Corpo Reviewer Salazar
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CORPORATION LAW REVIEWER. ATTY DICK SALAZAR. SAN BEDA ALABANG...
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I. INTRODUCTION A. Laws Governing Corporations Before the Corporation Code
1. Code Code of Commerce Commerce Artic Articles les 151 151 to 159 of the the Spanish Spanish Code Code of Commerce of 1885 Benguet Benguet Consolidated Consolidated Mining Co. v. Pineda, 98 Phil. 7 !9"#$. !9"# $. The enti entit% t% &as &as then then 'no& 'no&n n as (so) (so)ie ieda dade des s anon anoni* i*as as(( and and not not as ()o+o+ations(. PROPRO-IB IBIT ITIO ION N AAIN AIN/T /T 01T0 01T0N/ N/IO ION N O2 CORP CORPOR ORAT AT0 0 01I/ 01I/T0 T0NC NC0 0 B3 AM0ND M0NDM0 M0NT NT O2 T-0 T-0 ORI ORIIN INA4 A4 ARTI ARTIC4 C40/ 0/,, APP4ICAB40 TO TO (/OCI0DAD0/ ANONIMA/,(5 ANONIMA/,(5 The +ohi6ition )ontained in se)tion 8 o A)t No. "9, against etending the e+iod o )o+o+ate eisten)e 6% a*end*ent a+ti)les, &as intended to al%, and does al% to so)iedades anoni*as, al+ead% o+*ed, o+gani:ed and eisting, at the ti*e o the ee)tivit% o the Co+o+ation 4a& !A)t "9$ PRO-IBITION ;A4ID AND IMPAIR/ NO ;0/T0D RI-T5 The ao+esaid ao+esaid statuto+% +ohi6ition +ohi6ition is valid and i*ai+s i*ai+s no vested +ights o+ )onstitutional inhi6ition &he+e no ag+ee*ent to etend the o+iginal e+iod o )o+o+ate lie &as e+e)ted 6eo+e the ena)t*ent o the Co+o+ation 4a&. 8H T-0 INT0R0/T O2 A /TOC-O4D0R, /TOC-O4D0R, I2 AN3, AN3, I/ INDIR0CT, INDIR0CT, CONTIN0NT AND INC-OAT0 INC-OAT0 IN /O 2AR A/ T-0 /TRUCTUR0 T-AT > , >
-a)ienda -a)ienda Cata%&aKManue Cata%&aKManuell ;illanueva ;illanueva vs. Rosa+io Rosa+io 4o+en:o, 4o+en:o, .R. No. 79# , Ma+)h 8 , >" A )o+o+ation is an a+tii)ial entit% )+eated 6% i)tion o la&. This *eans that &hile it is not a e+son, natu+all%, the la& gives it a distin)t e+sonalit% and t+eats it as su)h. A corporation* in the legal sense* is an individ'al with a personalit, that is distinct and separate from other pers person ons s incl incl'd 'din ing g its its stoc stoc-h -hol olde ders rs** offi office cers rs** dire direct ctor ors* s* repres representa entativ tives* es*and and other other 'ridi 'ridical cal entiti entities. es. The The la& la& vest vests s in )o+o+ations +ights,o&e+s, and att+i6utes as i the% &e+e natu+al e+sons
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&ith h%si)al eisten)e and )aa6ilities to a)t on thei+ o&n.2o+ instan)e, the% have the o&e+ to sue and ente+ into t+ansa)tions o+ )ont+a)ts. Be)ause a )o+o+ationLs eisten)e is onl% 6% i)tion o la&, it )an onl% ee+)ise its +ights and o&e+s th+ough itsdi+e)to+s, oi)e+s, o+ agents, &ho a+e all natu+al natu+al e+sons e+sons.. A )o+o+at )o+o+ation ion )annot sue o+ ente+ ente+ into into )ont+a )ont+a)ts )ts &ithou &ithoutt the*.A the*.A )onse=u )onse=uen)e en)e o a )o+o+ )o+o+ati ationL onLs s sea+at sea+ate e e+sonalit% is that )onsent 6% a )o+o+ation th+ough its +e+esentatives is not )onsent o the +e+esentative, +e+esentative, e+sonall% e+sonall%.. Its o6ligations, o6ligations, in)u++ed in)u++ed th+ough th+ough oi)ial oi)ial a)ts o its +e+esentatives, +e+esentatives, a+e its o&n. A sto)'holde+ sto)'holde+,, di+e)to+, o+ +e+esentative does not 6e)o*e a a+t% to a )ont+a)t Fust 6e)ause a )o+o+ation )o+o+ation ee)uted a )ont+a)t )ont+a)t th+ough that sto)'holde+, sto)'holde+, di+e)to+ di+e)to+ o+ +e+esentati +e+esentative.-en ve.-en)e, )e, a corporation/s representatives are generall, not +o'nd +, the terms of the contract e0ec'ted +, the corpora corporatio tion. n. #he, are not persona personall, ll, lia+le lia+le for o+liga o+ligatio tions ns and lia+ilities inc'rred on or in +ehalf of the corporation. iercing iercing the corporate corporate veil is warranted when 2the separate separate personalit, of a corporation3 is 'sed as a means to perpetrate fra'd or an illegal illegal act* or as a vehicle vehicle for the evasion evasion of an e0isting e0isting o+ligation* the circ'mvention of stat'tes* or to conf'se legitimate iss'es.8" It is also &a++anted &a++anted in alte+ ego )ases (&he+e a )o+o+ation )o+o+ation is *e+el% a a+)e sin)e it is a *e+e alte+ ego o+ 6usiness )onduit o a e+son, o+ &he+e the )o+o+ation is so o+gani:ed and )ont+olled and its aai+s a+e so )ondu)ted as to *a'e it *e+el% an inst+u*entalit%, agen)%, )onduit o+ adFun)t adFun)t o anothe+ anothe+ )o+o+ )o+o+ati ation. on.(( /u6i) 7, >@ #he r'le is settled that a corporation is vested +, law with a personalit, separate and distinct from the persons composing it. &ollowing this principle* a stoc-holder* generall,* is $# answera+le for the acts acts or lia+il lia+iliti ities es of the corporati corporation* on* and vice vice versa. versa. #he o+liga o+ligatio tions ns inc'rr inc'rred ed +, the corpora corporate te office officers* rs* or other other persons persons acting as corporate corporate agents* are the direct acco'nta+ilities acco'nta+ilities of the corporation corporation the, represent* represent* and not theirs. A director* director* officer or emplo,ee of a corporation is generall, $# held personall, lia+le for o+liga o+ligatio tions ns inc'rr inc'rred ed +, the corpora corporatio tion n and while while there there ma, +e instances instances where solidar, lia+ilities lia+ilities ma, arise* these circ'mstances circ'mstances are e0ceptional.
