an award designed
to compensate the claimant for actual injury suffered and CORPORATIONS DISQUALIFIED FROM OWNING
not to impose a penalty on the wrongdoer. ALIENABLE LANDS OF THE PUBLIC DOMAIN
 The award is not meant to enrich the complainant at the
expense of the defendant, but to enable the injured party Chavez v. Public Estate Authority 384 SCRA 152 (2002)*
to obtain means, diversion, or amusements that will serve Ayog v. Cusi 118 SCRA 492 (1982)*
to obviate the moral suffering he has undergone. It is Strategic Alliance Dev. Corp. v. Radstock Securities Ltd. 607
aimed at the restoration, within the limits of the possible, SCRA 413 (2009)*
of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. CLASSIFICATION OF CORPORATIONS
 The award of moral damages cannot be granted in favor
of a corporation because, being an artificial person and 1. In Relation to the State
having existence only in legal contemplation, it has no a. Public and Private Corporations
feelings, no emotions, no senses. It cannot, therefore,
experience physical suffering and mental anguish, which b. Distinctions Between Public and Private
can be experienced only by one having a nervous Corporations
system.
National Coal Co. v. Collector of Internal Revenue 46 Phil. 583
FILIPINAS BROADCASTING NETWORK V AGO MEDICAL – (1924)*
A juridical person may claim for moral damages arising from Cervantes v. Auditor General 91 Phil. 359 (1952)*
libel which expressly authorizes the recover of moral damages Philippine Society for the Prevention of Cruelty to Animals v.
in cases of libel, slander or any other form of defamation and Commission on Audit 534 SCRA 112 (2007)*
does not qualify whether the plaintiff is a natural or juridical
person. A juridical person such as a corporation can c. Quasi-Public Corporations
Marilao Water Consumers Association, Inc. v. Intermediate
Appellate Court 201 SCRA 437 (1991)*

d. Applicability of Civil Service Law

Boy Scouts of the Philippines v. NLRC 196 SCRA 176 (1991)*

PNOC-Energy Development Corp. v. Leogardo 175 SCRA 26
(1989*

2. As to Place of Incorporation
a. Domestic Corporations

b. Foreign Corporations

Filipinas Compania de Seguros v Christem 89 Phil. 54 (1951)

3. As to Legal Status
a. De Jure Corporation

b. Corporation de Facto

c. Corporation by Estoppel

d. Corporation by Prescription

Barlin v. Ramirez 7 Phil. 41 (1906)

4. As to Existence of Shares of Stocks

a. Stock Corporations

b. Non Stock Corporations

Collector of Internal Revenue v. Club Filipino 5 SCRA 321

(1962)*

5. As to Relationship of Management and Control

a. Holding Company

b. Affiliate Company

c. Parent and Subsidiary Companies