Study Guide 1 Questions and Answers

1. What is a corporation? Sec. 2, BP 68 to wit: "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." 2. What are the attributes of a corporation? Briefly explain each. The attributes are: 1. It is an artificial being. 2. It is created by operation of law. 3. It has the right of succession. 4. It has only the powers, attributes and properties expressly authorized by law or incident to its existence. 3. What is meant by the "doctrine of legal entity"? (p. 15, de leon) The company and its members are two separate/distinct entities. Doctrinally, a corporation is a legal or juridical person with a personality separate and apart from its individual stockholders or members and from any legal entity to which it may be connected or related. The stockholders or members who, as natural persons, are merged in the corporate body, compose the corporation but they are not the corporation." 4. Explain: "piercing the veil of corporate entity." (p 26, de leon) The doctrine that a corporation is a legal entity or a person in law, distinct from the persons composing it or any other corporation to which it may be related, is merely a legal fiction for purposes of convenience and to subserve the ends of justice. This fiction, therefore, cannot be extended to a point beyond its reason and policy. Peculiar situations or valid grounds may exist to warrant the disregard of its independent being and the piercing of the corporate veil. The above doctrine is applied only in three basic areas: 1. defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2. fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; 3. alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.

5. Distinguish between corporation and partnership?

1. manner of creation 2. number of incorporators 3. commencement of juridical personality 4. powers

5. management 6. effect of mismanagement

7. right of succession 8. extent of liability to third persons

9. transferability of interest

10. terms of existencce

PARTNERSHIP Created by mere agreement of the parties (Art. 1787) May be organized by only two persons (Art. 1767) From moment of execution of contract of partnership (Art. 1784) Exercise any power authorized by the partners provided it is not contrary to law, morals, good customs, public order or public policy (Art. 1306) When not agreed, every partner is an agent of the partnership (Art. 1803). A partner can sue a co-partner who mismanages (Art. 1794, 1806, 1809). A partner has no right of succession (Arts. 1828-1831, 1860) Partners (except limited partners) are liable personally and subsidiarily (sometimes solidarily) for partnership debts to third persons (Art. 1816, 1822-1824). Partner cannot transfer his interest in partnership so as to make the transferee a partner without the consent of all existing partners (Art. 1767, 1804) Any period stipulated by partners (Art. 1767, 1785)

11. firm name

Ltd partnership must append "Ltd." to its name (Art. 1844)

12. dissolution

Any time by will of any or all partners (Art. 1830: 1-2) Civil code

13. governing law

CORPORATION Created by law or by operation of law (Sec. 2, BP 68) Requires at least five persons (except sole proprietorship) (Sec. 10, BP 68) From date of issuance of certificate of incorporation by the SEC (Sec. 19, BP 68) Exercise powers only expressly granted by law or implied from those granted or incident to its existence (Sec. 2, 36, BP 68) Vested in board of directors or trustees (Sec. 23, BP 68). A suit a against a member of the BOD or BOT who mismanages must be in the name of the corporation (Sec. 23, BP 68) Has right of succession (Sec. 2, BP 68) Stockholders are liable only to the extent of the shares subscribed by them (Sec. 64, 37, BP 68) Stockholders have a general right to transfer shares without the prior consent of the other stockholders because a corp. is not based on this principle(Sec.63 , BP 68) Not exceeding 50 yrs. extendible to not more than 50 years in any one instance (Sec. 11, BP 68) Any name as long as not similar or same to any registered firm name (Sec. 18, BP 68) Consent of the state needed (Sec. 117-122, BP 68) Corporation code

6. WHAT ARE THE DIFFERENT CLASSES OF CORPORATIONS? BRIEFLY EXPLAIN EACH. Sec. 3, BP 68 (p. 55, de leon) "Corporations formed or organized under this Code may be stock or non-stock corporations. Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. All other corporations are non-stock corporations."