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In)identall%, &e have +uled that *e+e o&ne+shi 6% a single sto)'holde+ o+ 6% anothe+ )o+o+ation o all o+ nea+l% all o the )aital sto)'s o the )o+o+ )o+o+ati ation on is not, not, 6% itsel itsel,, a sui sui)ien )ientt g+ound g+ound o+ dis+ega dis+ega+di +ding ng the sea+ate sea+ate )o+o+ate )o+o+ate e+sonalit% e+sonalit%.. Othe+ than *e+e o&ne+shi o )aital )aital sto)'s, sto)'s, )i+)u*stan)es )i+)u*stan)es sho&ing that the )o+o+ation )o+o+ation is 6eing used to )o**it +aud o+ +oo o eisten)e o a6solute )ont+ol ove+ the )o+o+ation have have to 6e +ov +oven en.. In sho+ sho+t, t, 6eo 6eo+e +e the the )o+o )o+o+a +ate te i)t i)tio ion n )an )an 6e dis+ega+ded, alte+5ego ele*ents *ust i+st 6e sui)ientl% esta6lished. In -i5Ce*ent -i5Ce*ent Co+o+ation Co+o+ation v. Insula+ Ban' o Asia and A*e+i)a !late+ !late+ PCI5Ba PCI5Ban', n', no& 0=uita 0=uita6le 6le PCI5Ba PCI5Ban'$ n'$,, &e +euse +eused d to al% al% the ie+)ing the veil do)t+ine on the g+ound that the )o+o+ation &as a *e+e alte+ ego 6e)ause *e+e o&ne+shi 6% a sto)'holde+ sto)'holde+ o all o+ nea+l% all o the )aital sto)'s o a )o+o+ation does not, 6% itsel, Fusti% the dis+ega+d o the sea+ate sea+ate )o+o+ate e+sonalit% e+sonalit%.. In this )ited )ase, &e +uled that in o+de+ o+de+ o+ the g+ound g+ound o )o+o+a )o+o+ate te o&ne+s o&ne+shi hi to stand, stand, the ollo&in ollo&ing g )i+)u*stan)es should also 6e esta6lishedE !$ that the sto)'hold sto)'holde+s e+s had )ont+o )ont+oll o+ )o*le )o*lete te do*ina do*inatio tion n o the )o+o+ation?s inan)es and that the latte+ had no sea+ate eisten)e &ith +ese)t to the a)t )o*lained o !>$ that the% used su)h )ont+ol to )o**it a &+ong o+ +aud and !@$ the )ont+ol &as the +oi*ate )ause o the loss o+ inFu+%. A66ot 4a6o+ato+ies vs. Ala)a+a:, .R. No. 9>"7, ul% >@, >@ Do)t+i Do)t+ine ne di)tat di)tates es that that a )o+o+a )o+o+atio tion n is invest invested ed 6% la& &ith a e+sonalit% sea+ate and distin)t +o* those o the e+sons )o*osing it, su)h that, save o+ )e+tain e)etions, )o+o+ate oi)e+s &ho ente+ed into )ont+a)ts in 6ehal o the )o+o+ation )annot 6e held e+sonall% lia6le o+ the lia6ilities o the latte+. Pe+sonal lia6ilit% o a )o+o+ate di+e)to+, t+ustee, o+ oi)e+, oi)e+, along !although not ne)essa+il%$ ne)essa+il%$ &ith the )o+o+ation )o+o+ation,, *a% validl% atta)h, as a +ule, Onl% &hen !$ he assents to a atentl% unla&ul a)t o the )o+o+ation, o+ &hen he is guilt% o 6ad aith o+ g+oss negligen)e in di+e)ting its aai+s, o+ &hen the+e is a )onli )onli)t )t o inte+es inte+estt +esult +esulting ing in da*age da*ages s to the )o+o+ati )o+o+ation, on, its sto)'holde+s, o+ othe+ e+sons !>$ he )onsents to the issuan)e o &ate+ed do&n sto)'s o+ &ho, having 'no&ledge the+eo, does not o+th&ith ile &ith the )o+o+ate se)+eta+% his &+itten o6Fe)tion the+eto
!@$ he ag+ees to hold hi*sel hi*sel e+sonall% and solida+il% solida+il% lia6le &ith the )o+o+ation o+ !$ he is *ade 6% a se)ii) +ovision o la& e+sonall% ans&e+a6le o+ his )o+o+ate a)tion. ;t is a wellsettled r'le that +ad faith cannit +e pres'med and he who alleges +ad fa'th has the on's of proving it Develo*ent Ban' o the Philiines vs. -%d+o Resou+)es Cont+a)to+s Co+o+ation, R. No. #7#@, Ma+)h @, >@ A )o+o+ation is an a+tii)ial entit% )+eated 6% oe+ation o la&. It ossess ossesses es the +ight +ight o su))ess su))ession ion and su)h su)h o&e+s, o&e+s, att+i6ute att+i6utes, s, and +oe+ties e+essl% autho+i:ed 6% la& la& o+ in)ident to its eisten)e. It has a e+sonalit% sea+ate and distin)t +o* that o its sto)'holde+s and +o* that that o othe othe++ )o+ )o+o+ o+at atio ions ns to &hi) &hi)h h it *a% *a% 6e )onn )onne) e)te ted. d. As a )onse=uen)e o its status as a distin)t legal entit% and as a +esult o a )ons)ious )ons)ious oli)% de)ision to +o*ote +o*ote )aital )aital o+*ation, o+*ation, a )o+o+ation )o+o+ation in)u+s in)u+s its o&n lia6ilities lia6ilities and is legall% +esonsi6le +esonsi6le o+ a%*ent a%*ent o its o6ligations o6ligations.. In In othe+ &o+ds* &o+ds* +, virt virt'e 'e of the the sepa separa rate te 'ri 'ridi dical cal personalit, of a corporation* the corporate de+t or credit is not the de+t or credit of the stoc-holder. #his protection from lia+ilit, for shareholders is the principle of limited lia+ilit,. 0=uall% &ell5settled is the +in)ile that the corporate mas- ma, +e removed or the corporate veil pierced when the corporation is 'st an alter ego of a person or of ano ther corporation. 2o+ corporation. 2o+ +easons o u6li) oli)% and in the inte+est o Fusti)e, the )o+o+ate veil &ill Fustiia6l% 6e i*aled onl% &hen it 6e)o*es a shield o+ +aud, illegalit% o+ ine=uit% )o**itted against thi+d e+sons. /a+ona v. National National 4a6o+ Relations Relations Co**ission Co**ission # has has deined deined the scope of application of the doctrine of piercing the corporate veil: The do)t+ine o ie+)ing the )o+o+ate veil alies onl% in th+ee !@$ 6asi) a+eas, na*el%E $ deeat o u6li) )onvenien)e as &hen the )o+o+ate i)tion is used as a vehi)le o+ the evasion o an eisting o6ligation >$ +aud )ases o+ &hen the )o+o+ate entit% is used to Fusti% a &+ong, +ote)t +aud, o+ deend a )+i*e o+
10 Corporation Law 2016: JVL & JSD
@$ alte+ ego )ases, &he+e a )o+o+ation is *e+el% a a+)e sin)e it is a *e+e alte+ ego o+ 6usiness )onduit o a e+son, o+ &he+e the )o+o+ation is so o+gani:ed and )ont+olled and its aai+s a+e so )ondu)ted as to *a'e it *e+el% *e+el% an inst+u inst+u*ent *entali alit% t%,, agen)% agen)%,, )onduit )onduit o+ adFun)t adFun)t o anothe anothe+ + )o+o+ation. In this )onne)tion, )ase la& la%s do&n a threepronged threepronged test to determ determine ine the applica applicatio tion n of the alter alter ego theor, theor,** which which is also also -nown as the instr'mentalit, theor,* namel,: !$ Cont+ol, not *e+e *aFo+it% o+ )o*lete sto)' )ont+ol, 6ut )o*lete do*ination, not onl% o inan)es 6ut o oli)% and 6usiness +a)ti)e in +ese)t to the t+ansa)tion t+ansa)tion atta)'ed so that the )o+o+ate entit% as to this t+ansa)tion had at the ti*e no sea+ate *ind, &ill o+ eisten)e o its o&n !>$ /u)h /u)h )ont+ol *ust have 6een used 6% the deendant to )o**it +aud o+ &+ong, to e+etuate the violation o a statuto+% o+ othe+ ositive legal dut%, o+ dishonest and unFust a)t in )ont+avention o lainti?s legal +ight and !@$ The ao+esa ao+esaid id )ont+o )ont+oll and 6+ea)h 6+ea)h o dut% dut% *ust *ust have have +oi* +oi*ate atel% l% )aused the inFu+% o+ unFust loss )o*lained o. The i+st +ong is the (inst+u*entalit%( o+ ()ont+ol( test. This test +e=ui+ +e=ui+es es that that the su6sid su6sidia+ ia+% % 6e )o*le )o*letel tel% % unde+ unde+ the )ont+ol )ont+ol and do*ination o the a+ent. It ea*ines the a+ent )o+o+ation?s +elationshi &ith the su6sidia+%. su6sidia+%. It in=ui+es in=ui+es &hethe+ &hethe+ a su6sidia+% su6sidia+% )o+o+ation )o+o+ation is so o+gani:ed and )ont+olled and its aai+s a+e so )ondu)ted as to *a'e it a *e+e *e+e inst+u inst+u*en *ental talit% it% o+ agent agent o the a+ent a+ent )o+o+a )o+o+atio tion n su)h that its its sea+ate eisten)e as a distin)t )o+o+ate entit% &ill &ill 6e igno+ed. It see's to esta6lish &hethe+ the su6sidia+% )o+o+ation has no autono*% and the a+ent )o+o+ation, )o+o+ation, though a)ting th+ough the su6sidia+% su6sidia+% in o+* and aea+an)e, (is oe+ating the 6usiness di+e)tl% o+ itsel.( The se)ond +ong is the (+aud( test. This test +e=ui+es that the a+ent )o+o+ )o+o+ati ation? on?s s )ondu)t )ondu)t in using using the su6sid su6sidia+ ia+% % )o+o+a )o+o+atio tion n 6e unFust unFust,, +audulent o+ &+ongul. It ea*ines the +elationshi o the lainti to the )o+o+ation. It +e)ogni:es that ie+)ing is a+o+iate onl% i the a+ent )o+ )o+o+ o+at atio ion n uses uses the the su6s su6sid idia ia+% +% in a &a% &a% that that ha+* ha+*s s the the lai laint nti i )+edito+. )+edito+. As su)h, it +e=ui+es a sho&ing sho&ing o (an ele*ent o inFusti)e inFusti)e o+ unda*ental unai+ness.( The thi+d +ong is the (ha+*( test. This test +e=ui+es the lainti lainti to sho& that the deendant?s deendant?s )ont+ol, ee+ted in a +audulent, +audulent, illegal o+ othe+&ise othe+&ise unai+ *anne+ to&a+d to&a+d it, )aused the ha+* sue+ed. A )ausal )onne)tion )onne)tion