1. Stock corporation - is the ordinary business corporation created and operated for the purpose of making a profit which may be distributed in the form of dividends to stockholders on the basis of their invested capital. 2. Non-stock corporation - do not issue stocks and distribute dividends to their members; they are created not for profit but for the public good and welfare. OTHER CLASSIFICATIONS OF CORPORATIONS: (1) as to the NUMBER OF PERSONS WHO COMPOSE THEM: (a) Corporation aggregate or a corporation consisting of more than one member or corporator; or (b) Corporation sole or a special form of corporation usually associated with the clergy (Sec. 110). (2) as to whether they are for RELIGIOUS PURPOSES OR NOT: (a) Ecclesiastical corporation or one organized for religious purposes. Under the Code, religious corporations are classified into corporations sole and religious societies (Sec. 109, par. 2) or (b) Lay corporation or one organized for a purpose other than for religion. Lay corporations, in turn, may be either eleemosynary or civil. (3) as to whether they are for CHARITABLE PURPOSES OR NOT: (a) Eleemosynary corporation or one established for, or devoted to, charitable purposes or those supported by charity; or (b) Civil corporation or one established for business or profit, i.e., with a view toward realizing gains to be distributed among its members. (4) as to STATE UNDER OR BY WHOSE LAWS THEY HAVE BEEN CREATED: (a) Domestic corporation or one incorporated under the laws of the Philippines; or (b) Foreign corporation or one formed, organized, or existing under any laws other than those of the PHL. It includes multinational corporations created under the laws of another State (see Sec. 123). For tax purposes, a foreign corporation is further classified into resident or non-resident. (5) as to their LEGAL RIGHT TO CORPORATE EXISTENCE: (a) De jure corporation or a corporation existing in fact and in law; or (b) De facto corporation or a corporation existing in fact but not in law (Sec. 21). (6) as to whether they are OPEN TO THE PUBLIC OR NOT: (a) Close corporation or one which is limited to selected persons or members of a family (Secs. 96-105); or (b) Open corporation or one which is open to any person who may wish to become a stockholder or member thereto.

(7) as to their RELATION TO ANOTHER CORPORATION. (a) Parent or holding corporation or one which is so related to another corporation that it has the power, either directly or indirectly, through one or more intermediaries, to control or to elect the majority of the directors of such other corporation; (b) Subsidiary corporation or one which is so related to another corporation that the majority of its directors can be elected, either directly or indirectly, by such other corporation which thereby become its parent corporation. It is one in which another corporation owns at least a majority (i.e., more than 50%) of the shares and thus has control over its financial and/or operating policies; or (c) Affiliated corporation or one related to another by owning or being owned by common management or by a long-term lease of its properties or other control device. An affiliation exists between a holding or parent company and its subsidiary, or between two corporations owned or controlled by a third. (8) as to whether they are for PUBLIC (GOVERNMENT) OR PRIVATE PURPOSE: (a) Public corporations or those formed or organized for the government of a portion of the State for the general good and welfare; or (b) Private corporations or those formed for some private purpose, benefit, or end; it may either be a stock or non-stock corporation, government-owned or controlled corporation or quasi-public corporation. The Code eliminated the classification of corporations into public or private obviously for the reason that it applies only to private corporations. PRIVATE CORPORATIONS INCLUDE: (a) Government-owned or controlled corporations or those created or organized by the government or of which the government is the majority stockholder. e.g. GSIS, NPC, PNR (b) Quasi-public corporations or private corporations which have accepted from the State the grant of franchise or contract involving the performance of public duties but which are organized for profit. They have been defined also as corporations private in ownership but having an appropriate franchise from the State to provide for a necessity or convenience of the general public, incapable of being furnished through the ordinary channels of private competitive business and dependent for its exercise upon eminent domain or some agency of the government. They are private corporations that perform public service. (9) as to whether they are CORPORATIONS IN A TRUE SENSE OR ONLY IN A LIMITED SENSE: (a) True corporation or one which exists by statutory authority; or (b) Quasi-corporation or one which exists without formal legislative grant. It is an exception to the general rule that a corporation can exist only by authority of law. It may be: (b1) Corporation by prescription or one which has exercised corporate power for an indefinite period without interference on the part of the

sovereign power and which by fiction of law is given the status of a corporation or; (b2) Corporation by estoppel or one which in reality is not a corporation, either de jure or de facto, because it I so defectively formed, but is considered a corporation in relation to those only who, by reason of their acts or admissions, are precluded from asserting that it is not a corporation. This legal assumption is not good, however, as against the State but may arise only for purposes of private litigation