6et&een the +audulent )ondu)t )o**itted th+ough the inst+u*entalit% o the su6sidia+% su6sidia+% and the inFu+% sue+ed sue+ed o+ the da*age in)u++ed 6% the lainti should 6e esta6lished. The lainti *ust +ove that, unless the )o+o+ )o+o+ate ate veil is ie+)e ie+)ed, d, it &ill &ill have have 6een t+eated t+eated unFust unFustl% l% 6% the deendant?s ee+)ise o )ont+ol and i*+oe+ use o the )o+o+ate o+* and, the+e6%, sue+ da*ages. To su**a+i:e su**a+i:e,, ie+)i ie+)ing ng the )o+o+ )o+o+ate ate veil veil 6ased 6ased on the alte+ alte+ ego theo+% +e=ui+es the )on)u++en)e )on)u++en)e o th+ee ele*entsE )ont+ol o the )o+o+ation 6% the sto)'holde+ o+ a+ent )o+o+ation, +aud o+ unda*ental unai+ness i*osed on the lainti, and ha+* o+ da*age )aused to the lainti 6% the +audulent o+ unai+ a)t o the )o+o+ation. #he a+sence of an, of these elements prevents piercing the corporate veil. This Cou+t inds that none o the tests has 6een satisa)to+il% *et in this )ase. ;n appl,ing appl,ing the alter ego doctrine* doctrine* the co'rts are concerned concerned with realit, and not form* with how the corporation operated and the individ'al individ'al defendant@s defendant@s relationship relationship to that operation. operation. 97, Ma+)h #, >@ iven the sea+ate and distin)t legal e+sonalit% o A+) Cuisine, In)., the Cuen)as and Ta%a)ta) Ta%a)ta) la)'ed the legal e+sonalit% e+sonalit% to )lai* the da*ages sustained +o* the lev% o the o+*e+?s +oe+ties. #he in'r, complained of is th's primaril, to the corporation* so that that the the s'it s'it for for the the dama damage ges s clai claime med d sho' sho'ld ld +e +, the the corporation rather than +, the stoc-holders !@ 2let)he+, C%)loedia o Co+o+ation Co+o+ation . 977598$. 977598$. #he stoc-holders ma, not directl, claim those damages for themselves o+ themselves o+ that &ould +esult in the a+o+iation 6%, and the dist+i6ution a*ong the* o a+t o the )o+o+ate assets 6eo+e the dissolution dissolution o the )o+o+ation )o+o+ation and the li=uidation li=uidation o its de6ts and lia6ilities, so*ething &hi)h )annot 6e legall% done in vie& o se)tion # o the Co+o+ation 4a&, &hi)h +ovidesE No shall )o+o+ation shall *a'e o+ de)la+e an% sto)' o+ 6ond dividend o+ an% dividend &hatsoeve+ e)et +o* the su+lus su+lus +oits a+ising +o* its 6usiness, o+ divide o+ dist+i6ute its )aital sto)' o+ +oe+t% othe+ than a)tual +oits a*ong its *e*6e+s o+ sto)'holde+s until ate+ the a%*ent o its de6ts and the te+*ination o its eisten)e 6% li*itation o+ la&ul dissolution. In the +esent )ase, the plaintiff stoc-holders have +ro'ght the action not for the +enefit of the corporation +'t for their own +enefit* sin)e the% as' that the deendant *a'e good the losses o))asioned 6% his *is* *is*ana anage ge*e *ent nt and and a% to the* the* the the valu value e o thei thei++ +ese +ese)t )tiv ive e a+ti) a+ti)ia iatio tion n in the )o+o+ )o+o+ate ate assets assets on the 6asis 6asis o thei+ thei+ +ese) +ese)tiv tive e holdings. Clearl,* Clearl,* this cannot +e done 'ntil all corporate corporate de+ts* if ther there e +e an,* an,* are are paid paid and the the e0is e0iste tence nce of the corpo corpora rati tion on terminated +, the limitation of its charter or +, lawf'l dissol'tion in view of the provisions of section 1 of the Corporation Law.
5 -ei+s o 2e Tan U%, +e+esented 6% he+ hei+, Mauling U% 4i* vs. @ o >> Inte+national 0)hange Ban', .R. No. ##>8> 8@, 2e6+ua+% @, >@ 5 Pa+' -otel vs /o+iano, R No. 78, /ete*6e+ , >> old 4ine Tou+s vs. -ei+s o Ma+ia Con)e)ion 4a)sa, R No. "98, une 8, >> Ra*i+e:, et a4 vs. Ma+ 2ishing Co., In)., .R. No. #8>8, anua+%
@, >> 5 iao, et al. vs. N4RC, et a4, #7 /CRA 8 G>>H 5 P+in)e T+anso+t, In). vs. a+)ia, .R. No. #7>9, anua+% >, > Ma+) ll Ma+'eting, In). vs. oson, ##> /CRA @" G>H 5 -a)ienda 4uisita, In). vs. P+esidential P+esidential Ag+a+ian Ag+a+ian Reo+* Coun)il, ## /CRA ">" G>H G>H 5 u'an Inte+national Co+o+ation vs. -on. udge A*o+ Re%es, .R. No. 8>7>9, /ete*6e+ /ete*6e+ >9, > Continental Continental Ce*ent Co+. vs. Asea B+o&n Bove+i, #"9 /CRA @7 G>H 5 Pe+o+ated Mate+ials, In)., et a4 vs. Dia:, #@@ /CRA /CRA >"8 G>H G>H 5 ueensl ueensland5 and5To To'%o '%o Co**od Co**oditi ities, es, In). In). et a4 vs. eo+ge, #@ /CRA @ G>H 5 8 /CRA @ G>H 5 P+is*a Const+u)tion and Devt. Co+. vs. Men)have:, # /CRA "9 G>H 5 3a*a*oto vs. Nishino 4eathe+ Indust+ies, "" /CRA 7 G>8H 5 4i* vs. Cou+t o Aeals @>@ /CRA > G>H 5 test in dete+* dete+*ini ining ng the ali)a ali)a6il 6ilit% it% o the do)t+ine do)t+ine o ie+)i ie+)ing ng the veil veil o )o+o+ate i)tion. 5 4uu+ia -o*es, In). vs. Cou+t o Aeals, @> /CRA @" ! 999$ 999 $
otes( !$ Boral 8amages Q )annot 6e a&a+ded in avo+ o )o+o+ations 6e)ause the% do not have eelings and *ental state. The% *a% not even )lai* *o+al da*ages o+ 6es*i+)hed +eutation !NAPOCOR v. Phili B+othe+s O)eani), >$.-o&eve+, a )o+o+ation )an +e)ove+ *o+al da*ages unde+ A+t >>9 !7$ i it &as the vi)ti* o dea*ation !Piliinas B+oad)asting Net&o+' v. Ago Medi)al and 0du)ational Cente+, >"$. !>$ !>$ Criminal 9ia#ilit$ Q Q /in)e a )o+o+ation as a e+son is a *e+e legal i)tion, it )annot 6e +o)eeded against )+i*inall% 6e)ause it )annot )o**it a )+i*e in &hi)h e+sonal violen)e o+ *ali)ious intent is +e=ui+ed. C+i*inal a)tion is li*ited to the )o+o+ate agents guilt% o an a)t a*ounting to a )+i*e and neve+ against the )o+o+ation itsel !$ 8octrine of Separate Personalit$ E A )o+o+ation, )o+o+ation, uon )o*ing into eisten)e, is invested 6% la& &ith a e+sonalit% sea+ate and distin)t +o* those e+sons )o*osing it as &ell as +o* an% othe+ legal entit% to &hi)h it *a% 6e +elated. ! 3utivo /ons -a+d&a+e v. CTA, CTA, 9#$
12 Corporation Law 2016: JVL & JSD
Lia+ilit, for #orts and Crimes Al+edo Ching vs. the /e)+eta+% o usti)e, et a4, . R. No. #@7, 2e6+ua+% 2e6+ua+% #, ># /ingian, +. vs. /andigan6a%an /andigan6a%an .R. Nos. #"7759, #"7759, De)e*6e+ #, >" The 0e)utive /e)+eta+%, et al. vs. Cou+t o Aeals, et al., .R. No. @79, Ma% >", > 0d&a+d C. Ong vs. the Cou+t o Aeals and the Peole o the Philiines, .R. No. 98"8, A+il >9, >@ Naguiat vs. National 4a6o+ Relations Co**ission .R. No. #>@, Ma+)h @, 997 Philiine National Ban' vs. Cou+t o Aeals, et a4, .R. No. 45>7 "", Ma% 8, 978 " >
;t is created +, operation of law
Sec. 16, Art. XII, 1987 Constitution The Congress shall not, ecept #$ general law, provide for the formation, organi%ation, or regulation of private corporations& owned or controlled corporations ma$ #e created or esta#lished #$ special charters in the interest of the common good and su#+ect to the test of economic via#ilit$& Art. 44. The following are juriical !ersons" !ersons" 1! The State and its political su#divisions )! -ther corporations corporations,, institution institutions s and entities entities for pu#lic interest interest or purpose, created #$ law their personalit$ #egins as soon as the$ have #een constituted according to law .! Corporations, Corporations, partnerships partnerships and associations associations for private private interest interest or purpose to which the law grants a +uridical personalit$, separate and distinct from that of each shareholder, partner or mem#er& ./a!
otes: Me+e )onsent o the a+ties to o+* a )o+o+ation is not sui)ient. The /tate /tate *ust give give its )onsent )onsent eithe+ eithe+ th+ough th+ough a se)ia se)iall la& !in )ase )ase o gove+n*ent )o+o+ations$ o+ a gene+al la& !i.e., Co+o+ation Code in )ase o +ivate )o+o+ations$. A )o+o+ation )o*es into eisten)e uon the issuan)e o the )e+tii)ate o in)o+o+ation. Then and onl% then &ill it a)=ui+e Fu+idi)al e+sonalit% to sue and 6e sued, ente+ into )ont+a)ts, hold o+ )onve% +oe+t% o+ e+o+* an% legal a)t in its o&n na*e !4adia$.
A corpo corporat ration ion has has a right right of s'cces s'ccessio sion n
Sec. 11. . Cor!orate ter#. > A corporation shall eist for a period not eceeding fift$ /! $ears from the date of incorporation unless sooner dissol dissolved ved or unless unless said said period period is etende etended& d& The corpor corporate ate term term as originall$ originall$ stated in the articles articles of incorporati incorporation on #a$ %e e&tene for single instanc instance e #$ an !erios not e&ceeing fift$ '()* $ears in an$ single amendment of the articles of incorporation, incorporation , in accordance with this Code Provided, That no e&tension can %e #ae earlier than fi+e '(* $ears !rior to the original or su%seuent su%seuent e&!ir$ ate's ! unless there are +ustifia#le reasons for a n earlier etension as ma$ #e determined #$ the Securities and :change Commission&
Sec. 116. 116. -eligious -eligious societies. societies. > An$ religious societ$ or religious religious order, order, or an$ diocese, s$nod, or district organi%ation organi%ation of an$ religious denomination, sect or church, unless for#idden #$ the constitution, rules, regulations, or discipline of the religious denomination, sect or church of which it is a part, or #$ competent authorit$, ma$, upon written consent andDor #$ an affirmative vote at a meeting called for the purpose of at least two>thirds )D.! of its mem#ership, incorporate for the administration of its temporalities or for the management of its affairs, properties and estate #$ filing with the Securities Securities and :change :change Commission, Commission, articles presiding elder, elder, of incor!or incor!oratio ation n +erifie +erifie %$ the affia+i affia+it t of the presiding secretar$, or cler4 or other mem#er of such religious societ$ or religious order order,, or diocese diocese,, s$nod, s$nod, or distri district ct organi% organi%ati ation on of the religi religious ous denomination, sect or church, setting forth the following(
13 Corporation Law 2016: JVL & JSD
1& That the religious religious societ$ societ$ or religious religious order, or diocese, diocese, s$nod, or district organi%ation is a religious organi%ation of a religious denomination, sect or church )& That at least two>thirds )D.! of its mem#ership have given their written consent or have voted to incorporate, incorporate, at a dul$ convened meeting meeting of the #od$ .& That the incorporation of the religious societ$ or religious order, or diocese, diocese, s$nod, or district district organi%ation organi%ation desiring to incorporate incorporate is not for#idden #$ competent authorit$ or #$ the constitution, rules, regulations or discipline of the religious denomination, sect, or church of which it forms a part '& That the religious religious societ$ societ$ or religious religious order, or diocese, diocese, s$nod, or district organi%ation desires to incorporate for the administration of its affairs, properties and estate /& The place place where where the principa principall office office of the corporat corporation ion is to #e esta#lished and located, which place must #e within the Philippines and 6& The names, nationalities, and residences of the trustees elected #$ the religious religious societ$ or religious religious order, or the diocese, s$nod, or district organi%ation to serve for the first $ear or such other period as ma$ #e prescri#ed #$ the laws of the religious societ$ or religious order, or of the diocese, s$nod, or district organi%ation, the #oard of trustees to #e not less than five /! nor more than fifteen 1/!& 16a! ote: Its )ontinued eisten)e du+ing its stated te+* )annot 6e ae)ted 6% an% )hange in the *e*6e+s o+ sto)'holde+s o+ 6% an% t+anse+ o sha+es 6% a sto)'holde+ to a @+d e+son. !
;t has the powers* powers* attri attri+'tes +'tes and and properties properties e0pressl e0pressl, , a'thoried a'thoried +, law or incidental to its e0istence
:ver$ corpor corporati ation on Sec. 6. Cor!orat Cor!orate e !owers !owers an ca!acit$ ca!acit$.. > :ver$ incorporated under this Code has the power and capacit$( 1& To sue an %e sue in its corporate name )& -f succession #$ its corporate name for the period of time stated in the articles of incorporation and the certificate of incorporation .& To adopt and use a cor!orate seal
'& To a#en its its articles of incorporation in accordance with the provisions of this Code /& To ao!t #$>laws, #$>laws, not contrar$ to law, morals, or pu#lic polic$, and to a#en or re!eal the the same in accordance with this Code 6& In case of stoc4 corporations, to issue or sell stoc/s to su#scri#ers and and to sell stoc4 stoc4s s to su#scr su#scri# i#er ers s and to sell treasur$ treasur$ stoc/s stoc/s in accordance with the provisions of this Code and to a#it #e#%ers to the corporation if it %e a non0stoc/ cor!oration 2& To purchase, receive, ta4e or grant, hold, conve$, sell, lease, pledge, mortgage mortgage and otherwise otherwise eal with such real an !ersonal !ro!ert$, incluin incluing g securiti securities es an %on %ons s of other other cor!orati cor!orations ons , as th e transaction of the lawful #usiness of the corporation ma$ reasona#l$ and necessaril$ re3uire, su#+ect to the limitations prescri#ed #$ law and the Constitution 5& To enter into #erger or consoliation with other corporations as provided in this Code & To #a/e reasona%le onations , including those for the pu#lic welfare or for hospital, charita#le, cultural, scientific, civic, or similar purposes( Provided, That no corporation, domestic or foreign, shall give donations in aid of an$ political part$ or candidate or for purposes of partisan political activit$ 1& To esta%lish !ension, retire#ent, retire#ent, an other !lans for the #enefit of its directors, trustees, officers and emplo$ees and 11& To e&ercise such other !owers as #a$ %e essential or necessar$ to carr$ out its !ur!ose !ur!ose or !ur!oses !ur!oses as stated stated in the articl articles es of incorporation& NoteE A )o+o+ation has no o&e+ e)et those e+ess l% )one++ed on it 6% the Co+o+ation Code and 6% its a+ti)les o in)o+o+ation, those &hi)h *a% 6e in)ide in)identa ntall to su)h su)h )one+ )one++ed +ed o&e+s, o&e+s, those that that a+e i*lie i*lied d +o* +o* its eisten)e, and those +easona6l% ne)essa+% to a))o*lish its u+oses. In tu+n, a )o+o+ation ee+)ises said o&e+s th+ough its Boa+d o Di+e)to+s andKo+ andKo+ its dul% dul% autho+ autho+i:e i:ed d oi)e oi)e+s +s and agents agents.. !Mono !Mono+t +t -e+*an -e+*anos os Ag+i)ultu+al Dev. Co+. v. Mono+t III, >$.
14 Corporation Law 2016: JVL & JSD
R%ui)hi 3a*a*oto vs. Nishino 4eathe+ Indust+ies, In). and I'uo Nishino, .R. No. ">8@, A+il #, >8 Inte+national 0+ess T+avel Tou+s vs. Cou+t o Aeals, @7@ /CRA 7 !>>$ Re6e))a Bo%e+5Roas and uille uille+*o +*o Roas vs. -on. Cou+t Cou+t o Aeals Aeals and -ei+s o 0ugeni 0ugenia a ;. Roas, In)., .R. No. 8##, ul% , 99> C. Alternative &orms of B'siness $rganiations (%ifferentiated &rom a Corporation":
a+tne+shi *a% have o+ its o6Fe)t a se)ii) unde+ta'ing. It &ould see* the+eo+e that unde+ Philiine la&, a Foint ventu+e is a o+* o a+tne+shi and should thus 6e gove+ned 6% the la& o a+tne+shis. The /u+e*e Cou+t has ho&eve+ +e)ogni:ed a distin)tion 6et&een these t&o 6usiness o+*s, o+*s, and has held that that althou although gh a )o+o+ )o+o+ati ation on )annot )annot ente+ ente+ into into a a+tne a+tne+sh +shi i )ont+a) )ont+a)t, t, it *a% ho&eve+ ho&eve+ engage engage in a Foint Foint ventu+e ventu+e &ith &ith othe+s.( !. B'siness #r'sts 5 #r'sts 5
1. Single roprietorship 5 roprietorship 5 A o+* o 6usiness o+gani:ation &ith onl% one +o+ieta+% o&ne+ a single individual )ondu)ts 6usiness unde+ his o&n na*e.
Art. 144) 3CC '144 CC* A legal relation where#$ one person, called the Trustor, conve$s a propert$ in confidence to another, called the trustee, for the #enefit of a person called the #eneficiar$&
>. artnerships Q artnerships Q 5. Cooperatives 5 Cooperatives 5
Art. 1767 'Ci+il Coe* E$ the contract of partnership two or more persons #ind themselves to contri#ute mone$, propert$, industr$ to a common fund, with the intention of dividing the profits among themselves . i#ite 2artnershi! Q Art. 1844 'Ci+il Coe* A limited partnership is one formed #$ two or more persons under the provisions of the following articles, having as mem#ers one or more general partners and one or more limited partners& The limited partners as such shall -T #e #ound #$ the o#ligations of the partnership&
Sec. , -.A. 3o. 698 , are dull$ registered association of persons with a common #ond of interest, interest, who have voluntaril$ voluntaril$ +oined together together to achiev achieve e lawful lawful common common social social and economi economic c end, end, ma4ing ma4ing e3uita#l e3uita#le e contri#utions to the capital re3uired and accepting a fair share of the ris4s and #enefit #enefits s of the underta underta4in 4ing g in accorda accordance nce with with the univer universal sall$ l$ accepted cooperative principles& Benn% -ung vs. BPI 2inan)e Co+o+ation, .R. No. 8>@98, ul% >, >
. Do int )ent' res Q res Q III. C4A//I2ICATION/ O2 CORPORATION/
Aur#ach v Sanitar$ ?ares, ?ares , De)e*6e+ ", 989 5 (gene+all% unde+stood to *ean an o+gani:ation o+gani:ation o+*ed o+ so*e te*o+a+% te*o+a+% u+ose. It is in a)t ha+dl% distinguisha6l distinguisha6le e +o* the a+tne+shi, a+tne+shi, sin)e thei+ ele*ents ele*ents a+e si*ila+ )o**unit% o inte+est in the 6usiness, sha+ing o +oits and losses, and a *utual +ight o )ont+ol. The *ain distin)tion )ited 6% *ost oinions in )o**on la& Fu+isdi)tions is that the a+tne+shi )onte*lates a gene+al 6usiness &ith so*e deg+ee o )ontinuit%, &hile the Foint ventu+e is o+*ed o+ the ee)ution o a single t+ansa)tion, and is thus o a te*o+a+% natu+e. This o6se+vation is not enti+el% a))u+ate in this Fu+isdi)tion, sin)e unde+ the Civil Code, a a+tne+shi *a% 6e a+ti)ula+ o+ unive+sal, and a a+ti)ula+
A. S#$CE C$st non>stoc4 oc4 corpor corporati ations& ons& Corporations Corporations which which have ca!ital stoc/ i+ie into shares and are holders s of such shares shares dividends dividends or authori5e to istri%ute to the holder allotments of the surplus profits on the #asis of the shares held are stoc4 corporations& All other corporations are non>stoc4 corporations&
15 Corporation Law 2016: JVL & JSD
otes: It is o+gani:ed o+ +oit. The gove+ning 6od% o a sto)' )o+o+ation is usuall% the Boa+d o Di+e)to+s !e)et in )e+tain instan)es, e.g. )lose )o+o+ations$.
0ven i the+e is a state*ent o )aital sto)', the )o+o+ation is still NOT a sto)' )o+o+ation )o+o+ation i dividends a+e NOT suosed suosed to 6e de)la+ed, that is, the+e is no dist+i6ution o +etained ea+nings. !CIR v. Clu6 2iliino de Ce6u, 9#>$
Reu6li) vs. Cit% o Pa+ana=ue, #77 /CRA ># G>>H
Unde+ /e). @ o the Co+o+ation Code, a )o+o+ation is dee*ed to have the o&e+ to de)la+e dividends. Thus, so long as the )o+o+ation has )aital sto)' and the+e is no +ohi6ition in its A+ti)les o In)o+o+ation o+ in its its 6%5la& 6%5la&s s o+ it to de)la+e de)la+e dividend dividends, s, su)h su)h )o+o+ )o+o+ati ation on is a sto)' sto)' )o+o+ation.
B. $S#$CE C$sto non>stoc4 c4 corpor corporati ations, ons, ecept as ma$ #e covered covered #$ specific provisions of this Title& n! Sec. 88. 2ur!oses. 2ur!oses. > on>stoc4 corporations ma$ #e formed or organi%ed organi%ed for charita#le, charita#le, religious, religious, educational, educational, professional professional,, cultural, cultural, fraternal, literar$, scientific, social, civic service, or similar purposes, li4e trade, industr$, agricultural and li4e cham#ers, or an$ com#ination thereof, su#+ect to the special provisions of this Title governing particular classes of non>stoc4 corporations& n! otes: 5All othe+ )o+o+ations a+e non5sto)' )o+o+ations !/e). @$ 5Not o+gani:ed o+ +oit. 5Its gove+ning 6od% is usuall% the Boa+d o T+ustees. The+e a+e t&o ele*ents o+ a sto)' )o+o+ation to eistE !$ Caital sto)' divided into sha+es, and !>$ An autho+it% to dist+i6ute to the holde+s o su)h sha+es, dividends o+ allot*ents o the su+lus +oits on the 6asis o sha+es held. !Test o thirds )D.! of its voting stoc4 or voting rights rights is owned or controlled controlled #$ another another corporation which is not a close corporation within the meaning of this Code& An$ corporation ma$ #e incorporated as a close corporation, ecept mining or oil companies, stoc4 echanges, #an4s, insurance companies, pu#lic utilities, educational institutions and corporations declared to #e vested with pu#lic interest in accordance with the provisions of this Code& The provisions of this Title shall primaril$ primaril$ govern close corporations( corporations( Provided, Provided, That the provisions provisions of other Titles of this Code shall appl$ suppletoril$ ecept insofar as this Title otherwise provides& /an uan /t+u)tu+al and /teel 2a6+i)ato+s, In)., >9# /CRA #@ G998H.
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